About $369 billion in federal funds will flow to climate change and energy security, boosting domestic capacity to produce wind turbines, solar panels and electric vehicles. However, the green trim comes with a metallic sting in the tail. Sign up now for FREE unlimited access to Reuters.com Register The IRA expands and extends the existing electric vehicle (EV) subsidy of up to $7,500, but makes the tax credit conditional on the supply of the battery’s mineral content. At least 40% of the battery’s critical metals – lithium, nickel, cobalt and manganese – must come from the United States or a Free Trade Agreement (FTA) partner. This percentage increases to 80% in 2026. Automakers have lobbied hard against the tie-up, arguing that China is still too dominant and the United States is too far behind in the battery metal supply chain to make it work. But that is the point. The link between the subsidy and mineral inflow is meant to accelerate the effort to develop domestic, or at least friendly, critical mineral capacity and break China’s stranglehold.
MADE IN AMERICA
Automakers will have to “get aggressive and make sure we mine in North America, refine in North America and put a line in China,” said Sen. Joe Manchin, the architect of the EV’s mineral supply component. subsidy regime. read more It’s a daunting challenge. Benchmark Mineral Intelligence estimates that China currently has 81% of the world’s battery cathode production capacity, 75% of cobalt refining capacity and 59% of lithium processing capacity. The United States and Canada together refine just 3.0% and 3.5% of the world’s lithium and cobalt respectively, and have even less battery cathode capacity. Canada is an FTA partner. So are other major mineral producers such as Australia, Chile, Mexico and Peru. However, not included in the list are Argentina, which is currently experiencing a boom in lithium investment, or Indonesia, which is emerging as a major battery metal production hub centered on its vast nickel deposits. Also not on the list is the European Union, which has already said the new EV subsidy system may violate World Trade Organization rules. read more South Korea agrees. While battery makers such as LG Energy Solution ( 373220.KS ) and Samsung SDI ( 006400.KS ) should benefit from the country’s FTA status, they may themselves become dependent on Chinese metal inputs. Given that the EU and South Korea are both members of the US-backed Minerals Security Partnership, a metals alliance of “friendly countries”, there is likely to be some room for compromise on the nitty-gritty details of procurement criteria. read more The challenge for automakers to qualify for the subsidies remains enormous, given the years-long process of building new mines, particularly in the United States.
INVESTMENT PROVISION
There is no shortage of government money to do this. The Energy Department received $6 billion to invest in a domestic battery supply chain from the Bipartisan Infrastructure Act passed last year. Applications for the first tranche of battery metal processing funding closed in early July, and the money is expected to start flowing in the next two months. The Ministry of Defense is separately investing in a $120 million rare earth separation unit in an alliance with Australia’s Lynas Rare Earths ( LYC.AX ). read more Rare earths are vital to electric motors, meaning they are captured by EV fossil sourcing rules. The IRA provided a bit more generosity by raising the tax credit to 30% for investments in any “advanced energy project”, which covers a wide range of green transition technology. Such massive US government investment in metals mining and processing has not been seen since World War II, and the Biden administration invoked a relic of the Korean War — the Defense Production Act — to boost it further. read more
GREEN GLOVE
It should be a boom time for the North American mining and manufacturing industry. But it is not. The number of applications to mine on federal land has been declining for a decade, according to E&E News. The same applies to the number of licenses granted. Mining companies and their shareholders have been bruised by allowing battles with environmentalists. Too often they have been on the losing side with major projects such as Antofagasta’s Twin Metals copper and nickel mine in Minnesota blocked. However, the stick of EV subsidy procurement rules comes with the promised carrot of enabling reform. “We have reached an agreement with President Biden and Speaker Pelosi to pass comprehensive authorization reform legislation before the end of this fiscal year,” Joe Manchin and Senate Majority Leader Chuck Schumer said in a joint statement. Whether this amounts to tweaks or a more fundamental rewrite of the antiquated General Mining Act of 1872 remains to be seen. However, there is a clear understanding that licensing is a major problem in establishing a full battery metal supply chain on the country’s soil. Senator Manchin’s EV plan also directly challenges the contradictions at the heart of the green movement, which wants to move faster to a low-carbon world but does not support the means to facilitate that transition. The message seems to be that if you want government-subsidized electric vehicles, you should stop objecting to the new domestic metal capacity it will take to build them. Whether it works remains to be seen. But make no mistake. This EV subsidy program marks another major move in reforming critical mineral supply chains. The views expressed here are those of the author, a Reuters columnist Sign up now for FREE unlimited access to Reuters.com Register Edited by David Evans Our Standards: The Thomson Reuters Trust Principles. The views expressed are those of the author. They do not reflect the views of Reuters News, which, in accordance with the Trust Principles, is committed to integrity, independence and freedom from bias. Andy Home Thomson Reuters Senior metals columnist who previously covered industrial metals markets for Metals Week and was EMEA commodities editor at Knight-Ridder (then Bridge). He started Metals Insider in 2003 and sold it to Thomson Reuters in 2008. He is the author of ‘Siberian Dreams’ (2006) about the Russian Arctic.
