The Biden Administration on June 8, 20201, released findings from a 100-day interagency domestic supply chain assessment of critical products and outlined a series of steps it will take in order to strengthen U.S. critical supply chains and shore up domestic manufacturing, pursuant to Executive Order 14017 (E.O.). President Biden has pledged to invest in the U.S. domestic manufacturing capabilities and move the nation away from its reliance on adversaries – including China – for critical inputs.
On Feb. 24, 2021, President Biden signed E.O. 14017, directing a whole-of-government approach to assessing vulnerabilities in, and strengthening the resilience of, critical supply chains. (See Holland & Knight's previous alert, "Biden Order Aims to Strengthen Domestic Supply Chains in Key Sectors," March 2, 2021.) As directed by the E.O., federal agencies consulted with outside stakeholders during the supply chain review process to submit reports to the White House identifying risks to domestic supply chains and policy recommendations to address these risks. In addition to the 100-day review, the administration has also initiated year-long reviews of six broader sectors: defense, public health, information technology, transportation, energy and food production. Reports on those reviews will be delivered to the White House in February 2022.
The 100-day review found structural weaknesses in both domestic and international supply chains, which threaten America's economic and national security. While amplified by the public health and economic crisis, the review attributed fragile supply chains across a range of sectors and products to decades of underinvestment and public policy choices. Specifically, the review concluded that unfair trade practices by competitor nations and private sector, and public policy prioritization of low-cost labor, just-in-time production, consolidation, and private sector focus on short-term returns over long-term investment have "hollowed out the U.S. industrial base, siphoned innovation from the United States, and stifled wage and productivity growth."
The report features assessments and an expansive list of recommendations, intended to address not only the immediate issues but also prevent shortages in the long term. The report's initial recommendations to bolster these supply chains focus on four prioritized products critical to the U.S. economy: semiconductor manufacturing and advanced packaging; large capacity batteries; critical minerals and materials; and pharmaceuticals and active pharmaceutical ingredients (APIs).
The U.S. Departments of Energy (DOE), Commerce (DOC), Defense (DoD) and Health and Human Services (HHS) announced immediate actions to spur domestic supply chains in the aforementioned critical sectors. The report also makes recommendations to Congress to enact federal legislation to strengthen critical supply chains and rebuild the industrial base. Broadly, the recommendations call for more investments, new supply chains and less reliance on other countries for crucial goods.
As part of the broader effort to secure domestic supply chains, the administration launched several key initiatives:
- The administration will establish a Supply Chain Disruptions Task Force to address near-term bottlenecks that can affect the economic recovery. The Task Force will be led by the Secretaries of Commerce, Transportation and Agriculture and will focus on areas where a mismatch between supply and demand has been evident: homebuilding and construction, semiconductors, transportation, and agriculture and food.
- To support employers and industry to build out model registered apprenticeship programs in critical supply chains, the administration will announce $100 million in additional grants to support state-led apprenticeship expansion efforts, administered by the U.S. Department of Labor (DOL). The administration also will establish a national Registered Apprenticeship Assistance Centers of Excellence.
- The administration will take new steps to combat "unfair foreign trade practices," which the Biden Administration says have contributed to the erosion of supply chains around the world. One of these will be the creation of a "trade strike force" led by the U.S. Trade Representative's office. The strike force will aim to identify "unilateral and multilateral" enforcement actions that the United States can take to punish countries that it believes are engaging in unfair trade practices. The other enforcement-related action will be an evaluation, led by the U.S. Department of Commerce, of whether to initiate an investigation into neodymium magnets under Section 232 of the Trade Expansion Act.1
To prevent shortages of key medicines, HHS will establish a public-private consortium for advanced manufacturing and onshoring of domestic essential medicines production that will be tasked with identifying essential medicines to focus an enhanced onshoring effort. HHS will also make an initial commitment of $60 million from the Defense Protection Act (DPA) appropriation in the American Rescue Plan Act (ARPA) to develop technologies to increase domestic production of active ingredients in key pharmaceuticals in order to reduce reliance on global supply chains for medications that are in shortage, especially during times of increased public health need.
