Directive Uses Defense Production Act to Boost US Supply of Critical Clean Energy Materials | Hogan Lovells
Leverage the DPA to increase the supply of vital materials
Presidential Decision No. 2022-11 (here) declares the need for a reliable and sustainable national supply of lithium, nickel, cobalt, graphite, manganese and other materials used in the production of large capacity batteries and important for the energy transition clean, a constant priority of the Biden administration. These materials are also vital to the automotive, electric mobility, and stationary storage sectors, and the determination concluded that these sectors are critical to US national defense.
In a context of energy and material uncertainty resulting from the war in Ukraine and as the world continues its transition to a clean energy economy, the demand for these critical materials is expected to increase significantly in the coming years, while pressure on offer is expected to increase as well. These pressures are further exacerbated by the United States’ heavy reliance on what the Resolve considers “unreliable foreign sources,” such as China and Russia, to supply many of these materials.
The determination recognizes that these raw materials can and should come not only from new mining sources, but also from recycling, reuse and recovery from unconventional and secondary sources, such as mining waste. It therefore seeks to use these methods in an “environmentally responsible” way to increase the national availability of materials.
Pursuant to the DPA, the decision directs the Secretary of Defense to “create, maintain, protect, expand, or restore sustainable and responsible domestic production capabilities” for these materials by supporting feasibility studies for mining, beneficiation, and mature processing; some production at existing mining and other industrial facilities; and some processing upgrades. The President clarified that the Secretary of Defense should not only study the matter, but also support “execution projects aimed at creating, maintaining, protecting, extending or restoring sustainable and responsible national production capacities”. [emphasis added].
Thanks to the presidential decision, DPA funding will likely be used to support projects designed to enable the mining and metal recycling industries to establish modern mining production, recovery and recycling facilities. mining, by-products and co-products that can provide sustainable national sources of supply for these critical materials.
Background to the Defense Production Act
Passed in 1950 in response to wartime necessities during the Korean War, the DPA gives the President broad powers over American industry for the supply of certain materials or goods for national defense. Title III of the DPA authorizes the Secretary of Defense to provide financial incentives—for example, loans, loan guarantees, direct purchases, and purchase commitments—to encourage domestic production of materials deemed necessary for the National Defense. The DPA also authorizes the purchase and installation of equipment at private facilities to support domestic production.
Congress has expanded the term “national defense” over the years beyond narrow military readiness and capability, to now include support for national preparedness and response to terrorist attacks, natural disasters, and disasters. other declared national emergencies. The DPA has been reauthorized dozens of times over the years, most recently through the John S. McCain National Defense Authorization Act of 2019, which extended the DPA until September 30, 2025.
Department of Defense technology investment agreements as a model
The likely pattern of DoD support for industry under the Presidential Decision are the Technology Investment Agreements, pursuant to Title III of the DPA, that DoD entered into in 2020 and 2021 to increase domestic supply of rare earth elements and enable rare earth producers to establish or expand their production in the United States. The level of support under these DoD agreements ranged from less than $1 million to over $30 million, for production expansion, processing and separation expansion, and supply chain and inventory.
The Department of Defense’s action on these technology investment agreements follows a series of other DoD actions to ensure the supply of rare earth elements, as well as Executive Order 13817 of December 2017, “A Federal Strategy to Ensure Secure and Reliable Supplies of Critical Minerals” (here). This decree aimed to: (i) identify new sources of critical minerals; (ii) increase activity at all levels of the supply chain, from exploration and mining to reprocessing; (iii) guarantee access for miners and producers to the most advanced topographic, geological and geophysical data legally available; and (iv) streamline applicable rental and authorization processes.
Inter-Agency Efforts to Support Stockpiles of Clean Energy Minerals
The presidential decision reinforces inter-agency efforts already underway to support a stockpile of minerals essential for the clean energy transition and for national security reasons. In February 2020, the Department of Energy, Department of Defense, and Department of State signed a Memorandum of Understanding (here) that “formalizes” the partnership between these agencies “to acquire and recycle selected materials for technologies ranging from grid-scale batteries to wind turbines”. .” The current initiative will complement the existing National Defense Stockpile maintained by the DoD and also aims to strengthen international partnerships to expand clean energy material stockpiles.
The critical materials procurement approach outlined in the presidential decision is an important initiative to bolster domestic production of materials essential to the transition to clean energy and a variety of sectors important to national defense. Producers of these materials as well as participants in the various industries for which these materials are provided should pay close attention to how this process is unfolding and monitor any opportunities for public comment or interaction.