Chilean Lithium Companies Could Benefit from <a href="https://www.irs.gov/inflation-reduction-act-of-2022">Inflation Reduction Act</a>

Lithium Companies in Chile Could Receive Tax Breaks and Benefits from Inflation Reduction Act (IRA)

Introduction

Chilean lithium companies have the potential to receive tax breaks and other advantages in the future through the Inflation Reduction Act (IRA). The Government of Chile recently met with the Biden Administration to discuss the details of what benefits United States-based companies could expect from the act if they choose to invest. President Gabriel Boric’s government aims to attract foreign capital to leverage its access to the world’s largest lithium reserves and advance further in the battery supply chain as the clean energy transition gains momentum.

Opportunities in Renewable Energy and Lithium

During a recent visit to Washington, President Boric mentioned that he discussed opportunities in renewable energy, copper, and lithium, all of which Chile offers. This highlights Chile’s commitment to leveraging its resources for economic growth and development.

Meeting with Tesla and Potential Investments

Economy Minister Nicolas Grau met with representatives from the electric vehicle (EV) giant Tesla Inc. during the same trip to Washington. This indicates that Tesla is gearing up to commence operations in Chile, further emphasizing the country’s potential for investment in the EV sector.

Tax Breaks for Electric Vehicles

Under the Inflation Reduction Act, electric vehicles (EVs) and batteries manufactured in North America may qualify for substantial tax breaks. This includes tax credits that exceed 10% of the price of the average EV sold in the United States. These tax breaks have already prompted new investments in Mexico and Canada and initiated high-level political negotiations with U.S. partners such as the European Union and Japan.

Critical Minerals Requirements

For a vehicle to qualify for tax breaks under the IRA, its battery must contain a portion of critical minerals that were either extracted or processed in the U.S., a country with which the U.S. has a free trade agreement, or recycled in North America. The applicable share of critical minerals must be a minimum of 40% for vehicles placed in service in 2023, with an annual increment of 10% until it reaches 80% for vehicles placed in service after 2026.

Battery Components Requirements

In addition to critical minerals requirements, the final assembly of the vehicle’s battery must take place in North America, and the proportion of the component value within the battery that was either manufactured or assembled in North America must meet or exceed the applicable percentage. The percentage for vehicles in 2024 and 2025 is 60%, with a yearly increase of 10% until it reaches 100% beyond 2028.

Partner Countries and Opportunities for Lithium Companies

The proposed treasury regulations for the Inflation Reduction Act have produced a list of partner countries, which includes Australia, Bahrain, Canada, Chile, Colombia, and Japan. While Argentina is a lithium-rich country, it is not on the list due to the absence of a free trade agreement with the United States. However, Argentina and the United States have a bilateral investment treaty, which opens up potential opportunities for investment in the future.

European Union and New Critical Minerals Agreement

President Biden and European Commission President von der Leyen have initiated discussions to establish a new critical minerals agreement between the United States and the European Union. This agreement would be recognized as a free trade agreement for the purpose of qualifying for critical minerals tax breaks under the IRA. This development could potentially redirect new EV investments from Europe to North America and open up discussions with countries that had previously been excluded from free trade agreements due to political disagreements.

Conclusion

Chilean lithium companies have the potential to benefit from the Inflation Reduction Act through tax breaks and other advantages. The government’s commitment to attracting foreign capital and leveraging its resources for economic growth positions Chile as a key player in the clean energy transition. As the clean energy sector continues to gain momentum, the opportunities for lithium companies in Chile are only expected to grow.

Read More of this Story at mugglehead.com – 2023-11-21 22:44:32

Chile and United States explore advantages of Inflation Reduction Act