Treasury guidance on electric vehicle tax credit due next week

The Biden administration will release the eagerly awaited proposed guidance for the domestic sourcing requirements for electric vehicles to qualify for the Inflation Reduction Act's clean energy incentives next week, a Treasury official said on Wednesday.

The IRA passed by Democrats last year included those incentives in the nearly $370 billion in climate change measures, but the legislation limited them to EVs made using domestically produced mineral and batteries, angering European nations that complained the rules violated trade agreements by denying them the full tax credit.

But those domestic content measures were critical to winning the support of centrist Democratic Sen. Joe Manchin (D-W.Va.), who made it a priority for the law to develop a U.S. EV supply chain and end the industry's dependence on Chinese suppliers.

Treasury Assistant Secretary for Tax Policy Lily Batchelder said the department will work with the private sector to ensure a "smooth transition" on which vehicles qualify for the incentives and for what amount.

"The adoption of clean vehicles is central to reducing emissions in transportation while protecting Americans from the kinds of spikes in gas prices that we saw at the outset of Putin's brutalization of Ukraine," Batchelder said. "However, we can't trade dependence on foreign oil for dependence on foreign batteries and our forthcoming guidance will strengthen our supply chain."

The Treasury Department released a white paper late last year signaling the U.S. could use expanded definitions for free trade agreements for imports of critical minerals during the tax credit rulemaking process.

Manchin has repeatedly expressed outrage over the delay in guidelines for the law’s EV tax credits and has accused the administration of trying to undermine congressional intent.

On Wednesday, Batchelder said China’s control over critical minerals processing globally underscores the need to strengthen U.S. supply chains “along with like-minded partners." She pointed to recent, initial talks between President Joe Biden and European Commission President Ursula von der Leyen.

Treasury’s actions “will advance economic security and stability by ensuring that the United States and allies and partners are not reliant on China for critical minerals in the decades to come,” she added.

The department did not provide any specific details on the proposed rule for EVs beyond that it will be released next week.

The Inflation Reduction Act included provisions aimed at lowering the cost for electric vehicles, while also increasing domestic manufacturing across clean energy technologies and components. Since the law's enactment, companies have announced tens of billions of dollars in EV and battery manufacturing facilities.