Four things to know about the Treasury Department’s guidance on electric vehicle incentives

Tomorrow, the Treasury Department will issue long-awaited guidance on which electric vehicles qualify for the tax credits in last year’s landmark climate law, known as the Inflation Reduction Act.

The guidance, while highly technical, could have a profound impact on President Biden’s climate agenda and the future of the nation’s auto fleet, we report with our colleagues Timothy Puko and Steven Mufson.

Here are three things we learned in our reporting about the EV subsidies, the forthcoming guidance and why it all matters:

Treasury could sharply limit the number of vehicles eligible for the full $7,500 tax credit, complicating what the White House had hoped would be a rapid transition to electric cars and trucks.

The Inflation Reduction Act split the $7,500 tax credit into two parts. It also imposed new requirements aimed at boosting U.S. supply chains for EVs and batteries.

• Consumers can get a $3,750 credit if the EV has a battery containing at least 40 percent critical minerals from the United States or a country with which the United States has a free-trade agreement. 
• They can receive another $3,750 credit if at least 50 percent of the battery’s components were assembled and manufactured in North America.

At the moment, nearly 40 vehicles qualify for the full $7,500 incentive. But the auto industry’s U.S. supply chain is so weak right now that many EVs may not meet the new requirements, industry leaders acknowledge.

“It’s likely fewer cars will qualify immediately for the full credit,” said John Bozzella, leader of the Alliance for Automotive Innovation, the largest auto industry trade group in Washington. 

However, Treasury’s interpretation of the law is expected to allow the full $7,500 credit to go to vehicles that are leased, according to auto industry officials.

That could change the way Americans have traditionally acquired their cars and trucks. In 2022, most EV consumers purchased their vehicles; EV leases made up fewer than 15 percent of transactions.

Many consumers may not immediately be comfortable with leasing as an option. “It will take some education and time,” said Michael Stewart, a spokesman for Hyundai Motor America.

Inside the talks with Manchin

This conundrum can be traced back to negotiations over the Inflation Reduction Act last summer with Sen. Joe Manchin III (D-W.Va.), a key swing vote in the evenly divided Senate.

Manchin was so opposed to EV subsidies that Democrats avoided serious talks with him about it for months. That meant Democrats were still wrestling with the issue during the last days of the deliberations, when there were very few people in the room.

Some of the top tax-law experts among Democratic Senate staff were not involved in drafting the final language — a closely held and tense process between aides to Manchin and Senate Majority Leader Charles E. Schumer (D-N.Y.), said current and former Senate Democratic aides who spoke on the condition of anonymity because they were not authorized to comment publicly.

Manchin has defended the final language, despite auto industry complaints about the difficulty of compliance.

“Senator Manchin was crystal clear that the primary goals of the Inflation Reduction Act writ large, and specifically the vehicle tax credits, were energy security and securing our supply manufacturing chains, and that doing so would be a challenge that required the ingenuity America is known for,” Manchin spokeswoman Sam Runyon said in an email.

Free-trade agreement missteps

Staffers for Manchinand Schumer also spent a lot of time debating the list of countries where 40 percent of the minerals in an EV battery would need to be sourced, according to a Senate Democratic aide.

Schumer staffers sought to find the broadest possible list of countries that Manchin could accept, while Manchin insisted on a narrower list and ultimately agreed to the list of countries with which the United States has free-trade agreements, the aide said.

In an interview with Bloomberg TV in January, Manchin said he did not know that the United States and the European Union lacked a free-trade agreement when he agreed to these terms.

“I did not realize the E.U. is not a free-trade agreement” nation, Manchin said at the World Economic Forum in Davos, Switzerland, where many European leaders voiced frustration that the incentives in America’s climate law would harm the bloc’s clean-energy industry.

House GOP to pass energy package with eye on gas prices, 2024

House Republicans are expected to pass legislation today that would increase oil drilling and mining on public lands and waters, defying President Biden’s climate agenda and fulfilling a campaign promise to focus on lowering gasoline prices ahead of the 2024 election, we report with our colleague Marianna Sotomayor.

