The IRA is creating critical minerals shortages

The USA’s Inflation Reduction Act is accelerating demand for critical minerals and copper that are needed for energy transition technologies. However, ensuring enough qualifying supply to meet that demand faces “considerable challenges,” according to a new analysis by S&P Global.

The new study finds that the USA’s energy transition demand, ie demand from decarbonisation technologies such as electric vehicles, charging infrastructure, solar PV, wind and batteries, will continue to accelerate and be materially higher for lithium (+15%), cobalt (+14%) and nickel (+13%) by 2035 than was projected before the IRA was enacted in August 2022.

Demand for copper will be 12% higher by 2035 than pre-IRA projections. Copper is not currently listed as a critical mineral in the United States and does not qualify for IRA tax credits. However, its role as the ‘metal of electrification’ makes it vital to the energy transition and demand for it will rise as it is used alongside critical minerals in energy transition applications, the study says.

Adding the post-IRA demand increases on top of demand growth that was already expected prior to the IRA becoming law means that total combined energy transition-related demand for lithium, nickel and cobalt will be 23 times higher in 2035 than it was in 2021. Total demand for copper will be twice as high, the study finds.

The study, entitled ‘Inflation Reduction Act: Impact on North American Metals and Minerals Market’ employs a detailed bottom-up, technology-by-technology approach to project demand for the four metals from major energy transition applications, including power generation, transmission and distribution and end-markets, such as electric vehicles.

While post-IRA demand is expected to be materially higher, securing enough supply under the law’s sourcing requirements faces considerable challenges, the study says. To qualify for IRA tax credits, processing and/or extraction of critical minerals used must be in the United States and/ or in a country with which the United States has a free trade agreement; and that sourcing cannot involve a “’oreign entity of concern.’

Of the four materials analysed in the study, only lithium is likely to be sufficiently supplied to the United States under the IRA’s domestic content requirements, given already-planned capacity additions in the United States and other FTA countries such as Chile, Canada and Australia, the study finds.

Cobalt and nickel are both unlikely to be sourced at levels high enough to meet demand.

Nickel is the most challenged in terms of supply, the study says. There does not appear to be enough nickel supply in FTA countries to meet demand under the IRA requirements, even if all primary nickel production in FTA countries was exported to the United States.