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IRA at 1: Speed of mining investments surprises experts


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IRA at 1: Speed of mining investments surprises experts

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An Albemarle lithium brine operation in Chile. The North Carolina-based company has announced plans to invest in a domestic lithium processing facility, which Albemarle said supports the aims of the US Inflation Reduction Act.
Source: John Moore/Staff/Getty Images News via Getty Images South America.

Automakers and miners have responded with gusto to the incentives built into the Inflation Reduction Act since it was passed a year ago, investing in the US battery supply chain with a speed that surprised observers of these typically cautious industries.

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This story is part of a series examining the impact and implementation of the Inflation Reduction Act since it was enacted. Click on the links below as they become available to see other stories in the series.

US heralds clean energy manufacturing 'renaissance'

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Speed of mining investments surprises experts

Hydrogen developers hold off construction, ramp up lobbying

US boost to offshore wind imperiled by struggling projects


The legislation contains incentives to spur domestic critical minerals production, including tax credits for minerals processing, regulations requiring tax credit-eligible electric vehicles to source materials from certain countries and direct government funding for critical minerals projects meeting certain criteria.

The bill is a signature legislative achievement for the Biden administration, which in 2021 set a goal to have zero-emissions vehicles make up 50% of new vehicle sales by 2030 and which recently proposed even more ambitious targets. While the full effects of the Inflation Reduction Act (IRA) will depend on its regulatory implementation, particularly as the US contends with international competition and low commodity price cycles that may work against its mining incentives, it has nonetheless had immediate impacts.

Lithium has received a large share of domestic miners' attention and investment. US passenger EV sales are expected to grow 112.6% between 2023 and 2027 to hit 31.9 million units, S&P Global Commodity Insights analyst Alice Yu wrote in a June 27 report. As a result, EV-related demand for lithium is expected to soar 176.8% in the same period.

Companies including lithium producers Albemarle Corp. and Lithium Americas Corp., as well as major automaker General Motors Co., have announced investments of hundreds of millions of dollars in domestic mining and battery manufacturing sites.

"We knew the market was going to adjust to the ... mineral sourcing provisions by effectively onshoring many of the links in the supply chain for electric vehicles in order to qualify for the credit," said Aaron Mintzes, senior policy council at Earthworks, an environmental nonprofit focused on mineral and energy development. "But it was surprising to me how incredibly rapidly the market adjusted."

Market appetite

Incentives built into the IRA have attracted investment into a US battery supply chain that largely did not exist before the bill's passage. EVs that meet final assembly, critical mineral and battery material sourcing requirements, including thresholds for the portion of those inputs sourced or processed in the US or by a free trade partner, may be eligible for a $7,500 tax credit under the IRA.

The implementation of that rule has contributed to a surge in domestic critical mineral project investments from miners and automakers. Ford Motor Co., for example, is spending $3.5 billion to build a Michigan battery plant, and company executives have cited the IRA as a key influence on that decision.

US lithium producer Piedmont Lithium Inc., spurred by federal investment from the US Infrastructure Investment and Jobs Act and, later, by IRA incentives, plans to build a lithium hydroxide processing plant in Tennessee to feed growing automaker demand for batteries. The company is also working to secure permits and approvals for its namesake Piedmont lithium project in North Carolina, where it aims to start construction in 2024.

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"The production tax credit offered in Section 45X of the IRA will be key to [our US] projects as they advance," Keith Phillips, president and CEO of Piedmont Lithium, said in a statement. "America's pro-EV policies are tackling the significant supply shortages confronting the transportation sector."

Automakers also have struck agreements with suppliers all over the world, leveraging an option in the IRA that allows materials to come from approved countries.

Ford has signed supply agreements with multiple lithium companies operating in countries that have free trade agreements with the US, meaning the automaker's vehicle batteries can incorporate material from those countries and remain eligible for IRA tax credits. Another EV giant, Tesla Inc., has supply agreements with multiple miners, including Piedmont and Albemarle.

Albemarle and Lithium Americas did not respond to requests for comment, and neither did Lundin Mining Corp. and Jervois Global Ltd., two diversified mining companies with North American operations.

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The rush by automakers to find IRA-compliant minerals at home and abroad has come as a shock to some.

"I've been surprised at how much people are interested in being eligible for these domestic content adders from the IRA because they just don't seem that valuable," said Ian Lange, associate professor for economics and business at the Colorado School of Mines. Lange was referring to an influx of free trade agreement negotiations aimed at making EVs with foreign critical mineral content eligible for federal incentives.

The speed of the response might reflect concerns that key IRA provisions could be overturned if a Republican administration comes into the White House following the 2024 US presidential elections.

"It's not clear to me whether or not original equipment manufacturers and the carmakers are trying to rush in order to qualify for the credit out of a fear that the GOP might repeal the tax credit," Mintzes said. "But what I believe firmly is that they are trying to take advantage of the credit as quickly as they can."

Republicans included IRA rollbacks in an initial debt ceiling deal proposal, as well as in ongoing appropriations bills.

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International attention

The fast action from automakers and the Biden administration to pull so much metal from abroad has alarmed domestic miners.

The administration's attention to international sourcing agreements and free trade compacts risks distracting attention from building an integrated domestic supply chain, said Conor Bernstein, vice president of communications at the National Mining Association, a trade association for US miners.

"What we've seen is this kind of urgency from the administration on the minerals challenge [with] I think a lot of energy directed at what we can be doing with overseas partners, [without a] clear and definitive statement that we need to ramp up domestic mineral production," said Bernstein.

International collaboration will remain a necessary piece of a US minerals sourcing strategy, however, Lange said.

"It still seems unlikely to have this huge mining renaissance and that we're going to open hundreds of mines and new processing facilities and really basically be self-sufficient there," said Lange. "I think, realistically, you're going to need this friendshoring."

Other major economies have implemented their own policies to promote clean energy supply chains for fear of losing out to the US' big-spending ways.

"The EU basically kind of copied the IRA with a lot of their investment plans and then they now have a critical mineral strategy with domestic content and onshoring. ... I think there's a lot of arguments that basically none of that would have happened without the IRA," said Lange. "The fact that the EU has kind of gone in this direction is more than I expected."

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Major questions still open

Despite the promise of the early investments, the legislation's long-term impact rests on US mine permitting rule changes and upcoming tax credit guidance, experts said.

"Lead agency and time frame [rules] that were included in the debt ceiling deal were important," Bernstein said, referring to changes for deadlines and process requirements for certain environmental reviews under the National Environmental Policy Act included in a May deal to raise the US debt ceiling. "Now, actually implementing those changes is something that we all have to watch and see how quickly that goes and how effective it is."

Companies across the supply chain are nervously watching to see how the US Treasury Department will define the "foreign entity of concern" criteria for the IRA's $7,500 clean vehicle tax credit. Beginning in 2024 and 2025, eligible vehicles will be barred from containing battery materials and critical minerals from a country qualifying as a "foreign entity of concern."

The criteria will likely apply to China, a major source of US critical minerals supplies, following widespread concerns over US dependence on the country. A critical point will be whether the rules include limitations on sourcing from projects that are outside of China but backed by Chinese funding.

"Interesting things remain for materials like nickel, for example, where you're looking at really big potential in Indonesia ... [and] what goes hand-in-hand with Indonesian supply, currently, is a high level of Chinese capital involvement," said Mark Beveridge, a consultant with Benchmark Mineral Intelligence. "Precisely what is going to happen in terms of the [foreign entity of concern] definitions and how exceptions [may be] made to allow the US somehow to play for that material, I think that's quite important."

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