The Inflation Reduction Act (IRA) of August 2022 is the cornerstone of the Biden administration’s energy and climate change policy, earmarking $369 billion for energy security and climate change. It is also galvanizing the creation of a North American Battery Belt. The matrix of battery and electric vehicles (EVs) manufacturing plants stretches from the old Rust Belt states in the Great Lakes region through Tennessee and Kentucky and into a swath of southern states. It also reaches parts of Canada and Mexico. For those states where the battery belt is expanding, this means jobs, revenues, and better infrastructure. The Battery Belt and, by extension, the EV industry, is a substantial development for the U.S. economy. But the process of developing this broad expanse—as currently envisioned—is going to be a slower and more challenging process than its promoters are portraying.
Why a Battery Belt?
Why create a Battery Belt in North America? One of the main drivers is the EV. In making the great energy transition from fossil fuel dependence to a world powered by clean energy (or renewables), gas-guzzling autos are being relegated to the dustbin of history, replaced by the no carbon footprint EV. President Joe Biden has indicated that the goal is for the U.S. auto industry to make EVs 50 percent of all vehicles sold in the U.S. by 2030. While that target may be overly optimistic, IRA is accelerating the process. And batteries, made of lithium, cobalt, graphite, and nickel, are central to the process. No batteries, no EVs.
Equally important in the great energy transition and driving demand for batteries is the development of stationary energy systems. These are needed for the national power grid to store energy storage when wind and solar power generation may not match demand.
A major challenge for the U.S. energy transition is the heavy dependence on China for batteries, especially in regard to the EV industry. In 2022, Chinese companies dominated the top 10 suppliers of batteries for EVs, accounting for 56 percent of world production. Chinese battery makers are also major suppliers to Mercedes-Benz, Tesla, Volvo, and Volkswagen.
China has been relentless over several decades in knocking other producers out of the industry, making adept use of a lighter environmental regulatory regime, considerable state support, and an innovative cadre of business leaders. Equally important, China’s economic statecraft is supportive of those companies that provide the raw material for batteries: its lithium mining companies are now active in South America’s lithium triangle of Argentina, Bolivia, and Chile, which account for around 30 percent of the world’s lithium. China also provides considerable support for its other mining companies securing supplies of cobalt and nickel.
If You Build It, They Will Come
The U.S. response to China’s dominance is a combination of protectionism and government support policies to develop the local battery industry (built up around gigafactories which combine lithium-ion battery and EV component production), the development of alternative battery chemistries, and battery recycling. While the latter two options are being pursued, they require long development periods before they become cost-efficient to meet demand from EVs and other battery users.
Earlier efforts to support the United States had a mixed record. According to the Federal Reserve Bank of Dallas, an initial wave of investment came after the Great Recession, driven partially by $2.2 billion of funding allocated in the American Recovery and Reinvestment Act of 2009. However, the early battery plants were of relatively modest size, following relatively low sales of EVs. U.S. capacity fluctuated through the next decade—as China’s industry boomed.
Three factors changed the EV battery business landscape. First, U.S.-Chinese relations soured during the Trump administration. This forced a major reassessment of U.S. supply chains and the need to bolster domestic production, including batteries. In 2022, the Biden administration invoked the Defense Production Act (from the Korean War era) with the intention of boosting the domestic supply of battery metals, with $2.8 billion going to companies working on EV battery supply chain projects in the United States. The Biden administration also entered into a pact to invest in critical mineral projects with allies such as Australia, Canada, the European Union, and the UK.
The second factor was that EVs began to sell in greater numbers, hitting record numbers globally in 2021. This was due to growing concern over climate change as well as the major U.S. auto companies recognizing that change was inevitable and that they need to compete with not only Tesla but a growing range of Chinese EV automakers, such as Great Wall and Aiways.
The third factor was IRA, which has raised investment in the battery sector to new levels. According to Benchmark Mineral Intelligence, since IRA’s signing around $13.5 billion worth of investments have been announced, most of them clustered in the south up through the Midwest and Northeast.
The geography of the Battery Belt is being determined by proximity to auto production facilities, namely with the major U.S. companies, GM and Ford, as well as foreign companies like Toyota, Stellantis (Fiat Chrysler-PSA Group), and Volkswagen. This benefits states like Kentucky, Ohio, Tennessee, Illinois, and Michigan—as well as Canada and Mexico. States outside of the new Battery Belt include California and Nevada.
Clean Energy, but…
While the development of a Battery Belt is a positive development for the U.S. economy, there are challenges. These include environmental concerns, indigenous peoples’ rights, finding enough skilled workers, and energy supply. In January, it was announced that the Australian lithium company Ioneer had secured a conditional commitment for a loan of up to $700 million from the U.S. Department of Energy to develop a lithium site that, when fully operational, will supply 400,000 EVs per year. Ioneer has already secured agreements with Ford and Toyota. While this indicates a degree of momentum in developing the U.S. battery and EV business, the permitting process for new lithium mines is lengthy. What could kill the project is a rare wildflower, Tiehm’s buckwheat. The Center for Biological Diversity is arguing that the lithium mine represents an “existential threat” to the flower.
Another proposed lithium mine in Nevada, Thacker Pass, is also being opposed by conservation groups. In North Carolina, another proposed mine has been stalled over regulatory issues. Currently, the United States has only one operational lithium mine, which cannot possibly meet American battery demand. This means that U.S. EV batteries will use Canadian, Argentine, or Chilean lithium.
One last consideration is the issue of financing. For all the Biden administration’s enthusiasm for the development of a Battery Belt, ESG (Environment, Social, and Governance) represents a challenge to the mining part of Battery Belt development. Mining runs into a wall of concerns over biodiversity, ecosystem services, water management, mine waste, carbon footprint, hazardous substances, indigenous peoples’ rights, vulnerable people, and mine closure/after use.
The U.S. battery belt is already having an impact on state and local governments in terms of jobs, revenues, and infrastructure. But Americans should be careful about the sales pitch – there is not going to be a rapid and easy transformation of energy generation and transportation. The push-pull of national security and economic needs vis-à-vis environmental concerns is part and parcel of the process. Indeed, the battery belt (and by extension critical metals mining) faces the same challenge facing wind and solar power; people support it, but don’t want it in their own backyards. There are tough choices to be made: do we keep a rare wildflower alive for future generations and not build a mine… or do we develop the mine, make batteries and EVs, and herald in a new energy age? Once the flower is gone, it cannot be replaced.
Time is a factor in dealing with the environment. It is also a factor in geopolitics; China has little hesitation in securing access to critical metals even if the process includes environmental degradation both at home and abroad. And China wants a highly competitive battery and EV industry. This can cost the United States both jobs and revenue, as well as leave the country dependent on a rival power. America is putting the right tools on the work table to enhance its competitiveness with both batteries and EVs, but time is slipping away. Americans should remember the words of Benjamin Franklin, “Lost time is never found again.”
Dr. Scott B. MacDonald is the Chief Economist for Smith’s Research & Gradings, a Fellow with the Caribbean Policy Consortium, and a Research fellow with Global Americans. Prior to those positions, he worked for the Office of the Comptroller of the Currency, Credit Suisse, Donaldson, Lufkin and Jenrette, KWR International, and Mitsubishi Corporation. His most recent book is The New Cold War, China and the Caribbean (Palgrave Macmillan 2022).