Li-bridge – an industry consortium including the Argonne National Laboratory, New Energy Nexus, NAATBAT and others – has been commissioned by the Department of Energy to produce a report on what needs to be done to maximize the US potential to develop a competitive domestic battery industry.
The report maintains a solid stance that not enough investment has been made into upstream sources of raw materials, and that the US slow start in the battery industry has the potential to threaten its energy security objectives.
We agree with the majority of this report, especially with regards to funding, as we’ve made clear in the past that the Inflation Reduction Act (IRA) – while it’s a step in the right direction and remains the best offered by the West – it simply doesn’t have the financial backing to achieve what it is trying to achieve over the time period it wants to achieve it.
At least concerning upstream primary material extraction, Li-bridge seems to agree. Its report says that upstream investment needs at least another $39 billion on top of the $61 billion already committed through the IRA and Bipartisan Infrastructure Law to maximize the US competitive potential. But considering $40 billion of this has already been committed from private institutions as a result of the IRA in the 6 months it has been in investor’s minds, we can expect more investment to come in the future to make up this shortfall.
The report outlines three key challenges it wants to see addressed in advance of guidance given regarding the IRA in what now seems likely to be late-March.
Firstly is that the US has historically suffered from a low rate of return on domestic upstream processing with regards to the li-ion battery industry, with the rather important asterisk detailing that this isn’t considering tax credits put into force with the IRA. Simply put with the passing of the IRA this is a moot point, as we’ve seen through the massive levels of private investment entering raw material extraction projects throughout the country, a great example would be GM’s $650 million equity investment into the Thacker Pass lithium project and its current pursuit of a stake in Brazilian metals giant Vale’s metals unit.
Its second key problem is regarding permitting, as seems to be the West’s preferred method of inefficiency. This one is more difficult to address, as when looking back at history, removing checks and balances for the mining industry hasn’t always ended too well. Remove too many and countries can face some significant and long-lasting environmental hazards due to the toxic nature of some processing and extraction techniques. The best solution to this is unfortunately often increasing the manpower set to evaluating the environmental and social hazards of these projects allowing relevant bodies to process more applications. Li-bridge mentions that more definitive studies need to be conducted on the effects of seabed mining, while this is true it should not be pursued as a matter of urgency and seems to us as putting the cart before the horse. Particularly with how little humans understand about deep-sea creatures the potential for ecological disaster is immense.
The third key problem is regarding raw material access, as the report compares China’s level of state support in foreign raw materials investment with that of the US. We don’t exactly see this as an entirely fair comparison, as China has not only been in the battery industry for a decade longer than the US, but companies operating out of China might as well be an extension of the state due to the country’s political structure. The report specifically mentions Tianqi Lithium’s partial ownership of Chile’s SQM, but it doesn’t mention that Chinese support is a matter of governance that is unlikely to change considering the CCP’s grip on power.
The report by and large lacks an understanding of these competing political systems and how they operate, calling for actions that would simply be rejected by one side or another in the US, while being quickly and effectively embraced in China. While it does call for bipartisan policy within the US, it says this as if it’s a simple matter to address. Under the report’s guiding principles it mentions that “Solving this challenge will require long-lasting, sustained policy interventions that transcend political administrations and congressional power dynamics”. Someone with even a cursory knowledge of US politics over the last few years would find this idea utterly laughable, so we won’t go into it much further.
Also mentioned within the report is the US current lack of intellectual property within the li-ion battery industry, and this is the one that really concerns us. Ford’s deal with CATL last week showed the industry that so long as it is limited to IP, American companies can work alongside Chinese companies to produce batteries within the US. This report from Li-bridge echoes the concerns we voiced last week, that the US is not in a place to compete with China when it comes to intellectual property development. Li-Bridge raises this point through talking about the lack of shared pre-commercial R&D facilities within the US. This is a very reasonable point, as it hamstrings research and development which would then lead to IP competition with Chinese companies, particularly for small and medium-sized companies.
The US doesn’t have the benefit of battery mass-production yet – and it won’t for a while longer – so how does the US compete with Chinese IP development? It’s difficult to argue that it will, especially if US companies are allowed to license Chinese IP for US-based production.
Li-Bridge’s report is a well-designed and largely reasonable blueprint for what the US government should aspire to implement through guidance, but it ignores some uncomfortable realities about competing with China and what the US can realistically achieve through policy alone in its current position.