Rep. Vincente Gonzalez (D-Tex.) announced his support Wednesday for the sprawling energy package, known as the Lower Energy Costs Act. Two other Democrats who often vote with Republicans, Henry Cuellar (Tex.) and Jared Golden (Maine), remain undeclared.

The House on Wednesday approved several GOP amendments to the package by voice vote, including an amendment from Rep. Lauren Boebert (R-Colo.) that would shorten the timetable to sue over a major infrastructure project from 150 days to 90 days.

Sen. Bennet pushes for forestry provisions in farm bill

Sen. Michael F. Bennet (D-Colo.), who chairs the Senate Agriculture Subcommittee on Conservation, Climate, Forestry and Natural Resources, plans to use a hearing today to push for climate-friendly forestry provisions in the 2023 farm bill.

“I really hope that we are going to pass a farm bill that’s responsive to the needs of the American West,” Bennet told The Climate 202 on Wednesday. “We are in a 1,200-year drought in the West, the Colorado River basin is in serious distress, and all of our forests are upstream of farmers and ranchers. So I hope that we can … include provisions that protect our watersheds and make our Western agriculture more sustainable.”

Bennet said he is specifically advocating for the farm bill to include the Protect the West Act, which would establish a $60 billion Outdoor Restoration Fund to support local efforts to restore forests and watersheds, reduce wildfire risk and improve wildlife habitat.

Senate votes to overturn Biden water rule

The Senate on Wednesday voted 53-43 to approve a Republican resolution that would overturn the Biden administration’s “Waters of the United States”rule, which expands the definition of waterways that are subject to protections from the Environmental Protection Agency.

Sens. Joe Manchin III (D-W.Va.), Kyrsten Sinema (I-Ariz.), Jon Tester (D-Mont.), Catherine Cortez Masto (D-Nev.) and Jacky Rosen (D-Nev.) joined Republicans in backing the resolution, which Sen. Shelley Moore Capito (R-W.Va.) introduced under the Congressional Review Act.

Cortez Masto, who does not often buck the Biden administration, said in a statement that the rule could force Nevada’s farmers and ranchers “to jump through unnecessary red tape.” Biden is expected to veto the measure, which many other Democrats have said would undermine the nation’s water quality. Supporters appear to lack the two-thirds majority needed to override a veto.

$264 million offered in Gulf oil lease sale mandated by climate law

Oil giants including Chevron, BP, ExxonMobil and Shell bid a combined $264 million for drilling rights in federal waters in the Gulf of Mexico on Wednesday, Kevin McGill and Matthew Brown report for the Associated Press. 

The auction was required by the Inflation Reduction Act as part of a compromise with Sen. Joe Manchin III (D-W.Va.). But it could further test the loyalty of climate activists and young voters who supported Joe Biden in 2020 and were outraged by the administration’s approval of the massive Willow drilling project in Alaska.

According to an analysis from the Interior Department’s Bureau of Ocean Energy Management, developing the Gulf leases would produce up to 1.1 billion barrels of oil and more than 4 trillion cubic feet of natural gas over the next 50 years. Burning that oil would emit tens of millions of tons of carbon dioxide, the analysis found.

Environmental groups have already sued over the sale in federal court in Louisiana.

How a small island got the world’s highest court to take on climate justice

The small Pacific island nation of Vanuatu on Wednesday persuaded the U.N. General Assembly to ask the world’s highest international court to rule on the obligations of countries to address climate change, marking a major victory for climate justice activists around the globe,Michael Birnbaum reports for The Washington Post. 

An advisory ruling by the International Court of Justice is expected to clarify the legal requirements of nations to address global warming within and outside their boundaries — and to create a path for them to be sued if they don’t oblige. 

In recent weeks, Vanuatu was hit by two Category 4 cyclones, the severity of which its leaders blamed on climate change. Thousands of people are living in shelters.

“It is a matter of basic survival for us,” Vanuatu Climate Change Minister Ralph Regenvanu said in an interview. “We can’t do anything economically and politically because we don’t have any power. What we can use is our sovereignty as a United Nations member state.”