Sen. Joe Manchin drafts bill to close battery source loophole in EV tax credit

Sen. Joe Manchin drafts bill to close battery source loophole in EV tax credit

Senator Joe Manchin, chairman of the U.S. Senate Committee on Energy and Natural Resources, has made it quite clear that he’s upset about some of the loopholes left in the Inflation Reduction Act’s (IRA) EV tax credit sections. And he’s going to try to close them. His first bill is being proposed today, and it targets the rules about battery sourcing.

Part of the IRA’s plug-in vehicle tax credit requirements stipulate that a certain amount of battery materials must be sourced from North America, in amounts that will go up over the next few years. But the U.S. Treasury has not yet written its rules pertaining to this part of the IRA, saying that it will issue those rules in March. This means that until March, plug-in cars otherwise meeting the battery size and price requirements are still eligible for the full $7,500 tax credit, even if their batteries were sourced overseas. Many of these vehicles would otherwise only be eligible for half of that $7,500 amount, as half is for final assembly in the U.S. and the other half is for North American battery content.

Manchin’s proposed bill would amend the battery requirement section of the IRA to make the date for compliance January 1 of this year. As a result, any cars currently qualifying for the whole credit would have the battery requirement part revoked — potentially resulting in some much smaller credits for anyone who has already bought a car under current rules, or who is about to in the next couple of months.

The delay in the rules “only serves to weaken our ability to become a more energy secure nation,” Manchin said earlier this month. “It is unthinkable that we still depend on China and Russia for the materials and manufacturing necessary to power our nation in the 21st century and I cannot fathom why the Biden administration would issue guidelines that would ensure we continue on this path.”

The proposed bill doesn’t apply to anything related to the other big loophole, which is around car leasing. That one allows foreign-built vehicles to still qualify for the full $7,500 credit as long as they’re leased, not purchased outright. But considering Manchin’s strong opposition to both the delayed battery rule making and the broad leasing interpretation, we bet he will introduce a bill to close the lease loophole, too.

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