Sen. Joe Manchin (D-WV) will introduce legislation Wednesday designed to withhold tax credits from purchasers of electric vehicles if the models don’t comply with new manufacturing requirements passed in the green energy spending bill Democrats passed in August.
The bill from the Energy and Natural Resources Committee chairman, titled the American Vehicle Security Act, follows his weeks of hand-wringing and frustration at the Treasury Department for the delay in finalizing guidance on its implementation of the reimagined “clean vehicle” tax credits for consumer purchases.
Manchin’s bill would amend the Inflation Reduction Act, the $369 billion green energy and healthcare spending deal Manchin struck with Senate Majority Leader Chuck Schumer (D-NY), to prohibit the Treasury from issuing new consumer vehicle tax credits for clean vehicles that do not meet the law’s battery and battery material sourcing requirements. The legislation would strike language in the law tying the applicability of the requirements to the issuance of guidance from the Treasury, which has yet to be published.
“Retroactively starting January 1, no credit would be available for any vehicle that doesn’t satisfy the battery sourcing requirements,” a Democratic committee aide told reporters of the bill.
MANCHIN V. TREASURY: THE FIGHT OVER ELECTRIC VEHICLE TAX CREDITS EXPLAINED
The Treasury published information in December indicating the “anticipated direction” it would take on its final clean vehicle tax guidance, but it emphasized that the battery manufacturing requirements do not take effect until its final guidance is issued. The department intends to finalize guidance in March.
The battery and battery material sourcing requirements, some of Manchin’s signature provisions in the new law, were meant to go into force beginning in January, Manchin has said.
The Inflation Reduction Act amended federal law to provide maximum $7,500 tax credits for new consumer light-duty clean vehicles so long as they are both assembled in North America and meet battery manufacturing requirements, which are designed to support domestic industry and grow increasingly more strict by the year.
For example, beginning in 2023, at least 40% of the critical minerals in a vehicle’s battery must be extracted or processed within the United States or a country with which the U.S. has a trade agreement, or recycled in North America, while at least half of the battery’s components must be manufactured in North America. These percentages increase in following years.
Passage of the law set off a row between the U.S. and key trade partners in Europe and Asia, where governments and vehicle manufacturers complained they would be disadvantaged by the subsidies and lobbied the Biden administration to offer flexibility so their vehicles could be eligible for the tax credit.
The Treasury said in its December proposed guidance that it would take comment on how it should define “free trade agreement,” a term with no formal statutory definition, for the purposes of the battery manufacturing conditions.
The department also said it “[expects] to propose that the Secretary may identify additional free trade agreements for purposes of the critical minerals requirement going forward,” implying that it could extend the label to reach beyond the two dozen countries, which, according to the Office of the U.S. Trade Representative, currently have free trade agreements in force with the U.S.
South Korea, one of the countries to complain about the EV credits, is among those 20 free trade agreement countries, but Japan and the European countries that have also lobbied against the credits are not.
Manchin said after the Treasury released the information detailing how it’s planning to implement the credits that it “bends to the desires of the companies looking for loopholes and is clearly inconsistent with the intent of the law” and pledged to draft legislation to clarify congressional intent.
CLICK HERE TO READ MORE FROM THE WASHINGTON EXAMINER
Manchin came out against generous EV subsidies as they were promoted in the earlier iterations of Democrats’ reconciliation bill, known as Build Back Better, on the grounds that subsidizing sales alone would strengthen China and other competitors.
“What I will not do, I will not sign up [to transform] our energy and transportation system around EVs that have to be dependent on foreign supply chains,” he said. “I’m just not going to do it.”
President Joe Biden set a national EV sales target of half of all new vehicle sales by 2030.
