BRUSSELS (AP) — A new U.S. tax credit aimed at encouraging Americans to buy electric vehicles could backfire and limit consumer choices amid concerns it looms over European Union manufacturers, the EU’s trade chief said on Thursday.

Valdis Dombrovskis held a virtual meeting with his US counterpart Katherine Tai to address a wide range of trade issues, including the tax credit provision.

Democrats included the credit in the Climate and Health Care Policy Act passed last month as a way to encourage domestic production of batteries and electric vehicles. But European and South Korean manufacturers, which sell millions of vehicles in the United States, have threatened to file a complaint with the World Trade Organization.

The law provides for a tax credit of up to $7,500 that could be used to defray the cost of purchasing an electric vehicle. But to receive full credit, the electric vehicle must contain a battery made in North America with 40% of the metals mined or recycled on the continent.

The European Commission said parts of the law can help tackle climate change by accelerating the transition away from fossil fuels, but the EU executive said it was concerned about the “potential discriminatory nature of the provision on the tax credit for electric vehicles”.

“While the EU aims to cooperate closely with the US in climate action, green measures must not be designed in a discriminatory and WTO-inconsistent way,” he said.

Dombrovskis recalled during the call that “discrimination against European manufacturers makes it much more difficult for them to contribute to the electrification of vehicles in the United States, reduces the choice of American consumers when they want to buy electric vehicles”.

The European Commission said both sides agreed to continue discussions on the matter.


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