US looks to Canada for minerals to supply EV batteries

  • A worker with car batteries is seen at a factory for Xinwangda Electric Vehicle Battery Co. Ltd in Nanjing, China. China is home to more than 75 percent of all battery production capacity and around 80 percent of global refining capacity for EV minerals, giving it immense influence over the battery supply chain. (Photo/Stringer photo/AFP/Getty Images/TNS)

WASHINGTON — U.S. policymakers hoping to power an electric vehicle boom acknowledge the country lacks a robust and reliable supply chain for the minerals needed to power next-generation cars.

That reality — exposed by the economic aftershocks delivered by the COVID-19 pandemic — looms as a national security risk the administration plans to remedy, in part, by working with like-minded nations. Increasingly, Canada appears to be among the first in line.

The White House is signaling plans to increase collaboration between the U.S. and Canada on critical minerals, according to a recent supply chain review that highlighted the country’s mineral assets. It’s one of several indications the administration sees Canada as a crucial ally to realize its EV goals, including a joint announcement July 1 to collaborate on reducing emissions through clean energy, mineral sourcing and accelerating EV adoption.

“No two countries in the world have their energy sectors as closely linked as Canada and the United States do,” Canadian Natural Resources Minister Seamus O’Regan said in a statement. “It’s a relationship that supports thousands of jobs and drives economic activity on both sides of the border. We’re strengthening our bilateral energy relationship to build a clean energy future.”

In the long term, President Joe Biden and his administration hope the U.S. can build up domestic mining operations to provide reliable mineral sources such as lithium, cobalt, nickel and graphite at home. But in the short term, they’re looking to allied countries like Canada with robust mining operations and compatible environmental standards to help out.

It’s part of a larger strategy in which Canada is positioning itself to be a “premium” supplier of battery minerals to the U.S. and other countries looking for transparent supply chains with requirements for environmental and labor safety, analysts say.

And compared to other allies like Australia and Japan, Canada enjoys an advantaged tax status and proximity to auto manufacturing centers in Michigan and Ohio.

“These two federal governments share the same values,” said Christopher Sands, director of the Canada Institute at the Wilson Center, a non-partisan foreign policy think tank.

“We have the same common cause — that’s what Canada is really trying to get across with its outreach to the Biden administration. To say, ‘We get you, we share exactly your perspective and we want to help you succeed.’”

The China problem

As the coronavirus pandemic ravaged communities and shut down economies, it revealed a new weakness that U.S. policymakers are just beginning to grapple with: A supply chain so fragile that the economy or national security can be impacted by a ship stuck in the Suez Canal, sudden increased demand for electronics, or political rivals seeking retaliation.

In particular, the latter possibility is sending chills up lawmakers’ spines. The leading economic and political rival to the United States on the world stage, China, is home to more than 75 percent of all battery production capacity and around 80 percent of global refining capacity for EV minerals, giving it immense influence over the battery supply chain.

“It is reasonable to expect that China could restrict exports of any or all of the battery supply chain materials it produces” due to trade tensions or interest in giving priority to Chinese customers, Department of Energy researchers wrote in a recent supply chain review for electric vehicle batteries and critical minerals. “Alternatively, China could dump processed materials or finished anode and cathode materials on global markets to reduce competition.”

It’s not just about economic strategy: The fragile mineral supply chain is also being dubbed a national security threat, as lithium batteries are crucial parts of “propulsion, communications, sensors and weapons” operations within the Department of Defense, according to the report.

The United States has stores of many of the raw materials needed for electric vehicle batteries, but it lags behind China and such countries as Australia, Brazil and Canada in mining and processing, according to the report.

And with a democratic system that won’t accommodate the quick, targeted spending strategies used by China’s communist government, experts say the United States will have to take an approach that incentivizes domestic production while filling in the gaps with reliable imports.

“I think there’s a growing acceptance at a government level that there’s a lot of potential benefits from taking an approach to battery raw materials that’s more regional, rather than just within your own borders,” said Andrew Miller, product director at Benchmark Mineral Intelligence.

“As people become more familiar with some of the challenges facing the strategic minerals supply chain, it becomes pretty apparent that you’re not going to solve these problems overnight. Most likely, you’re still going to have some kind of dependence on other nations. So positioning those dependencies with allies and with countries that have a strategic position to help you does make sense.”

Northern neighbors

Biden has pledged to make the U.S. a leader in battery manufacturing and to ensure new jobs supported by the growth of electric vehicles will be kept in the U.S.

The new supply chain review and recommendations from the Departments of Commerce, Energy, Defense and Health and Human Services reflect that’s still the plan, accomplished in part by boosting demand for electric vehicles and incentivizing more private sector investment.

The administration has faced some early opposition from some conservationist and Indigenous groups over environmental concerns about increasing mining activity within U.S. borders. Biden has said he would triple the amount of federal land set aside for conservation, but it’s likely to be a point of tension as the administration seeks to both accelerate battery production and protect natural resources and prioritize environmental justice.

“A lot of these EV raw materials aren’t necessarily scarce around the world,” said Miller of Benchmark Mineral Intelligence. “But attracting the financing and having the technical capabilities to turn that into something that the battery industry can use; that’s where the gap is.”

While Canada has an established mining industry, it’s not yet producing electric vehicle battery minerals at scale, he said. However, U.S.-Canada trade in critical minerals already exceeds $76 billion, according to the Department of Defense, and Canada also has some unique advantages as a frequent trade partner and geographic neighbor.

Being close to auto manufacturing centers in Michigan and Ohio makes Canada a natural supplier choice, as the cost of shipping goes up the further away resources are coming from. Canada also plans to become a center for battery recycling for this reason, Sands said, as lithium-ion batteries are heavy and shipping them from Detroit to Quebec is cheaper than other far-flung areas.

Lithium-ion cells and battery packs imported to the U.S. are subject to a 3.4 percent tariff, but Canada and Mexico are exempted under the United States-Mexico-Canada Agreement.

Plus, Canada is the only country that can be considered a “domestic source” under the Defense Production Act, making Canadian companies eligible for some U.S. government funding.

Canadian officials are likely to face similar opposition from conservationist and Indigenous groups, Sands said, but the Canadian government in recent years has tended to coordinate more closely with Indigenous groups than in the U.S. and is attempting to get ahead of potential conflicts.

“The way that Canada has been approaching these new mining projects is bringing everybody on board and trying to line up a very consumer-friendly, investor-friendly picture: heavy mining that’s done in the safest possible way,” Sands said. “They think that that will be their edge.”

This is not the first time Canada and the U.S. have indicated they’re planning to collaborate on critical minerals. Former President Donald Trump’s administration agreed upon an action plan to secure critical minerals supply chains early last year. The Biden administration doubled down on that commitment in February.

In March, the Commerce Department held a roundtable discussion with mining companies and battery manufacturers about how to strengthen the mineral supply chain between the U.S. and Canada.

Both countries also already participate in an international consortium with Australia, Botswana and Peru that’s dedicated to ethical mining practices called the Energy Resource Governance Initiative.

07/07/2021 - 9:44am