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The Inflation Reduction Act: Mining focus

The Inflation Reduction Act: Mining focus

Signed into law in August 2022, the Inflation Reduction Act (IRA) marks the largest action ever taken by Congress and the U.S. government to combat climate change. In providing billions of tax incentives for renewable energy, the IRA builds in a commitment to increase the domestic supply of minerals to support the transition to electric vehicles, batteries, and renewable power.

This shift in policy requires new and strengthened supply chains for metals used in renewable technology and electric vehicles. The U.S. has rich sources for metals, such as lithium, cobalt, nickel, manganese, and graphite; however, the current supply chain is dominantly controlled by China and its industries. The primary tools used in the IRA to incentivize domestic mineral production appear as caveats embedded in the clean vehicle tax credits (Section 13401) and the advanced manufacturing production credit (Section 13502).

  • Clean vehicle tax credits: The IRA modifies requirements for the refundable income tax credit for qualifying plug-in electric vehicles. The new “clean vehicle credit” stipulates that new clean vehicles meet requirements for critical minerals and battery components. Similar to existing credits, this can total $7,500 per vehicle. Specific percentages of the value of the minerals contained in the vehicle battery must be extracted or processed in the United States or in any country with which the U.S. has a free trade agreement in effect. This also applies to minerals recycled in North America. The percentages increase through time, starting from 40% for vehicles put into service in 2023-2024. It increases to 60% in 2025, 70% in 2026, and 80% after 2026. This creates a path for critical minerals derived in the U.S. to be increasingly used in the batteries of new clean vehicles. The credit also specifically excludes any vehicles containing batteries that have critical minerals extracted, processed, or recycled by “foreign entities of concern.” For metals markets, this credit excludes exports from China and Russia, for example.

  • Advanced manufacturing production credit: For any producers of critical minerals, the “advanced manufacturing production credit” provides an annual tax credit of 10% of the costs incurred to produce the mineral. This goes into effect after December 31, 2022. There is no phase-out to this incentive over time. If you currently mine or process critical minerals in the U.S., this means you.

  • Enhanced use of Defense Production Act (DPA): The IRA also appropriates up to $500 million for the “enhanced use” of the DPA to assist with strengthening the U.S. supply chain for critical minerals.

Despite these provisions, and despite U.S. mines being among the cleanest and safest in the world, developing domestic sources of critical minerals is challenged by the entrenched Asian supply chain and notoriously long U.S. mine development schedules. In tying renewable policy to domestic mineral production, the Biden-Harris administration wades into larger scale issues that remain some of the core challenges long-recognized in the U.S. mining industry.

Challenges for the U.S. mining industry

Outdated laws

The U.S. laws governing the extraction and processing of critical minerals are outdated. The General Mining Law of 1872 remains the primary statute for hard rock mining on public lands. This law has never been significantly revised. It also doesn’t provide for royalties or reclamation related to mineral extraction, for example. In recognition of the need for reform, the Biden-Harris administration convened the Interagency Working Group (IWG) to assemble agency experts who were tasked with consulting with the public. After soliciting comments from the public, the group would then provide guidance on reforming hard rock mining laws, regulations, and permitting policies. In early 2022, the IWG published 11 fundamental principles for domestic mining reform and is due to deliver a comprehensive report to Congress in November 2022.

Permitting delays

Permitting delays hinder investment in domestic mine development. Although the IWG fundamental principles address the need to streamline permitting, many in Congress are clamoring for reform sooner to accommodate projects coming online. At least one attempt to tie permit streamlining to the continuing resolution for government operation, however, failed for lack of support.

Foreign supply chain

Lastly, the IRA requires that the Treasury Department develop guidance for how the credit programs will be implemented, and this guidance has the potential to affect foreign supply chains and manufacturers, including traditional U.S. trading partners. Some countries have suggested that the tax credit provisions in the IRA violate existing free trade agreements or are discriminatory practices according to the World Trade Organization. This is forcing foreign manufacturers to assess their own supply chains and may lead to a shift toward North American sources of minerals.

What’s coming next?

The Biden-Harris administration launched the American Battery Material Initiative, which leveraged funds allocated in the Bipartisan Infrastructure Law to award $2.8 billion in grants to 21 projects in 12 states. These projects support new and expanded commercial-scale domestic facilities to produce battery materials and battery recycling and manufacturing.

Barr regularly tracks incoming IRA grants and incentives to help our clients take advantage of new provisions. As an example, Barr recently helped one of our nickel mining clients obtain funding from the Department of Energy for battery mineral processing. In addition, we are currently helping a client with the installation of a modular pilot plant for demonstrating lithium recovery from in-situ brines. If successful, our client plans to move this pilot to other locations to demonstrate it on different brine sources, then scale up to commercial production of lithium concentrate.

The implications from the IRA on domestic mineral production are still unfolding. The full effects depend on mine- and processing-specific goals and on future actions resulting from mining law reform. Contact us to learn how your organization can capitalize on these new IRA incentives and for support navigating this complex and rapidly changing regulatory environment.

About the author

Mehgan Blair is a senior geologist with 15 years of experience designing baseline geologic, hydrogeologic, geotechnical, and geochemical characterization studies for mine and wastewater permitting. Her project work includes characterizing the mineralogical, geochemical, and geotechnical properties of proposed mine-site overburden, waste rock, and tailings.


Mehgan Blair
Mehgan Blair
Senior Geologist


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