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President Donald Trump, joined by Republican lawmakers, signs budget reconciliation legislation into law on July 4 at the White House. Experts say the phaseout of the 45X advanced manufacturing tax credit will hurt the US critical mineral sector.
Source: Brendan Smialowski/contributor via Getty Images. |
US critical minerals projects in development will move forward, but the next round of metals projects could struggle for financing following the adoption of tax legislation that eliminates certain incentives, companies and industry experts told Platts, part of S&P Global Commodity Insights.
President Donald Trump on July 4 signed a sweeping budget reconciliation bill which, among other things, sunsets the Section 45X advanced manufacturing tax credit for critical mineral producers in 2031, eliminating it entirely in 2034.
Section 45X of the Inflation Reduction Act, former President Joe Biden's signature 2022 climate law, provided a tax credit of up to 10% of production costs to eligible US-based producers of cobalt, graphite and other materials critical for renewable electricity, advanced electronics and weapons systems. The original IRA had made 45X permanent, creating long-term certainty for financing projects faced with thin margins, long commercialization timelines and competition from China.
"These changes will make it more difficult for American critical mineral producers, like EVelution Energy, to attract the long-term institutional capital needed to finance projects in what is already a high-[capital expenditure] sector," Gil Michel-Garcia, executive vice president and general counsel at EVelution Energy LLC, told Platts.
EVelution is building the first US solar-powered cobalt refinery, in Yuma, Arizona.
"Despite strong rhetoric about reshoring and mineral independence, this provision risks delaying and potentially derailing the buildout of a secure, resilient US critical minerals ecosystem," Michel-Garcia said.
Accelerated phaseout of the Section 45X tax credit, however, will not derail EVelution Energy's plans to begin construction of its refinery by the end of this year and be fully operational by early 2028, according to Michel-Garcia.
No change in timelines
Other project developers told Platts they will be able to meet established timelines, but will have to adapt to meet the revenue shortfall from the loss of the 45X credit.
"We are fortunate to be far enough along in our development that we can adjust our financial model and move forward," Marissa Espinosa, communications manager at Westwin Elements Inc., told Platts in an email.
Westwin Elements is building America's first nickel refinery, in Lawton, Oklahoma.
"But the real concern lies with the next wave of American companies who now face a steeper climb without the credit," Espinosa said.
Lithium Americas Corp.'s flagship lithium project, Thacker Pass in northern Nevada, will move forward according to its schedule and go into production in late 2027, according to Tim Crowley, the company's vice president of government and external affairs.
New projects could struggle
While advanced projects may find a new path, critical minerals miners and processors looking to get started in the US could have a hard time finding funding, especially in competition with metals from China, Russia, North Korea and Iran, which had been restricted under the IRA as foreign entities of concern (FEOC).
"Sunsetting 45X would be a major blow to US critical mineral development," Ashley Zumwalt-Forbes, principal at Smoketree Resources and a former US Energy Department official for critical minerals, told Platts. "The credit plays a crucial role in making domestic processing and refining projects financially viable against FEOC sources. Without it, many early-stage projects will struggle to raise capital, deepening our dependence on foreign supply chains at the exact moment we should be reshoring them."
China has taken a controlling position in processing critical minerals, becoming a chokepoint for the global energy transition. The US has made easing its reliance on China a driver of policy under both Biden and Trump, but companies said losing the tax credit undermines that goal.
"The 45X tax credit is about whether the US wants to compete with China on critical mineral supply chains or continue to remain dependent and vulnerable," Westwin's Espinosa said. "It was one of the only tools designed to support domestic refining at scale. Phasing it out before that goal is achieved puts pressure on our industrial strategy."
But, "despite the sunset of 45X after 2033, we believe the provisions in this bill represent real momentum for American critical mineral independence," Espinosa said. "The funding, loans and credit tools available now can help move the industry forward, especially for those projects ready to act. There is still opportunity ahead, and if we remain focused and strategic, the US can build a competitive edge that outlasts any single credit or program."
"We understand that this will have implications for financing those projects," said Ben Steinberg, a spokesperson for the Battery Materials and Technology Coalition, a group of critical minerals developers working in the US.
"In political terms, we will have time to regroup and work to extend the minerals and battery credits in future years. We are quickly going to pivot to implementation with the Department of Treasury," Steinberg added.
Domestic production boosts
Loan programs and additional funding made available in the new law for the US Defense Department and the Defense Logistics Agency to increase the National Defense Stockpile of critical minerals will support the creation of domestic supply chains, according to experts.
Under the new law, $5 billion is allocated for investments in critical mineral supply chains through the Industrial Base Fund through the end of fiscal year 2029. Also, $2 billion is allocated for "additional activities" to improve the US stockpile of critical minerals through the National Defense Stockpile Transaction Fund.
But that money likely will not compensate for the loss of the tax incentives.
"The defense budget is constrained and will not be able to replace the increased profitability necessary for high-capex, lower-margin processing projects that Section 45X was meant to address," Michel-Garcia said.
