As part of ongoing attempts by the U.S. government to promote domestic availability of “critical minerals,” certain provisions of the Inflation Reduction Act (the “Inflation Act”) use tax credits as an incentive. DGS wrote about critical minerals in our November 22, 2021 article on the Infrastructure Investment and Jobs Act (the “Infrastructure Act”).
The Inflation Act covers a wide range of policy topics, but the concept of critical minerals appears exclusively in Parts 4 and 5 of the act, addressing Clean Vehicles and Investment in Clean Energy Manufacturing and Energy Security, respectively.
Part 4 of the Inflation Act addressing Clean Vehicles modifies the existing New Qualified Plug-In Electric Drive Motor Vehicles credit in Section 30D of the Internal Revenue Code, renaming it the Clean Vehicle Credit. It provides for a maximum federal income tax credit of $7,500 for purchasing a new electric vehicle depending on the source of critical minerals used in the vehicle’s batteries if final assembly occurs in North America. The Inflation Act enhances the credit by increasing the baseline dollar limit, expanding the eligible vehicles, allowing a taxpayer to transfer the credit to a registered dealer, and eliminating the prior limit on credit-eligible vehicles.
With respect to critical minerals used in Clean Vehicle batteries, beginning in 2023, at least 40% of their value must be extracted or processed in the United States, or in any country with which the United States has a free trade agreement in effect, or must be recycled in North America. The required percentage of critical minerals value increases each year, up to 80% in 2027. Vehicles not meeting the value threshold are subject to a halving of the tax credit to $3,750. Additionally, if at least 50% of the vehicle’s battery components are manufactured or assembled in North America, an additional tax credit of $3,750 is available. Notably, the Inflation Act also renders vehicles ineligible for the tax credit if the vehicle’s batteries contain critical minerals or components extracted, processed, recycled, manufactured or assembled by “foreign entities of concern,” as defined in the Infrastructure Act. These nations currently include China, Russia, Iran and North Korea.
Department of Treasury guidance is required to be issued by December 31, 2022, regarding recordkeeping requirements to track the use and integration of critical minerals in the Clean Vehicle Credit program.
Part 5 of the Inflation Act establishes a new Advanced Manufacturing Production Tax Credit in Section 45X of the Internal Revenue Code. The credit applies to eligible components produced by a taxpayer/manufacturer in the United States and sold by the taxpayer. The critical minerals tax credit is 10% of the “costs incurred by the taxpayer with respect to production of such mineral.” Eligible components include any applicable critical mineral, defined in the Inflation Act to include aluminum, antimony, barite, beryllium, cerium, cesium, chromium, cobalt, dysprosium, europium, fluorspar, gadolinium, germanium, graphite, indium, lithium, manganese, neodymium, nickel, tellurium, tin, tungsten, vanadium, yttrium, and 23 other minerals – if they are purified to 99 percent by mass.
Outside of the Inflation Act, the U.S. government and other organizations may use other definitions and rely on additional criteria to identify a mineral as “critical.” For example, the Energy Act of 2020 (the “Energy Act”) defines a “critical mineral” as a non-fuel mineral or mineral material essential to the economic or national security of the U.S. and which has a supply chain vulnerable to disruption.
In addition to defining mineral criticality, the Energy Act directed the Department of the Interior’s U.S. Geological Survey (“USGS”) to update and publish a revised List of U.S. Critical Minerals (the “CML”). The initial CML, published in 2018 in response to Executive Order No. 13817, included 35 commodities and groups on the final list.[1] The USGS revised the list in 2022 to include 50 critical minerals;[2] however, the increase in mineral commodities actually resulted from splitting the rare earth elements and platinum groups.[3] The 50 minerals included on the 2022 CML encompass those defined as critical minerals in Part 5 of the Inflation Act.
In preparing the 2022 CML, USGS removed Helium, Potash, Rhenium, and Strontium. Somewhat counterintuitively, USGS also removed Uranium from the CML, even though one might assume it would be a “critical” mineral because of the safety and national security concerns associated with nuclear power and nuclear weapons. However, in removing Uranium, the USGS relied upon the Mining and Mineral Policy Act of 1970, which defined Uranium as a fuel mineral, and, under the Energy Act, critical minerals do not include fuel minerals; water, ice, or snow; or common varieties of sand, gravel, stone, pumice, cinders, and clay.
