Incentives for Critical Minerals Production to Support the Clean Energy Transition
Critical Minerals: An Overview
As the U.S. looks to further its decarbonization efforts, the availability and suppliers of critical minerals – seen in everything from solar panels to batteries – have come under increased scrutiny. An economy powered by renewable sources rather than by fossil fuels has a much higher demand for metals such as lithium, nickel, cobalt, manganese, and graphite. A recent study published by the International Energy Agency (IEA) notes that an electric vehicle requires six times the mineral inputs of a conventional car, and an onshore wind farm requires nine times more mineral resources than a gas-fired power plant. As power generation shifts to low-carbon sources and more batteries are manufactured, this demand will only continue to grow.
The recent Russian invasion of Ukraine has brought the issue of critical mineral supply to the fore. Russia is one of the world’s leading suppliers of nickel, which is critical to the production of batteries. Unsurprisingly, the current conflict has led to a surge in global prices. Ukraine also has a sizeable mining industry, with lithium reserves accounting for nearly one-third of those proven in Europe. A December 2021 report by the Ukrainian Ministry of Ecology and Natural Resources also has the country as a top-five source of graphite reserves.
No nation in the world can rival China’s supremacy in the critical minerals industry. Most estimates suggest that China controls approximately 90 percent of the midstream – i.e., refining and processing – of the critical minerals supply chain. Beijing has made such dominance a strategic priority, shifting its approach in 2020 from low-value mining to the higher-value midstream and downstream operations. With lack of transparency about Chinese supply chains and a high-carbon energy portfolio, many in the West are seeking to build partnerships elsewhere in the world to reduce their reliance going forward.
Critical Minerals in the Bipartisan Infrastructure Law
The Infrastructure Investment and Jobs Act (IIJA), signed into law last November, contains significant funding and authorizing language pertaining to critical minerals research and development, mining, and recycling, and for loan guarantees. The package also established a Critical Minerals Interagency Subcommittee and directed the Departments of Agriculture (USDA) and Interior (DOI) to work together to improve the critical mineral permitting process. Specifically, the IIJA:
Appropriates $100 million per year to the Department of Energy (DOE) from Fiscal Year 2021 (FY21) through FY24 for grant programs to develop critical mineral processing and recycling in the U.S.;
Requires DOE – in conjunction with the National Science Foundation (NSF) – to award competitive grants for research and development advancing innovation in mining, recycling, and reclamation;
Appropriates $3 billion to DOE for an advanced battery manufacturing grant program;
Appropriates an additional $3 billion to DOE for a grant program to fund battery material processing activities;
Requires that the federal permitting and review process for critical minerals:
Establish and adhere to timelines and schedules for consideration of and final decision on applications, plans, leases, licenses, permits, and use authorizations for critical mineral-related activity on federal land;
Establish permitting performance goals that are quantifiable and contain deadlines or timeliness requirements; and
Provide demonstrable improvement in the performance of federal permitting and review processes, including lower costs and more timely decisions.
Relatedly, DOI proposed and finalized an updated list of critical minerals, adding 15 new mineral commodities. This list will guide federal agencies as they determine what projects are eligible for grant opportunities.
Additional Incentives for Critical Minerals Production
Increasing the domestic capacity to mine and process critical minerals is a rare area of bipartisan agreement in Congress. In addition to the IIJA containing several provisions related to critical minerals production, there have been a number of hearings this year on the issue.
One major action recently taken by President Joe Biden was invoking the Defense Production Act (DPA) “to secure American production of critical materials.” The order requires the Department of Defense (DOD) to consider five metals – lithium, nickel, cobalt, graphite, and manganese – used in clean energy technologies as essential to national security. Accordingly, DOD will be authorized to use DPA monies to fund a variety of mining activities, including feasibility studies and the financing of “co-product and by-product production.” While the order doesn’t explicitly fund hardrock mineral extraction, subsidies provided by DOD to firms could improve the economics of new mines or mine expansions.
DOE has also been actively working to build out domestic critical mining capability. In April, the Office of Fossil Energy and Carbon Management (FECM) released a report, “Strategic Vision: The Role of Fossil Energy and Carbon Management in Achieving Net Zero Greenhouse Gas Emissions,” outlining how it would contribute to meeting President Biden’s executive order on addressing climate change. Of particular relevance, there is an entire chapter on critical minerals.
Specifically, FECM indicates that it will “focus on optimizing the advancement of existing extraction, separation, and processing” to “enable large-scale pilots.” Their technical strategy is characterized by three pillars:
Resource characterization and technology development;
Sustainable resource extraction technology development; and
Processing, refining and alloying technology development.
FECM emphasizes the potential of “significant [critical minerals] resources associated with carbon-based waste and byproduct materials” and will work with other federal and state agencies on data sharing to ensure quality. Additionally, the bulk of future research, development, and deployment will focus on “the development of novel and advanced technologies to enable cost effective and sustainable extraction of [critical minerals] from unconventional and secondary sources.”
Incentivizing the Clean Energy Transition
There is no concrete sense about what other steps Congress will be able to take beyond what was contained in the bipartisan infrastructure bill to incent investment in the clean energy transition. The IIJA – which agencies are in the early stages of implementing – authorizes new programs and offers significant funding in a variety of areas in addition to critical minerals, including:
Transportation electrification and alternative fuels;
Electric transmission;
Energy storage;
Carbon capture, storage, and utilization;
Hydrogen research, development, and deployment;
Nuclear energy;
Hydropower; and
Energy efficiency.
It also adds a pair of policy recommendations for state utility regulators and the governing bodies of publicly-owned utilities to consider under the Public Utility Regulatory Act (PURPA):
Promote the availability of electric vehicle (EV) charging infrastructure, improve the customer experience for vehicle charging, and encourage third-party investment in charging infrastructure; and
Promote demand response as a means of mitigating stress on the electricity system during periods of high demand.
In our recent conversations, the general view of those on Capitol Hill was that the most that could be hoped for would be a smaller package. Sen. Joe Manchin (D-WV) – widely considered to have the most sway in his chamber over what is included in a bill – prefers to “innovate, not eliminate.” If a package does come together, it’s expected that it would embrace an “all-of-the-above” portfolio that’s inclusive of fossil fuels, carbon capture and storage, and nuclear, which could present challenges for attracting support from the progressive wing of the Democratic party.
The scope is not the only area of disagreement within the caucus. The timeline is also an open question. Some have speculated that the next Congressional work period – from late April until Memorial Day – could be “do or die” for Democrats to move forward on another reconciliation package. Should a proposal not come together by then, it’s possible the fall midterms could upend discussions. Sen. Manchin has hinted that he might be comfortable allowing reconciliation to slip to the work period between July 4 and the August recess.
More generally, the consensus seems to be that fossil fuels will not disappear in the short-term. The two parties have used the Ukrainian conflict and higher energy costs to justify their existing worldviews: Republicans pushing for more drilling and Democrats emphasizing the need to transition to renewables. The Biden Administration thus far has taken the middle road, asking domestic and foreign oil companies to boost production in the short-term, while also continuing to work towards their long-term goals of a carbon-free economy.
Outlook
The widespread recognition of critical minerals as an issue of national significance has led to bipartisan interest in supporting the mining industry. The IIJA provides authorization and funding for various critical minerals activities of which mining companies can take advantage, and the potential passage of a reconciliation package would only amplify those opportunities. Unfortunately, the lack of certainty about what Sen. Manchin will put forth in a future bill makes further speculation difficult.