US, EU Reach Agreement on Sourcing Critical Minerals Used in EV Batteries

Minerals sourced from Europe to be eligible for clean vehicle credits under IRA


Signaling a thaw in U.S.-EU relations on clean energy, the two sides have agreed on immediately beginning negotiations on an agreement on critical minerals used in the electric vehicle (EV) battery supply chain.

After a meeting between U.S. President Joe Biden and his EU counterpart Ursula von der Leyen in Washington last week, they issued a joint statement committing to deepening cooperation on diversifying and strengthening critical mineral and battery supply chains on both sides of the Atlantic.

In a significant step towards that objective, they said: “To that end, we intend to immediately begin negotiations on a targeted critical minerals agreement for the purpose of enabling relevant critical minerals extracted or processed in the European Union to count toward requirements for clean vehicles in the Section 30D clean vehicle tax credit of the Inflation Reduction Act.”

Section 30D provides for a “clean vehicle credit” under which individuals and businesses can claim a credit worth up to $7,500 for EV put into service between 2023 and 2032.

The Inflation Reduction Act (IRA), which offers subsidies and tax credits worth $369 billion for companies investing in clean energy and EVs provided the products and components are manufactured in America, had become a bone of contention between the U.S. and EU.

The EU had criticized the legislation as protectionist. And in response, the European Commission in February came out with the Green Deal Industrial Plan utilizing €250 billion (~$275 billion) of existing EU funds to safeguard and enhance the competitiveness of its clean energy industry.

The joint statement recognized that addressing the global climate crisis was at the heart of the objectives of both the IRA and the EU Green Deal Industrial Plan.

About the proposed critical minerals agreement, the U.S. and EU said such a partnership would further boost mineral production and processing and expand access to sources of critical minerals that are sustainable, trusted, and free of labor abuses.

In January, a Swedish government-owned mining company Luossavaara-Kiirunavaara Aktiebolag announced the discovery of significant deposits of rare earth elements essential for EV manufacture and wind turbines in the Kiruna area in the country.

“The EU-U.S. Task Force on the Inflation Reduction Act has productively deepened our partnership on these common goals, and has taken practical steps forward on identified challenges to align our approaches on strengthening and securing supply chains, manufacturing, and innovation on both sides of the Atlantic,” Biden and von der Leyen said.

The two sides also announced the launch of the Clean Energy Incentives Dialogue to ensure the incentive programs of the two sides are mutually reinforcing. “Both sides will take steps to avoid any disruptions in transatlantic trade and investment flows that could arise from their respective incentives. We are working against zero-sum competition so that our incentives maximize clean energy deployment and jobs—and do not lead to windfalls for private interests.”

The Clean Energy Incentives Dialogue will also facilitate information-sharing on non-market policies and practices of third parties like China to serve as the basis for joint action on these issues in multilateral or other fora.