New EU-US Transatlantic Initiative on Sustainable Trade and Partnership for E-Mobility established

This makes little impression in the USA. The Europeans‘ options are limited. The Biden administration undoubtly is eager to redefine American leadership in confronting the threat of the climate crisis and set forth a new era of American innovation and ingenuity and drive the global clean energy economy forward – even if it invoke harms to Europe and other allies such as South Korea and Japan. The Inflation Reduction Act is aimed squarely at building a better America and delivering on President Biden’s vision to make sure the United States remains or will be the global leader in clean energy technology, manufacturing, and innovation. Many hailed the IRA as the most important piece of green legislation the world has ever seen, baking-in renewables, hydrogen and other key energy transition technologies to the growth of the planet’s largest economy. Congressional lawmakers have said that they crafted the law to boost U.S. jobs and production of electric vehicles benefiting North American manufacturers and not their overseas competitors.

With the passage of the Inflation Reduction Act—in combination with the Bipartisan Infrastructure Law and other actions—the Department of Energy (DOE) estimates that the United States will achieve a 40 percent reduction in economy-wide greenhouse gas emissions below 2005 levels by 2030. DOE estimates that the clean energy provisions of the Inflation Reduction Act and the Bipartisan Infrastructure Law together could reduce emissions by more than 1,000 million metrictons of CO2 e in 2030.

European leaders fear the Inflation Reduction Act will disadvantage European companies because, to qualify for the tax incentives, clean energy products often must be made in the United States or, in some cases, neighboring or ally nations. With three programs to grow the domestic supply chain for clean vehicles the IRA includes billions of dollars to support vehicle manufacturers looking to expand their domestic production of clean vehicles. The law also creates a new Advanced Manufacturing Production Credit for the domestic production and sale of qualified components for clean energy projects, including batteries and critical minerals. The IRA shall strengthen supply chains for everything from critical minerals to efficient electric appliances – within the USA or its free-trade partners. The European Union is not one of those partners.

NOTE:
On Thursday the Biden administration signaled some flexibility in how it would implement a revised tax credit for electric vehicles in the IRA. The Treasury Department, in a new white paper Anticipated Direction of Forthcoming Proposed Guidance on Critical Mineral and Battery Component Value Calculations for the New Clean Vehicle Credit published Thursday, indicated it would adopt an expansive definition of which countries have a “free trade agreement” with the United States. That could help some overseas automakers qualify for at least a portion of the credit that favors U.S. manufactured vehicles. Treasury and the IRS intend to issue proposed guidance regarding the critical mineral and battery component requirements in March of 2023.

„The term “free trade agreement” is not defined in the Inflation Reduction Act (or in any other statute). Treasury and the IRS expect to seek comment in the proposed guidance on what criteria should be used to identify free trade agreements for the purposes of the critical minerals requirement and expect to propose that these criteria include whether an agreement reduces or eliminates trade barriers on a preferential basis, commits the parties to refrain from imposing new trade barriers, establishes high-standard disciplines in key areas affecting trade (such as core labor and environmental protections), and/or reduces or eliminates restrictions on exports or commits the parties to refrain from imposing such restrictions, including for the critical minerals contained in electric vehicle batteries.“

For example, the new climate law requires that electric vehicles must be assembled in North America and have a battery that meets certain sourcing requirements. As per the Clean Vehicle Credit for consumers purchasing new qualifying clean vehicles, including battery electric, plug-in hybrid, or fuel cell electric vehicles the vehicle must meet certain standards for North American assembly, the battery’s components must meet certain standards for manufacturing or assembly, and the battery’s critical minerals must meet certain requirements for sourcing or processing in the United States or from trusted trade partners. As per the the Bonus Credit Amount for vehicles meeting critical minerals requirement the vehicle must contain a threshold percentage of critical minerals extracted or processed in the United States or in a country with which the United States has a free trade agreement, or recycled in North America. The critical mineral requirement will be met if the percentage of the value of the critical minerals in the vehicle’s battery that were extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or recycled in North America, is equal to or greater than 40 percent for a vehicle that is placed in service in 2023 after the date on which Treasury and the IRS issue proposed guidance. This required percentage increases annually to 50 percent in 2024, 60 percent in 2025, 70 percent in 2026, and 80 percent after 2026. Additional credit for vehicles requires that a threshold percentage of battery components be manufactured or assembled in North America. Starting in 2024, qualifying vehicles cannot have battery components manufactured or assembled by a foreign entity of concern. Starting in 2025, qualifying vehicles cannot contain critical minerals extracted, processed, or recycled by a foreign entity of concern. The battery component requirement will be met if the percentage of the value of the components in the vehicle’s battery that were manufactured or assembled in North America is equal to or greater than 50 percent, for a vehicle placed in service in 2023 after the date on which Treasury and the IRS issue proposed guidance. This required percentage increases to 60 percent in 2024 and 2025, 70 percent in 2026, 80 percent in 2027, 90 percent in 2028, and to 100 percent after 2028.

