Legislation passed last week established preferential tax treatment for electric vehicles assembled anywhere in North America. This North American-made approach generated some headlines by bringing an amicable resolution to a months-long Canada-U.S. standoff. Less noticeable in the bill was a pot of money containing hundreds of millions of dollars to start a new domestic industry in components for electric vehicle batteries. The ripple effects could eventually be felt across the border, to remote Canadian mining communities. The issue is the growing concern of the US about its dependence to its great geopolitical rivalChina, for the critical minerals that power future vehicles. President Joe Biden is invoked the US Defense Material Production Act earlier this year that allows him to fund projects that would reduce dependence on US adversaries. Now it’s getting the funds to do it: US$500 million is available in this incoming law, after another US$600 million tucked in recent Ukraine help account, over an older one several billion dollars loan program. Those funds are now available to Biden to implement his stated plan to develop new suppliers for lithium, nickel, cobalt, graphite and manganese, as well as heat pumps.
An “opportunity” for Canada
Could some of that money create new battery component projects in Canada? Canadian officials hope it will. They point to a recently released White House document Websitefrom transnational panel: It specifically mentions that Canada is listed as a domestic source under the US Defense Production Act and says it creates potential opportunities for cooperation in critical minerals. “There is an opportunity [the bill is] structured — to take advantage of it,” Kirsten Hillman, Canada’s ambassador to Washington, told CBC News. “This will boost domestic production [in the U.S.]. It also includes Canada as a domestic source. So we look forward to joint opportunities.” Princeton University’s Zero Lab estimates that the incoming budget will reduce US emissions by 42 percent. That’s not as ambitious as an earlier version of the bill that hasn’t passed, known as Build Back Better, or at the level that scientists say would stop global warming, but it’s a big jump from the current emissions trajectory. (CBC News) The larger story of the new bill, which Biden will soon sign, is that it is by far the most significant US federal action against climate change. It passed with relatively little media coverage last Friday, with the country’s politics distracted by the FBI’s investigation into former President Donald Trump’s home.
What’s in this big climate bill?
However, analysts who have studied the bill have predicted a significant impact on carbon emissions through the more than Cdn$400 billion in tax credits and subsidies for a wide range of energy projects. These estimates predict that US greenhouse gas emissions will decline faster now than at any point 31 percent and 42 percent from 2005 levels, which would bring the US significantly closer to meeting its 2030 target under the Paris Agreement. The so-called deflationary law would remove one billion tons of greenhouse gases from the atmosphere, says Princeton University’s Zero Lab—that’s the equivalent of cutting 2 percent of all current global emissions. But there’s uncertainty in the forecasts: One reason estimates vary so much is that it’s unclear how quickly new energy projects will start. WATCHES | The US EV tax credit changes a relief for Canada’s auto industry:
The US EV tax credit changes a relief for Canada’s auto industry
Canadian automakers breathed a sigh of relief after a U.S. climate bill that would have expanded consumer tax credits for American-made electric vehicles to include North American-made electric vehicles, batteries and critical minerals. Here’s an example of that uncertainty: The much-discussed electric vehicle credit. For nearly a year, it was a major irritant in Canada-US relations. An earlier version of the bill, formerly known as Build Back Better, only allowed vehicles assembled in the US to access certain tax credits.
What happened to that EV tax stimulus?
This sparked threats of trade retaliation. Ottawa has warned that the bill violates the new North American trade deal and will wipe out Canadian auto jobs and investment. Biden speaks on climate change and clean energy at the Brayton Power Station on July 20 in Somerset, Mass. (Evan Vucci/The Associated Press) The head of the Automotive Parts Manufacturers Association of Canada, Flavio Volpe, called the friendlier language in the new, final, relief bill for Canadian jobs: “It’s a dodging bullet,” he said. “Probably more than a missile dodged.” But wait. There is one important caveat to the new, friendlier language. American automakers are now calling the new credit virtually worthless under current circumstances. For an electric car to qualify for the maximum US$7,500 in the new version of the credit, the car’s battery will increasingly need North American components: from 50 percent of the battery in 2024 to 100 percent in 2028 . The problem? North America doesn’t produce that many battery components. “[No vehicles] they will qualify for the full credit when additional supply requirements go into effect. Zero,” said a letter by a US auto industry lobby group. Refined tellurium is shown at the Rio Tinto Kennecott refinery Wednesday, May 11, 2022, in Magna, Utah. The Utah copper mining company will begin manufacturing the rare mineral used in solar panels that was dumped with other mining waste. (Rick Bowmer/The Associated Press) An analysis for the nonpartisan US Congressional Budget Office is displayed that only a small percentage of vehicles will end up receiving the tax credit. In a 10-year budget projection for the bill, CBO estimated that the U.S. Treasury Department would end up paying enough to deliver the full credit to just over 1 million vehicles in a decade. This amounts to less than one percent of the estimated 150 million total US vehicle sales during those 10 years. During this period, one increasing percentage of the vehicles to be sold will be electric. The bottom line: Very few cars are expected to have enough North American components to qualify. That’s where Canadian mining comes in. A key architect of the final version of the bill, US Senator Joe Manchin, has repeatedly expressed skepticism about the original plan. He said there was no point in rushing into the era of electric vehicles while America’s main rival still has a stranglehold on vital inputs. This map shows the locations of early exploration projects currently underway in Ontario for critical minerals. It appears in the provincial government’s new strategy document for the sector released earlier this year. (Government of Ontario) But after Manchin visited Canada earlier this year, he opined that the two countries should work more closely together on minerals. This new bill appears designed to do just that, through tax credits for North American vehicles and cash for vital mineral projects. If US mining companies want access to some of that money, they can make proposals to the US government.
Quebec Mining Project
A company looking at US public funds happens to have a significant investment in Quebec. Keith Phillips, president of North Carolina-based Piedmont Lithium, said it is not yet clear what conditions the US government will set and what projects it wants to finance. More details on the administration of the bill will be revealed in regulations to be drawn up in the coming months. Ore is hauled from Kennecott’s Bingham Canyon copper mine Wednesday, May 11, 2022, in Herriman, Utah. Rio Tinto will begin producing tellurium, a rare mineral used in solar panels that was dumped with other mining waste, at the Kennecott refinery. (Rick Bowmer/The Associated Press) “I’m not sure anyone is entirely clear about what the priorities are,” Phillips said in an interview. His company is a minority investor at a Quebec lithium mine now slated to begin production next year. The next goal is to build a plant in Quebec for value-added processing with the majority partner, Australia’s Sayona Mining. The project is in its infancy and a location has not yet been selected. Phillips said a similar plant would cost US$600 million to build in the US and said public money is a lifeline for projects that banks have little history of backing. “Of course it would be a priority,” he said of the potential for US federal loans. “If government aid could be involved, it’s very helpful.”
Building a battery industry in North America
The Canadian government also recently budgeted 4 billion dollars for the development of the country’s critical mineral sector. However, North America starts far behind. Canada, for example, has a tiny share of the world’s discovered lithium, cobalt and manganese deposits. Brian Kingston, head of the Canadian Automobile Manufacturers Association, said he was relieved by some of the changes in the US bill. But he remains concerned — that automakers can’t meet Ottawa’s zero-emissions sales targets without significant improvements in charging capacity, energy infrastructure and sales incentives. As for a North American battery supply chain, he said:[It] it won’t appear overnight.”