With respect to semiconductors, a key component in cars and electronic devices, DOC will increase information flow between producers and suppliers as well as end-users. A global semiconductor shortage has forced several American auto plants to close or scale back production and sent the administration scrambling to appeal to allies such as Taiwan for emergency supplies. The report did not describe immediate plans to increase production. Rather, the report said Congress should support $50 billion investment in domestic semiconductor manufacturing and research.
The 100-day review findings report includes detailed recommendations to strengthen the prioritized supply chains, help rebuild the U.S. industrial base, and spur American innovation. A summary of those recommendations is included below.
1. Rebuild Our Production and Innovation Capabilities
Enact new federal legislation that will strengthen critical supply chains and rebuild our industrial base — including transformative investments within the American Jobs Plan:
- Provide dedicated funding for semiconductor manufacturing and research and development (R&D)
- Provide consumer rebates and tax incentives to spur consumer adoption of electric vehicles (EVs)
- Provide financing across the full battery supply chain
- Establish anew Supply Chain Resilience Program
- Deploy the DPA to expand production capacity in critical industries
Increase public investments in R&D and commercialization of key products:
- Invest in the development of next generation batteries
- Invest in the development of new pharmaceutical manufacturing and processes
Use immediate administrative authorities to support an ecosystem of producers and innovators including small and medium-sized enterprises (SMEs) and skilled workers:
- Work with industry and labor to create pathways to quality jobs, with a free and fair choice to join a union, through sector-based community college partnerships, apprenticeships and on-the-job training
- Support small, medium and disadvantaged businesses in critical supply chains
- Examine the ability of the U.S. Export-Import Bank (Ex-Im) to use existing authorities to further support domestic manufacturing
2. Support the Development of Markets That Invest in Workers, Value Sustainability and Drive Quality
- Create 21st century standards for the extraction and processing of critical minerals
- Identify potential U.S. production and processing locations for critical minerals
- Improve transparency throughout the pharmaceuticals supply chain
3. Leverage the Government's Role as a Purchaser of and Investor in Critical Goods
- Use federal procurement to strengthen U.S. supply chains
- Strengthen domestic production requirements in federal grants for science and climate R&D
- Reform and strengthen U.S. stockpiles
- Ensure that new automotive battery production in the United States adheres to high labor standards
4. Strengthen International Trade Rules, Including Trade Enforcement Mechanisms
- Establish a trade strike force
- Evaluate whether to initiate a Section 232 investigation on imports of neodymium magnets
5. Work with Allies and Partners to Decrease Vulnerabilities in the Global Supply Chains
- Expand multilateral diplomatic engagement, including hosting a new Presidential Forum
- Leverage the U.S. Development Finance Corporation (DFC) and other financing tools to support supply chain resilience
6. Monitor Near Term Supply Chain Disruptions as the Economy eopens from the COVID-19 pandemic
- Establish a Supply Chain Disruptions Task Force
- Create a data hub to monitor near term supply chain vulnerabilities
By pursuing significant funding in the American Jobs Plans, proposed boosts to agency budgets in the fiscal year (FY) 2022 annual budget request and by leveraging existing authorities, the Biden Administration is pursuing a whole-of-government effort to fund and support the development domestic supply chains for strategic and critical materials to ensure national economic well-being and national defense.
The remainder of this alert provides a more detailed overview of the key findings, actions and recommendations related to the review of large capacity batteries, and critical minerals and materials.
Review of Large Capacity Batteries
I. Review of Findings
The report affirms that high-capacity batteries – used in electric vehicles (EVs), for stationary storage and for many defense applications – offer an important and growing market that can support the creation of American jobs, help meet national security needs and bring ambitious climate targets within reach.
Simultaneously, the report outlines the factors necessitating government policies to incentivize every stage of the U.S. battery supply chain: demand for EVs and energy storage is increasing, investors are increasing investment in the clean economy and the pandemic has underscored the fragility of some U.S. supply chains. China and the European Union (EU) – in contrast to the U.S. approach – have developed and deployed ambitious government-led industrial policies that are supporting their success across the battery supply chain.
