Canada eyes cash for critical minerals in Biden’s new climate bill
A landmark climate bill just passed by the US Congress could have implications for solidifying Canada’s role in the transition to clean transportation.
Legislation passed last week established preferential tax treatment for electric vehicles assembled anywhere in North America.
This made-in-North America approach grabbed headlines for bringing an amicable resolution to a months-long Canada-US irritant.
Less noticed in the bill was a pot of money containing hundreds of millions of dollars to kick-start a new national industry in components for electric vehicle batteries.
The ripple effects could eventually be felt across the border, into remote Canadian mining communities.
The problem is America’s growing concern about becoming dependent on its great geopolitical rivalChina, for critical minerals that will power future vehicles.
President Joe Biden invoked the US Defense Production Act earlier this year allowing it to fund projects that would reduce dependence on US rivals.
Now he’s getting the funds to do it: US$500 million set aside in this new law, after another US$600 million was nestled in a recent Ukraine helper bill, above an old multibillionaire loan program.
Those funds are now available to Biden to implement his stated plan to develop new suppliers of lithium, nickel, cobalt, graphite and manganese, as well as heat pumps.
An “opportunity” for Canada
Could some of that money create new battery component projects in Canada? Canadian officials hope that will be the case.
They point to a newly posted White House document websiteof a binational sign: It explicitly mentions that Canada is included as a national source under the US Defense Production Act and indicates that this creates potential opportunities for cooperation on critical minerals.
“There is an opportunity in the way [the bill is] structured – to take advantage of it,” Kirsten Hillman, Canada’s Ambassador to Washington, told CBC News in an interview.
“This will boost domestic production [in the U.S.]. It also includes Canada as a domestic source. So we look forward to shared opportunities.”
The larger story behind the new bill, which Biden will soon sign into law, is that it is by far the most significant U.S. federal action ever taken on climate change.
It passed with relatively little media coverage last Friday, with the nation’s politics distracted by the FBI’s raid of former President Donald Trump’s home.
What’s in this big climate bill
But analysts who have studied the bill have predicted a major impact on carbon emissions thanks to its more than C$400 billion in tax credits and subsidies for a wide range of energy projects.
These estimates predict that greenhouse gas emissions in the United States will fall faster now at anywhere between 31 percent and 42 percent compared to 2005 levels, which would bring the United States significantly closer to meeting its 2030 goal under the Paris Agreement.
The so-called Cut Inflation Act would remove a billion tons of greenhouse gases from the atmosphere, according to Princeton University’s Zero Lab, equivalent to cutting all emissions by 2% current worlds.
But there is uncertainty in the projections: One of the reasons estimates vary so widely is that it’s far from clear how quickly new energy projects will roll out.
Here is an example of this uncertainty: The much talked about electric vehicle credit.
For nearly a year, it was a festering irritant in Canada-US relations. An earlier version of the bill, formerly known as Build Back Better, only allowed vehicles assembled in the United States to access certain tax credits.
What happened to this tax irritant for electric vehicles?
This triggered threats of trade retaliation. Ottawa has warned that the bill violates the new North American trade agreement and would kill auto jobs and investment in Canada.
The head of the Automotive Parts Manufacturers’ Association of Canada, Flavio Volpe, called the friendlier language of the final new bill relief for Canadian jobs: “It’s a dodged bullet,” he said. declared.
“Probably more than one dodged missile.”
But wait. There is an important caveat in the new, more user-friendly language. US automakers now call the new credit virtually useless under current conditions.
For an electric car to qualify for the maximum US$7,500 in the new version of the credit, the car’s battery will increasingly need North American components: from 50% of the battery in 2024 to 100% in 2028.
The problem? North America does not manufacture as many battery components.
“[No vehicles] would be eligible for full credit when additional procurement requirements come into effect. Zero,” said one letter of a US auto industry lobby group.
An analysis for the nonpartisan U.S. Congressional Budget Office projected that only a tiny percentage of vehicles will receive the tax credit.
In a 10-year budget forecast for the bill, the CBO estimated that the US Treasury will end up paying just enough to give full credit to just over a million vehicles over a decade.
This is less than one percent of an estimate 150 million total vehicle sales in the United States over those 10 years. During this period, a increasing percentage of vehicles sold will be electric.
The bottom line: Very few cars should have enough North American components to qualify.
This is where Canadian mining comes in.
A key architect of the final version of the bill, U.S. Senator Joe Manchin, has repeatedly stated his skepticism about the initial plan.
He said it makes no sense to rush into the age of electric vehicles when America’s main adversary still has a stranglehold on vital inputs.
But after Manchin visited Canada earlier this year, he felt the two countries should work more closely together on minerals.
This new bill seems designed to do just that, with tax credits for North American vehicles and money for critical mineral projects.
If US mining companies want access to some of this money, they can submit proposals to the US government.
Quebec mining project
It turns out that a company that is eyeing American public funds has a major investment in Quebec.
Keith Phillips, chairman of North Carolina-headquartered Piedmont Lithium, said it was not yet clear what terms the US government will set and what projects it plans to fund.
More details about the administration of the bill will be revealed in regulations to be drafted over the coming months.
“I’m not sure anyone knows exactly what the priorities are,” Phillips said in an interview.
His company is a minority investor at a lithium mine in Quebec that is now expected to start producing next year.
The next objective is to build a plant in Quebec for value-added processing with the majority partner, the Australian Sayona Mining.
The project is still in its infancy and no site has yet been chosen.
Phillips said a similar plant would cost US$600 million to build in the United States and he said public money is a lifeline for projects that banks have given little backing.
“Of course that would be a priority,” he said of the potential for US federal loans.
“If government aid could be involved, that’s very helpful.”
Building a North American Battery Industry
The Canadian government has also recently budgeted $4 billion developing the country’s critical minerals sector.
However, North America starts far behind.
Canada, for example, has a tiny share of the lithium, cobalt and manganese deposits discovered in the world.
Brian Kingston, head of the Canadian Vehicle Manufacturers’ Association, said he was relieved by some of the changes in the US bill.
But he’s still concerned automakers can’t meet Ottawa’s zero-emissions sales targets without major improvements to charging capacity, energy infrastructure and sales incentives.
As for a North American battery supply chain, he said: “[It] will not emerge overnight.”