There’s been a lot of discussion about the new Clean Vehicle Credit in the Inflation Reduction Act of 2022 that is making its way toward Joe Biden’s desk (having left the Senate, it’s now just got to get through the House of Representatives). However, for all of the simple — and mostly good — changes to the existing US EV tax credit, there is one giant element of the legislation that is a bit difficult to decipher, and even harder to understand the implications of.
Let’s rewind for a bit first. For the past few years, I’ve been interviewing EV battery mineral experts about the battery supply chain and automaker commitments. Aside from other concerns I won’t delve into here (i.e., not enough firm contracts or investments to get new mines going), I think the #1 issue of concern has been the near monopoly China has on the supply, and especially processing, of critical minerals used in battery cells (battery-grade lithium, graphite, cobalt, etc.). EV batteries are not being produced without ingredients that come out of China.
Then you’ve got the matter of nickel, which makes up a large portion of many EV batteries and often comes from Russia. But, frankly, the Chinese dominance of other battery elements is so large that there’s no need to even get into the nickel matter (which is much easier to resolve).
Let’s look at the details of the IRA text and put it in normal English without all of the confusing “choose your own adventure” loops.
No Tax Credit For EVs Using “Critical Minerals” From “Foreign Entities of Concern”
On the topic of foreign entities of concern, a key portion of the legislation is on page 390 of the IRA The text states:
‘‘EXCLUDED ENTITIES.—For purposes of 2 this section, the term ‘new clean vehicle’ shall not include—
‘‘(A) any vehicle placed in service after December 31, 2024, with respect to which any of the applicable critical minerals contained in the battery of such vehicle (as described in subsection (e)(1)(A)) were extracted, processed, or recycled by a foreign entity of concern (as defined in section 40207(a)(5) of the Infrastructure Investment and Jobs Act (42 U.S.C. 18741(a)(5))), or
‘‘(B) any vehicle placed in service after December 31, 2023, with respect to which any of the components contained in the battery of such vehicle (as described in subsection (e)(2)(A)) were manufactured or assembled by a foreign entity of concern (as so defined).’’.
In plain English, if an EV battery includes minerals that come from a “foreign entity of concern,” that EV is not eligible for the tax credit. And, yes, this does include China.
But, come on, can’t you make a battery without these minerals coming from China? No, not really. China processes/refines 59% of the industry’s lithium, 68% of its nickel, 73% of its cobalt, and even 100% of its graphite.
Who owns the Earth? The scramble for minerals turns critical – @thetimes ft Benchmark’s @hjesanderson
🌏 China controls the metals that are vital to the modern economy. Is the West’s fightback too late? #EV #Lithium #Cobalt #Nickel #Graphite #Manganese
— Simon Moores (@sdmoores) May 1, 2022
What Are Identified As “Critical Minerals” In EV Batteries?
Well, let’s not jump to conclusions. What are “critical minerals” anyway?
It turns out, critical minerals are … pretty much everything you’d find in an EV battery or motor: aluminum, antimony, barite, beryllium, cerium, cesium, chromium, cobalt, dysprosium, europium, fluorspar, gadolinium, germanium, graphite, indium, lithium, manganese, neodymium, nickel, niobium, tellurium, tin, tungsten, vanadium, yttrium, and 25 more “others.”
I didn’t even know half of those existed.
The good news is the EV supply chain requirements don’t go into effect until 2024, but that’s also not far away when you think about the matter of mining, battery supply chains, and automotive supply chains.
I reached out to RK Equity’s Howard Klein to get his thoughts on this matter, since we have talked about the issue for years. We will have a podcast on the matter next week assuming Biden gets the bill on his desk and signs it into law this week. Stay tuned. In the meantime, below are a few quick takes from Howard, an executive from a North American mining company, and myself.
This Stings In The Short Term …
It’s not clear yet if there are any EVs on the US market that don’t use minerals processed or refined in China. If automakers and their battery suppliers can’t find the mineral supplies to meet these requirements by 2024, we could have a very limited (or nonexistent) list of EVs eligible for the clean vehicle tax credits.
… But Is Important In The Long Term
There’s is no denying that China’s near monopoly on several critical battery minerals is an economic challenge or threat for the continued growth of the electric vehicle market and economic security. We’ve all seen what can happen when the oil market is disrupted, and oil is pumped out of the ground and refined in many countries. A 100% grasp on battery-grade synthetic graphite, a 73% grasp on cobalt, a 68% grasp on nickel, and a 59% grasp on lithium is something else.
I can’t see a secure, sustainable EV industry that doesn’t break up this Chinese dominance of these critical minerals.
Howard Klein, cofounder of RK Equity, writes: “On balance, the EV subsidies, local content requirements and USA government financing should be substantial positives to those developing projects in the USA and countries with whom we have Free Trade Agreements (eg, Canada, Australia, Chile, Korea, Mexico). As should the permitting reform Senator (“Mining”) Manchin received assurances would be forthcoming later this year. ”
Todd M. Malan, Chief External Affairs Officer and Head of Climate Strategy at Talon Metals, states: “The Inflation Reduction Act is a huge boost to the entire US EV supply chain from mining to battery manufacturing to recycling. The content requirements ensure that American workers at domestic mining and mineral processing facilities are part of the EV transition, and wisely includes our free trade partners like Canada, Australia and South Korea which will ensure adequate supplies for US manufacturing. It also recognizes the bipartisan consensus that the EV battery supply chain for minerals is a matter of national security.”
Indeed. These provisions are important to the birth, revival, and/or growth of critical industries and jobs in the United States. January 1, 2024, may be a tough target date to be able to get all battery minerals from domestic or free-trade countries, but lighting a fire under the industry’s frunk is just what’s needed in order to secure a brighter and more secure future for Americans, and the planet as a whole.
Featured image courtesy of Talon Metals.
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