Finding the Right Balance: Biden’s Search for the Perfect Answer to Electric Vehicle Subsidy Question

    The International Energy Agency (IEA) has released a report urging oil and gas companies to increase their financial contributions to the energy transition, warning that simply relying on carbon capture is not enough to achieve net-zero emissions. The IEA’s executive director, Fatih Birol, stated that the successful transition to clean energy requires a reduction in oil and gas demand, necessitating the gradual scaling back of these operations. The report comes in preparation for the upcoming UN COP28 summit in Dubai, where the phaseout of fossil fuels will be a significant topic of discussion.

    In the oil market, crude prices experienced a sharp decline after Opec+ postponed its planning meeting. This delay has been interpreted by traders as a sign that the cartel is struggling to reach an agreement on production cuts.

    Meanwhile, in the US, travellers for the Thanksgiving holiday can expect the lowest prices at the pump since January, as well as reduced airfare prices. The American Automobile Association (AAA) predicts that 55.4 million Americans will travel this year for the holiday, which is one of the highest figures recorded in the past 23 years.

    Moving on to the main focus of today’s newsletter, the Biden administration is expected to release crucial rules regarding the sourcing of Chinese inputs for electric vehicles (EVs). The Inflation Reduction Act, a key climate law signed by President Biden, extended a tax credit for EVs in an effort to achieve the target of making 50% of all new vehicle sales electric by the end of the decade. However, this tax credit comes with certain conditions. Starting in January 2024, vehicles must not include battery parts from a “foreign entity of concern” (i.e., China) to qualify for the full tax credit. The following year, this rule will extend to critical minerals, as part of the administration’s ambition to challenge China’s dominance in the EV sector.

    The specific details of how the line will be drawn on China in relation to the tax credit remain uncertain for car and battery manufacturers. A loose application of the rule may jeopardize the domestic EV industry and increase vulnerability to supply shocks, while a stringent approach could hinder the progress of the US electric vehicle rollout.

    Various stakeholders have expressed their positions on the matter. Supporters of stricter requirements include domestic manufacturers and West Virginia senator Joe Manchin, who played a key role in shaping the climate law. On the other hand, some industry and climate groups caution against a hardline stance on China, stating that collaboration between US and Chinese players can facilitate technological advancement and knowledge dissemination. A report from S&P Global Commodity Insights also highlighted the challenge the US will face in meeting demand for critical minerals without relying on China and other free-trade partners.

    The Alliance for Automotive Innovation, a trade association, opposes an overly broad application of the rule, advocating for the tax credit to be available to vehicles with minimal traces of Chinese material. The industry currently faces limitations, as only a fifth of electric vehicle models qualify for the full tax credit under the existing regulations.

    The Biden administration’s ruling on the tax credit will be indicative of its priorities concerning climate and industry, as well as the future of business cooperation between the US and China. Chinese investment in the US has significantly decreased, reaching its lowest level in more than a decade.

    In the Job Moves section, LG Energy Solution appointed Kim Dong-myung as chief executive, Universal Hydrogen appointed Anastasiya ‘Stasy’ Pasterick as chief financial officer, NRG parted ways with CEO Mauricio Gutierrez following pressure from activist investor Elliott Management, and Sasol appointed Simon Baloyi as chief executive.

    Lastly, the Power Points section provides recommendations for other FT newsletters, including Moral Money and The Climate Graphic: Explained.

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