Expanded U.S. Tax Credit Benefits Metal Refiners, Leaves Out Pure Mining Companies
The U.S. government has expanded its Section 45X Advanced Manufacturing Production Credit to cover extraction and material costs, benefiting metal refiners while excluding pure mining companies. This change, part of the Inflation Reduction Act, was announced in final regulations by the Treasury Department and Internal Revenue Service (IRS).
The 45X Advanced Manufacturing Production Credit aims to support the domestic production of clean energy products, including renewable components, battery materials, and fifty essential minerals crucial to the energy transition. The credit offers financial incentives for producing components such as solar and wind parts, battery materials, and refining or recycling critical minerals, with the intention of boosting U.S. energy security and strengthening clean energy supply chains.
The Section 45X credit has already catalyzed significant private-sector investments since its inception. According to the Treasury Department, it has driven $126 billion in investment announcements, including $6 billion for critical minerals. Manufacturers can benefit from credits based on unit production, electrical capacity, or production costs, with the credits being transferable for optimal utilization.
The credit applies from 2023 through 2032, with most eligible goods gradually phasing down to 75% of the credit value in 2030, 50% in 2031, and 25% in 2032. However, critical minerals are exempt from this phased reduction, creating a decade-long stable incentive that has prompted a 305% increase in manufacturing investments.
Manufacturers must ensure that their products meet IRS requirements for eligibility, and the credit is available for goods sold to unrelated third parties. Under the new regulations, extraction and material costs are now included in the tax credit for qualifying minerals and electrode materials that meet certain conditions. This change aims to encourage more investment in U.S. critical mineral extraction and processing.
The expanded tax credit now covers costs related to materials and extraction for qualifying minerals and electrode materials. This move is designed to stimulate investment in U.S. extraction and processing of critical minerals such as nickel, lithium, and graphite, which are essential for batteries and other clean energy technologies. Treasury Secretary Janet Yellen highlighted that the updated regulations are intended to help companies investing in the U.S. clean energy economy. Moreover, the tax credit extends to components made with foreign-sourced materials, offering flexibility to U.S. manufacturers in sectors where sourcing raw materials domestically is challenging.
While this expansion benefits metal refiners, pure mining companies—those focusing solely on extraction—remain ineligible for the credit. This exclusion has prompted criticism from industry groups, such as the National Mining Association (NMA), which argues that the regulation does not align with the original intent of Congress to support the entire domestic mineral supply chain. Rich Nolan, president and CEO of the NMA, stated that the credit’s limited scope fails to address strategic vulnerabilities in U.S. mineral supplies, particularly when allowing foreign-sourced materials to qualify while excluding domestic miners without refining capabilities.
The expanded 45X tax credits provide a significant incentive for primary nickel producers and other refiners, particularly at a time when nickel production is growing to meet demand for electric vehicle (EV) batteries. According to S&P Global Commodity Insights, the top five publicly listed nickel producers increased output by 35.6% in Q2 2023. Despite a recent nickel price slump that has impacted profitability across the sector, primary nickel producers are likely to boost production further in response to the expanded credits.
However, many in the mining sector remain disappointed. The exclusion of pure mining companies limits the incentive's reach, failing to stimulate investment in the extraction segment of the critical minerals supply chain. The National Mining Association points out that this decision puts the U.S. at a disadvantage compared to countries like China and Russia, which dominate global mineral supply chains with lower costs and integrated extraction and refining capabilities.