The report concludes that "coordinated government and private sector action" is paramount across all five stages of the high-capacity battery supply chain: 1) raw material production, 2) material refinement and processing, 3) battery material manufacturing and cell fabrication, 4) battery pack and end use product manufacturing, and 5) battery end-of-life and recycling.
Recommendations are as follows:
- Stimulate demand for end products using domestically manufactured high capacity batteries
- In the transportation sector:
- electrify the federal vehicle fleet and state, local and tribal government fleets
- electrify the U.S. school bus and transit bus fleets
- support "Point-of-Sale" rebates for consumers and a tax credit for medium and heavy-duty vehicles, with a preference for U.S. content
- support the build out of EV charging infrastructure
- support strong energy efficiency and tailpipe emissions standards for all vehicles
- In the utilities sector:
- accelerate federal battery storage procurement
- expand the Internal Revenue Service (IRS) Investment Tax Credit (ITC) to include stationary storage as a stand-alone resource
- institute power transmission regulatory reform to support renewable power and stationary energy storage
- In the transportation sector:
- Strengthen the responsibly-sourced supplies for key advanced battery minerals
- Invest in targeted, mineral-specific strategies:
- support sustainable domestic extraction and refining of lithium
- support nickel and cobalt recovery from recycled and unconventional sources
- invest in nickel refining in coordination with allies
- identify opportunities for supporting sustainable production and refining of cobalt
- work with allies and partners to expand global production and ensure access to supplies
- Raise labor and environmental standards across the board:
- develop strong environmental review permitting practices for the extraction of lithium, nickel, cobalt, and other key high-capacity battery minerals
- leverage federal investment to incentivize sustainable practices
- Increase resilience by strengthening U.S. recycling
- establish a national recovery and recycling policy to propose targeted incentives for recycling, stand up a battery recovery and recycling task force, and ensure recycling and processing meet the highest environmental standards
- Invest in targeted, mineral-specific strategies:
- Promote sustainable domestic battery materials, cell and pack production
- Catalyze private capital with grants and loans
- enact new federal grant programs to catalyze private capital
- leverage the DOE's Advanced Technology Vehicle Management Loan Program
- Introduce supportive tax credits
- revitalize IRS 48C manufacturing tax credits
- revive and expand Section 1603 of the American Recovery and Reinvestment Tax Act (ARRTA) program to support small manufacturers in the batteries, cells and related material processing supply chain
- Leverage federal procurement and financial assistance
- strengthen U.S. manufacturing commitments in federally funded grants, cooperative agreements, and R&D contracts
- Invest in the people and innovations that are central to maintaining a competitive edge
- invest in the next generation of battery and EV industry workers
- develop the workforce needed for the growing battery manufacturing industry
- include labor standards as a condition on production subsidies to empower workers and support their free and fair choice to organize
- Increase funding for R&D to expand uptake and reduce supply chain vulnerabilities
- increase support for R&D to reduce battery cell costs, enhance performance and reduce dependency on key critical materials
- create a Manufacturing USA Institute for high-capacity batteries
- Catalyze private capital with grants and loans
II. Actions to Secure an End-to-End Domestic Supply Chain for Advanced Batteries
On June 8, 2021, DOE announced immediate policy actions to scale up the domestic manufacturing supply chains.
- National Blueprint for Lithium Batteries: The Federal Consortium of Advanced Batteries (FCAB) released the "National Blueprint for Lithium Batteries 2021-2030," which codifies the findings of DOE's battery supply chain assessment, and details how strategic and immediate federal investments will position the U.S. to lead an emerging global market. The blueprint lays out five critical goals and key actions to guide federal agency collaboration (in addition to DOE, FCAB is led by DoD, DOC and the U.S. Department of State).
