The US Treasury Department announced on Wednesday that it would publish guidelines the following week on the sourcing requirements for tax subsidies for batteries used in electric vehicles under President Joe Biden's climate change legislation. This is the first of a series of eagerly awaited regulations that will establish how widely the credits can be applied.
The Inflation Reduction Act, which was signed into law last year, contains hundreds of billions of dollars worth of incentives. The car, battery, and renewable energy sectors have been waiting for clarification on complicated issues governing eligibility.
The Treasury will issue guidance on bonus tax credits for clean energy projects located in communities dependent on fossil fuels, those constructed using domestic equipment, and those paying workers prevailing wages and hiring apprentices after outlining battery sourcing rules, according to officials.
Additionally, it will provide instructions on how to offer tax credits and make them refundable so that organizations without a tax liability can utilize them.
When the announcements for the future guidelines would be made was not made clear by the Treasury.
Many of the regulations are intended to reduce American reliance on China, which controls the global supply networks for goods like solar panels and EV batteries. These sectors are essential to achieving Biden's objectives of decarbonizing the US economy and combating global warming.
For instance, the IRA specifies that a $7,500 electric vehicle tax credit is only applicable to North American-built cars that adhere to certain regional standards for battery production and mineral extraction processing.
Treasury decided in December to delay issuing proposed guidelines on battery sourcing rules until March. As a result, some EVs that do not meet the new requirements will still be eligible for purchase in 2023 for a few months before the battery rules go into effect. That choice, according to Senate Energy Committee Chairman Joe Manchin, "created an opportunity to circumvent strict supply chain requirements."
Half of the EV tax credit is contingent on at least 40% of the value of the critical minerals in the battery having been extracted or processed in the United States or a country with a US free-trade agreement or recycled in North America.
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