Leveraging the DPA to increase supply of vital materials
Presidential Determination No. 2022-11 (here) declares the need for a reliable and sustainable domestic supply of lithium, nickel, cobalt, graphite, manganese, and other materials used in the production of large-capacity batteries and important for the clean energy transition, a continued priority of the Biden Administration. These materials are also vital to the automotive, e-mobility, and stationary storage sectors, and the Determination concluded that these sectors are critical to the U.S. national defense.
Against a backdrop of energy and materials uncertainty stemming from the war in Ukraine and as the world continues to transition to a clean energy economy, demand for these critical materials is set to rise significantly in the coming years, while pressure on supply is likely to increase as well. Further exacerbating these pressures is the reality that the U.S. relies heavily on what the Determination deems “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 mining new sources, but also from recycling, reuse and recovery from unconventional and secondary sources, such as mine waste. It thus seeks to use these methods in an “environmentally responsible” way to increase domestic availability of the materials.
Consistent with the DPA, the Determination orders 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 mature mining, beneficiation, and processing; certain production at existing mining and other industrial facilities; and certain processing modernization. The President specified that the Secretary of Defense should not only study the issue, but also support “the execution of projects to create, maintain, protect, expand, or restore sustainable and responsible domestic production capabilities.” [emphasis added].
Through the Presidential Determination, DPA funding will likely be used to support projects designed to enable the mining and metals recycling industries to establish modern mining, by-product and co-product production and reclamation and recycling facilities that can provide sustainable domestic sources of supply of these critical materials.
Background to the Defense Production Act
Enacted in 1950 in response to war-time necessities during the Korean War, the DPA provides the president with broad authorities over U.S. industry for the provision of certain materials or goods for the 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 incentivize the domestic production of materials deemed necessary for the national defense. The DPA also authorizes procurement and installation of equipment in private facilities to support domestic production.
Congress has expanded the term “national defense” over the years beyond narrow military preparedness and capability, to now include support for domestic preparedness and response to terrorist attacks, natural disasters, and other declared national emergencies. The DPA has been reauthorized dozens of times over the years, most recently through the 2019 John S. McCain National Defense Authorization Act, which extended the DPA until September 30, 2025.
Department of Defense technology investment agreements as a model
The likely model for DoD support to industry under the Presidential Determination 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 earths 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 more than $30 million, for expansion of production, expansion of processing and separation, and supply chain and inventory studies.
Department of Defense action on these technology investment agreements follows a series of other measures taken by DoD to ensure supply of rare earth elements, as well as Executive Order 13817 from December 2017, “A Federal Strategy To Ensure Secure and Reliable Supplies of Critical Minerals” (here). This order 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) ensure access for miners and producers to the most advanced topographic, geologic, and geophysical data legally available; and (iv) streamline applicable leasing and permitting processes.
Inter-agency efforts to support clean energy minerals stockpile
The Presidential Determination reinforces inter-agency efforts that are already underway to support a critical minerals stockpile for the clean energy transition and for national security reasons. In February 2020, the Department of Energy, Defense Department, and State Department executed a memorandum of agreement (here) that “formalizes” partnership between these agencies “to acquire and recycle selected materials for technologies that range from grid-scale batteries to wind turbines.” The current initiative will supplement the existing National Defense Stockpile maintained by DoD and also aims to strengthen international partnerships to expand stocks of clean energy materials.
The approach to critical materials supply outlined in the Presidential Determination is an important initiative to bolster domestic production of materials vital to the clean energy transition and a variety of sectors important to the national defense. Producers of these materials as well as participants in the various industries for which these materials are supplied should pay close attention to how this process unfolds, and watch for any opportunities for public comment or interaction.
If you have questions regarding these developments, please contact the authors Mary Anne Sullivan, Hilary Tompkins, Stacy Hadeka or Rob Matsick.
Authored by Mary Anne Sullivan and Rob Matsick.