US Inflation Reduction Act Could Help Cut China’s Pin Metal Binding: Details

The US Inflation Reduction Act (IRA) includes “the largest investment ever to combat the existential crisis of climate change,” according to President Joe Biden, who will sign the bill. on Tuesday. About $369 billion (about 29,26,200 crore) of federal funds will go into climate change and energy security, boosting domestic manufacturing capacity for wind turbines, solar panels and electric vehicles.

However, the green investment comes with a metallic streak in the tail.

Extended and Extended IRAs tram (EV) subsidy up to $7,500 (approximately Rs 5,94,800) But tax-deductible condition for battery supply of mineral content.

At least 40% of the key metals in batteries – lithium, nickel, cobalt and manganese – must come from the United States or a Free Trade Agreement (FTA) partner. That percentage rises to 80% by 2026.

Automakers have lobbied vigorously against the link, arguing that China still too dominant, and the US too lagging behind in the battery metal supply chain for it to function.

However, that is the problem. The link between subsidies and mineral inputs is meant to spur the momentum of building significant domestic mineral capacity, or at least be friendly and break China’s grip.

Made in USA

“Automakers should” be aggressive and make sure that we’re mining in North America, we I’m processing in North America and we put relationship with China”.

It was a tough challenge.

Benchmark Mineral Intelligence estimates that China currently has 81% of the world’s cathode battery production capacity, 75% cobalt refining capacity and 59% lithium processing capacity.

The US and Canada combine to refine only 3.0% and 3.5% of the world’s lithium and cobalt, respectively, and have even less cathode battery capacity.

Canada is an FTA partner. So are other major mineral producers such as Australia, Chile, Mexico and Peru.

Not on this list, however, is Argentina, which is currently experiencing an investment boom in lithium, or Indonesia, which is emerging as a major battery metal production hub centered on huge nickel deposits.

Also not on the list is the European Union, which has said the new electric vehicle subsidy scheme may be in violation World Trade Organization Rule.

Korea agrees. While battery manufacturers like LG Energy solutions and SAMSUNG SDI will benefit from the country’s FTA status, which itself may be dependent on Chinese metal inputs.

Since the EU and South Korea are both members of the US-backed Mineral Security Partnership, a metal alliance of “friendly nations”, there is likely to be some scope for compromise. in the devil details of the sourcing criteria.

The challenge for automakers to qualify for subsidies remains enormous, given the years-long construction of new mines, especially in the US.

Investment motivation

There is no shortage of government funds to do so.

The Department of Energy has been granted $6 billion (approximately Rs 47,600) to invest in the domestic battery supply chain under the bipartisan Infrastructure Law passed last year.

Applications for the first batch of battery metal processing funding closed in early July and the funds are expected to start flowing in the next few months.

The Department of Defense is investing separately in a $120 million (approximately 950 crore) rare earth separation plant allied with Australia’s Lynas Rare Earths. Rare earths are important for electric motors, which means they are captured by EV mineral sourcing rules.

The IRA has offered a slightly more bonus by raising the tax credit to 30% on investments in any “advanced energy projects,” including a wide range of green transition technologies.

Such massive investment by the US government in metal mining and processing has not been seen since the Second World War and the Biden Administration has invoked a relic of the Korean War – Act Defense Production – to stimulate it further.

Green Gloves

This will be a boom time for North America’s mining and processing industry.

But it’s not. According to E&E News, the number of mining applications on federal land has been declining for a decade. The same goes for the number of licenses issued.

Mining companies and their shareholders have endured tough battles with environmentalists. They are often at a loss when major projects such as Antofagasta’s copper and nickel mines in Minnesota are blocked.

However, the sticking of electric vehicle subsidy sourcing rules that come with carrots holds the promise of mining licensing reform.

“We reached an agreement with President Biden and Speaker Pelosi to pass legislation authorizing comprehensive reform before the end of this fiscal year,” Joe Manchin and Senate Leader Chuck Schumer said in a statement. common father.

Whether this leads to an adjustment or, more fundamentally, to a rewrite of the long-outdated Joint Mining Act of 1872 remains to be seen.

But there is a clear understanding that permitting is a major obstacle in building a full battery metal supply chain on home soil.

Senator Manchin’s EV scheme also directly challenges the contradictions at the heart of the green movement, which wants to move faster to a low-carbon world but fails to support the means that facilitate the transition. there.

The message seems to be that if you want government-subsidized electric vehicles, you’ll have to stop protesting the new domestic metal capacity needed to make them.

Whether it works remains to be seen.

But don’t be mistaken. This EV subsidy scheme marks another major movement in reshaping key mineral supply chains.

The opinions expressed here are those of the author, Andy Home, a Reuters columnist.

© Thomson Reuters 2022

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