Since the Biden Administration’s Inflation Reduction Act (IRA) became law earlier this year, EU leaders have raised concerns over the applicability of the bill’s electric vehicle (EV) tax credit only to vehicles made in North America. The EU argues that excluding European cars from the tax incentive is a protectionist measure. The bloc’s policymakers have spoken of potential retaliation with their own green subsidies bill to benefit European car companies. The U.S. wants to cooperate with the EU but is apprehensive about having to adjust its laws to accommodate the EU’s demands.

The transatlantic partners are currently discussing an exemption in the IRA that would allow the tax credit to include European EVs. On December 29, 2022 the U.S. Department of Treasury released a white paper indicating it would adopt an expansive definition of which countries have a “free trade agreement” with the U.S., which would help European car companies qualify for at least a portion of the credit. The EU welcomed the decision but said it still had concerns about the full $7,500 EV tax credit. Treasury will propose a more detailed rule on the tax credit in March of 2023.

This question will resolve positively if the White House or a U.S. government agency announces that the U.S. and EU have agreed to make an exemption in the IRA that fully includes EVs from the EU in the tax credit incentive by April 28, 2023.

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