US climate deal throws Canada a bone by modifying EV tax credits

The existential crisis facing Canada’s auto industry may finally be over.

Democratic US Senators Chuck Schumer and Joe Manchin have agreed to propose scrapping a tax credit plan that favored electric vehicles made in the United States.

Instead, the Senate majority leader and West Virginia moderate are proposing an amendment to Joe Biden’s climate and health bill that would expand appropriations to include all of North America.

To be eligible for the credits, the amendment would also require vehicle batteries to contain a certain percentage of material sourced from US “free trade” partners.

The legislation is still a long way off; It will surely anger Senate Republicans, who will be reluctant to hand Democrats a legislative victory with the midterm elections looming in November.

Manchin is a pivotal vote in the evenly divided Senate, but the bill, expected to reach the Senate floor next week, will still need 60 votes to avoid Republican filibuster tactics.

“I am very pleased to see that our message has been heard and is reflected in the bill,” Kristen Hillman, Canada’s ambassador to the United States, said in a statement.

Canada has been “relentless” in its efforts to convince Congress and the White House to abandon a plan “that discriminates against Canada and fractures the highly successful integration of our auto sector,” Hillman said.

“We have all brought the facts to the table.”

Just two weeks ago, Schumer and Manchin, who is wary of inflation and China, found themselves at an impasse on Biden’s health care and climate spending bill, a scaled-down version of Biden’s ambitious social spending effort. $2 trillion known as Build Back Better.

From Buy American to ‘North American’: Manchin-Schumer agreement modifies #EV tax credits. #US #CDNPoli #EVTaxCredits

Instead, they surprised official Washington on Wednesday night with a $700 billion deal that includes a host of spending measures for climate and energy projects, deficit reduction, prescription drugs and health premiums.

“Investments will be paid for in full by closing tax loopholes for wealthy individuals and corporations,” the senators said in a statement.

“The Inflation Reduction Act of 2022 will make a historic down payment on deficit reduction to fight inflation, invest in domestic energy production and manufacturing, and reduce carbon emissions by about 40 percent by 2030.”

Biden, a self-proclaimed champion of Buy American protectionism and organized labor, originally wanted to save the richest tax incentives for electric vehicles assembled in the US with unionized workers.

Since then, the federal government, the Canadian Embassy and stakeholders from across the Canadian automotive industry have been lobbying against the plan at every turn.

“This is a great example of how to raise critical bilateral issues with Americans and deliver results by focusing on solutions that benefit them,” said Flavio Volpe, president of the Toronto-based Auto Parts Manufacturers Association.

That meant illustrating, over and over again, the interconnected nature of the cross-border auto sector to drive home a simple point: that incentivizing only US-made electric vehicles would be little more than a self-inflicted shot in the foot.

Every automaker made in the United States, not to mention the companies that provide parts, materials, tools and equipment, would have felt the pain, Volpe said, and the United States would suddenly find itself without a vital competitive advantage in the global marketplace.

“When the United States targets Canadian industrial capacity, especially in the production of electric vehicles, lawmakers are hurting their own country’s ability to compete with China.”

This report from The Canadian Press was first published on July 28, 2022.

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