- Strengthening U.S. Manufacturing in Federally Funded Grants, Cooperative Agreements and Research and Development (R&D) Contracts: DOE announced a new policy to support domestic job creation by ensuring that all innovations – including those relating to advanced batteries. DOE Science and Energy Programs require awardees to substantially manufacture those products in the United States. DOE will implement these actions through a Determination of Exceptional Circumstances under the Bayh-Dole Act. This policy change will cover the more than $8 billion in climate and energy innovation funding requested in DOE's FY 2022 budget, including more than $200 million to support battery technology research, development and demonstration (RD&D).
- LPO Financing to the Advanced Battery Supply for Electric Vehicles: DOE's Loan Program Office (LPO) published guidance and released a fact sheet to clarify the various uses of the Advanced Technology Vehicles Manufacturing Loan Program (ATVM), which has approximately $17 billion in loan authority. ATVM makes loans to manufacturers or advanced technology vehicle battery cells and packs for reequipping, expanding or establishing such manufacturing facilities in the U.S.
- Procuring Stationary Battery Storage at FEMP: The Federal Energy Management Program (FEMP), housed in the Office of Energy Efficiency and Renewable Energy (EERE), is kicking off a federal government-wide energy storage opportunity diagnostic that will evaluate the current opportunity for deploying battery storage at federal sites. FEMP will also launch a call for projects from federal sites interested in deploying energy storage projects, and provide the necessary technical assistance to get those projects built. These actions build off steps taken earlier this year to leverage $13 million in FEMP's Assisting Federal Facilities with Energy Conservation Technologies (AFFECT) grants to unlock an estimated $260 million or more in project investments, including battery storage projects.
III. Recommendations to Congress
DOE made the following recommendations to Congress to make critical investments to grow America's ability to produce high-capacity batteries and products that use batteries, such as EVs and stationary storage.
- Catalyze private capital with new federal grant programs. In line with the American Jobs Plan, DOE recommends Congress establish a cost-sharing grant program to support battery cell and pack manufacturing in the U.S.
- Electrify the nation's school bus fleet. DOE recommends Congress provide new federal grant funding to subsidize the incremental upfront cost of new school buses, charging infrastructure and workforce training to accelerate the transition from diesel, and provide funding certainty for suppliers to expand their production lines. According to DOE, $20 billion could support transitioning 20 percent of the existing school bus fleet to zero-emission technologies.
- Accelerate the electrification of the nation's transit bus fleet. DOE recommends Congress fund the Federal Transit Administration's Low and No Emissions (Lo-No) grant program to accelerate the adoption of zero-emission transit vehicles, by providing capital funding for transit agencies to pursue contracts and market certainty for manufacturers to build production capacity. Initial estimates indicate that a $25 billion program could support replacing 20,000 transit vehicles – including buses, but also smaller shuttles, vans and cars operated by transit agencies.
- Provide consumer rebates and tax incentives to spur consumer adoption of EVs. DOE recommends Congress authorize new and expanded incentives to spur consumer adoption of U.S.-made electric vehicles. In addition, DOE recommends Congress approve $5 billion to electrify the federal fleet with U.S.-made EVs and $15 billion in infrastructure investment to build a national charging infrastructure to facilitate the nationwide adoption of EVs.
- Invest in the product production of high-capacity batteries and products that use these batteries to support good-paying, union jobs. Tax credits, lending and grants offered to businesses to produce in the U.S. must require the creation of quality jobs with the right to organize for workers. DOE recommends Congress pass the Protecting the Right to Organize (PRO) Act. And new appropriations should include prevailing wage requirements, similar to those included in the American Recovery and Reinvestment Act of 2009. Other standards that should be included are: 1) mandated hiring percentages from registered apprenticeships and other labor or labor-management training programs, 2) project labor, community labor and local hire requirements, and 3) employer neutrality agreements.
- Develop strong environmental review permitting practices for the extraction of critical minerals. DOE recommends Congress develop legislation to replace outdated mining laws including the General Mining Law (GML) of 1872 governing locatable minerals (including nickel) on federal lands, the Materials Disposal Act of 1947 to dispose of minerals found on federal lands, and the Mineral Leasing Act of 1920, among others. These should be updated to have stronger environmental standards, up-to-date fiscal reforms, better enforcement, inspection and bonding requirements, and clear reclamation planning requirements.
