In the third episode, we explore the Inflation Reduction Act (IRA) and its significance for the EV battery market.
Minespider's Yaser Hammadi provides an overview of the IRA, introduced in August 2022. The regulation aims to invest in climate solutions and strengthen US energy independence. It offers tax credits for "clean vehicles" that use domestically sourced battery materials. Clean vehicles include electric and hybrid vehicles that reduce emissions. In this video, we explore the IRA, the “clean vehicle” and provide more information about what is the difference between the IRA and other battery regulations, and what is needed to be able to qualify for the tax credits.
Join us for this episode to learn how companies can qualify for tax credits. Visit the link in the description to explore Minespider's Regulation Readiness program for compliance assistance.
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What is the Inflation Reduction act and why is it important for the EV battery market?
In August of 2022, the IRA was introduced with the goal of making significant investments in various climate solutions, including EV batteries. The aim is to strengthen the US’s energy independence and promote green energy.
The Inflation Reduction Act provides historical investments in clean energy and it also has the potential to give the US EV battery industry a boost through a tax credit for the so-called clean vehicles that use domestically extracted or processed battery materials.
What is a clean vehicle?
A clean vehicle produces low or zero emissions of pollutants, such as greenhouse gases.It meets strict environmental criteria. .
Some examples of clean vehicles include electric vehicles (EVs), which are powered by batteries and emit no tailpipe emissions, and hybrid vehicles, which use a combination of gasoline and electric power to reduce emissions.
Clean vehicles are encouraged in the US as part of efforts to reduce air pollution, mitigate climate change, and improve public health.
Federal and state governments have implemented various incentives, such as tax credits, rebates, and grants, to encourage the purchase and use of clean vehicles.
What is the difference between the IRA and other regulations?
In another video we already covered the EU Battery Regulation. It provides a set of rules for all companies that are participants of the battery supply chain. According to the regulation, companies have to meet sustainability requirements and have the key data about the battery in the Battery Passport, including the provenance of materials, due diligence data, minimum recycled content, to be allowed to put batteries on the EU market. You can check the video to learn more about this regulation.
The US goes another direction. When asked, many Americans pointed to the cost involved with buying and maintaining an EV as one of the biggest barriers to the green transition. This is probably the reason behind the country introducing another type of regulation and providing tax incentives - up to $7500 - to the end-consumers.
The demand-side incentives model introduced within the IRA motivates companies to consider the US as a top geography for opening new batteries and EV manufacturing facilities.
What are some of the key stakes of the Inflation Reduction Act with regards to the battery segment?
- Under the Inflation Reduction Act, mining companies that extract critical metals in the US can receive a production credit equal to 10% of their production costs, as long as the extracted minerals meet specific purity thresholds outlined in the Act.
- The Act provides significant incentives - up to $7500 - for domestically produced electric cars. To qualify for certain tax credits under the Act, battery materials used in the production of electric vehicles must be domestically sourced and the final vehicle assembly must take place in the US.
- The Act sets minimum thresholds for the amount of critical minerals in batteries that must come from US miners, recycling plants, or countries with the 20 countries free trade agreements with the US.
- The Act states, to quality for tax credits, that the value of the battery should have minimum percentages that are sourced from North America. The value of components sourced from North America must be at least 50% before 2024, increasing to 60% in 2024 and 2025, 70% in 2026, and then increasing by 10% each year until reaching 100% in 2029.
At Minespider, we recently designed a Regulation Readiness program to help you understand what are the key requirements and how to start complying as soon as possible.
What does the company need to qualify for the tax credits?
To qualify for the tax credit, the companies have to meet value, type, and battery material and component requirements. The tax credit consists of two parts:
Part 1, or $3,750 of the $7,500, can be achieved by meeting a requirement of a certain threshold of critical minerals in the EV battery that are extracted or processed in the U.S., countries that the U.S. has a free trade agreement with, or have been recycled in North America. The battery minerals also must meet certain purity requirements to qualify.
Part 2, or the remaining $3,750 of the $7,500, is achieved if the percentage of the value of the battery’s components that were manufactured or assembled in North America exceeds thresholds of 50% through the end of 2023 and increases by 10% per year to 100% in 2029 and beyond.
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