Global Courant
A battle is unfolding in Washington over who will make the electric vehicles that the Biden administration sees as an important part of the transition to a carbon-neutral economy.
And some Canadians are taking sides in the debate with long-term consequences.
The particular focal point is the groundbreaking Inflation Reduction Act and the large tax credits American consumers get for buying an electric car.
The US government is now writing the rules to implement this law, perhaps the greatest legislative achievement of the Biden era.
The clash, in a nutshell, revolves around a question: what is the main objective here?
Is it to sell more electric vehicles faster, to accelerate the transition to a low-carbon economy?
Or is it to achieve the slower, more stable reindustrialization of North America — one that would reduce dependence on China in the long run and pull manufacturing here as part of what the White House has called it? Bidenomy?
That debate plays out as the U.S. Treasury Department studies public commentary as it designs its tax credits — which are worth up to $7,500 by car.
Canadians may remember this problem. It was a sore spot between Ottawa and Washington to an amicable settlement, with the law eventually giving preferential treatment to North American products.
A worker at the Jinyuan Company pours a rare earth metal into a mold in China’s Inner Mongolia Autonomous Region in late 2010. At that time, China stopped shipments to Japan due to a territorial dispute. (David Gray/Reuters)
Now the rest of the world wants to get in on that deal. Other countries and importing companies have fought to make their products eligible for those tax credits and advocate a broad interpretation of the law.
Their argument is both ecological and practical. They say meeting the climate goals is one rapid electrification of the fleet and you will not get there if the rules are so protectionist that virtual no cars are eligible for tax credits.
The counter argument invokes national security.
In short: Western countries are alarmingly dependent on China for industrial inputs that power our economy, such as critical minerals, and this law should change that.
Amid a renaissance in US manufacturing, the argument goes that the US cannot rely on China for its inputs.
Public commentators include Quebec
The Ministry of Finance has one interim design this spring and gave everyone until June 16 to weigh in on a series of highly technical review calls it must make.
Such appraisals relate to the definition of a commercial agreement, whether leased cars count as company cars (which qualify easily for honor), which minerals deserve protection and how to calculate the value of battery parts.
Taken together, these seemingly dazzling dilemmas have serious implications for everything from the environment to US alliances and national security, according to public comment submitted to the Treasury.
Among those urging regulators to tighten up are the Quebec government and a company based in BC and Quebec. Have both expressed concern in their submissions that the proposed rules are too permissive.
Manufacturing construction in the US has skyrocketed since last year, due to bills focused on semiconductor manufacturing and energy. What is not clear is how heavily the US will rely on its rival, China, for industrial inputs. (Joshua Roberts/Reuters)
It’s a plot twist from a year ago, when Canadians were outraged that the law was too strict – when Canada feared being completely left out of the credits.
Canadian battery technology manufacturer Nano One Materials Corp. states that the design rules are too broad. One complaint, for example, is that the law needs stricter rules for iron.
Iron makes up one-third of lithium iron phosphate (LFP) car batteries. The company says it needs the same protection as critical minerals or these US tax credits will end up subsidizing batteries mostly produced in China.
‘A big loophole’
“To me, that’s a big loophole. And it needs to be fixed,” Dan Blondal, CEO of Nano One, told CBC News.
“We will channel tax money to our competitors abroad.”
LFP technology reflects the history of electric vehicles.
It was actually partially developed decades ago in Quebecalso by publicly funded institutions – Hydro-Québec and the Université de Montréal.
But the technology never took off here. It eventually became mass production in China and patent fees were waived Chinese companies produce in your own country. Now those are patents expired precisely because LFP is gaining popularity.
Nano One will begin production this year in Candiac, Que., after construction partnerships with mining giant Rio Tinto, Volkswagen and energy storage company Our Next Energy.
Blondal calls the Inflation Reduction Act a rare opportunity to reduce dependence on a once famous rival, China cut mineral exports to Japan during a dispute.
“We have… a generational opportunity,” Blondal said. “Otherwise we will lose in terms of national security. We will give away jobs and we will perpetuate many of the environmental problems and greenhouse gas emissions…
Quebec also argues in its coercion that the rules, as currently framed, risk further entrenching US reliance on unreliable countries with state-funded companies – an unspoken allusion to China.
Sales of electric vehicles are increasing rapidly and they are expected to dominate the market within a few years. What is not clear: where car plants get their parts from. (IHS Global Insight, Goldman Sachs Research)
Their position has allies.
US domestic mining lobby warned in it coercion that rivals have industrial minerals in a stranglehold and that China will continue to control 70 percent of the battery supply chain through 2030.
The National Mining Association argued that the Biden administration’s current draft regulations are inconsistent with the aim of the legislation to reverse this trend.
“Implement (this law) to support Congress’s domestic procurement objective rather than find ways to undermine it,” the association said.
That strict approach has striking approval, from none other than the US Senator who delivered the critical swing vote that passed the law.
Among those who submitted comments was Senator Joe Manchin, who negotiated many of the key provisions of the bill before passing it.
In a signed letter, he listed several ways the Biden administration, in his view, strayed from the intent of the law.
Manchin: ‘Follow the law’
He believes that leased cars should not be regarded as company cars. He says Biden stretched definition of free trade agreements to include critical minerals deal signed with Japanand another one he’s busy drawing Europe.
And he suggested that, under a proposed phase-in period of at least two years, taxpayer money could go to batteries where only 25 percent meet Manchin’s target conditions.
Among those advocating for a strict interpretation of the law: Democratic Senator Joe Manchin, who helped write it. (Mike Blake/Reuters)
“My comment is simple,” Manchin wrote at the end of one Letter of 11 pages filled with technical complaints.
“Follow the law.”
The counter-argument of the administration is that the law is not always clear. There is an appraisal interview involved, such as what counts as a company car.
The counter-argument of climate
Proponents of the more generous application of tax credits cite the urgent threat of climate change.
They say meeting the U.S. Environmental Protection Agency’s target to account for electric vehicles will be a challenge two-thirds of light vehicles sold in the US by 2032.
The US will lag slightly behind, according to private sector forecasts IHS and Goldman Sachs And others.
Smoke from Canadian wildfires hovers over New York City this week. The climate crisis is one of the reasons for looser rules in tax credits, advocates argue to sell more electric cars faster. (Brendan McDermid/Reuters)
Policy design is important. EV projections to varypartly about what kind of incentives are passed by the government, including in the Inflation Reduction Act.
Some car manufacturers, such as Stellantisurged the administration to stay the course and create final rules that are as flexible as the draft version.
a lobby group for major international car companies that also produce in the US, said it welcomed the flexible stance in the design regulations.
“(This approach) will help more Americans better afford the switch to a clean vehicle of choice,” wrote Autos Drive America.
The final line should be out soon.
Then there is another related battle ahead. Starting next year, the Inflation Reduction Act will prohibit tax credits for batteries produced by a so-called foreign entity of interest.
An LFP battery pack for the Ford Mustang Mack. Ford is partnering with a Chinese supplier to build in the US It’s not clear what tax rules will apply here. (Rebecca Cook/Reuters)
Those details have yet to be defined.
So it’s unclear what that incoming rule will mean for U.S. automakers buying batteries from Chinese giant CATL.
For example, ford partners with CATL to produce in Michigan; Tesla already buys CATL batteries and is Reportedly is considering a US-based joint deal like Ford’s.
That uncertainty hangs over the industry. In the meantime, the smaller Canadian battery company, Nano One, says it’s watching closely.
