Supply chain dilemmas
A second rationale behind the Inflation Reduction Act is to lessen US reliance on China and other states for critical raw materials that are used in clean technologies. Since 2010, China has consistently outspent the US on clean energy. Today it is the largest commercial beneficiary of the clean energy transition thanks to its centrality in clean energy technology supply chains. On top of solar and wind, it is now the undisputed leader in electric vehicles.
This poses two challenges to the US. First, there is a growing bipartisan view that China’s vast assistance to Chinese clean tech is skewing global competition. For many in Washington, the only way to compete is to provide incentives for US production. Second, while trade between the US and China has grown over the past year, there are concerns that the US is too dependent on China for the supply of critical raw materials. China is the dominant player in global mineral processing that is essential to its climate transition (68% of nickel, 40% of copper, 59% of lithium, and 73% of cobalt are refined in China). On top of that, it is a strategic player in later stages of the supply chain, for manufacturing battery cell components for example. The EU’s clean energy supply chains, for their part, are also heavily dependent on China’s rare earths and lithium.
To respond to these challenges, the US wants to stimulate the development of domestic critical minerals supply chains and link these with “countries whose values it shares”, like the EU. Interestingly, the IRA has already led some US-based companies to readjust their supply chains. Others, like US miner Albermarle, the world’s largest lithium producer, have raised earnings guidance and sales targets. The European Commission is also hoping to introduce targets for local production for 2030. These would not be as strict as in the US but they would encourage EU companies to consider the security of supply in call for tenders. The EU’s Net Zero Industry Act, published today, still needs to be discussed in the Council, the grouping of the 27 member states, and in the European Parliament.
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