U.S. Pumps the Brakes on EU Clean Car Deal

The European Union has been pressing for a more flexible agreement on the critical minerals used in electric car batteries that won’t require the time-consuming approval of its 27 member countries. Washington and Brussels are at odds over a deal to make European automakers eligible for U.S. electric vehicle tax credits. But that doesn’t work for the Biden administration, which is under immense pressure from lawmakers to broker a binding pact. The U.S. wants Europe to make commitments that boost the supply of those minerals in exchange for the tax perks, which were part of the historic climate law Democrats passed last year. This leaves European automakers at a disadvantage in the U.S. car market in the meantime. And it threatens to exacerbate the rift over U.S. efforts to promote domestic EV manufacturing at a time when the longtime allies aim to present a united front against climate change, China’s market power, and Russia’s war in Ukraine. U.S. President Joe Biden and EU President Ursula von der Leyen launched the critical minerals talks at the White House on March 10. But hopes have largely faded that an agreement will be finalized before a summit of top U.S. and EU officials at the end of the month.

 The EU’s top trade civil servant, Sabine Weyand, said earlier this month that the EU is “in intensive discussions with the U.S. in order to secure this agreement, but we also are in intensive discussions with our member states, because this is not something you can do from one day to the next. So we are trying to do this as fast as possible”. Biden’s landmark Inflation Reduction Act was designed to give American manufacturing a boost in its competition with Beijing and, simultaneously, wean the U.S. off of its dependence on Chinese minerals for the green transition. China, for instance, processes 85 percent of the world’s rare earth minerals, which are crucial components in everything from electric cars to smartphones to wind turbines.

To achieve that aim, the U.S. law, passed in August 2022, created a tax credit for electric vehicles with batteries made with critical minerals harvested or processed in the U.S. or countries with which the U.S. has a free trade agreement. Countries including Australia, Canada, and South Korea all have formal free trade agreements with the U.S., making them eligible for the credits, but major auto-producing nations such as Japan, Germany, France, and other members of the EU do not. But behind closed doors, some EU diplomats are even wondering whether the deal is still worth it. After all, the political discussion about the effect of the Inflation Reduction Act has grown quieter in recent months. “If the scope the U.S. proposes is not sufficient, then it doesn’t make sense for us to negotiate anything,” said one of the EU diplomats mentioned above, speaking on the condition of anonymity as they were not authorized to speak freely on the issue.

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