U.S. Treasury to release EV battery sourcing rules next week

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(C) Reuters. FILE PHOTO: Workers plug in an electric Ford Mustang Mach-e electric vehicle during a press event at the Ford Halewood transmissions plant in Liverpool, Britain, December 1, 2022. REUTERS/Phil Noble/File Photo
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By Nichola Groom

(Reuters) – The U.S. Treasury Department on Wednesday said it will release guidance next week on sourcing requirements for electric vehicle battery tax subsidies under President Joe Biden’s climate change law, the first in a string of highly anticipated rules to determine how broadly the credits can be used.

The auto, battery and clean energy industries have been awaiting guidance on complex questions governing eligibility for hundreds of billions of dollars of incentives in the Inflation Reduction Act, signed into law last year.

After outlining battery sourcing rules, officials said, Treasury will follow in the next couple of months with guidance around bonus tax credits for clean energy projects sited in fossil fuel-dependent communities, those built with domestically produced equipment, and those paying workers prevailing wages and employing apprentices.

It will also issue guidance on selling tax credits and making them refundable, which allows entities without tax liability to use them.

Treasury did not specify when the future guidance announcements would be made.

Many of the rules are aimed at weaning the United States off dependence on China, which dominates the global supply chains of products like EV batteries and solar panels. Those industries are key to Biden’s goal of decarbonizing the U.S. economy and fighting climate change.

The IRA specifices, for instance, that a $7,500 EV tax credit is only available to North American-assembled vehicles that meet certain local battery production and mineral extraction processing standards.

In December, Treasury decided not to issue proposed guidance on battery sourcing rules until March, effectively giving some EVs not meeting new requirements a few months of eligibility in 2023 before battery rules take effect. Senate Energy Chairman Joe Manchin harshly criticized that decision saying it “created an opportunity to circumvent stringent supply chain requirements.”

Half of the EV tax credit is contingent on at least 40% of the value of the critical minerals in the battery having been extracted or processed in the United States or a country with a U.S. free-trade agreement, or recycled in North America.

The other half requires manufacturing or assembly of at least 50% of battery components in North America.

Foreign suppliers have objected, saying their products would not qualify for the credits.