In the coming decades, critical mineral insecurity will prompt seismic realignments of global supply chains. Initially prompted by the military concerns over sensitive materials, commercial interests may soon follow a pattern of forming more resilient supply chains for the materials that enable essential and experimental technologies.

No longer content to rely on its competitors like China, which accounts for 60% of production and 85% of critical mineral refining, the United States will turn to its allies and partners as new sources of essential materials. 

But just as importantly, America will have to examine its domestic capacity to meet mineral needs. From lithium extraction in Arkansas to new antimony mining in Idaho, that process is already underway. The regulations that lawmakers and policymakers implement today will play an outsized role in the critical mineral landscape of tomorrow. Getting mining and refining policy right now could mean the difference between a fortified supply chain or continued vulnerability into the future.

The Treasury Department’s recent adjustments to the 45X tax credit are an example of forward-looking policy that brings the U.S. closer to critical mineral security. Established as part of the 2022 Inflation Reduction Act, the section 45X Advanced Manufacturing Production Credit (AMPC) offers up to 10% of production costs for manufacturers who create and sell certain products up until 2029.

While the exact value available can depend on the size, volume, or capacity of a qualifying product, the credit has indisputable value for domestic producers either as a direct payment or as a transferable tax credit. The passage of the IRA was followed by $126 billion in private sector announcements and commitments: $77 billion for batteries, $26 billion for solar and wind-related projects, but only $6 billion for critical minerals.

It took the Treasury’s recently finalized changes to make the 45X tax credit attractive for critical mineral producers. Previously, the credit was only available for processing minerals, excluding costs incurred during the mining process. Now, the new Treasury rules cover “material costs and extraction costs,” incentivizing both the domestic mining and production of 50 critical minerals.

The new Treasury rules cover “material costs and extraction costs,” incentivizing both the domestic mining and production of 50 critical minerals.

These changes could provide a long lasting incentive that reshapes the American mining landscape. Unlike other manufactured goods, which only receive full 45X benefits until 2029 and phase out by 2032, the legislation does not reduce the value of the credit for critical minerals at any point in the future. 

It’s worth examining what a difference the 45X credit could make for domestic miners and producers. For operating mines, the tax credit is particularly attractive for its transferable value, which allows for more rapid cash flow and speedier reinvestment. Mining or refining startups and other small companies with low tax liability may find transferability similarly useful.

For established mining companies, the tax credit could prevent layoffs and offshoring that would otherwise be necessary to remain competitive with foreign producers. Sibanye Stillwater, which operates a Montana mine that produces the critical mineral palladium, stated that the expanded 45X tax credit could save some of the 800 workers who would otherwise be laid off. Similarly, Piedmont Lithium, a major lithium producer, stated that “without the 45X credit, many of the critical mineral projects being planned for the U.S. will likely relocate abroad.”

Ali Zaidi, the White House National Climate Advisor, already identified the rule change as “a game changer for our ability to lean into mineral security.” But while a transferable tax credit provides liquidity to miners, it only supports one part of the domestic critical mineral industry. To reduce supply chain vulnerabilities, the AMPC should be just one part of a larger suite of policies and incentives to enhance national security. 

For example, a price floor system that protects American mining output against price shocks from abroad could be useful. Already, the Biden administration has been rumored to be considering such a program. Overproduction from China has disrupted domestic production of lithium and cobalt while Russian competition has forced Sibanye Stillwater’s palladium mine to operate at a loss.

Beyond support for existing mines, policymakers could complement the 45X tax credit by providing research grants for innovations that allow the U.S. to capitalize on its domestic critical mineral supplies. Advances in cobalt recycling could significantly reduce reliance on China, which refines 80% of the world’s cobalt. Similarly, improved lithium extraction technology would enable the U.S. to benefit from a recently discovered deposit of lithium in Arkansas that would entirely reduce reliance on foreign sources of this critical mineral. 

Valuable, transferable, and without a phase out period, the 45X tax credit has the potential to reshape American production of critical minerals for decades to come. Amid a global pattern of supply chain realignment, the U.S. should rely on allies and partner nations to secure its supply chains for sensitive materials. But it’s even better to find domestic sources that provide jobs for American workers and utilize the country’s abundant natural resources. The 45X tax credit is an important first step towards mineral security, but additional investment and support is necessary to unlock America’s mining potential.

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Farrell Gregory is a Policy Fellow at the Foundation for American Innovation and research assistant at the Yorktown Institute. He is currently a visiting student at Mansfield College, Oxford, studying Politics, Philosophy, and Economics.

Source: MINING.COM – Read More