USA Treasury Rule Change: Rare Earth Miners Can Access Clean Energy Manufacturing Subsidy

Highlights

• U.S. Treasury allows mining companies access to tax credit for clean energy component production
• Final rules aim to accelerate domestic critical mineral supply chains and clean energy manufacturing
• Credit is part of the Inflation Reduction Act, driving over $126 billion in private sector investments

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The U.S. Treasury Department reports today it would allow some mining companies to access a tax credit meant to bolster  American production of solar panels, lithium-ion batteries and other clean energy components, a shift in position after industry pressure.

A key driver according to Reuters and the Treasury is the recognition in Washington DC the efforts to overcome climate change all is for not unless America substantially increases production of lithium, cobalt, and other critical minerals and curbs reliance on China and other overseas rivals.

In a press entry the Treasury Department reports that both Treasury and the IRS released final rules (opens in a new tab) for the Advanced Manufacturing Production Credit (Section 45X of the Internal Revenue Code), to spur continued growth of U.S. clean energy manufacturing as part of President Biden and Vice President Harris’ Investing in America Agenda. See the press release (opens in a new tab).

What is this tax credit?

The Advanced Manufacturing Production Credit helps to level the playing field for U.S. companies to onshore production of critical clean energy technologies like solar and wind components, batteries and energy storage, and critical minerals.

What’s the goal?

Announced today, this effort is hoped will expand America’s clean energy manufacturing base, create good-paying jobs, strengthen the nation’s energy security, and build the reliable and responsible supply chains needed to meet U.S. climate goals. Or so goes the hypothesis.

Relevance to Rare Earths and Mining?

According to the government’s press release the final rules, it is hoped, will accelerate the buildout of domestic critical mineral supply chains by allowing taxpayers to include materials costs and extraction costs in production costs for applicable critical minerals and electrode active materials, provided certain conditions are met.

What’s the source of the rule?

According to the government the change in rules is based on the feedback from stakeholders, meant to enable investment in responsible U.S. critical minerals extraction and processing and strengthen U.S. energy security and clean energy supply chains.

What legislation does the Treasury point to as a model?

The Inflation Reduction Act, which was signed by President Biden over two years ago.

The advanced Manufacturing Production Credit has been a major driver of the boom in clean energy manufacturing with more than $126 billion in private sector announcements made since the law passed – including around $77 billion for batteries, $6 billion for critical minerals, $19 billion for solar, and $8 billion for wind – according to recent data from the Rhodium Group/MIT’s Clean Investment Monitor (CIM).

What are some detailed benefits?

Moving forward taxpayers should have additional clarity and certainty to drive even more investment in clean energy and critical minerals. Because the Advanced Manufacturing Production Credit is eligible for the Inflation Reduction Act’s novel monetization provisions to help ensure businesses receive the full value of the incentives – elective pay and transferability – the tax credit is particularly powerful for start-up companies that have low tax liability.

Are the final rules aligned with the proposed regulations published December 2023?

Yes. At least according to the U.S. government these final rules announced today are for the most part aligned with proposed regulations released in December 2023.

The final rules clarify definitions and confirm credit amounts for eligible components, including solar energy components, wind energy components, inverters, qualifying battery components, and applicable critical minerals; define key terms to incentivize production in the United States and clarify the circumstances under which taxpayers can claim the credit; and finalize important safeguards to prevent potential fraud, waste, or abuse – including safeguards against duplicative crediting of the same component, crediting of activities that are not value-added, or extraordinary circumstances in which components are produced but not put to productive use.