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Inflation Reduction Act creates new tax break for US critical minerals

Mining companies with critical minerals operations in the U.S. will soon be eligible for a new tax break under the Inflation Reduction Act, which President Joe Biden is expected to sign into law during the week of Aug. 15.

Under the advanced manufacturing production credit outlined in the legislation, mining companies that produce any of the critical minerals listed in the bill will qualify for a tax credit equivalent to 10% of the cost of production for that mineral. The minerals produced must meet specific purity levels to qualify for the credit.

Eligible materials include aluminum, lithium and graphite, all of which are important inputs for clean energy technologies such as electric vehicle batteries.

The new credit is aimed at reducing reliance on nations such as China and Russia for critical minerals, which has been a priority for Sen. Joe Manchin, D-W.Va.

"Our persistent and increasing dependence on foreign energy and supply chains from countries who hate America represents a clear and present danger and it must end," Manchin said in a July news release after striking a deal with Sen. Chuck Schumer, D-N.Y., to introduce the package.

U.S. miners are optimistic the bill will help stimulate a U.S. battery supply chain, but they might need more runway than the bill envisions.

"Albemarle sees the Inflation Reduction Act as a positive step forward in support of attracting EV supply chain investment domestically to support the transition to clean energy in the U.S.," lithium miner Albemarle Corp. told S&P Global Commodity Insights in a statement. "The Inflation Reduction Act's conditions and timeline for the credit on electric vehicles is challenging given the battery industry largely operates in Asia and the domestic supply chain is in early development."

The company said its Kings Mountain project in North Carolina and a planned lithium processing "megasite" in the U.S. "will take time."

The critical minerals tax credit is one of several mining provisions in the bill. Also included is $500 million for implementation of the Defense Production Act, part of which is expected to go toward domestic critical minerals processing.

The Inflation Reduction Act also has critical minerals sourcing requirements related to an EV tax credit, which could create complications for an already strained EV supply chain. Notably, the bill removes the cap that makes EVs from an automobile manufacturer ineligible for the credit after that company sells 200,000 EVs. This will make select car models produced by companies such as General Motors Co. and Tesla Inc., which had previously met the credit cap, eligible for the credit.

E&E News first reported the critical minerals tax break.

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