Battle for Green Investments: US and EU Seek Deals on Minerals Used in EVs

As part of Washington's attempts to lessen the world's reliance on China for materials needed for green energy technology, the US and the EU are attempting to reach a preliminary deal on the supply of so-called key minerals used in electric vehicles.

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By giving EU businesses access to some of the benefits offered by President Joe Biden's expansive climate-subsidy plan, the agreement, if it is finalized, also has the short-term benefit of averting a trade dispute between the US and Europe.

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"We have decided that we will begin work immediately with a clear aim - the goal is to have an agreement on vital raw materials obtained or processed in the European Union," European Commission President Ursula von der Leyen told reporters in Washington Friday when she met with Biden for talks.

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The EU has been demanding concessions from the IRA, which will provide up to $369 billion in giveaways and tax credits to North American clean-energy schemes over the next decade. Von der Leyen has stated that parts of the measure will unjustly benefit American corporations and has requested an exception for European firms.

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"We're pushing new investments to build clean-energy sectors and employment, as well as ensuring that supply chains are open to both of our continents," Biden said earlier Friday. "This concept drives our Inflation Reduction Act. And it is key to your Green Deal Industrial Strategy."

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As part of its ambitious climate strategy, the White House is prioritizing access to minerals such as lithium, nickel, and cobalt, which are required for electric-vehicle batteries. This covers both increasing the adoption of EVs and constructing such vehicles and their supply systems in the United States.

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This will necessitate a generational shift in US car making and manufacturing, as well as an increase in supplies and technologies controlled by China, which the US regards as its main rival and an untrustworthy trading partner.

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'Extreme' Demand

"The worldwide demand for these minerals will be substantial in the coming years. And we're heavily reliant on China," Treasury Secretary Janet Yellen said earlier Friday before the House Ways and Means Committee. "One of the IRA's aims is to broaden supply networks for these important minerals and their processing."

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She stated that the deal with the EU, which is also being considered with Japan, would "allow our close partners to also contribute minerals and their processing that would be qualified for use in electric vehicles produced in North America."

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The US and the EU also agreed to establish the Clean Energy Incentives Dialogue to avoid disagreements over green subsidies, according to a joint statement. "Both sides will take efforts to minimize any interruptions in transatlantic trade and investment flows that may develop as a result of their separate motivations," they stated.

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The two nations intend to finalize a deal on long-term steel and aluminum supply by October, another step geared at isolating China, a major source of both materials.

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Exports Should Be Restricted

The statement also mentioned additional attempts being made by the US and EU to curb some technology exports to China, which have recently been dominated by equipment and know-how required to manufacture semiconductors.

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"We are expanding our collaboration to prevent the leaking of sensitive new technology, as well as other dual-use products, to destinations of concern that employ civil-military fusion techniques," they stated. "Our respective current limits on exports, incoming investment, and research collaboration are critical tools that must be modernized to reflect a changing geostrategic situation."

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The focus of the Inflation Reduction Act on boosting American manufacturing enraged trade partners from Asia and Europe, who perceived it as excluding them from the US market, notably for autos. It provides a lucrative $7,500 consumer-tax credit for EVs that fulfill certain standards.

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Under the bill, the critical-mineral agreement would offer the EU the same status as a US free-trade partner, allowing European-made battery components or materials to be utilized in EVs qualified for US tax credits. The Treasury Department has also indicated that European automobiles operated professionally or leased might qualify, easing tensions between the allies.

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The partners want to immediately begin negotiations on an agreement "to enable relevant key minerals harvested or processed in the EU to count toward criteria for clean automobiles in the IRA's Section 30D clean-vehicle tax credit," according to the statement.

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"This type of arrangement would serve our shared aims of increasing mineral production and processing and extending access to sustainable, trustworthy, and labor-free sources of key minerals," they stated. "Cooperation is also required to avoid undesirable strategic dependencies in these supply chains, as well as to guarantee that they are diverse and established with trusted partners."

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Meanwhile, the execution of the legislation and appeasing Europe has enraged Congress, which has questioned the White House's power to use a mineral pact as the equivalent of a trade agreement. Members, notably Senator Joe Manchin, have also slammed any attempt to allow non-American businesses to benefit from the measure. This includes Chinese enterprises, who dominate the EV market, joining in US-based joint ventures, such as Ford Motor Company's proposed battery tie-up with Contemporary Amperex Technology Co. in Michigan.

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Although sentiments in the EU have cooled on the impact of the IRA on European businesses, some officials continue to warn that aspects of the legislation are discriminatory and may drive clean-tech investment away from the EU.

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According to an initial evaluation of the bill obtained by Bloomberg, some European Commission officials stated that the US law will create a "new industrial environment" and will endanger Europe's competitiveness. It also discovered that over $25 billion in corporate spending is being directed toward the United States and China rather than Europe.

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To compete with the US, Von der Leyen has proposed the Green Deal Industrial Strategy, which involves streamlining rules and expediting approvals for new projects.

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