The Inflation Reduction Act is accelerating demand for critical minerals and copper needed for the energy transition, according to analysis by S&P Global.
Energy transition-related demand for lithium, nickel and cobalt will be 23 times higher in 2035 than it was in 2021 and demand for copper will be twice as high, the study found.
The study, Inflation Reduction Act: Impact on North America Metals and Minerals Market, sees “considerable challenges” in meeting the increased demand driven by the Inflation Reduction Act for decarbonization technologies such as electric vehicles, charging infrastructure, solar photovoltaics, wind turbines, and lithium ion batteries.
The study says demand will continue “to accelerate and be materially higher” for lithium, cobalt, and nickel with demand rising 15, 14 and 13 percent, respectively, by 2035 compared with projected increases before the Inflation Reduction Act was enacted in August 2022.
Demand for copper will be 12 percent higher by 2035 than pre-Inflation Reduction Act projections, the study found. Copper is not currently listed as a critical mineral in the United States and does not qualify for Inflation Reduction Act tax credits, but 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 said.
To qualify for Inflation Reduction Act 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 “foreign entity of concern.”
Of the four materials analyzed in the study, only lithium is likely to be sufficiently supplied to the United States under the Inflation Reduction Act’s domestic content requirements while cobalt and nickel are both unlikely to be sourced at levels high enough to meet demand, the study found.
Countries with which the United States has free trade agreements already produce enough cobalt to meet the Inflation Reduction Act domestic sourcing requirement, but the United States does not currently source most of its cobalt from those countries and doing so would require a reorientation of trading patterns across several countries given intense international competition for resources, the study said.
Nickel is the most challenged in terms of supply, and there does not appear to be enough supply in countries with which the United States has free trade agreements to meet demand under the Inflation Reduction Act requirements, even if those countries exported all their production to the United States, the study said.
Even though copper is not subject to sourcing requirements under the Inflation Reduction Act, ensuring access to enough supply to meet U.S. post-Inflation Reduction Act demand is also at risk, the study found. The United States is likely to become more reliant on imports as growing demand for energy transition related end markets outpaces domestic supply, the study said.
In addition, S&P Global data on 127 mines across the world that began production between 2002 and 2023 shows that a major new resource discovery today would not become a productive mine until 2040 or later, the study said.
