With or Without Tax Credits, a US-Indonesia Critical Minerals Agreement Could Raise Environmental Standards and Diversify Supply

Full Title: With or Without Tax Credits, a US-Indonesia Critical Minerals Agreement Could Raise Environmental Standards and Diversify Supp
Author(s): Tom Moerenhout
Publisher(s): Center on Global Energy Policy at Columbia University SIPA
Publication Date: November 21, 2024
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Description (excerpt):

Automakers must source critical minerals from the United States or free trade agreement (FTA) countries to qualify for the Inflation Reduction Act’s $7,500 tax credit for electric vehicles. While the tax credit is likely to be significantly altered, or eliminated altogether, under the Trump administration, the history of the tax credit sheds light on potential supply chain vulnerabilities for the US and ways to address them through critical minerals agreements. And ultimately, it would not be in the interest of US automakers, aside from Tesla, to abolish the 30D tax credit, since abolishment would make it more dicult for automakers such as Ford, GM, and Stellantis to build global competitiveness in the EV transition.

The United States has FTAs with 20 countries, including key battery supply chain countries like Chile and South Korea. However, several countries in the battery supply chain do not have FTAs with the United States. Japan, a key ally, does not, and its exports would, as a result, not comply with the content requirements in the Inflation Reduction Act (IRA). To remedy this, the United States and Japan quickly signed a free trade agreement limited to critical minerals in March 2023. The critical minerals agreement (CMA) was born. While it finds it origins in the IRA, the conduct of issue-specific trade agreements can help US supply chain resilience under a Trump administration as well.