The Critical Missing Piece From US Energy Transition – Analysis

At the outset, the United States was blessed with enormous tracts of land (that it stole from the natives) and a considerable labor force (that it enslaved from Africa) to achieve economic success based largely on growing things. The next leap forward—into the industrial era—was facilitated by large deposits of coal and oil. A century later, inspired by a gifted group of engineers and funded early on by the Pentagon, Silicon Valley led the country into the computer age.

The United States, in other words, has been lucky. When the luck ran thin, it also relied on brute force.

Today, the world stands at the brink of another new economic revolution. Thanks to the same fossil fuels that made the industrial age possible—for the United States and other countries of the Global North—humanity has to shift over to renewable energy or else risk frying the planet.

This time, however, the United States is not so lucky.

When it comes to the 50 minerals necessary for the “clean” energy transformation, the United States is currently 100 percent reliant on exports for 12 of them (including graphite). For another 31 of those minerals—including cobalt, zinc, and tin—it imports at least 50 percent of what it needs. (If you’re not sure what minerals qualify as “critical,” here’s a list.)

The Biden administration is investing a lot of money to build a bridge to this renewable energy future. But it has neglected to secure all the necessary building materials to make that bridge happen.

Remember all the brouhaha around ensuring America’s energy independence? Boosters of domestic oil and gas production, especially the fracking industry, made a big deal about cutting ties of dependency to the Middle East and other regions of the world.

So far, there has been no comparable push to create mineral independence. Up until a few years ago, there wasn’t much appetite for such a campaign. To quote just one example, the United States closed down its only rare earth mine in California and was perfectly content to let China mine and process the 17 rare earth minerals that figure so prominently in the components of batteries, solar panels, and windmills.

The example of rare earth elements is not unique. The United States lacks many of the minerals that China currently controls. China produces more than 50 percent of rare earth elements and graphite, and it has secured access to other critical raw materials, including cobalt mines in the Democratic Republic of Congo and lithium mines elsewhere in Africa.

Policymakers and titans of industry wouldn’t be sweating right now if the United States had a good relationship with China. But the two countries have engaged in tit-for-tat tariffs and export restrictions, especially around minerals and high technology. Suddenly, U.S. policymakers from both parties are worried about how the country will cook up electric batteries, EVs, solar panels and so on if it can’t get the necessary ingredients.

Europe has already acted to address mineral dependency. The EU will pass its own critical raw materials legislation this year to increase domestic sourcing of these important minerals and also to expand efforts to recycle them.

The United States hasn’t yet passed comparable legislation. It’s running low on luck, and it can’t rely on the outright brutality of earlier eras to seize what it needs. Instead, America is using a variety of incentives, positive and negative, to get these critical raw materials.

But the most obvious way for the United States to wean itself of fossil fuels has nothing to do with luck or brutality. To have a chance at creating a just green transition for all, the United States simply has to repair its relationship with China.

Homegrown Extraction

Like oil, strategic minerals are unevenly distributed around the planet. Lithium mines are concentrated in Australia and the ABC triangle of Argentina, Bolivia, and Chile. The largest producer of nickel is Indonesia. Peru and Chile dominate the copper market. The DRC is responsible for nearly 70 percent of cobalt production.

The United States is not short on mines, particularly in the western part of the country. America was once the world’s largest copper producer (it’s now number five). It was once the largest extractor of rare earth elements (it’s now a distant second to China). For a period it supplied over 90 percent of the world’s bauxite (it’s now nowhere near the top ten).

It’s not as if mining has disappeared from the United States. It is still number two in the world in terms of overall mineral production of 2.2 billion tons (behind China’s 4.6 billion tons). In terms of the value of that production, the United States falls to third place, far behind China. Drill down into those numbers—pardon the extractive pun—and it’s easy to understand why the value of U.S. extraction is comparatively low. Crushed stone is the top mined commodity in the United States, followed by cement, copper, and construction sand and gravel.

Crushed stone is not exactly a strategic mineral, however useful it might be. You can’t make a computer or an EV out of cement.

Sometimes, the U.S. mining industry has lost out to countries with larger deposits. Sometimes, U.S. mines were simply tapped out. But in some key instances, the United States decreased or even stopped production in favor of imports. It turned out to be cheaper to rely on other countries either because their labor costs were lower or because they didn’t bother with profit-reducing environmental regulations.

Consider the case of rare earth elements. The Mountain Pass mine in California once produced most of the world’s supply, which went into color televisions, lasers, and microchips. U.S. dominance in production lasted into the 1990s, even as it began shipping the ore to China for processing, effectively exporting that particular environmental hazard. Certain U.S. regulations increased the cost of production; then a toxic waste spill in 2002 and subsequent litigation shut down the mine. China easily overtook the United States in the production and processing of rare earth elements.

U.S. Policy Evolves to a Point

Back in 2009, as the Obama administration was struggling to drag the U.S. economy out of a profound financial crisis, it managed to pass the $800 billion American Recovery and Reinvestment Act, which contained $90 billion for renewable energy. It was a modest but important nudge for the solar and wind energy industry, electric vehicle production, and the electrification of public transport.

