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The Impact of the US Inflation Reduction Act Reveals Challenges in Critical Mineral Supply

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A recent report sheds light on the significant hurdles that the US faces in ensuring the success of operational projects, with implications for mining and refining countries. Addressing these challenges is crucial in shaping domestic production prospects, according to Daniel Yergin, Vice Chairman of S&P Global.

The report highlights the consensus across the US political spectrum that permitting processes pose a major obstacle in energy project development, affecting various sectors such as offshore wind and natural gas pipelines.

S&P emphasizes that the interplay between federal jurisdiction and private or state-owned lands adds complexity, with private or state lands offering more predictable permitting paths. However, delays, unpredictability, and rising costs plague projects on federal lands. This issue is particularly pressing as nearly half of the mineral-rich land in western states falls under federal government jurisdiction.

Financial Impact

The US Inflation Reduction Act (IRA), combined with the Bipartisan Infrastructure Law, contributes a staggering $502 billion towards new climate and energy investments. Nonetheless, experts caution that the $387 billion dedicated to the IRA could potentially rise to a $1.2 trillion financial commitment due to the complexities of the US legal environment, which hinder mine development.

S&P Global data reveals that major discoveries today are unlikely to become productive mines until 2040 or later, and large projects in politically sensitive areas can take even longer.

The repercussions of the IRA extend to the renewable energy and electric vehicle (EV) sectors, resulting in an anticipated 30 gigawatts boost in wind and solar energy by 2030. This growth is driven by extended tax credits, facilitating a rapid energy transition.

The increase in EV sales is expected to drive parallel expansion in the demand for battery raw materials. S&P Global projects a 24% year-over-year increase in EV battery demand between 2021 and 2035, thanks to the rise in EVs and IRA tax incentives. The intricate relationship between EV battery demand and specific metals underscores the diverse battery compositions at play.

As a result of the IRA’s impact, the report predicts a 23% surge in demand for EV battery capacity in the US by 2035, translating to a 12-15% increase in demand for cobalt, nickel, lithium, and lithium over this period.

Domestic Suppliers

The report emphasizes that navigating the complex permitting process poses the most significant threat to the IRA’s implementation. The Act mandates sourcing minerals from domestic suppliers or Free Trade Agreement (FTA) partners. However, Yergin highlights the challenges posed by prevailing trade patterns and the significant role non-FTA countries play in the critical metals market.

On a positive note, the report acknowledges that upfront costs in hard rock mining overshadow those in other energy sectors.

While the IRA fuels momentum in the renewable energy and EV sectors, it also exposes the complexities of establishing a robust supply chain. Balancing domestic production, meeting sourcing obligations, navigating operational hurdles, and addressing the challenging permitting process are formidable tasks that stakeholders must overcome to unlock the full potential of the North American energy transition.

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