The Impact of the inflation reduction act of 2022 on the Clean Vehicle Market

New Clean Vehicle Tax Credit

The inflation reduction act of 2022 (IRA) represents a groundbreaking move by the United States (US) government to combat climate change and encourage the adoption of clean vehicles. A key provision of the IRA is the revision of the clean vehicle tax credit outlined in Section 30D of the Internal Revenue Code (IRC). This amendment offers up to a US$7,500 tax credit to buyers of “new clean vehicles” at the time of purchase. The credit is split into two parts:

• US$3,750 for vehicles meeting specific critical mineral requirements.
• US$3,750 for vehicles meeting designated battery component criteria.

Critical Mineral Requirements

Under the critical mineral requirements, a certain percentage of critical minerals within a battery must be sourced or processed within the US, a country with a free trade agreement with the US, or recycled in North America. This percentage starts at 50% in 2024 and increases annually to reach 80% by 2026.

Canadian Business Advantage

Canadian businesses may find themselves in a unique position to benefit from the IRA due to the emphasis on sourcing and processing critical minerals within North America. By aligning with the IRA’s requirements, Canadian-incorporated companies can tap into the lucrative US clean vehicle market.

Battery Component Requirements

Another key aspect of the IRA is the battery component requirements, mandating that a minimum percentage of battery components’ value must be manufactured or assembled in North America. This percentage starts at 60% in 2024 and rises by 10% annually, reaching 100% by 2029.

Foreign Entities of Concern

The IRA also targets foreign entities of concern (FEOCs) to prevent them from accessing the US clean vehicle market. FEOCs are entities controlled by or subject to the jurisdiction of specific countries like China, Iran, North Korea, and Russia. The IRA imposes strict regulations to ensure that battery components and critical minerals are not sourced from FEOCs.

Read More of this Story at www.mondaq.com – 2024-02-24 14:49:51

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