President Joe Biden’s Inflation Reduction Act (IRA) has been praised by some Democrats and the White House as a milestone in the fight against climate change. The $739 billion measure tackles rising health care costs, deficit reduction and enforcement at the Internal Revenue Service. It also includes Made in America requirements that have upset Group of Seven (G7) leaders and global CEOs.
The Act’s consumer tax credits are tightly linked to the cars’ and batteries being made in the U.S., prompting a new subsidy race with Europe. The Biden administration is negotiating a trade deal with the EU and Japan on electric vehicle battery minerals that expands eligibility for the $7,500 per vehicle EV tax credits in the IRA.
The promise of corporate tax credits has renewed interest in investing in the U.S., and Europe has responded with subsidies of their own. Tesla Inc said in February that it had begun assembling batteries in Germany but will focus cell production in the United States thanks to IRA incentives. Car makers Mercedes-Benz Group and Volkswagen-owned Audi are weighing new investments in the U.S. to take advantage of new federal subsidies.
The Act also allows the federal government to negotiate drug prices for its Medicare health coverage, fulfilling a campaign promise to lower drug promises for Americans. However, some of the world’s biggest drugmakers are laying legal groundwork to fight the plan, arguing some elements of the plan are unconstitutional.
The legislation rules offers a mix of tax credits and other incentives to try and spur clean energy plants in the United States and reduce reliance on China for the parts that power them. Solar and wind farms can apply for a 30 percent tax credit on the costs of their plants, without any domestic requirements, for example. The U.S. Treasury Department also said it would offer a 10 percent bonus tax credit for facilities assembling solar panels in the United States, even if they import the critical silicon wafers used to make those panels from foreign countries.
Overall, the IRA has sparked a new subsidy race between the U.S. and Europe, with companies looking to take advantage of the tax credits and other incentives offered by the Act.