latest-news-headlines Market Intelligence /marketintelligence/en/news-insights/latest-news-headlines/biden-invokes-defense-production-act-to-shore-up-raw-materials-for-clean-energy-69601702 content esgSubNav
In This List

Biden invokes Defense Production Act to shore up raw materials for clean energy

Blog

Major Copper Discoveries

Case Study

A Leading Renewable Energy Financing Bank Gains Important Insights on U.S.- based Opportunities

Blog

Exploring the Energy Dynamics of AI Datacenters: A Dual-Edged Sword

Blog

Despite turmoil, project finance remains keen on offshore wind


Biden invokes Defense Production Act to shore up raw materials for clean energy

SNL Image

U.S. President Joe Biden and Secretary of Commerce Gina Raimondo meet with business leaders and governors at the White House on March 9, 2022, in Washington, D.C.
Source: Doug Mills-Pool/Getty Images News via Getty Images


President Joe Biden invoked the Defense Production Act on March 31 to stimulate U.S. production of critical minerals.

The U.S. relies on other countries, such as China, for raw materials and other parts of the supply chain that feed the energy transition, particularly the production of batteries needed for electric vehicles and a clean energy grid.

The directive, issued alongside policy actions aimed at reducing gasoline prices in the U.S., authorizes the use of the Defense Production Act to encourage domestic production of materials critical to transitioning to cleaner energy technologies through purchases, purchase commitments or other action. The move specifically targets minerals and materials used in large capacity batteries such as lithium, nickel, cobalt, graphite and manganese.

Biden said during a press conference that the U.S. must end its reliance on China for inputs that power the future and that he would use every tool available to make that happen.

"We need to choose long-term security over energy and climate vulnerability," Biden said. "We need to double down on our commitment to clean energy and tackling the climate crisis with our partners and allies around the world."

Import reliance threatens energy transition

In 2021, the U.S. imported more than half of its consumption of 47 nonfuel mineral commodities and was 100% net-import reliant for 17 of them, according to the United States Geological Survey. That includes several materials deemed "critical minerals" by the U.S. government. China, followed by Canada, supplied the largest number of nonfuel mineral commodities.

"I think we will in this country be importing forever," said Ben Steinberg, an executive vice president and co-chair of the critical infrastructure group at the lobbying firm Venn Strategies. "But we are completely beholden to China right now."

The Defense Production Act, originating in the 1950s during the Korean War, specifically grants authority to address the mining and production of minerals critical to U.S. security. In 2017, the Trump administration issued an executive order calling on the U.S. to address the "strategic vulnerability" of the country's heavy reliance on imports of certain mineral commodities. That order declared it official policy of the federal government to reduce the country's vulnerability to supply disruptions of the critical minerals.

Biden's new directive will allow the government to provide off-take or financing for grants and loans that could boost U.S. production of certain minerals, though the industry will also be awaiting the U.S. Congress to authorize and appropriate more money to the fund that feeds the Defense Production Act, Steinberg said.

"We're facing a domestic crisis here for these critical minerals," Stephen Hanson, president of ACME Lithium Inc., said in a March 31 interview. "We cannot, as a country, rely on critical minerals coming from countries on other continents where most of the lithium in the world is currently being produced."

Building supply at home

ACME, founded in 2020 and already a public company, has five mining projects in the U.S. and Canada, including its newest in southeast Oregon near the Nevada border. Hanson said the administration's actions should create a tailwind behind companies such as ACME that are looking to develop resources in the U.S.

"From a regulatory standpoint, we need to have municipal, state and federal governments greenlight these projects so that they can ultimately get into production and meet this growing demand," Hanson said.

In a statement ahead of the announcement, the National Mining Association said the move sends a clear signal to markets about the supply chains driving electrification and the energy transition.

"Unless we continue to build on this action, and get serious about reshoring these supply chains and bringing new mines and mineral processing online, we risk feeding the minerals-dominance of geopolitical rivals," National Mining Association President and CEO Rich Nolan said in a statement.

Morgan Bazilian, director of the Payne Institute for Public Policy and professor at the Colorado School of Mines, said the announcement sends positive signals to the industry but is not likely to fundamentally shift the manufacturing of clean energy technology or the mining of raw materials to the U.S.

"To make impacts in a deeply interconnected and complex world with multiple supply chains is not as simple as invoking some kind of executive order from the President of the United States," Bazilian said. "The world is bigger than that."

Environmental, social justice concerns

Bazilian said it was important to keep in mind that while setting up new mines and processing in the U.S. can create jobs and support the manufacturing of clean energy, there are also concerns around environmental, social and governance issues to consider with mining. Several key energy transition material reserves and resources in the U.S. are within 35 miles of Native American reservations, including 97% of nickel, 89% of copper and 68% of cobalt, according to ESG research by finance group MSCI.

"There are historical precedents with mining that have not been terrific for communities," Bazilian said. "Making the trade-offs and the tensions explicit and working through them is going to likely be the only way to muddle through to something positive."

Some environmental groups have been supportive of increasing domestic mineral production to further the clean energy transition but questioned the use of the Defense Production Act. Lauren Pagel, the policy director of Earthworks, said in a statement that getting away from fossil fuels requires the country to get serious about responsibly sourcing clean energy minerals. Earthworks called on the government to use its purchasing power to maximize the reuse of recycled content and build a circular materials economy.

"The clean energy transition cannot be built on dirty mining," Pagel said. "Earthworks strongly opposes the employment of the Defense Production Act to bolster mining because it adds to the generational trauma experienced by mining affected communities, particularly Indigenous communities."

The White House appeared to be aware of these concerns, issuing a memorandum alongside the order that said actions flowing from the directive should include "strong environmental, sustainability, safety, labor, Tribal consultation, and impacted community engagement standards."

READ MORE: Sign up for our weekly ESG newsletter here, read our latest coverage of environmental, social and governance issues here and listen to our ESG podcast on SoundCloud, Spotify and Apple podcasts.

Legislative support, pushback

Lawmakers from both parties have expressed support for administration action on critical minerals. U.S. Sens. Joe Manchin, D-W.Va., and Lisa Murkowski, R-Alaska, were among the lawmakers who wrote a letter earlier in March calling on the administration to take action to strengthen domestic mineral security. Manchin supported Biden's order.

"I am pleased that President Biden has taken seriously our bipartisan call to strengthen our domestic critical minerals supply chain by invoking the Defense Production Act to increase production of five vital battery minerals," Manchin said in a statement. "Building out our domestic supply chain and reducing our reliance on Russia, China and other adversarial nations is more important than ever before."

Prominent Democrats, including Sens. Ed Markey, D-Mass., and Sheldon Whitehouse, D-R.I., have expressed some support for increasing mining activity in the U.S. to address the need for materials critical to the energy transition.

On the other hand, Natural Resources Committee Chair Raúl Grijalva, D-Ariz., and Rep. Alan Lowenthal, D-Calif., chair of the Subcommittee on Energy and Mineral Resources, wrote a letter in response to the potential use of the Defense Production Act, accusing mining companies of "making opportunistic pleas to advance a decades-old mining agenda that lets polluters off the hook."

Grijalva plans to reintroduce comprehensive mining reform legislation later in the spring.

"There's no situation in which I'm going to feel good about giving even more subsidies to the mining industry," Grijalva said in a March 31 statement, highlighting that the decision would not apply to copper or uranium mining. "Hardrock mining is governed by a severely outdated 150-year-old law that lets mining companies get away with destroying the environment and hurting nearby communities without paying a cent in federal royalties or paying to clean up toxic abandoned mine lands."

S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.