A Biden Bait-and-Switch on Electric Vehicles As Joe Manchin feared, Treasury is rewriting the Inflation Reduction Act’s green subsidy limits.
We interrupt the latest Donald Trump melodrama for a word from Biden Administration regulators. While the world isn’t watching, and certainly the press corps isn’t, regulators on Friday announced they are essentially rewriting last year’s Inflation Reduction Act so more electric vehicles will qualify for subsidies.
In return for his vote, West Virginia Sen. Joe Manchin insisted on numerous conditions for the IRA’s $7,500 EV tax credit. He wanted to encourage more U.S. manufacturing and ensure subsidies don’t go to the affluent. The law imposed an income limit to qualify for subsidies of $150,000 for individual EV buyers, as well as a price cap for vans, SUVs and pickups ($80,000), and sedans ($55,000).
To qualify for $3,750 of the credit, an increasing share of a vehicle’s battery minerals such as lithium and nickel also had be extracted or processed in the U.S. or in a country with which the U.S. has a free-trade agreement. The other half of the credit was supposed to be available only for vehicles in which a majority of its battery components are made in North America, starting at 50% this year and up to 100% by 2029.
Few cars currently on the market were expected to qualify for even half of the credit. Most minerals are mined and processed in countries with which we don’t have trade agreements, such as China, Indonesia and the Democratic Republic of Congo. Key battery components—namely, active anode and cathode materials—are mostly produced in China, Japan and South Korea.
The Treasury Department’s proposed rules for the tax credit drive a big-rig through Mr. Manchin’s conditions. EVs leased to consumers will be able to qualify for a separate commercial vehicle tax credit, which doesn’t entail sourcing, income or price restrictions. Dealers or auto finance companies could pocket the tax credits or pass them onto customers.
Treasury is also redefining “free trade agreements” to include one-off deals with countries that commit not to impose trade barriers on critical minerals. The White House struck such a deal with Japan this week and is negotiating deals with Europe to allay its leaders’ anger over the subsidy conditions.
Anode and cathode materials in batteries would also be treated as critical minerals rather than components. Treasury’s expansive definition of trade deals and battery components will enable more vehicles to qualify for both halves of the credit and all but blow up Mr. Manchin’s sourcing conditions. No wonder the Senator is angry.
“It is horrific that the Administration continues to ignore the purpose of the law which is to bring manufacturing back to America and ensure we have reliable and secure supply chains,” he said Friday. “It is a pathetic excuse to spend more taxpayer dollars as quickly as possible and further cedes control to the Chinese Communist Party in the process.”
This rewrite of the rules means that the real cost of the climate and energy subsidies in the IRA will be far more than the $391 billion that Democrats claimed when they passed the bill. Goldman Sachs estimated recently that the cost could be $1.2 trillion over 10 years.
Unions and progressives are also angry about the Administration’s one-off mineral trade agreements, which aren’t being submitted to Congress and don’t include stringent environmental and labor rules. Public Citizen, the leftwing lobby, warned that “dangerous, dirty mining corporations that violate human rights” could “‘launder’ their minerals in Japan before shipping to the United States.”
What did they expect? The Administration has made climate its paramount priority and knows fewer consumers will buy EVs without subsidies. The public can comment on the proposed rule for 60 days, and Mr. Manchin said his comment “is simple: stop this now—just follow the law.” We wish him luck, but don’t expect Team Biden to listen. They got what they wanted when the bill passed last year.
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