New US Climate Bill Seeks to Bolster Domestic Critical Minerals Supply Chain

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On July 27, Senate Majority Leader Chuck Schumer (D-NY) unveiled a budget reconciliation bill entitled the Inflation Reduction Act of 2022 ("IRA"), which would implement core components of President Biden's agenda on healthcare, tax reform, and climate change.1 The bill includes an estimated $369 billion in investments related to "climate change and energy security," including tax and other incentives to promote US production of electric vehicles ("EVs"), renewable energy technologies, and critical minerals, representing the "single biggest climate investment in US history[.]"2 These provisions are intended to put the United States on a path to roughly 40 percent emissions reduction by 2030, but they also reflect economic and geopolitical objectives, including a desire to "lessen our reliance on China, ensuring that the transition to a clean economy creates millions of American manufacturing jobs, and is powered by American-made clean technologies."3

Consistent with these goals, the IRA includes several provisions aimed at bolstering domestic and regional production of critical minerals. These include (1) substantial revisions to the electric vehicle ("EV") tax credit to require regional sourcing of critical minerals used in EV batteries; (2) a new "advanced manufacturing" tax credit for domestic production of critical minerals; (3) a $500 million appropriation for "enhanced" use of the Defense Production Act, which President Biden recently invoked to support critical minerals production; and (4) new authorization for $40 billion in loan guarantees under Title XVII of the Energy Policy Act of 2005, which could be used to support critical minerals projects. We provide an overview of these provisions below. 


Revision of EV tax credit to require regional sourcing of critical minerals 

Section 13401 of the IRA would revise the existing US tax credit of $7,500 for purchases of new electric vehicles, codified at Section 30D of the Internal Revenue Code.4 Eligibility for the revised credit (which would apply to both EVs and fuel cell vehicles ("clean vehicles")) would be contingent on (1) final assembly of the vehicle occurring in North America; (2) specified percentages of the vehicle battery's critical minerals originating from a US free trade agreement ("FTA") partner, or being recycled in North America; and (3) specified percentages of the battery's components being manufactured in North America. Moreover, after a short transition period, the IRA would make vehicles ineligible for the credit if the vehicle battery contains "any" critical minerals or components sourced from countries such as China and Russia.

To satisfy the IRA's critical minerals requirement, at least 40 percent the value of the critical minerals5 contained in the vehicle's battery must be "extracted or processed in any country with which the United States has a free trade agreement in effect"6 or be "recycled in North America." The required percentage would increase gradually to 80 percent by 2027. Vehicles that satisfy this requirement would receive a tax credit of $3,750, provided that they otherwise qualify as a "clean vehicle" as defined in the IRA. A similar rule in the IRA would provide an additional tax credit of $3,750 if at least 50 percent of the battery's components are manufactured or assembled in North America (increasing to 100 percent by 2029). 

The IRA would prohibit the application of the above tax credits where a vehicle's battery contains "any" critical minerals sourced from countries such as China and Russia. Specifically, a vehicle would be ineligible for the tax credits if any of the critical minerals contained in the battery were "extracted, processed, or recycled" by a "foreign entity of concern" (as defined by the Infrastructure Investment and Jobs Act, (42 USC. § 18741(a)(5)). A foreign entity of concern includes, among other things, any foreign entity that is "owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation" (i.e., China, Russia, Iran, or North Korea). This prohibition would take effect with respect to vehicles placed in service after December 31, 2024. A similar rule would exclude vehicles from eligibility if any components contained in the battery were manufactured or assembled by a foreign entity of concern, effective with respect to vehicles placed in service after December 31, 2023. 


Advanced Manufacturing Production Tax Credit available for critical minerals

Section 13502 of the IRA would establish a new Advanced Manufacturing Production Tax Credit at Section 45X of the Internal Revenue Code. This tax credit would apply with respect to each "eligible component" that is produced by the taxpayer within the United States and sold by the taxpayer to an unrelated person during the taxable year. Critical minerals are among the eligible components to which the tax credit would apply. In the case of critical minerals, the amount of the tax credit would be equivalent to 10 percent of the costs incurred by the taxpayer with respect to production of the critical mineral. 

The new tax credit would apply to several downstream products as well, including solar energy components, wind energy components, power inverters, and battery components. For these downstream products, the tax credit would begin to phase out in 2030 and would phase out completely by 2033. However, the tax credit for production of critical minerals would not be subject a phase out. The sponsors of the IRA estimate that this tax credit will result in tax expenditures of approximately $30 billion. 


$500 million for "enhanced use" of Defense Production Act 

Section 30001 of the IRA would appropriate $500 million for "enhanced use" of the Defense Production Act ("DPA"), on top of the funds made available for the DPA through the normal appropriations process.7 The DPA gives the President broad authority to use economic incentives to create, maintain, protect, expand, or restore domestic sources for critical components, critical technology items, and industrial resources.8 

The IRA would not limit the use of the $500 million appropriation to any particular DPA initiative. However, the sponsors of the bill have indicated that this appropriation is intended in part to support President Biden's recent DPA action concerning critical minerals.9 On March 31, 2022, President Biden invoked Section 303 of the DPA to increase federal support for "domestic mining, beneficiation, and value-added processing of strategic and critical materials for the production of large-capacity batteries," including materials "such as lithium, nickel, cobalt, graphite, and manganese."10 This action enabled the Department of Defense ("DOD") to use DPA funds to encourage domestic mining and processing of such materials. President Biden's Memorandum specifically directed DOD to use its DPA authorities to support: (1) feasibility studies for mature mining, beneficiation, and value-added processing projects; (2) by-product and co-product production at existing mining, mine waste reclamation, and other industrial facilities; and (3) mining, beneficiation, and value-added processing modernization to increase productivity, environmental sustainability, and workforce safety. 


