Biden Threatens Europe’s Car Batteries – POLITICO | Popgen Tech

EU negotiators are poised to agree on Friday the world’s strictest standards for sustainable batteries in a bid to spur local cell production – but at the same time generous US subsidies threaten to siphon investment from the continent.

The new US Inflation Reduction Act grants public cash to battery producers based in North America, complicating the EU’s effort to encourage battery production at home in Europe, something intended to be driven by the batteries regulation.

That rulebook is intended to ensure that cells placed on the EU market are safe and sustainable, and will set requirements ranging from how batteries’ carbon footprint must be declared and how much recycled material they must contain to collection targets for waste batteries and due diligence rules. The legislation will apply to both domestically produced and imported batteries, with the aim of keeping more of the production chain within Europe and moving production away from China, which dominates the global market for lithium-ion cells.

The EU’s new rules will be “an important package to make sustainability Europe’s battery differentiator”, says Chris Heron, spokesman for the lobby group Eurometaux.

But greener EU standards will also increase costs, so the industry is calling for a boost in subsidies from Brussels.

“We now need a bigger carrot to bring new supply chain investments to Europe instead of the US or China. One will not work without the other,” Heron said.

Europe’s Battery Alliance €20 billion subsidy program launched in 2017 is seeing some early results in battery makers opening factories on the continent. However, the $369 billion IRA opens up a firehose of US cash for companies along the battery supply chain that could hinder European plans.

The IRA pays a $7,500 tax credit for domestically produced electric vehicles, but there’s a lot more money for batteries. Starting next year, the US government will cover up to $45 per kilowatt hour of the production cost of a battery, and also subsidize 10 percent of the cost of battery parts and provide similar support for raw materials. These subsidies will continue to flow through the early 2030s, providing battery builders with long-term security.

That would help producers raise capital and get their diesel costs below $100 per kilowatt-hour, the point at which experts say battery cars become price-competitive with combustion-engine models.

“The incentives for manufacturing investments are the game changer,” one auto executive said of the IRA’s provisions.

The US EV subsidies have drawn European attention, with top politicians demanding a rethink from the White House. But the battery subsidies are a bigger problem for Europe than the car cash.

Although the IRA policy aims to increase sales of EVs, few clean cars are exported from Europe to the US. According to data compiled by IHS Markit, some 54,020 EVs were shipped west across the Atlantic in 2021, a small fraction of the 2.3 million such vehicles sold in Europe last year.

“We should be much more concerned about the production credits than the consumer credits,” said William Todts, executive director of green NGO Transport & Environment. “Some people dismiss it, but with that level of subsidy and differences in energy prices, there is a real risk of production taking place outside of Europe.”

Although the White House is under pressure from the EU to adjust the IRA, Internal Market Commissioner Thierry Breton said at a POLITICO event this week that there is no chance of substantive changes: “What’s done is done.”

There is also no way the IRA’s subsidies will be extended to batteries made outside of North America, Todts said. Rather than Washington changing the IRA, he wants the European Commission to step up its own subsidy game.

On the mainland, public support comes in the form of one-off drops of public state aid carefully assessed and approved by the Commission’s competition watchdogs. This is quite different from the sustained industrial support approved in the US

According to the Chilean foreign ministry and several EU diplomats, the EU will also agree to a revamped association agreement with Chile on Friday. This will help the block access massive reserves of lithium located on Chile’s Atacama salt flats.

Bid war

European battery manufacturers are already looking across the Atlantic.

Sweden’s Northvolt was supposed to open a German battery plant in 2025, but those plans are now underway, said Anders Thor, a Northvolt spokesman.

“Our aim is still to carry out our plans … but the rising costs in Europe, and the massive support that [the] US administration currently presents has made strategic expansion decisions more complex,” said Thor, adding that the company will do its future investment targets next year.

Volkswagen’s battery unit PowerCo intends to finalize plans for a Canadian factory in the next few months to “mainly cover demand from the North American market,” according to a company spokesman.

It is not out of the question that US-made batteries, possibly even produced by Northvolt or PowerCo, could one day arrive in Europe. Thomas Schäfer, chief executive of the VW brand, has already blasted the EU’s failure to respond to the IRA.

With rising inflation and a tight market for raw materials, battery factory builders must rethink where to allocate scaring resources.

“With the Inflation Reduction Act, the US offers companies highly attractive incentives for investments in new plant and production,” Schäfer said. “In the EU, on the other hand, outdated and bureaucratic state aid rules are followed.”

The battery regulation complicates their thinking. The rules “will mean a lot of adjustment from both domestic and foreign players in the EU value chain,” said Giorgio Corbetta, the EU affairs director of the industry lobby Eurobat.

Doug Palmer reported.