|
Around $369 billion of federal funds will flow into climate
change and energy security, boosting domestic capacity to
produce wind turbines, solar panels and electric vehicles.
However, the green investment comes with a metallic sting in the
tail.
The IRA extends and expands the existing electric vehicle (EV)
subsidy of up to $7,500 but conditions the tax credit on the
sourcing of the mineral content of the battery.
At least 40% of the critical metals in the battery - lithium,
nickel, cobalt and manganese - must come from the United States
or a Free Trade Agreement (FTA) partner. That percentage rises
to 80% in 2026.
Auto-makers lobbied hard against the linkage, arguing that China
is still too dominant and the United States too lagging in the
battery metals supply chain for it to work.
That, though, is the point. The link between subsidy and mineral
input is meant to accelerate the drive to build out domestic, or
at least friendly, critical minerals capacity and break China's
stranglehold.
MADE IN AMERICA
Auto-makers should "get aggressive and make sure that we're
extracting in North America, we're processing in North America
and we put a line on China," said Senator Joe Manchin, the
architect of the minerals sourcing component of the EV subsidy
scheme.
It's a daunting challenge.
Benchmark Mineral Intelligence estimates that
https://www.benchmarkminerals.com/
membership/what-does-the-us-inflation-reduction-act-mean-for-the-ev-battery-supply-chain/?mc_cid=3cf148c4a4&mc_
eid=87d38dc58b China currently has 81% of the world's battery
cathode manufacturing capacity, 75% of its cobalt refining
capacity and 59% of its lithium processing capacity.
The United States and Canada combined 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 https://www.state.gov/trade-agreements/existing-u-s-trade-agreements.
So too are other major mineral producers such as Australia,
Chile, Mexico and Peru.
However, not on the list are Argentina, currently experiencing a
lithium investment boom, or Indonesia, which is emerging as a
major battery metals production hub centred on its massive
nickel deposits.
Also not on the list is the European Union, which has already
said the new EV subsidy scheme may breach World Trade
Organization rules.
South Korea agrees. While battery manufacturers such as LG
Energy Solution and Samsung SDI should benefit from the
country's FTA status, they may themselves be dependent on
Chinese metal inputs.
Given the EU and South Korea are both members of the U.S.-backed
Minerals Security Partnership, a metallic alliance of "friendly
countries", there is likely to be some scope for compromise in
the devilish detail of the sourcing criteria.
The challenge for auto-makers to qualify for the subsidies still
remains immense, given the multi-year process of building new
mines, particularly in the United States.
INVESTMENT DRIVE
There is no shortage of government money to do so.
The Department of Energy was given $6 billion to invest in a
domestic battery supply chain by the Bipartisan Infrastructure
Law passed last year.
Applications for the first tranche of battery metals processing
funding closed at the start of July and the money is expected to
start flowing in the next couple of months.
The Department of Defense is separately investing in a $120
million rare earths separation plant in alliance with
Australia's Lynas Rare Earths. Rare earths are critical for
electric motors, meaning they are captured by the EV minerals
sourcing rules.
The IRA delivered a little more bounty by lifting the tax credit
to 30% for investment in any "advanced energy project", which
covers a wide spectrum of green transition technology.
Such huge U.S. government investment in mining and metals
processing hasn't been seen since the Second World War and the
Biden Administration has invoked a relic of the Korean War - the
Defense Production Act - to stimulate it further.
GREEN GAUNTLET
It should be a boom time for North America's mining and
processing industry.
But it's not. The number of applications to mine on federal land
has been falling for a decade, according to E&E News https://www.eenews.net/articles/biden-wants-minerals-but-mine-permitting-lags.
So too has the number of permits granted.
Mining companies and their shareholders have suffered bruising
permitting battles with environmentalists. All 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 the EV subsidy sourcing rules comes with
the promised carrot of mine permitting reform.
"We have reached agreement with President Biden and Speaker
Pelosi to pass comprehensive permitting reform legislation
before the end of this fiscal year," said Joe Manchin and Senate
Leader Chuck Schumer in a joint statement
https://www.democrats.senate.gov/
newsroom/press-releases/senate-majority-leader-chuck-schumer-d-ny-and-sen-joe-manchin-d-wv-on-wednesday-announced-that-they-have-struck-a-long-awaited-deal-on-legislation-that-aims-to-reform-the-tax-code-fight-climate-change-and-cut-health-care-costs.
Whether this amounts to tweaking or more fundamentally rewriting
the long-outdated General Mining Act of 1872 remains to be seen.
But there is a clear understanding that permitting is a major
log-jam in building out a full battery metals supply chain on
home soil.
Senator Manchin's EV scheme also challenges directly the
contradictions at the heart of the green movement, which wants
to move faster to a low-carbon world but doesn't support the
means of facilitating that transition.
The messaging seems to be that if you want government-subsidised
electric vehicles, you'll have to stop opposing the new domestic
metals capacity that will be needed to make them.
Whether it works remains to be seen.
But make no mistake. This EV subsidy scheme marks another big
movement in the reshaping of critical mineral supply chains.
The opinions expressed here are those of the author, a columnist
for Reuters
(Editing by David Evans)
[© 2022 Thomson Reuters. All rights
reserved.]
This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content.
|
|