While the Infrastructure Act did not make an express designation of mineral criticality, the 2022 CML is timely guidance for the use of Infrastructure Act funds, both for the USGS and other U.S. agencies and international partnerships. Like the Inflation Act, the Infrastructure Act contains several provisions aimed at increasing domestic production of rare earth elements and critical minerals to promote domestic supply chains and to alleviate the economic and national security concerns associated with the United States’ dependence on foreign suppliers. For the USGS specifically, the Infrastructure Act provided $320 million in funding for the Earth Mapping Resource Initiative (EMRI), for which the 2022 CML is the focus of USGS research quantifying critical mineral potential within the U.S. Relatedly, the Department of Energy ("DOE")’s Critical Materials RDD&CA Program, piloted under the Energy Act, was expanded and supported by the Infrastructure Act. Backed by a $140 million investment, the DOE is also working to develop a full-scale rare earth element and critical minerals extraction and separation refinery using unconventional resources.
As regards critical minerals in the international context, in June of 2022, the State Department announced the establishment of the Minerals Security Partnership ("MSP") to “bolster critical mineral supply chains.” The 11-member alliance between the U.S. and key partner countries is part of the Biden administration’s continued focus on critical mineral resources. This past week at a ministerial meeting of the MSP in New York, U.S. Secretary of State Antony Blinken remarked that the United States and its allies in MSP stand ready to support successful critical mineral projects. Noting that critical minerals production and processing “requires lots of investment and undertaking lots of risk,” Blinken reaffirmed that the MSP was committed to helping with both, including “providing a loan guarantee or debt financing.” The ministerial meeting included representation from the MSP member countries Australia, Canada, Finland, France, Japan, the Republic of Korea, Norway, Sweden, the United Kingdom, the United States, and the European Union. Additional minerals-rich countries in attendance included Argentina, Brazil, the Democratic Republic of the Congo, Mongolia, Mozambique, Namibia, Tanzania, and Zambia.
[1] Aluminum (bauxite), antimony, arsenic, barite, beryllium, bismuth, cesium, chromium, cobalt, fluorspar, gallium, germanium, graphite (natural), hafnium, helium, indium, lithium, magnesium, manganese, niobium, platinum group metals, potash, the rare earth elements group, rhenium, rubidium, scandium, strontium, tantalum, tellurium, tin, titanium, tungsten, uranium, vanadium, and zirconium. Final List of Critical Minerals 2018, U.S. Department of the Interior, 83 Fed. Reg. 23295, 2018, https://www.govinfo.gov/content/pkg/FR-2018-05-18/pdf/2018-10667.pdf
[2] Aluminum, antimony, arsenic, barite, beryllium, bismuth, cerium, cesium, chromium, cobalt, dysprosium, erbium, europium, fluorspar, gadolinium, gallium, germanium, graphite, hafnium, holmium, indium, iridium, lanthanum, lithium, lutetium, magnesium, manganese, neodymium, nickel, niobium, palladium, platinum, praseodymium, rhodium, rubidium, ruthenium, samarium, scandium, tantalum, tellurium, terbium, thulium, tin, titanium, tungsten, vanadium, ytterbium, yttrium, zinc, and zirconium. Final List of Critical Minerals 2022, U.S. Department of the Interior, 87 Fed. Reg. 10381, 2022, https://www.govinfo.gov/content/pkg/FR-2022-02-24/pdf/2022-04027.pdf
[3] Platinum group metals (Iridium, Palladium, Platinum, Rhodium, Ruthenium, and Osmium) were previously listed together as one group; in the 2022 CML, they have been separated, and Iridium and Osmium have been removed from the list. Likewise, metals belonging to the rare earth elements group (Cerium, Gadolinium, Lanthanum, Neodymium, Praseodymium, and Samarium) were previously listed together as one group; in the 2022 CML, they have been separated.