By Jarrett Renshaw and Philip Blenkinsop
May 18 (Reuters) - U.S. President Joe Biden's Inflation Reduction Act (IRA), cheered by some Democrats and the White House as a milestone in the fight against climate change, has also rankled foreign allies and global companies with its economic protectionism and prompted a new subsidy race with Europe.
Since the $739 billion in costs and revenues measure, which also tackles rising health care costs, deficit reduction and enforcement at the Internal Revenue Service, passed into law in August, the administration has issued a series of highly-watched rules on how the tax credits that power its climate investments are earned, including the Made in America requirements that upset Group of Seven (G7) leaders and global CEOs.
Here's the latest:
ELECTRIC VEHICLE FRICTION
Biden's domestic policy is embodied in working to electrify roadways across the United States. Getting more electric vehicles on the roads is central to his climate change agenda, ensuring the vehicles are "Made in America" is part of his commitment to restore manufacturing jobs.
But the IRA's consumer tax credits are tightly linked to the cars' and batteries being made in the U.S., roiling allies in Europe and Asia whose companies sell into U.S. markets.
After a feverish push by EU and Japanese leaders for Washington concessions, there seems to be a broad acceptance that the wording of the Act will not change, beyond possible flexibility on critical raw materials.
Instead, Japanese and U.S. officials struck a trade deal on electric vehicle battery minerals that expands eligibility for the $7,500 per vehicle EV tax credits in the IRA. The Biden administration is negotiating a similar agreement with the EU.
NEW RACE FOR SUBSIDIES
The promise of corporate tax credits has renewed interest in investing in the U.S., and Europe has responded with subsidies of their own.
Tesla Inc said in February that it had begun assembling batteries in Germany but will focus cell production in the United States thanks to IRA incentives, making it one of the first firms to declare a strategy shift prompted by the law.
Car makers Mercedes-Benz Group and Volkswagen-owned Audi are weighing new investments in the U.S. to take advantage of new federal subsidies, including new electric charging stations and expanding production of vehicles that qualify for U.S. tax credits.
Europe, looking for its own ways to attract domestic investment, loosened state aid rules for green industry projects in March; two electric vehicle battery makers recently announced they plan to spend around $11 billion on new factories there.