EV Critical Minerals Tax Credit Should Prioritize US Mineral Production

In article for RealClearMarkets, I argue that the US Department of the Treasury should amend its rule on the EV critical minerals tax credit under the Inflation Reduction Act in order to promote US mineral production over foreign mineral production.

Under the current rule, minerals extracted or processed in eligible foreign countries (i.e., free trade agreement countries and Japan) receive the same treatment as those extracted or processed in the United States, failing to substantially incentivize US mineral production over foreign mineral production.

Since US automakers will likely seek the cheapest minerals that qualify their electric vehicles for the critical minerals tax credit, the tax credit rule could incentivize demand for cheaper, foreign-produced minerals over US-produced minerals.

US Senator Joe Manchin, the tax credit’s main author, said, “The purpose of the tax credit is…to promote reliable domestic supply chains for the critical minerals...needed to power EVs.” Thus, the tax credit’s primary aim was meant to incentivize US-centered mineral supply chains, not EV adoption.

To encourage US mineral extraction over foreign mineral extraction, the US government could amend the Treasury rule by disqualifying extracted foreign minerals from contributing to the content requirements for the critical minerals tax credit if those minerals have US reserves.

For minerals lacking US reserves (e.g., manganese), the US government could allow extracted minerals from certain foreign countries to contribute to the minerals tax credit content requirements, incentivizing sourcing from countries with the most resilient supply chains to US.

While supply chain resilience varies by the mineral, the order of countries with the most resilient to the least resilient supply chains to the United States is often the following: Canada, Australia, free trade agreement countries in the Western Hemisphere, Morocco, South Korea, and other free trade agreement countries.

To promote domestic mineral processing over foreign mineral processing, the US government could disqualify all foreign-processed battery materials (e.g., nickel sulfate) from contributing to the content requirements of the critical minerals tax credit.

One counterargument to these rule changes for promoting domestic mineral production is that the United States alone does not have enough mineral reserves to meet mineral demand from US electric vehicle production. This statement is true. Yet again, the purpose of the critical minerals tax credit is to incentivize domestic mineral production—regardless of the inability of domestic mineral reserves to fully satisfy mineral demand from US electric vehicle production.

Here is the article link: https://www.realclearmarkets.com/articles/2024/05/20/ev_critical_minerals_tax_credit_should_prioritize_us_mineral_production_1032562.html