Such mineral pacts are one potential way to address European Union’s complaints that its automakers are shut out of the $7,500 per vehicle tax credits in the climate-focused Inflation Reduction Act, which it argues will suck electric vehicle investments away from Europe.
The law specified that the tax credits were only available to North American-assembled vehicles that meet certain local battery production and mineral extraction processing standards.
Countries with US free trade agreements can also access the credits, and this is a provision that the Biden administration hopes to exploit by negotiating limited trade deals focused on battery minerals.
The Treasury already is allowing leased electric vehicles to qualify under commercial EV tax credit rules, a move that Yellen said would cover most vehicles for now. Over time, she said she hoped that trade agreements would allow more sold vehicles to qualify over time.
“It would be an agreement that we think would not require the agreement of Congress,” she said adding that Congress intended “a kind of friend-shoring approach” for critical minerals to reduce reliance on China.
“I think the word ‘free trade areas’ was meant to mean reliable friends and partners with whom we can feel we have secure supply chains so we feel this is fully the intent of Congress and we’ll be able to negotiate such agreements,” Yellen said.
The Treasury in March is due to put out guidance on the sourcing of battery minerals and Yellen said this will include guidance on free trade areas that can qualify.
The Treasury already has said that it will qualify existing comprehensive free trade pacts Australia, Bahrain, Canada, Chile, Colombia, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, Israel, Jordan, South Korea, Mexico, Morocco, Nicaragua, Oman, Panama, Peru and Singapore.
Yellen said that the United States and Europe were getting closer to reaching understanding over the US green energy subsidies, and said Washington will not try to stop Europe from enacting competing subsidies.
“We’ve been very clear with Europe that this is not a subsidy war,” Yellen said. “We’re not trying to steal jobs. This is our climate plan.”
(By David Lawder; Editing by Jane Merriman and Tomasz Janowski)
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