The Biden Administration Has Taken Some Bold Steps on Energy, But More Remains to be Done
President Biden’s recent invocation of the Defense Production Act (DPA) to include five critical minerals is an important symbolic step toward moving to a low-carbon energy and transport system. The minerals mentioned in Biden’s announcement are those that are especially fundamental to modern batteries for electric vehicles and energy storage for power systems that are increasingly reliant on wind and solar power. These are the technologies that form the backbone of the energy transition. But what the DPA can’t do is change the fact that supply chain dynamics for critical minerals are global and largely dominated by China.
This invocation of the DPA was highlighted in the White House announcement of the historic release of 180 million barrels of oil from the strategic petroleum reserve (SPR). Together, these announcements are designed to show an administration that is willing to take bold steps to protect American consumers and bolster domestic manufacturing and national security — but a more nuanced and systematic approach is required. And that approach will need to rely heavily on cooperation with allies.
The DPA was previously used for critical minerals — Rare Earth Elements (REE) — under the Trump administration in 2019. REE a group of 17 minerals, are used in both energy and defense applications like LED lights and precision guided munitions. Four awards to REE producers under the DPA Title III were announced in 2020 and 2021. This tool was used in conjunction with other DoD activities including stockpiling, funding R&D, and partnering with industry in the key area of processing.
The use of the DPA stems from its initial congressional approval in the 1950s, when President Truman regulated steel and mining production to ensure adequate supply during the Korean War. The act was used again during the Cold War to establish aluminum and titanium industries within the United States to counter foreign production. The DPA has in the past provided capital investments, research funding, interest-free loans, the streamlining of permitting processes, and even skilled laborers. More recently, it was used in the COVID-19 pandemic as a means to increase production of much-needed protective gear for front-line workers.
The DPA has proved an effective tool in boosting American manufacturing and the American economy in the service of national security. One reason for this is that security is often a more powerful driver for change than environmental concerns. The purchasing power, logistics expertise, and political might of the Department of Defense can make a big difference to “unlocking” complex issues such as critical minerals. Still, our understanding of “criticality” requires considerable refinement. Only focusing on supply side issues does not provide the best basis for thoughtful policy.
Still, growing supply-demand imbalances look very likely in the coming decade as demand for electric vehicle batteries vastly outstrips production of its input minerals — like lithium, nickel, cobalt and graphite — all mentioned in the recent DPA announcement. This will also have implications for prices. Significant price increases in the last two years for these raw minerals further exacerbates the rise in battery costs, and ultimately a rise in costs for electric vehicles.
The Russian invasion of Ukraine has revealed the frailty in some metals markets, like steel and nickel, have become very clear. As demand continues to ramp up, cracks in supply chains are obvious in prices. As an example, the price of nickel went so high two weeks ago that the London Metals exchange had to stop trading for several days.
The actions mentioned in the latest DPA announcement are directed primarily at the Department of Defense and include feasibility studies and helping existing projects. These actions may be translated to more investor appetite for mining or processing projects, and could even translate to lower capital costs and improved investor risk perception of the mining and chemicals processing industries. They represent an important message of optimism and an important role for the domestic mining industry, but the terribly important and often overlooked issue of processing the raw materials into chemicals remains elusive.
The Biden administration has essentially securitized the critical minerals dilemma in its use of the DPA, and the 90-day and one-year reviews of the issue prepared by the Department of Defense. However, as a recent report by the Wilson Center argued, there is no silver bullet for the looming critical minerals crisis. Instead, a combination of policies, incentives and international diplomacy will be needed to overcome a huge deficit in energy transition minerals that few policymakers fully comprehend. Attempting to completely onshore the entirety of the supply chains for these diverse set of minerals is folly.
Fundamental to this multidimensional approach will be a more active engagement with the private sector, both the extractive industries and the end users (such as auto companies) who are making bold investment decisions now to reduce our dependence on hydrocarbons. U.S. authorities must prioritize mine development here in the U.S., as well as in friendly countries. Cooperation with our allies in Canada, Europe and Australia, and with partners in South America will go a long way to securing access to the materials we desperately need.
Combined with new investment in mining activities, there is an urgent need for refining and processing facilities here in the US to break China’s nearly complete hold. That topic is especially difficult due to its environmental consequences. Accompanying investments in human capital development and R&D for battery technologies are also needed to reduce the total amount of critical minerals in each electric vehicle and other technologies essential to the energy transition.
While the DPA is worth doing, and might catalyze other actions by government and investors, viewing this action as more than one piece of the puzzle is a mistake. It’s time for the U.S. government to adopt a more strategic approach across all elements of the supply chain, elevate its priority, and embrace a partnership model with the private sector and foreign allies.
Morgan Bazilian is a Professor and Director of the Payne Institute for Public Policy at the Colorado School of Mines. He was previously lead energy specialist at the World Bank.
Duncan Wood is Vice President for Strategy and New Initiatives at the Wilson Center.
