EV tax credit timeline may be too short
Unintended consequences of rushed Inflation Reduction Act Metal Tech News - March 27, 2023
Last updated 3/28/2023 at 7:58am
American electric vehicle manufacturers are under pressure from the massive federal legislation aimed at creating a robust domestic value chain for several key battery minerals and rare earths.
These materials are predominantly being imported for EV batteries – as well as the battery cells themselves in many cases – from problematic sources like China, the Democratic Republic of Congo, and Russia.
The Inflation Reduction Act (IRA) passed by Congress in August 2022 includes an aggressive timeline and heavy investment in domestic clean energy while setting market value-based targets for specific mineral content in EV batteries.
Northwestern Engineering professor Jennifer Dunn and Ph.D. student Jenna Trost, however, have identified several key aspects in developing domestic U.S. battery production that are potentially encumbered by this same government policy, which lacks sufficient detail overseeing the environmental impacts of implementation.
Missing the mark
For American auto buyers to enjoy the $7,500 EV tax credits offered under IRA, 80% of the market value of critical minerals in the vehicle's battery must be mined or processed domestically, or by U.S. free-trade partners by 2027.
The challenge has been to reach this battery materials mandate – which starts at 40% this year and increases by 10% a year to 2027 – in a timely manner while avoiding the pitfalls caused by this legislation. Though this target is more easily achievable for hybrid vehicles, fully electric vehicles will be up against a challenge.
Dunn and Trost believe a slower process of deliberation would have allowed some of the less comprehensive points of the bill to be more fully developed.
"It's hard to design policy well in a hurry that holistically considers the social and environmental effects of the minerals supply chain," Dunn said. "It's important to leverage the potential of electric vehicles to reduce emissions from cars, but when we design policies to encourage their use, we need to take a holistic view that helps us get off on the right foot with establishing a low-environmental impact, safe, and ethical mineral supply chain."
Bringing a new mine up to productivity easily averages a decade or more. Environmental protections, green practices, and technology for improved worker safety can push that timeline further out. This makes it tough to reconcile the battery materials mandate with the realities of ramping up mining to meet the directives outlined in the IRA.
Ford Motor Company also petitioned the White House in a letter to the U.S. Department of the Interior to revise costly and inefficient processes and expedite mine permitting in order to help ensure American automakers have access to the domestic materials needed to achieve the nation's electric transition goals in time.
Helping or hurting progress
While a growing number of companies throughout the EV and mining industries are highly motivated to accelerate domestic battery materials mining and processing, many communities resist new mines due to historical concerns over environmental impact.
"There's a lot of interesting social and political dynamics. Some people don't want new or expanded mines, and others welcome the economic activity and the opportunity to become more energy independent by building out a domestic minerals supply chain," said Dunn. "It's fascinating to watch how this is going to play out."
Dunn and Trost noted that the IRA's language discounts the environmental effects of mining, non-critical minerals supply and could allow corporations to present a misleading impression about how environmentally sound their products are, in effect "greenwashing" the process to secure tax credits.
In a commentary published March 6 in the journal "Nature Sustainability,"Dunn and Trost suggested a mass-based target could be better suited than market-value.
A market value-based target can technically be met without acquiring critical minerals domestically or from an FTP, depending on battery chemistry.
Market values fluctuate. Dunn and Trost noted that the price for cobalt has increased by about $13,000 per metric ton since 2019. They argue that a target based on the mass of the battery materials used rather than their market value could stabilize the market for cobalt and other vital minerals when prices are volatile, as they've already proven to be during this energy transition rush.
Argentina, which provided 59% of the lithium imported by the U.S. in 2019, does not offer the socioeconomic and environmental protections required of free trade partners. However, any minerals acquired from the country would pass if they were processed domestically.
Dunn and Trost argue for clearer definitions of what constitutes processing, and designating allowable sources for the minerals that would be processed in the U.S. or a free trade partner.
"We have ostensibly good labor protections for miners, but that's not the case everywhere. What are the ethical implications of using minerals from other places?" Dunn said. "And then, are we going to be really serious about recycling, because we're clearly not with plastics? We have to be really serious. Investment in battery recycling is growing, but it still needs to be larger."
Given the increasing demand and fluctuations in mineral market values, the authors suggested using mass-based targets in policy could improve transparency and hold all automakers to the same standard in the interpretation of market value.
The holistic approach
When it comes to addressing some of the environmental concerns related to securing reliable supplies of minerals going into American-made EV batteries, Dunn and Trost think a more thorough deliberation process would have allowed some of the finer points of the IRA to be more fully developed.
"As engineers, when we design materials for batteries or anything else, we need to think about where the materials are coming from. Could I use less of it? Could I use a different material? Can I design it for recycling so it's easy to get it back? We're thinking about this holistically," Dunn said. "We want to give students experiences that bring home the importance of these design choices for people along the supply chain as well as the immediate technology user."
The key will be in finding balance between beating the clock set by policy for a short-term payout, and creating a sustainable infrastructure for a truly green global energy transition that thrives beyond this administration for generations to come.
For further reading, see our article on R Street Institute's executive summary of a U.S. energy mineral policy study and the push for domestic mining to achieve clean energy goals at Rhetoric will not fill US mineral needs in the March 6, 2023 edition of Metal Tech News.