What the US 2024 elections mean for the IRA and EV battery supply chain

The Inflation Reduction Act (IRA) has changed the battery landscape in the US and around the globe. Since the beginning of President Biden’s term, companies have announced well over $100 billion in manufacturing investments to develop the United States’ battery supply chain. But the Act has been under fire, and it is likely that an election year could turn up the rhetorical heat.

Among other things, the incentives laid out in the IRA have been directed at developing manufacturing capacity for electric vehicles (EVs) and clean technologies while guiding US commercial entities toward hedging against a more geopolitically fractured world.

Notably, the IRA 30D New Clean Vehicle Credit incentivises the purchase of EVs, but with restrictions over where critical minerals and battery components may be sourced for the finished vehicle to qualify. In this way, the IRA is also being used to secure the American development of next-generation clean technologies from risks posed by geopolitical adversaries, mainly China.

The implementation and guidance around IRA incentives have not been without controversy. Republican and centrist Democratic lawmakers, like Joe Manchin, believe that the Biden Administration is excessively incentivising EV sales while watering down provisions that keep American dollars out of the hands of Chinese firms.

Republican Senator Lisa Murkowski recently questioned the Deputy Secretaries of Energy and Treasury during a Senate Hearing, raising her concerns that federal loan programs and tax incentives are supporting overseas extractive industries while leaving mining assets in her home state behind.

The likelihood is high that would-be Republican presidents and political leadership will take aim at the Biden Administration’s crowning achievement this election year. Already, former President Donald Trump has stated the intention to “gut” the IRA and members of the conservative group ‘America First Policy Institute’ have said that changes to the IRA would be a “Day 1” issue for a Republican or Trump presidency. “Project 2025,” the political playbook put together by the conservative Heritage Foundation as a guide for a Republican administration, advocates repealing the IRA.

A full “gutting” through the US Congress and legislative system would be challenging. However, the executive authority would allow for changes to the interpretation and implementation of the IRA that could have material impacts on the EV battery supply chain.

Repealing the IRA through the US Congress is a tall order

The extent to which former President Trump or any other president-elect would or could roll back IRA clean energy provisions would be determined by the use of executive power, political will, and the parameters of the US legislative and rulemaking processes.

Because the IRA is a law enacted by the US Congress, repealing the act of congress or altering it fundamentally would require Congress to pass new legislation that either explicitly or implicitly repeals the original act.

As all bills do in order to become an act of congress, the new bill would have to pass both the House and the Senate by a simple majority before being signed into law by the president. Nearly a year from the US elections, it is impossible to say whether the Republican party will sufficiently control Congress to put an act like this onto the next president’s desk.

Executive authority offers a clearer path

However, beyond legislation, there are ways that a new president could opt to change the implementation of IRA programs. Two potential areas where a Republican president could seek to alter the IRA without passing new legislation are in the areas of loans and grants and in the executive branch guidance on interpreting the rules of the IRA.

While a new president could not claw back designated funds (for example, for the Department of Energy (DOE) loans and grants program or the budgeting allocations for tax credits), a new president could select a head of the DOE who could elect not to sign off on new grants and loans. During Trump’s first term in office, his Administration initially held back billions in DOE loans before an about-face months later when it reopened them for the development of critical minerals.

Additionally, while the law clearly sets out tax credits for things like advanced manufacturing (45X) and clean vehicles (30D) many of the specifics on eligibility have been left to executive agencies like the US Treasury, IRS, and DOE to craft while soliciting comments from industry.

Issues around who constitutes a foreign entity of concern (FEOC) and cannot participate in the incentivised EV supply chain or which types of producers qualify for advanced manufacturing production tax credits are decided through the “interpretive rules” process where executive agencies determine how to interpret and apply the letter of the law.

Such interpretive rules do not have the force of law and, therefore, do not have to go through the same arduous legislative process as the law itself. A Republican president could push the executive agencies toward reworking guidance and reinterpreting the law.

If Donald Trump were reelected he could instruct the US Treasury, IRS, and DOE to rework its definition of a foreign entity of concern as it applies to the 30D tax credit. The rules could be made more stringent to exclude more firms with links to Chinese parties. Such a decision would be politically appealing as it would simultaneously be marketed as a move that is “tough on China” and restrict the number of electric vehicle purchases that are subsidised by the state.

Pain from an IRA repeal would hit close to home for Republican lawmakers

With the push of the IRA, Republican states have received billions in clean energy funding and added thousands of clean energy jobs. Disassembling the driver of these positive economic outcomes in the so-called “battery belt” would present some obvious political risks for lawmakers.

The IRA is also enabling US global leadership in next-generation energy technology. Benchmark has tracked how the IRA has “supercharged” the US’ gigafactory capacity pipeline, driving it to overtake Europe for the first time in 2023. Both the US and Europe still trail behind China’s capacity extensions, but the IRA is helping the US in the right direction. Tough talk on China is par for the course in a US election year, and it may behove leadership to consider the benefits of a policy meant to blunt the manufacturing edge of competitors.

Real test of the IRA’s endurance will happen after the election

With the IRA being one of the key components of the “Bidenomics” strategy that President Joe Biden is likely to campaign on this year, it will certainly be in the sights of his political opponents to attack.

The real test of the IRA’s endurance will happen after the election. The case in which the Republican party takes the Presidency, House, and Senate presents the highest risk to the future of the IRA. However, even then, there are real reasons that would give Republican lawmakers pause before repealing the IRA, most notably the billions of dollars in investment that the IRA has driven into Republican states.

The more likely scenario is that President Trump or another Republican president, regardless of the makeup of Congress, would use the executive authority to choose agency heads or issue executive orders which direct executive officers to clarify or further existing laws to alter the implementation of IRA incentives.

As with all things in an election year, time will tell.

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