US, EU to cooperate on EVs, green subsidies

The US and EU will negotiate a critical minerals agreement that will explicitly qualify European manufacturers for electric vehicles (EV) subsidies under the US' Inflation Reduction Act climate legislation.

The legislation ties tax credits for EVs to US sourcing requirements for the electric batteries and raw materials used in them, with carve-outs for countries holding free trade deals with the US. The planned US-EU agreement would allow critical minerals extracted or processed in the EU to count toward the tax credit requirements, US president Joe Biden and European Commission president Ursula von der Leyen said following their meeting in Washington today.

The US and EU will also launch a "Clean Energy Incentives Dialogue" to ensure that their incentive programs for EVs, hydrogen and other renewable energy technologies do not work at cross purpose and lead to trade disputes.

The Inflation Reduction Act, the most sweeping national climate legislation ever passed in the US, would provide $369bn in clean energy funding. The European Commission's Green Deal Industrial Program will redirect €250bn ($273bn) in EU funds to speed up the transition to renewable energy. The European Commission separately plans to publish legislation obliging the bloc to extract and produce 10pc of critical materials in Europe.

"We're driving new investments to create clean energy industries and jobs and make sure we have supply chains available to both our continents," Biden told von der Leyen.

The passage of US legislation last year led European leaders to accuse the Biden administration of protectionism. Biden and his advisers cast the approach as enabling the US to compete with China's advanced manufacturing and critical mineral extraction capacity, encouraging the EU to do the same. That advice appears to have worked.

"It's great that there is such a massive investment in new and clean technologies," von der Leyen said of the US legislation, adding that the EU will match it with the Green Deal Investment plan. "It's very important that on this topic we join forces because it is crucial for our future, for fighting climate change and limiting global warming."

The US and EU also re-committed to a October deadline to complete talks on decarbonizing the aluminum and steel sectors. The idea is to create a low-carbon based trading alliance for those commodities. "The arrangement will be open to all partners demonstrating commitment to countering non-market excess capacity and reducing carbon-intensity in these sectors," the US and EU leaders said.

By Haik Gugarats