{"id":83222,"date":"2023-10-31T12:30:27","date_gmt":"2023-10-31T01:30:27","guid":{"rendered":"https:\/\/www.aspistrategist.ru\/?p=83222"},"modified":"2023-10-31T12:05:45","modified_gmt":"2023-10-31T01:05:45","slug":"proposed-us-rule-for-electric-vehicles-could-shut-out-australias-critical-minerals","status":"publish","type":"post","link":"https:\/\/www.aspistrategist.ru\/proposed-us-rule-for-electric-vehicles-could-shut-out-australias-critical-minerals\/","title":{"rendered":"Proposed US rule for electric vehicles could shut out Australia\u2019s critical minerals"},"content":{"rendered":"
<\/figure>\n

In April, the US Department of the Treasury and the Internal Revenue Service (IRS) proposed<\/a> a rule relating to the \u2018new clean vehicle credit\u2019 under the Inflation Reduction Act. The proposal would provide a tax credit of up to US$3,750 for American taxpayers who purchase an electric vehicle (EV) if a certain percentage of the value of the EV battery\u2019s critical minerals are extracted or processed in the US, free-trade agreement countries (such as Australia) or countries with which the US has critical-mineral agreements (such as Japan<\/a>).<\/p>\n

However, the rule would disqualify EV purchasers from receiving both the US$3,750 critical-minerals tax credit and the US$3,750 battery-components tax credit if \u2018any of the applicable critical minerals contained in the battery \u2026 were extracted, processed, or recycled by a foreign entity of concern [FEOC]\u2019.<\/p>\n

While the Treasury and the IRS have said they will issue \u2018subsequent guidance<\/a>\u2019 on the definition of FEOC, if they adopt the Department of Commerce\u2019s definition<\/a> for the CHIPS and Science Act, it would include any entity with at least 25% ownership by an FEOC. Under current US law, FEOCs include<\/a> companies \u2018owned by, controlled by, or subject to the jurisdiction or direction of a government of a covered nation\u2019, which includes China, Russia, Iran and North Korea.<\/p>\n

Ostensibly, if batteries assembled in the US use lithium extracted in Australia but processed in China, that lithium would be considered processed by an FEOC, disqualifying EVs that use those batteries from both the critical-minerals tax credit and the battery-components tax credit.<\/p>\n

Given the lack of clarity in the Treasury\u2019s interim guidance<\/a> as well as the lack of a final rule, opinions differ on whether the Treasury and IRS will adopt Commerce\u2019s FEOC definition. The law firm Hogan Lovells believes<\/a> \u2018there is a good chance that Treasury will follow Commerce\u2019s CHIPS Rule\u2019 because \u2018it would be strange for the two agencies to issue conflicting definitions\u2019. Conversely, the law firm Covington & Burling writes<\/a>, \u2018While there is a good reason to adopt a single interpretation for the same term in nearly concurrently-enacted statutes, Treasury is not bound to apply the CHIPS Act interpretation of \u201cforeign entity of concern\u201d\u2019 to the Inflation Reduction Act. Nonetheless, the US government seems likely to adopt a uniform FEOC definition across government entities.<\/p>\n

Consequently, EV companies selling in the US market will likely avoid sourcing minerals from\u2014and investing in\u2014Australian mineral projects with Chinese ownership. For example, Australia\u2019s Greenbushes lithium mine would likely be deemed an FEOC since the Chinese company Tianqi holds 26% ownership<\/a>, disqualifying any EV batteries that source Greenbushes lithium from Inflation Reduction Act tax credits.<\/p>\n

American EV companies may also purchase less Australian-mined materials and invest less in Australian mines because Australian mining companies often rely on Chinese refineries. Since Australia lacks<\/a> substantial refining capacity, it ships many of its minerals to China for processing\u2014for instance, 90%<\/a>\u00a0of all lithium produced in Australia is refined in China. Under the proposed rule, EVs with batteries containing Australian-mined, Chinese-refined minerals would be ineligible for the EV tax credits.<\/p>\n

If Australia wants companies that sell EVs in the US to source Australian-produced minerals and invest in Australian mineral projects, the Australian government could provide grants and loans to Australian companies for processing minerals into battery materials like nickel sulfate and cobalt sulfate, as well as precursor cathode active material and cathode active material. At the Darwin Dialogue in April, Resources Minister Madeleine King noted<\/a>, \u2018We can build on our advantages, countering national and regional supply risks by building our processing capabilities and moving up the value chain.\u2019 Indeed, Prime Minister Anthony Albanese recently announced<\/a> a $2 billion expansion in the Critical Minerals Facility, bringing the total financing available for Australian critical-mineral projects\u2014including processing facilities<\/a>\u2014to $6 billion.<\/p>\n

Australian mining companies could also seek to partner in processing projects in the US, other free-trade-agreement countries, and critical-mineral agreement countries, enabling Australian-mined critical minerals to qualify for the Inflation Reduction Act\u2019s tax credits. Alternatively, Australia could seek to decrease Chinese ownership by requiring Chinese divestment from Australian critical-mineral companies and projects. To prevent further Chinese investment, Australia\u2019s Foreign Investment Review Board could more tightly screen investments in the minerals sector too.<\/p>\n

Nonetheless, without further updates from the Treasury and IRS\u2014which are expected<\/a> by the end of the year\u2014Australian companies can\u2019t fully understand how to comply with the Inflation Reduction Act\u2019s FEOC definition. Moreover, US Senator Joe Manchin, a vocal critic<\/a> of the proposed rule, said<\/a> he will support suing the Biden administration once the final rule is released. Thus, the final FEOC definition could change and, consequently, its implications for Australia.<\/p>\n","protected":false},"excerpt":{"rendered":"

In April, the US Department of the Treasury and the Internal Revenue Service (IRS) proposed a rule relating to the \u2018new clean vehicle credit\u2019 under the Inflation Reduction Act. The proposal would provide a tax …<\/p>\n","protected":false},"author":1710,"featured_media":83225,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_mi_skip_tracking":false,"footnotes":""},"categories":[1],"tags":[17,3479,3478,2070],"class_list":["post-83222","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-general","tag-australia","tag-critical-minerals","tag-electric-vehicles","tag-us-foreign-policy","dinkus-north-of-26-south"],"acf":[],"yoast_head":"\nProposed US rule for electric vehicles could shut out Australia\u2019s critical minerals | The Strategist<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.aspistrategist.ru\/proposed-us-rule-for-electric-vehicles-could-shut-out-australias-critical-minerals\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Proposed US rule for electric vehicles could shut out Australia\u2019s critical minerals | The Strategist\" \/>\n<meta property=\"og:description\" content=\"In April, the US Department of the Treasury and the Internal Revenue Service (IRS) proposed a rule relating to the \u2018new clean vehicle credit\u2019 under the Inflation Reduction Act. 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