By Conor Gallagher
It was all rainbows and unicorns during a recent meeting between US President Joe Biden and European Commission President Ursula von der Leyen as they announced that EU-extracted and processed minerals will be covered by the Inflation Reduction Act’s (IRA) clean vehicle tax credits.
In recent months European officials have been complaining about the IRA and its $50 billion in tax credits to entice Americans to buy electric vehicles assembled in North America. To be eligible, a portion of the minerals that are used to make the batteries must come from countries that have free trade agreements with the US.
But the IRA doesn’t define “free trade agreement,” and it isn’t defined elsewhere in US law, which means that the Treasury will decide what kind of trade agreements will be included. Comments from US Secretary of Treasury Janet Yellen signal that it will adopt a loose definition so that smaller non-comprehensive trade arrangements can count as “free trade agreements.” This would allow the US to include allies like the EU, UK, and Japan.
“Today we agreed that we will work on critical raw materials that have been sourced or processed in the European Union and to give them access to the American market as if they were sourced in the American market. We will work on an agreement,” von der Leyen told reporters after meeting with Biden.
Sounds great. But while Biden and von der Leyen sell this as a win for “the most comprehensive and dynamic economic relationship in the world,” the problem is that the EU has little in extraction or refining within its borders. As the European Commission notes:
The EU’s industry and economy are reliant on international markets to provide access to many important raw materials since they are produced and supplied by third countries. Although the domestic production of certain critical raw materials exists in the EU, notably hafnium, in most cases the EU is dependent on imports from non-EU countries.
The supply of many critical raw materials is highly concentrated. For example, China provides 100 % of the EU’s supply of heavy rare earth elements (REE), Turkey provides 99% of the EU’s supply of boron, and South Africa provides 71% of the EU’s needs for platinum and an even higher share of the platinum group metals iridium, rhodium, and ruthenium.
Russia is also a major supplier to EU of metals like palladium, titanium, platinum and aluminum.
While the EU does indeed contain deposits, many aren’t being mined as Europeans often oppose the dirty process, and even if they’re mined, they then need to be processed, which the EU lacks the ability to do. From Politico EU:
But Europe can’t mine its way out of reliance on China without also ramping up its refining and production capacity, said Marie Le Mouel, an affiliate fellow at the Bruegel think tank.
“There’s more of a dependency on Chinese manufacturing than on the actual materials that go into these components,” Le Mouel said.
Brussels is trying to move quickly to do this with legislation in the works that would force member states to speed up permitting. More on that later, but importantly by the time the EU might actually be mining and refining, the agreement with the Biden administration could be dead.
The US Congress could simply pass legislation defining “free trade agreement” which would end the critical minerals arrangement. The next president could also terminate the executive agreement.
The European Commission is trying to play catch up and roll out its own proposals, but its Critical Raw Materials Act (CRMA) and Net-Zero Industry Act (NZIA) appear to fall far short of the IRA.
The CRMA would allow the EU to label some projects as “strategic” and fast-track the permitting process so that processing facilities could be granted approval in less than 12 months, and mines could theoretically be operational within 24 months (compared to an average of 10 years today).
The proposal aims for the EU to process 40 percent of the strategic raw materials it uses by 2030.
The NZIA would allow projects to bypass many environmental and social impact reviews. But the proposals do not earmark any new money, and the policies do nothing to change Europe’s disadvantages, which include the US’ subsidies and much lower energy costs.
Speaking of the latter, at their meeting von der Leyen made sure to thank Biden for blowing up the Nordstream pipelines ensuring that US LNG companies can make record profits off shipping gas to Europe his assistance in helping the EU manage its energy crisis:
Indeed, you helped us enormously when we wanted to get rid of the Russian fossil fuel dependency by — you helped us enormously by delivering more LNG, helped us through the energy crisis.
Now claiming to have learned from the mistake of importing cheap Russian gas, the EU plans to not be dependent on any single third country for more than 70 percent of imports for any strategic raw material by 2030. This is seen as targeting China.
Chinese companies could see reduced exports to the EU under the proposed rule that no third country commands a green tech market share of greater than 65 per cent. From the South China Morning Post:
This means Chinese firms would likely lose out on lucrative European solar tenders, as the country provides more than 90 per cent of the bloc’s solar photovoltaic wafers.
It remains to be seen from where the EU will purchase such products. Frans Timmermans, the bloc’s climate tsar, said the EU won’t try to compete with China on “cheap” solar panels but will turn its focus to advanced equipment.
To recap: The critical minerals carveout doesn’t do anything for the EU until it gets mines and processing facilities up and running. Brussels’ proposed policies are also no match for the IRA. And the US will continue to enjoy windfalls from exporting LNG to Europe and poach European industry.
A quick note on the latter: the spin in Europe now appears to be that the IRA actually isn’t that bad, and they’re now blaming themselves for overreacting. Consider this recent piece from Reuters, “Fears of European industry exodus to U.S. may be overdone.” It goes on about how Europe already has its own subsidies before this part buried towards the bottom:
A survey of the German Chamber of Commerce and Industry (DIHK) released on Wednesday showed one in 10 German firms plan to move production to other countries, and North America came out as the region with the brightest business prospects. One reason cited was energy costs.
