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Biden sees international backlash for boosting the EV battery industry in the U.S.

MARY LOUISE KELLY, HOST:

President Biden's Inflation Reduction Act signed last year included a whopping $369 billion earmarked for combating climate change. A big chunk of that money went to boosting the electric vehicle battery industry here in the U.S. But what the Biden administration did not expect was a backlash from allies. NPR international affairs correspondent Jackie Northam reports.

JACKIE NORTHAM, BYLINE: The Inflation Reduction Act, known simply as the IRA, was hailed by the Biden administration as a massive climate win for the U.S.

OLGA KHAKOVA: A lot of the U.S. energy leaders, whether it's government or private sector, expected this to be a celebration.

NORTHAM: That's Olga Khakova with the Atlantic Council's Global Energy Center. She says the IRA is supposed to help the clean energy transition and challenge China's lead in electric vehicle batteries. But Khakova says the Biden administration was surprised by how it was received in Europe.

KHAKOVA: When it first was rolled out, there was this tremendous pushback and worry that it is a direct competition to Europe's clean energy economy competitiveness.

NORTHAM: That's because the IRA offers big tax breaks for EV car and battery manufacturers if they're assembled in North America using materials domestically sourced or from countries which the U.S. has a free trade agreement. Europe, the U.K. and Japan are not on that list. Ebba Busch, Sweden's minister for energy, business and industry, says the IRA was creating a subsidy battle.

EBBA BUSCH: I would say that a lot of Europeans and Swedes including took offense of the Inflation Reduction Act and saw it as a high risk. And we're wondering, is this driving a wedge in between the U.S. and the EU?

NORTHAM: One fear is the IRA's tax breaks would lure away investments that would have gone overseas. Cullen Hendrix, with the Peterson Institute for International Economics, says many Asian companies, like Toyota and Hyundai, are delaying projects in Europe because of the IRA subsidies.

CULLEN HENDRIX: These are all Japanese or Korean firms that are investing in the United States to build EV batteries and create jobs for American workers. But it's not like the politicians in Korea or Japan or the European Union, for that matter, wouldn't on margin prefer that those jobs were back home.

NORTHAM: The Biden administration denies it's creating a subsidy race. Jose Fernandez, the undersecretary of state for economic growth, energy and the environment, says the Inflation Reduction Act will help U.S. and its allies secure new supply chains of critical minerals, such as magnesium and cobalt, that are used in lithium-ion batteries.

JOSE FERNANDEZ: We will need, for example, 42 times the amount of lithium that we use today and then 25 times the amount of graphite.

NORTHAM: Fernandez says the U.S. can't do that without its partners. And it's taking steps to address their concerns.

FERNANDEZ: From Day 1, we said we will sit down with you. We will talk things through. This is not - and this is important - this is not a zero-sum game.

NORTHAM: The U.S. is partnering with more than a dozen allies to secure minerals. An agreement with Japan would take advantage of the IRA tax breaks, and the U.S. is working on a similar pact with the EU. Swedish Minister Busch says there's less tension now between allies over the Inflation Reduction Act.

BUSCH: I think that we've managed to calm down. We see the positive with, really, the U.S. and the Biden administration being back on the global arena for fighting climate change. And it will increase the possibility of trade between us.

NORTHAM: The EU is looking at its own legislation to secure supplies of critical minerals. There are also calls for broader subsidies by member nations, all reminiscent of the IRA.

Jackie Northam, NPR News. Transcript provided by NPR, Copyright NPR.

NPR transcripts are created on a rush deadline by an NPR contractor. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.

Jackie Northam is NPR's International Affairs Correspondent. She is a veteran journalist who has spent three decades reporting on conflict, geopolitics, and life across the globe - from the mountains of Afghanistan and the desert sands of Saudi Arabia, to the gritty prison camp at Guantanamo Bay and the pristine beauty of the Arctic.