IN DEPTH:
Dealers and consumers can follow a two-step process to check whether a vehicle’s final assembly occurred in North America. First, the Department of Energy’s Alternative Fuels Data Center (AFDC) has developed a list of Model Year 2022 and 2023 electric vehicles that likely meet the North America final assembly requirement (https://afdc.energy.gov/laws/inflation-reduction-act). Second, to identify whether a specific vehicle’s final assembly occurred in North America, dealers and consumers should enter the 17-character Vehicle Identification Number (VIN) into the National Highway Traffic Safety Administration’s VIN Decoder tool (https://vpic.nhtsa.dot.gov/decoder). Please note that the Treasury Department released a preliminary list of which vehicles qualify for the credit on Thursday and which is expected to grow in coming days.

The EU has suggested other elements beyond EVs are also discriminatory, including credits for renewable electricity generation, clean electricity production, clean electricity investment and clean fuel. Further, it suggests the IRA provides discriminatory subsidies via tax credits on sustainable aviation fuel, clean hydrogen production and advanced manufacturing production. The new law could make it cheaper to produce low-carbon fuels, such as hydrogen and ammonia, in the United States than in nearly any other place, that may encourage companies to shift investment plans to the United States or relocate energy-intensive industries.

The Europeans face both understanding and incomprehension in the USA. The Europeans would be right to raise concerns about protectionism. But, after years of criticising the United States for being a laggard in climate action, it is being perceived as surprising that European leaders are condemning the country for investing too much in clean energy. Not America’s new climate law, but Europe’s lack of competitiveness without cheap Russian gas is said to be the reason for the European crisis. The IRA is seen as the latest action in the growing global trend of industrial policy in the same way aimed at boosting domestic industries, creating jobs and securing supply chains as the European Green Deal does. Whyle some analysts fear that two of the world’s biggest trading partners turn into a new economic war, others say, America’s new climate laws could initiate a cycle of competition in clean energy technologies that accelerates decarbonisation rather than lead to protectionist measures.

With the background of the EU concerns over the Inflation Reduction Act (IRA), top EU and US leaders met for the third EU-US Trade and Technology Council (TTC) meeting in Washington, DC.  In the course of that meeting the USA and the EU established a new Transatlantic Initiative on Sustainable Trade to identify actions in key areas of trade and environmental sustainability that support their shared goals of a green and sustainable future, and to increase transatlantic trade and investment.

As the largest trade and investment relationship in the world, the United States and the European Union are advancing projects that align with our shared values and promote a rules-based economic system.

Fact Sheet: U.S.-EU Trade and Technology Council Advances Concrete Action on Transatlantic Cooperation

The transatlantic initiative on sustainable trade shall enhance work across the TTC that strives to support the transition to low-carbon economies by identifying actions in key areas of trade and environmental sustainability that support the shared twin goals

• of a green and sustainable future and
• to increase transatlantic trade and investment.

The members intend to explore areas of cooperation to support these twin goals. That includes opportunities

• to measurably decarbonise the energy-intensive industries of the USA and EU and
• to facilitate the deployment of goods and services essential to the transition to more circular, and net-zero, economies.

As with the new initiative, the EU and US have an opportunity to work towards setting common principles around the use of green subsidies, the new initiative could prevent future trade disputes over green industrial policy and can leverage strong climate action on both sides of the Atlantic. European leaders could work with their U.S. counterparts on collaborative approaches to accelerate climate action, enhance energy security, help Europe cope with its energy crisis and reduce Its dependence on Russia.

While the impact of the IRA on European green industries demonstrates how trade disagreements between strong partners like the EU and US could undermine cooperation on climate, at the same time the EU-US Trade and Technology Council (TTC) shows how a strong partnership may work. The EU and US intend to develop in 2023 joint recommendations for government-funded implementation of electro-mobility charging infrastructure that aims to advance electric vehicle adoption in the European Union and the United States, as well as recommendations for future public demonstrations of Vehicle to Grid Integration pilots.

The JRC and ANL will publish joint EU-U.S. technical recommendations for government-funded implementation of charging infrastructures, with the aim of:

• bringing more certainty to public authorities and private investors;
• improving the quality of infrastructure;
• minimising trade barriers;
• increasing economies of scale and
• strengthening EU and U.S. industries.

To successfully improve standards and testing methods, the JRC and ANL will involve industry stakeholders in their pre-normative research. Stakeholder engagements include workshops and dialogues with vehicle
and charger manufacturers, energy companies, and regulators. This shall enable industry to develop new
business concepts for e-mobility.

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© Copyright by Dr. Elmar Bickert