Belgian central bank governor Pierre Wunsch said Europe’s higher energy and carbon emission prices were likely to be have a greater impact than the IRA, which might for some companies be “a final straw”.
“It’s possible in some very energy-intensive sectors, new activities will go the U.S. or maybe Asia, but we will gain in others just because the exchange rate will adjust,” he said.
Recall that French President Emmanuel Macron went to Washington at the end of November to deliver the message that the EU would get tough on China if the US backed down on the IRA.
Well, this is all the EU appears to be getting, and yet Brussels will soldier on as the junior partner in the West’s race against China to secure critical minerals. As the joint statement from Biden and von der Leyen notes:
The Clean Energy Incentives Dialogue will become a part of the EU-U.S. Trade and Technology Council where it will also facilitate information-sharing on non-market policies and practices of third parties—such as those employed by the People’s Republic of China (PRC)—to serve as the basis for joint or parallel action and coordinated advocacy on these issues in multilateral or other fora.
Big picture, both the US and EU are way behind China.
A recent BloombergNEF study estimated that half of global spending on low carbon energy technology is happening in China, totaling more than the combined efforts of the EU and US.
One hurdle for the US and EU is that their residents don’t want the mining projects in their backyard. The governments have tended towards sourcing from Africa and South America where they are in competition with China.
For example, Sweden has the EU’s only heavy rare earth metal deposit of note. It’s not a new discovery; it was identified decades ago, but the public remains largely opposed to mining it because of negative effects on animal habitats and the country’s second largest lake, which is less than a mile from the site.
In the US, the Biden administration just put up a two-decade roadblock to a major copper and nickel mining project in northern Minnesota. While US environmentalists celebrated the move, it came right after the administration lined up a deal for the same minerals from Africa.
But even more than the mining is the processing. The RAND Corporation explains just how much ground the US needs to make up:
Starting up a new mine and processing facility can cost up to $1 billion and take more than a decade. Scientists have developed more environmentally friendly ways to separate and process rare earths, but there will still be impacts that need to be addressed. And while China has entire labs devoted to rare earth mining and processing, the U.S. now has only a handful of scientists who truly focus on rare earths.
Processing rare earths and other critical materials—not just digging them out of the ground—is the real bottleneck. If every proposed processing plant outside of China were to somehow come online by 2025, researchers found, they could produce around 134,000 tons of usable rare earth material every year. Projected demand by 2025, outside of China: 140,000 tons and growing fast.
The US better get moving if it wants to keep to its timeline for a war with China.
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Europe would benefit from a deep dive of introspection and ask herself “What am I fighting for and hope to gain by trying to regime change Russia?” And please cut the shared values nonsense.
Because the best Europe can hope to get with regime changing Russia is a return to lower energy and commodity prices towards the level she had before she started this non sense. How is getting back what to choose to give up, a victory or worth fighting for? On top of that, the US is likely to take the lions share of looting Russia should they “win”. Sure, some European oil companies and others will scoop up some of the benefits but I suspect the US will be king of the hill overall. Maybe cheap labor from a destitute Russian populace but there is lots of that already all over the planet.
Never thought I would see Europe act so contrary to her own interests especially Germany, but there it is right in front of us.
I was going to post that this seems like a classic abusive relationship, where the victim can’t or for external reasons won’t leave (the kids.)
Putting your hope in an extremely unrealistic goal = magical thinking. There is no historical evidence that Russia can be “regime changed” like some small banana republic. This is just neo-con brain-rot spreading to Europe.
I would say they’d benefit from a long trip to the couch with a good therapist.
I also think the magical thinking extends to the perceptions of the US and confusion about how Amazon Prime works. Instead of recognizing, cutting off Russian gas would simply raise prices, EU types were convinced a nonexistent US LNG fleet would save Europe. Since most are elected or unelected leaders with looming corruption issues, they aren’t going to announce they just listened to the ramblings of Joe Biden. This is still the most amusing bit. Euros are so addled they accepted Biden’s “leadership”. Admitting gross incompetence means they can’t be trusted to keep running things.
It’s not just Euro leadership being addled, though that does fit some of the alleged leaders. The larger part, I think, is the massive US investment, by way of various NGOs and foundations, in cultivating the “young leaders” who hold the reins in many EU countries. Then there the investments in the so-called “free” or “independent press,” which spreads amazingly uniform message on just about all issues, from economis thru identity politics to geopolitics.
You all remember that recording of Victoria Nuland bragging about the US having spent $5 billion in Ukraine alone. Well, multiply that by at least 10 for the rest of Europe, and that factor is likely to be severely understated.
So no, it’s not just a matter of addled politicians, Borrell definitely excluded. It’s a matter of having selected and cultivated compradors in Colonia Europa, and installing them in positions of power by investing massively in media and “democracy” and/or “civil society” NGOs. Some of the most uninformed and fanatical people I know in Bulgaria are products of those investments and the extent of refusal to acknowledge any objective facts that contradict the “Euroatlanticist” line is truly frightening.