Review of Critical Minerals and Materials
I. Review of Findings
The report affirms that strategic and critical materials are bedrock of value-added manufacturing and the development, production, delivery and sustainment of essential services. The report warns that the global supply chains are at risk of disruption and rife with political intervention and distortionary trade practices.
The report concludes that the U.S. requires an "all of the above" comprehensive strategy to increase the resilience of strategic and critical material supply chains that both expand sustainable production and processing capacity.
Recommendations are as follows:
- Developing and Fostering New Sustainability Standards for Strategic and Critical Material Intensive Industries
- develop sustainably produced content standards for strategic and critical material-intensive industries
- establish U.S. government procurement as a sustainability leader
- Expanding sustainable domestic production and processing capacity, including recovery from secondary and unconventional sources and recycling
- build a foundation for accelerated growth in strategic and critical material recycling
- collaborate with the states, tribal nations and nongovernmental organizations on reclamation of mining waste
- identify and spotlight U.S. sustainable resource production opportunities
- Deploy Title III of the Defense Production Act (DPA)
- Convene industry stakeholders to expand production
- Promote interagency research and development to support sustainable production and a technically skilled workforce
- Strengthen U.S. stockpiles
- Work with allies and partners to strengthen global supply chain transparency
- engage trading partners and emerging markets to ensure reliable supplies and improve governance
- incentivize sustainable production by allies and partners
- support increased transparency in materials supply chains
II. Actions to Invest in Sustainable Domestic and International Production and Processing of Critical Minerals
The report holds that nearly every agency of the U.S. government has a unique capability to increase the sustainability of strategic and critical materials supply chains.
- U.S. Department of Interior: DOI, with the support of the White House Office of Science and Technology Policy, will establish a working group composed of agencies such as the U.S. Department of Agriculture (USDA) and the U.S. Environmental Protection Agency (EPA) to identify locations where sustainable production and processing of critical minerals can take place while adhering to environmental and labor standards. This working group will collaborate with the private sector, states, tribal nations and stakeholders – including representatives of labor, impacted communities and environmental justice leaders – to expand sustainable, responsible critical minerals production and processing in the United States.
- U.S. Department of Defense: DoD will deploy DPA Title III incentives – including grants, loans, loan guarantees and offtake agreements – to support sustainably produced strategic and critical materials, including scaling proven R&D concepts and emerging technologies from other programs such as the Small Business Innovation Research awardees.
- U.S. Department of Energy: The DOE LPO, through its Title 17 Renewable Energy and Efficiency Energy Projects solicitation, has more than $3 billion in loan guarantees available to support efficient end-use energy technologies, such as mining, extraction, processing, recovery or recycling technologies, of critical materials projects that satisfy Title 17 requirements.
- U.S. Development Finance Corporation: DFC will expand international investments in projects that will increase production capacity for critical products, including critical minerals and other products identified pursuant to the E.O. 14017 process, ensuring that investments that support supply chain resilience and uphold international standards of environmental and social performance.
III. Recommendations to Congress
The report included the following recommendations from DoD to Congress to increase the resilience of strategic and critical material supply chains that both expand sustainable production and processing capacity.
- Promote interagency research and development to support sustainable production and a technically skilled workforce. DoD recommends Congress fully fund and resource programs authorized by the Energy Act of 2020 (Public Law 116-260) for the U.S. Department of Energy to expand critical material R&D efforts to include demonstration and commercialization.
- Strengthen U.S. stockpile actions. DoD recommends new federal legislation to recapitalize and modernize the National Defense Stockpile (NDS) operations, including the following actions:
- appropriate "at least $1 billion" over the next Future Years Defense Program to sustain NDS operations
- reinstate the reporting requirement for biennial modeling and simulation of strategic and critical material supply chains under national emergency conditions (50 U.S.C. 98h-5)
- reform the Strategic and Critical Materials Stock Piling Act of 1979 to provide more flexible acquisition authorities, "loan" material to industry and other federal agencies, and related authorizations to recruit, retain and incentivize the hiring of highly qualified personnel for the NDS program