The U.S. Department of the Treasury and Internal Revenue Service (IRS) on Dec. 1 released guidance for the clean vehicle provisions of the Inflation Reduction Act (IRA).
The guidance seeks to provide clarity and certainty around the IRA’s foreign entity of concern (FEOC) requirements, as well as requirements for the critical minerals and battery components contained in the vehicle.
“The Inflation Reduction Act has unleashed an investment and manufacturing boom in the United States, and since President Biden enacted the law, ecosystems have developed in communities nationwide to onshore the clean vehicle supply chain,” Treasury Secretary Janet Yellen said. “The Inflation Reduction Act’s clean vehicle tax credit saves consumers up to $7,500 on a new clean vehicle and hundreds of dollars per year on gas, while creating American manufacturing jobs and strengthening our energy security.”
On the FEOC requirements, battery components would be determined at the time of manufacture or assembly, and FEOC-compliance for critical minerals would be determined by reviewing all phases of applicable critical mineral extraction, processing, and recycling. Critical minerals generally also must be traced. However, given that there is commingling in the critical mineral supply chains and suppliers may not be able to physically track certain specific masses of minerals to specific battery cells or batteries, the rule asks for comments on a temporary transition rule.
In addition, the proposed rules would also create an upfront review system starting in 2025 that would provide additional oversight of FEOC compliance, as well as certainty to manufacturers. And finally, it proposes a regime to incentivize compliance by automakers.
Also, to meet the battery component requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the battery components must be manufactured or assembled in North America. More specifically, for 2023, the applicable percentage is 50 percent; for 2024 and 2025, the applicable percentage is 60 percent; for 2026, the applicable percentage is 70 percent; for 2027, the applicable percentage is 80 percent; for 2028, the applicable percentage is 90 percent; and beginning in 2029, the applicable percentage is 100 percent.
Finally, to meet the critical mineral requirement and be eligible for a $3,750 credit, the applicable percentage of the value of the critical minerals contained in the battery must be extracted or processed in the United States or a country with which the United States has a free trade agreement or be recycled in North America. For 2023, the applicable percentage is 40 percent; for 2024, the applicable percentage is 50 percent; for 2025, the applicable percentage is 60 percent; for 2026, the applicable percentage is 70 percent; and for 2027, the applicable percentage is 80 percent.
Also, beginning in 2024, an eligible clean vehicle may not contain any battery components that are manufactured by a foreign entity of concern and beginning in 2025 an eligible clean vehicle may not contain any critical minerals that were extracted, processed, or recycled by a foreign entity of concern.