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Congress “Net-Zeroes” in on Energy Security, Supply Chains for Critical Minerals – A Look at the Inflation Reduction Act

As countries and corporations continue the global quest towards net zero carbon emissions, the U.S. Congress has passed what some consider landmark legislation to address climate change and bolster our nation’s economic and national security.

The clean energy provisions in the Inflation Reduction Act negotiated by Senators Chuck Schumer (D-NY) and Joe Manchin (D-WV) — which passed the U.S. Senate on August 7, 2022, was approved by the U.S. House of Representatives on August 12, 2022 and is now headed for U.S. President Joe Biden’s desk – include combined investments of $369 billion aimed at reducing carbon emissions by roughly 40% by the end of this decade.

A swath of significant clean energy tax credits aims at increasing domestic energy production while at the same time accelerating energy innovation abroad.

Among them are:

  • $30 billion in production tax credits to accelerate domestic critical minerals processing as well as manufacturing of batteries, solar panels and wind turbines
  • $10 billion in investment tax credits to build manufacturing facilities for EVs, wind turbines and solar panels
  • $500 million to use the Defense Production Act to accelerate critical mineral production among other defense priorities
  • $2 billion in retooling grants for existing auto manufacturing facilities to transition to the manufacture of EVs
  • Up to $20 billion in loans for the construction of new clean vehicle manufacturing facilities
  • $2 billion in materials science research funding for the National Labs

The package further includes funding for tax credits and rebates for consumers buying electric vehicles, installing solar panels or making other energy-efficiency upgrades to their homes, including, a credit of $4,000 for lower-and middle-income individuals purchasing used EVs, and up to $7,500 tax credits for EVs.  These represent a renewal of the existing $7,500 electric vehicle Federal tax credit starting in January of 2023, and carrying it through until the end of 2032. The former 200,000-vehicle cap is removed and all manufacturers will have access to the credits if they comply with the other requirements in the package.

However – and of considerable interest for followers of ARPN — a new requirement is that qualified cars must be assembled in North America, and adhere to mandated “escalating levels of critical minerals to be sourced from the U.S. or a country with a free-trade agreement with the U.S.”

Green Car Congress summarizes the escalating levels of sourcing requirements for applicable battery critical minerals (with the bill defining an extensive list of applicable minerals) as follows:

“40% for a vehicle placed in service before 1 January 2024;

50% for a vehicle placed in the service during calendar year 2024;

60% for a vehicle placed in service during calendar year 2025;

70% for a vehicle placed in service during calendar year 2026; and

80% for a vehicle placed in service after 31 December 2026.

The bill places similar restrictions on the percentage of value of the components, but leading up to a 100% requirement for vehicles placed in service after 31 December 2028.”

While experts like John Adams, U.S. Army brigadier general (ret.), believe that the sourcing requirements for the battery materials contained in the package are key to addressing “emerging energy security vulnerabilities before they are intractable crises,” others have cautioned that because the auto industry is so heavily reliant on battery materials and components from China – as evidenced by the latest supply deals inked by Tesla – the requirement will represent an almost insurmountable challenge. Says Simon Moores, chief executive of Benchmark Mineral Intelligence:

“Considering it takes seven years to build a mine and refining plant but only 24 months to build a battery plant, the best part of this decade is needed to establish an entirely new industry in the United States.” 

The challenge is certainly real as, in the words of General Adams: “China has worked diligently to turn mineral supply chains into an economic leg up but also an enormous source of geopolitical leverage — not unlike how Russia has leveraged its energy trade with Europe.”  He maintains however, that “the mineral sourcing requirements in the reconciliation bill – coupled with other incentives to encourage domestic mining, mineral processing and recycling– are precisely the bold measures needed to address this alarming vulnerability.” 

Also of note for followers of ARPN, the package places an emphasis on a concept which, as Reuters columnist Andy Home recently suggested, “could allow some to move beyond [carbon] neutrality to become net carbon negative:” a set of incentives to substantially expand carbon capture technologies that capture carbon dioxide and either store it underground or ship it for reuse.

As ARPN previously pointed out“experts believe that harnessing the natural chemical reactions that convert captured CO2 into rock and store it underground, as currently done at large scale by carbon mineralization company Carbfix at its Coda Terminal in Iceland (see our piece on the issue here), could become an important asset in the push to meet global climate goals.”

The emphasis on carbon capture in the package is consistent with the U.S. Department of Energy’s recent $2.2. million award to fund to a Rio Tinto-led project with joint-venture partner Talon Metals Corp. at the Tamarack Nickel Project in central Minnesota to achieve carbon capture by a process that mineralizes the carbon in rock – a process considered far more stable than methods that inject carbon, where it remains vulnerable to seepage and fracturing due to earthquakes.

Some caution, however, that “while the new bill may appear helpful on a theoretical basis, both carbon capture and storage and direct air capture could face some serious headwinds over the course of the next decade and beyond,” possibly in the form of opposition to the construction of necessary pipelines.

Any new law this wide-ranging will require federal guidance on the way to implementation – and spark follow-on efforts by resource development opponents to roll-back some elements even as resource development proponents look to build on this new legislative initiative.

All of which is good reason to be hopeful that the bill’s requirements will help jumpstart a more comprehensive push towards domestic sourcing and processing, onshoring, friend-shoring, and harnessing the materials science revolution, which are important components of a comprehensive “all-of-the-above” resource development approach.

As the bill proceeds to the president for signature, ARPN will continue to monitor what may well be, as General Adams phrases it“a critically important leap forward to build the secure, responsible industrial base our economy and national security needs.”