Then came the Trump dark ages.

With the pandemic still in place and the economy struggling once again, Joe Biden took office and followed the Obama game plan. This time, he went even bigger on renewables in the $1 trillion Bipartisan Infrastructure Law and even more so with $300 billion earmarked for energy and climate in the Inflation Reduction Act.

But there was very little in all that legislation that specifically addressed critical raw materials.

The Biden administration is clearly committed to shifting eventually to renewables. The key word here, of course, is “eventually.” The administration has also pumped out a record amount of oil, in part in response to the war in Ukraine and the replacement of Russian supplies to European countries.

But when it comes to building the infrastructure for the energy transition, the United States will be competing with everyone for finite resources. According to the International Energy Agency, this transition will boost demand for rare earth elements fourfold, nickel, cobalt, and graphite 20-fold, and lithium an astounding 40-fold. The World Resources Institute assesses the stakes for the United States:

Expanding renewable energy infrastructure in the U.S. and coupling it with stationary storage batteries will require significant quantities of critical minerals such as lithium, nickel and cobalt. Likewise, the rapid shift to electric vehicles will depend on new EV batteries that require these same minerals. As the country increases its overall reliance on electricity, moreover, it will require increased transmission which calls for large amounts of copper and aluminum.

The only mineral mentioned above that the United States is mining in any quantity at the moment is copper.

The Inflation Reduction Act contains a single provision that addresses the sourcing of these minerals. To qualify for EV tax incentives, the batteries used in electric vehicles must contain at least 40 percent of critical minerals sourced either from the United States or from its free trade partners. A Korean manufacturer of EVs, for instance, has to reduce its dependency on Chinese imports for its battery production or risk being outpriced in the U.S. market. By 2027, that percentage rises to 80 percent.

There are no requirements for any other Green transition product: not solar panels, not wind turbines, not heat pumps. However, there is something called 45X in the IRA. It’s a production tax credit that provides a 10 percent credit for the use of domestic critical minerals. But, as critics have pointed out, it doesn’t support either the mining of those minerals or the recycling of them.

Congress is a little late to the game, but there’s bipartisan support for a Critical Materials Security Act which would help companies divest from the Chinese supply chain and share knowhow on processing with allied countries. But along with earlier legislation on battery production, the bill hasn’t yet gone anywhere.

In the absence of congressional action, the Biden administration has moved forward with the Minerals Security Partnership, a trade bloc of 14 nations designed to establish a supply chain for the resources they all need. It’s billed as a kind of responsible alternative to China’s Belt and Road Initiative, at least when it comes to minerals, though urgent need will probably trump “responsible” when push comes to shove.

The administration also wants to open new mines that can power the energy transition. It created a new permitting process (FAST-41) to expedite new ventures, like a zinc and manganese mine in southern Arizona. New lithium mines are popping up in Imperial Valley (California), Thacker Pass (Nevada), and Smackover (Arkansas). Mountain Pass has subsequently reopened, but it will now face competition from other rare earth mines slated for Wyoming and Nebraska. Opposition from local groups might derail these efforts, however, just as they have blocked the mining of the largest potential U.S. lithium deposit in Maine.

Competition with China

The United States and its allies have tried to block China from acquiring advanced technology, such as the latest semiconductorsnecessary for AI applications. China has retaliated by slapping export restrictions on key rare earth minerals. It’s the kind of trade war that doesn’t immediately affect consumers—unlike the proposed TikTok ban—but it will prove hugely consequential for the future production of pretty much everything.

It doesn’t have to be this way.

China and the United States could collaborate profitably for mutual benefit on renewable energy technology. It did so during the Obama administration with the U.S.-China Clean Energy Research Center (CERC). Even in the current period of heightened tensions, Ford has been collaborating with China’s CATL to build a factory in Michigan that would produce batteries for its American-built EVs. But such cooperation has raised red flags among House Republicans, who sent Ford a letter that read, in part: “we are concerned that Ford’s partnership with a Chinese company could aid China’s efforts to expand its control over United States electric vehicle supply chains and jeopardize national security by furthering dependence on China.”

This kind of Cold War, zero-sum thinking could very well destroy what little chance the world still has of addressing the climate crisis. At Brookings, Cheng Li and Xiuye Zhao put it well:

Properly handled, U.S.-China collaboration in clean tech could further drive carbon reduction of the top two emitters, build trust, and put a floor under the deteriorating bilateral relationship. If framed as yet another battleground for zero-sum competition, however, mutual hostility in the form of trade restrictions and technology decoupling will disrupt global supply chains and torpedo the climate agenda worldwide.

China is just as suspicious of U.S. motives as the United States is of China’s. But the two countries don’t have to trust each other across the board. The United States and Soviet Union didn’t during the Cold War, and yet they were able to forge important arms control agreements that led to real reductions in nuclear arsenals and reduced the risk of war. China and the United States must do the same in the field of renewable energy, reduction of carbon emissions, and other environmental priorities.

Competition is meaningless, after all, if the prize is a dead planet.