Keep green initiatives focused on the environment

As lawmakers continue to devise ways to achieve climate change and environmental policy priorities, they must consider U.S. international trade obligations that could impede implementation of the proposed measures.

To ensure compliance with international trade rules while achieving intended climate change outcomes, legislators should craft all measures that address environmental issues solely for the purpose of promoting and achieving those goals, not responding to them. also to other political priorities.

In the House-passed version of the Build Back Better (BBB) ​​Act, Democrats — in a purported effort to promote green technologies and reduce emissions — proposed increasing the federal tax credit for electric vehicles ( EV) from the existing maximum credit of $7,500 to a maximum credit of $12,500, provided that (among other requirements) the consumer purchases a qualified electric vehicle manufactured in a U.S. factory where workers are represented by a union and that the car battery meets national content requirements.

However, the maximum credit is only $8,000 if the vehicle is not ultimately assembled in a unionized US factory, and only $7,500 if the car battery is not made in the United States. Additionally, the bill completely excludes imported vehicles from credit eligibility beginning in 2027.

While this language would support some of House Democrats’ other policy goals, including strengthening unions, these tax credit changes would not only undermine their climate goals, but actually violate U.S. “national treatment” obligations. that is, not to discriminate against goods from other countries, a commitment the United States has made under the World Trade Organization and other bilateral trade treaties.

If the U.S. offers a higher tax credit only for cars produced in U.S. union facilities with U.S.-made batteries, the result could be retaliatory tariffs targeting U.S. exports imposed by Commercial Partners.

Some may argue that if parts of a measure address environmental concerns, that is enough to shield the United States from any international treaty obligations. But it is not so simple: to successfully rely on the environmental exemptions included in these agreements, the measure must be designed very narrowly.

Labor has no connection to the environment, and tying the electric vehicle tax credit to labor requirements makes the credit appear “a means of arbitrary or unjustifiable discrimination” or a “restriction trade disguised as international trade.

Alternative Policy Proposals

Below, we suggest policy alternatives to the proposed federal tax credit in the BBB Act that would focus solely on accelerating the shift to electric vehicles and meeting environmental and emissions reduction goals, thereby not violating international trade commitments of the United States or otherwise risk mitigating their impact. of the measure:

1. Provision of an EV consumer tax credit that is intended solely to encourage EV purchases.
As noted above, the federal government currently offers a $7,500 tax credit to consumers when they purchase an EV. This tax credit, however, is subject to a phasing-out threshold per automaker and is not available for electric vehicles produced by automakers that have already reached the cap of 200,000 electric vehicles sold.

The easiest way to apply an expanded tax credit would be to remove or lift the cap on the existing tax credit for electric vehicle purchases, ensuring that it remains available for all vehicles and consumers.

Alternatively, the federal government could expand the electric vehicle tax credit in a manner similar to the BBB Act proposal (which also eliminated the cap), so long as such action does not also include provisions linked to other policy goals, such as tying credit to production in unionized US factories and excluding electric vehicles from our trading partners.

2. Additional support and promotion of electric vehicle infrastructure development.
The Infrastructure Investment and Jobs Act (IIJA), signed into law in November 2021, provided $7.5 billion for investments in electric vehicle charging infrastructure that will help develop a charging network in nationwide, including in rural, disadvantaged and hard-to-reach areas. However, significant additional funding and policy updates – both at the state and federal levels – are needed to ensure that the construction of residential charging infrastructure and public charging networks is sufficient to support the shift to electric vehicles and to convince Americans that they won’t. be inconvenienced by the purchase of an electric vehicle rather than a gas-powered vehicle.

These proposals, in our view, would directly achieve emission reduction targets and protect the environment more generally through the promotion of electric vehicles without violating international trade laws. Otherwise, our trading partners may view these policies simply as a means of discriminating against their products or as a disguised restriction on world trade.

Meeting these business requirements will be essential to developing long-term, effective, and sustainable policies to truly promote green initiatives in the United States.

This article does not necessarily reflect the views of the Bureau of National Affairs, Inc., publisher of Bloomberg Law and Bloomberg Tax, or its owners.

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Author Information

Stephen Kho is an international business partner at Akin Gump, where he divides his time between Washington DC and Geneva. He advises public and private sector clients on international trade and investment matters, including World Trade Organization dispute settlement, free trade agreements and bilateral treaty negotiations. investment.

Kenneth J. Markowitz is a partner in Akin Gump’s Washington, DC office and co-lead of the firm’s climate change group. He advises multinational clients on greenhouse gas mitigation, carbon pricing, environmental markets, regulatory compliance and international negotiations.

sprinkle sarah is an associate in the international trade practice at Akin Gump. She advises U.S. and foreign clients on a variety of international trade law and policy issues related to unfair trade practices, free trade agreements, and compliance with U.S. and international trade laws and regulations.

Gabriel Harrison is a Senior Public Policy Specialist within the Akin Gump Law and Public Policy practice. He supports lawyers and policy advisors within the practice with the analysis of federal policy actions and legislation related to climate change, international trade and the global supply chain.

Stacey H.Mitchellpartner of Akin Gump, and Thor Petersona partner of the firm, contributed to this Insight.

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