Lawmakers raise concerns over electric vehicle incentives, lithium battery production

January 12, 2024

As the U.S. continues efforts to incentivize domestic manufacturing for clean energy, some lawmakers are raising concerns about the eligibility of incentives for electric vehicles that contain components processed in foreign countries.

The Senate Committee on Energy and Natural Resources met Jan. 11 for a hearing to question the Department of Energy (DOE) and the U.S. Treasury weeks after the Treasury released proposed rules regarding the implementation of the Inflation Reduction Act’s clean vehicle tax credit, also known as Section 30D.

Under the Inflation Reduction Act, consumers and businesses can apply for certain incentives and tax credits when purchasing an electric vehicle. The Treasury recently restricted incentives starting in 2024 from vehicles with batteries that use processed or extracted critical minerals by a foreign entity of concern (FEOC).

These changes reduced the number of eligible vehicles for the clean vehicle credit from 40 to 13, Treasury Deputy Secretary Wally Adeyemo told lawmakers. However, the Treasury’s proposed rules also offer a transition phase through 2026 to allow automakers time to comply with the rules, which also require them to conduct due diligence to source where critical minerals are extracted and processed.

“What the automakers have also said is that they are achievable standards that we can use to make sure that they’re domesticating the [vehicle] selection and by making sure that any car that receives 30D credit has to be built here in North America,” he said. “It means that there is going to be built within our economy.”

Committee Chairman Sen. Joe Manchin, D-West Virginia, said the IRA intended to reduce the country’s debt, produce clean energy and lower the country’s reliance on foreign manufacturing. However, Manchin said he is concerned the transition phase for the critical minerals requirement could make it easier for foreign countries to take advantage of these incentives.

Manchin said the proposed rules also push back deadlines by two years for companies to adhere to provisions for not extracting or processing critical minerals for lithium-ion batteries from FEOCs, including China, where about 76% of lithium-ion battery production occurs.

“The IRA is the most transformative that we’ve ever done in my lifetime,” he said. “[Under] proposed guidance the administration has cut the IRA critical mineral sourcing percentage requirements in half, which is blatant violation of the numbers and Congress wrote directly into the law.”

He encouraged the Treasury to issue the final rules and close any loopholes that could allow for foreign companies to take advantage of the U.S.

“If they keep bending the rules we’re going to lose momentum that we can’t afford to let happen,” he said.

Despite concerns raised by other senators about who would benefit from EV incentives, DOE Deputy Secretary David Turk said domestic EV sales have quadrupled since President Joe Biden took office. Additionally, he said the government has leveraged over $157 billion of private investment in the EV supply chain. This has led to the construction of 340 new or expanded facilities and 136,000 new direct jobs from that investment.

“These tools you have given us are working,” he said.

Other senators said the U.S. has not done enough to take advantage of opportunities to mine for critical minerals domestically. Sen. Alex Padilla, D-California said a recent DOE report showed the Salton Sea could produce more than 3,400 kilotons of lithium to produce over 375 million EV batteries. The report was issued days before the announcement that several state and federal agencies are working to conserve water in the Salton Sea in Southern California to also prevent toxic dust from the sea’s exposed lakebed.

“The Salton Sea region has significant potential as a domestic source of the critical materials needed for these batteries,” Padilla said, noting the potential for increased jobs and health outcomes.

Senate committee members had until the close of business Jan. 12 to submit questions to the DOE and Treasury departments on the proposed rules. Adeyamo said the Treasury will continue taking comments from stakeholders to review before making a final decision.

“Our goal is to try and finalize these rules as quickly as possible to give taxpayers as much certainty as possible,” he said.

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Photo by Tim Mossholder on Unsplash

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