The recent expansion of a manufacturing tax credit in the United States has brought about significant changes, benefiting metal refiners while excluding pure mining companies. The update, unveiled in final regulations by the Treasury Department and Internal Revenue Service (IRS), pertains to the Section 45X Advanced Manufacturing Production Credit, a component of the Inflation Reduction Act. The primary objective of this credit is to bolster domestic production of clean energy products, encompassing renewable components, battery materials, and 50 crucial minerals pivotal to the energy transition.
Since its inception, the Advanced Manufacturing Production Credit has already catalyzed private-sector investments, with $126 billion in investment announcements, including $6 billion earmarked for critical minerals, according to the Treasury Department. This tax credit offers financial incentives for the production of solar and wind components, battery parts, and refining or recycling critical minerals. Manufacturers can earn credits based on unit production, electrical capacity, or production costs. Notably, these credits are transferable, enabling companies to optimize their benefits.
Commencing in 2023, the credit will be accessible until 2032, with most goods gradually reducing to 75% of the credit value in 2030, 50% in 2031, and 25% in 2032, except for critical minerals, which are exempt from this reduction. This stable, decade-long credit has fostered long-term investments, with manufacturing investments surging by 305%, reaching $89 billion in 2023-2024 from $22 billion in 2020-2022, as per Clean Investment Monitor data.
The 45X tax credit operates by providing a specific tax credit value for each eligible component in accordance with IRS guidelines. To qualify, manufacturers must ensure their products meet the prerequisites outlined in the 45X regulation. Additionally, for the tax credit to be claimed, the component must be sold to an unrelated third party.
Initially, the tax credit did not encompass extraction or material costs. However, following consultations with industry stakeholders, the Biden administration decided to expand the credit’s scope. This modification now incorporates costs associated with materials and extraction for qualifying minerals and electrode materials, under specific conditions. The Treasury Department emphasized that this decision aims to stimulate investment in U.S. critical mineral extraction and processing, ultimately enhancing U.S. energy security and fortifying clean energy supply chains.
The 10% production cost tax credit is applicable to highly refined metals, aligning with the U.S. strategy to establish supply chains supporting energy transition sectors like electric vehicles and green energy. Eligible minerals include essential battery metals such as nickel, lithium, and graphite, alongside rare earth elements like neodymium. Treasury Secretary Janet Yellen expressed that the final regulations will benefit companies investing in the U.S. clean energy economy. Furthermore, the Treasury confirmed that the tax credit extends to components manufactured using foreign-sourced materials, ensuring flexibility for U.S. manufacturers, particularly in sectors where certain raw materials are challenging to procure domestically.
The expanded 45X credits present a significant boost for critical mineral refiners, particularly benefiting nickel production and other battery metals. This development comes at a crucial time, following substantial growth in primary nickel production, encompassing ferronickel for steelmaking and intermediates for EV batteries. According to S&P Global Commodity Insights, the top 5 publicly listed nickel producers achieved a combined output of 158,937 metric tons, marking a notable 35.6% increase from Q2 2023. This surge is largely attributed to the escalating demand for refined nickel products, especially for use in EV batteries.
Despite the potential advantages for primary nickel producers, pure-play mining companies, solely focused on extraction without refining, are ineligible for the expanded credit. This limitation has sparked disappointment within the mining sector, with the National Mining Association (NMA) expressing concerns that the regulations do not align with Congress’s original intent to fortify the entire U.S. mineral supply chain.
The NMA had advocated for the tax credit to encompass all domestic mining companies, irrespective of their refining capabilities. However, the new rules restrict the credit to producers engaged in both mining and refining activities, excluding U.S.-based miners lacking refining capacities, while still applying to imported materials. Rich Nolan, president and CEO of the NMA, criticized this restriction, emphasizing that it fails to adequately support endeavors to address strategic vulnerabilities in U.S. mineral supplies, especially as it permits credit for foreign-sourced materials.
The NMA contends that this oversight hampers U.S. competitiveness, particularly against countries like China and Russia, which dominate global mineral supply chains with cheaper materials. As the clean energy market expands, striking a balance across the sector will pose ongoing challenges. Ensuring that a diverse array of domestic mining companies can reap the benefits of the tax credit will be crucial in establishing a resilient, self-sustaining U.S. critical mineral supply chain.