$40 billion commitment authority for Innovative Technology Loan Guarantee Program (Title XVII)

Section 50141 of the IRA authorizes the Department of Energy ("DOE") to make commitments for an additional $40 billion in loan guarantees under Title XVII of the Energy Policy Act of 2005, on top of DOE's existing commitment authority of approximately $24 billion. Title XVII (also known as the Innovative Technologies Loan Guarantee Program) authorizes the Secretary of Energy to make loan guarantees for projects that (1) "avoid, reduce, utilize, or sequester" air pollutants or anthropogenic emissions of greenhouse gases; and (2) employ "new or significantly improved technologies" as compared to commercial technologies in service in the United States at the time the guarantee is issued.11 The $40 billion authorization under the IRA could bolster recent efforts to leverage the Title XVII program to support domestic production of critical minerals. 

Successive administrations have shown interest in using the Title XVII program to support domestic production of critical minerals, and Congress has recently taken steps to support those efforts. During the Trump Administration, DOE issued guidance interpreting Title XVII "broadly" to authorize loan guarantees for critical minerals projects, and "encourage[d] applications from potential projects involving the production, manufacture, recycling, processing, recovery, or reuse of Critical Minerals and other minerals."12 Subsequently, in the Infrastructure Investment and Jobs Act of 2021, Congress amended Title XVII to expressly authorize the provision of loan guarantees for "[p]rojects that increase the domestically produced supply of critical minerals . . . including through the production, processing, manufacturing, recycling, or fabrication of mineral alternatives."13 The Biden Administration is currently considering how regulations implementing Title XVII could be improved to facilitate applications for loan guarantees for critical minerals projects, among other changes.14 



The IRA's passage is not yet assured, but the bill enjoys strong support from President Biden and Congressional Democrats, and there is a strong chance that Congress will approve the bill in the coming weeks. If enacted in its current form, the IRA would represent a major expansion of tax and other financial incentives for domestic production of critical minerals. However, the IRA would not address impediments arising from the complex system of US federal and state environmental laws, regulations, and permitting processes applicable to mining operations.15 Some experts consider these permitting obstacles to be the single largest impediment to expanding domestic production of critical minerals at a scale needed to support the energy transition.16 Such obstacles, if left unaddressed, could limit the effectiveness of the policies envisioned in the IRA. 

As part of their political agreement on the IRA, Majority Leader Schumer and Senator Joe Manchin (D-WV) announced that they have reached agreement with President Biden and Speaker Pelosi to separately "pass comprehensive permitting reform legislation before the end of this fiscal year."17 While the details of the forthcoming bill are not yet available, this effort could complement the IRA by streamlining regulatory processes that impede critical minerals production in the United States.


1 The text of the legislation can be viewed here.
2 "Summary of the Energy Security and Climate Change Investments in the Inflation Reduction Act of 2022," Senate Majority Leader Chuck Schumer, July 27, 2022,
3 Id.
4 26 USC. § 30D.
5 "Critical minerals" subject to this requirement include specified forms of aluminum, antimony, barite, beryllium, cerium, cesium, chromium, cobalt, dysprosium, europium, fluorspar, gadolinium, germanium, graphite, lithium, manganese, neodymium, nickel, niobium, tellurium, tin, tungsten, vanadium, yttrium, and certain other minerals purified to a minimum purity of 99 percent (arsenic, bismuth, erbium, gallium, hafnium, holmium, iridium, lanthanum, lutetium, magnesium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, terbium, thulium, titanium, ytterbium, zinc, zirconium). 
6 The United States currently has free trade agreements in effect with Israel, Canada, Mexico, Jordan, Singapore, Chile, Australia, Morocco, Bahrain, Oman, Peru, Panama, South Korea, Colombia, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.
7 In Fiscal Year 2022, the US Department of Defense ("DOD") received appropriations of $988 million to implement the DPA, plus a balance of approximately $158 million carried forward from the previous year. 
8 50 USC. §§ 4501-4568.
9 "Summary of the Energy Security and Climate Change Investments in the Inflation Reduction Act of 2022," Senate Majority Leader Chuck Schumer, July 27, 2022,, at p.2. 
10 "Memorandum on Presidential Determination Pursuant to Section 303 of the Defense Production Act of 1950, as amended," Presidential Determination No. 2022-11, March 31, 2022,
11 42 USC. § 16513.
12 "Notice of Guidance for Potential Applicants Involving Critical Minerals and Related Activity," US Department of Energy, December 1, 2020, 85 Fed. Reg. 77202. 
13 42 USC. § 16513(b)(13), as added by Public Law 117-58, sec. 40401(a)(2)(A) (2021).
14 "Innovative Technologies Loan Guarantee Program," US Department of Energy, June 1, 2022, 87 Fed. Reg. 33141.
15 The Biden Administration acknowledged this challenge in its June 2021 review of the large-capacity battery supply chain. In that review, DOE "identified permitting issues, which arise in part from the lack of modern mining laws and regulations, as one of the hindrances to increasing domestic mineral production." DOE acknowledged that independent analyses "consistently give[] the US very low marks related to permitting risk, citing approximately seven to ten years to obtain the relevant permits for full-scale operations." See "Building Resilient Supply Chains, Revitalizing American Manufacturing, and Fostering Broad-Based Growth," The White House, June 2021,
16 See, e.g., "Biden mining order won't change biggest hurdle: Permits," E&E News, April 8, 2022,
17 "Joint Statement From Leader Schumer And Senator Manchin Announcing Agreement To Add The Inflation Reduction Act Of 2022 To The FY2022 Budget Reconciliation Bill And Vote In Senate Next Week," Senate Majority Leader Chuck Schumer, July 27, 2022,

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