Inflation Reduction Act risks alienating foreign metal suppliers, EV-makers

Implementing the Inflation Reduction Act, the U.S.'s landmark climate spending bill, may risk alienating global metals suppliers and discouraging foreign electric vehicle manufacturers from supporting American electrification goals.

"If I have one complaint about the [Inflation Reduction Act], it's that perhaps it excludes countries that we should be working with," Duncan Wood said during a Nov. 15 panel hosted by the National Mining Association and CQ Roll Call. Wood is the vice president for strategy and new initiatives and senior advisor to the Wilson Center's Mexico Institute.

"We need to think about the ways in which we cannot alienate Indonesia, for example, or some of the African producers," Wood said.

Indonesia is home to the world's third-largest copper mine, Grasberg, which is majority owned by U.S.-based miner Freeport-McMoRan Inc. Seven of the top 10 largest operations focused on cobalt, another important EV battery input, are in Congo.

On the EV manufacturing side, the Inflation Reduction Act should have more flexibility in its domestic mineral content requirements to avoid discouraging major foreign EV manufacturers, such as Hyundai Motor Co., from investing in the U.S. due to impressions the requirements are too onerous or expensive, said Joe Britton, executive director of the Zero Emission Transportation Association. The advocacy group is supported by a coalition of EV and battery-makers.

The European Union has expressed concerns that the Inflation Reduction Act's provisions turn climate actions such as vehicle electrification into a "zero-sum game" with the U.S. on top.

"The bottom line is that everybody wants to be eligible [for Inflation Reduction Act tax credits], and for our emissions reduction goals, we want as many vehicles and as many consumers [as possible] eligible for the credit. The challenge is that the domestic content and the entities-of-concern limitations on the credit are very, very difficult," said Britton. "You [need] flexible, attainable metrics ... because people will give up ... if the cost is too much, if compliance exceeds the value of the credit or if the metric itself is unattainable."

Referring to the lithium requirements of EV batteries, Britton said U.S. lithium mines would be able to support approximately 25% of new vehicle sales being electric and supported by domestic lithium by 2026 or 2027. U.S. President Biden has established a goal of 50% of new car sales being electric by 2030, meaning the U.S. will still likely have to depend on foreign countries for the majority of its EV battery lithium in the near term.

Rich Nolan, president and CEO of the National Mining Association, pointed to processing provisions in the Inflation Reduction Act as a means of mitigating concerns about sourcing materials from abroad and loss of access to tax credits.

"Looking at the [Inflation Reduction Act] language, one of the qualifications is processing," Nolan told S&P Global Commodity Insights. "If we come up short on the mining side, there's certainly going to be lithium sources in Australia and South America that could qualify [for the tax credit] as long as they're processed here in the United States."

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