You are so right. “Young leaders”, who have never done an honest day’s work in their life as they move smoothly from being the assistant to some politician to becoming a politician. No clue that you cannot just “magic” enough rare earths into existence to build EVs for everyone, no concept of what it is like to make a living.
The latest crazy survey I saw asked if people are prepared to pay more for low-carbon stuff, then moved on to “should everyone have a carbon budget for their consumption”. They did make the point that the latter was very hard to monitor, but I am sure they’ll think of something. Frightening.
Caveat: survey was 1000 people per country, therefore enough margin of error to overturn some of these “majorities” they cited. Also no point in stratifying by income.
Smart devices etc used to log and calculate our energy expenditure down to the individual exhale, and warn us when we need to get more carbon credits to offset our polluting.
This while they keep going to Davos and such in leased jets because their position “demand” that of them.
Oh, and forget about anything like using computers to remotely work. Nah, need to take our massive EVs downtown, public transport is too “pedestrian”, each day to sit around in meetings for 12 hours before we go back home.
Conspicuous consumption will be mandatory, while the green kayfabe is maintained.
Smart devices etc used to log and calculate our energy expenditure down to the individual exhale.. Will farts be counted as an exhale or raw material supply?
I have seen the same in Romania in my visit last year. However, in a critical debate I had at my 30 years Uni reunion, the pro US camp lost hands down given the undefinable “values” proposition, compared for instance the increased number of nukes coded for Romania by the Russians, given the US installations in the country, at no actual cost to the Americans…
What’s more entertaining is that some (actually, all) of those fanatical people are scions of, or former avowed communists…
A sour slogan on an old arch over the main road through a village near Burgas says, “Our capitalism also is degenerate, like our socialism was… “
“There is no historical evidence that Russia can be “regime changed” like some small banana republic.”
While I also don’t see it from the inside, I suspect the examples of 1) 1917 and 2) 1989-1991 might inspire them to think otherwise. Of course, the former took several years of total war and socio-economic ruination to prepare, while the latter happened in a completely sclerotic and delusional state. The RF of today has many problems, but it is not close to either of those breaking points. Economic damage is real but largely contained and the elite has a pretty strong grip on both reality and power. The European elites might think differently, though.
Because said elite has been drilled harder on Ricardo’s comparative advantage than priests on sin.
Just a change of terms: formerly Stockholm Syndrome, now EU Syndrome.
Collective continent-wide masochism.
I’m wondering when the USA is going to follow the Syrian model and declare war on the cartels and invade Mexico, particularily the state of Sonora where AMLO granted China an exemption to develop the massive lithium deposits located there.
This could be a total PR win: USA protects its borders, fights the war on drugs, and scores a vital component needed to power Teslas and other EVs. Of course, the security state would need to ramp-up its efforts to protect us from 5th columnists and their sympathisers, so we’d need get Obama’s FEMA camps ready for new arrivals…
Despite bluster, too many rice bowls would be broken in places like Texas.
If the Mexicans don’t reopen their energy market to US companies, I guess pretty soon.
IIRC, the idea that the $ credit to the purchasers of electric vehicles is subject to appropriation by the manufacturers by jacking the price was bandied about here before. Seems to still be relevant.
This kinda sums up the depths to which the EU leaders have sunken their heads into their collective a***es. While the Global South has very much woken up and is moving on, the pathetic EU bunch still think they can get the rest of the world to die in their own pollution in order to provide the Godly purity for the “EU Garden”. Josep, is this your gig?
My thoughts are conflicted between two scenarios; one, that the EU has been taken over by a well organized team of “politicians”, all working for USA’s secret takeover ploy, in a kind of a Stanford Wives or Boys from Brazil fashion (Baerbocks, Habecks and Sunaks of this world), or the other, that the sixty – seventy years of no wars, no worries, culminated in a total athropy of the political body and its takeover by the lowest common denominator of donor peoples, (Baerboks, Habecks and Sunaks still fit in), and that the EU peoples’ contribution has shriveled to the dumbest and greediest psychopats each nation can offer.
Something just like Eurovision, but with police and army to hand.
Or it could be that nordics have a different take on nature.
https://en.wikipedia.org/wiki/Freedom_to_roam
of course, the free trade midgets have to soldier on, they do not make policy, oligarchs from all over the world make their polices, they just enforce them.
what a mess the towering intellectual midgets bill clinton, tony blair, gerhard shroeder and others made of the west.
bill clinton sold off our entire strategic reserve of rare earths between 1994 and 1998.
http://www.nationaldefensemagazine.org/articles/2019/3/21/viewpoint-china-solidifies-dominance-in-rare-earth-processing
Most of these named materials are not stockpiled by the Defense Logistics Agency. The U.S. government sold off its entire strategic reserve of rare earths between 1994 and 1998. The agency’s strategic reserve now holds only small amounts of rare earth oxides and dysprosium metal.
Thanks for the link. Super interesting article in view of the current geopolitical conundrum.