What if Joe Manchin is a secret supply-side progressive?
Democrats, pivot to the supply side to achieve electric vehicle abundance
It’s no secret that Senator Joe Manchin essentially gets to decide whether President Biden’s legislative agenda lives or dies. And since December, the bill formerly known as Build Back Better seemed to be essentially flatlining as Manchin soured on additional social and economic legislation.
But there are some newly encouraging signs of life. On Friday, the Washington Post reported that “key Senate Democrats projected optimism on Thursday that the party could reach consensus on two central climate provisions in the Build Back Better bill by the August recess.” Those two provisions are $300 billion worth of technology-neutral, carbon-capture-friendly clean energy tax credits, and some kind of consensus compromise fee assessed on methane emissions.
A third provision, however, appears to be careening toward the trash heap. That’s the proposed tax credit of up to $12,500 for people who purchase an American-made electric vehicle. “I have a hard time with EVs right now,” Manchin said last week.
It wasn’t the first time Manchin has voiced skepticism of the EV credit. In early May, the New York Times reported that “Manchin has ‘grave concerns about moving toward an E.V.-only future’ because China controls the minerals needed for car batteries. ‘We cannot replace one unreliable foreign supply chain with another and think it’s going to solve our problems,’ he said.”
And Manchin also criticized the EV credit in an April hearing with Transportation Secretary Pete Buttigieg: “There’s a waiting list for EVs right now with the fuel price at $4. But they still want us to throw $5,000 or $7,000 or $12,000 credit to buy electric vehicles. It makes no sense to me whatsoever,” Manchin said. “When we can’t produce enough product for the people that want it and we’re still going to pay them to take it — it’s absolutely ludicrous in my mind.”
Maybe Manchin is just not that into EVs. But his specific critiques of the EV credit gesture at a more nuanced position: he seems skeptical of subsidizing demand for a product that is currently constrained by its supply. Perhaps that leaves a path forward to achieve the goal of increasing the number of electric vehicles on the road not by subsidizing more demand, but by pulling policy levers to increase their supply.
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Conceptually, the EV tax credit is meant to give consumers a rebate that makes EVs cost competitive with gas-powered cars. EVs remain relatively expensive: The lowest-cost Tesla model goes for $47,000; meanwhile, Chevrolet’s Bolt costs $32,000, and the Nissan Leaf costs $27,000. So a $12,000 subsidy from the federal government could bring a $32,000 EV down to $20,000, making an electric option much more attainable for more Americans.
But that concept only works if we have abundant EVs on lots just waiting for hordes of rebate-wielding comparison shoppers. And right now, Manchin is correct that there’s more demand for EVs than manufacturers can keep up with. Sales are booming even without souped-up tax credits, and the wait list for a new Tesla Model S is nearly a year long. Ford stopped taking reservations for its new electric F-150 Lightning in December after the list hit 200,000 people; they may be waiting for three years before hitting the road with an electric pickup truck.
In a market where demand is outstripping supply, pumping more purchase incentives into the mix won’t lead to any additional EVs on the road. Instead, those tax credits will more or less be just a pleasant windfall for people already lined up to buy EVs.
Why are the waitlists for new EVs so long? It’s largely yet another supply chain saga. Since 2021, manufacturing has been stalled by the semiconductor shortage that has roiled the entire automobile industry. That will hopefully be alleviated as pandemic conditions improve around the world, and whenever Congress gets around to funding the CHIPS Act to finance domestic semiconductor manufacturing.
Looking down the road, there are deeper looming structural shortages for critical EV components that won’t simply be COVID-era flukes. The rising demand for EVs is expected to deeply strain the world’s supply of lithium-ion batteries, which rely principally on extracted minerals like lithium, nickel, cobalt, and magnesium. We could be just a few years away from simply not having enough supply of lithium and other critical minerals to meet the demand for EVs. As Bloomberg put it:
“Lithium, the wonder metal at the heart of the global shift to electric cars, is in a full-blown crisis. Demand has outstripped supply, pushing prices up almost 500% in a year and hindering the world’s most successful effort yet to halt global warming.”
RJ Scarringe, CEO of the EV producer Rivian Automotive, put it even more starkly: “Put very simply, all the world’s cell production combined represents well under 10% of what we will need in 10 years. Meaning, 90% to 95% of the supply chain does not exist …Semiconductors are a small appetizer to what we are about to feel on battery cells over the next two decades.”
So here’s the looming EV supply chain crunch: if battery producers can’t get enough lithium and other key ingredients, they can’t produce lithium batteries. And if EV companies can’t get lithium batteries, they can’t make electric cars. And without more electric cars on the road, it will be that much harder to cut carbon emissions.
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From that vantage point, demand isn’t a problem in the EV market right now, but supply is. If you’re Joe Manchin singularly worried about inflation, rather than spend $100 billion on demand-side tax credits that won’t do much to add marginal EVs to the road in the short term, it makes more sense to focus on securing the long-term supply of EVs instead.
Recall the political journey of the EV tax credit: Biden first proposed it in March 2021 as part of his American Jobs Plan, which became the basis for congressional infrastructure negotiations. The Jobs Plan also proposed funding to support EV supply chains, including batteries and raw materials.
In August 2021, a bipartisan group of senators struck a deal on infrastructure that kept the funding for the battery supply chain, but cleaved off the EV credit. Without bipartisan support, the EV credit then migrated over to the Democrat-only reconciliation package. The final Bipartisan Infrastructure Law included $3 billion to boost domestic battery manufacturing and recycling and another $3 billion for battery material processing grants.
Manchin voted for the BIL, so he has a record of endorsing supply-side policy to support EVs. If the EV tax credit is dead on arrival for Manchin, Democrats negotiating a climate reconciliation package should lean into his supply-side comfort zone. At bottom, we need to achieve EV abundance by securing battery abundance. And we can do that by (1) investing in new domestic sources of lithium battery production, (2) expediting that production by reconsidering current regulatory hurdles, and (3) funding the R&D to innovate beyond today’s lithium batteries for EVs.
Mine, Baby, Mine
To get more of the batteries that EVs rely on, we’re going to need a lot more lithium. Right now, most lithium is mined in South America and Australia. Even though lithium reserves are distributed pretty evenly around the world, the U.S. currently has just one lithium mine, located in Nevada.
Those lithium deposits get extracted (usually through mines and brines), and the raw materials then get processed by battery manufacturers. China dominates the lithium battery manufacturing industry. But American automakers are increasingly investing in creating their own battery manufacturing sites in Kentucky, Indiana, Georgia, and Michigan.
The BIL’s battery provisions were a good start. And the administration invoked the Defense Production Act to ramp up mining and production of lithium and other key minerals used in batteries. But there’s more to be done, as Ariel Cohen of the Atlantic Council urged in Forbes last month. The DPA can only accomplish so much, and $3 billion for domestic battery manufacturing could be scaled up to provide even stronger market incentives.
Manufacturing the batteries is the easy part — the more fundamental challenge is mining enough lithium to keep up with exploding demand for electric vehicles. There are plenty of places in the U.S. with the potential to be major lithium producers. Potential new mines are being contemplated in Maine, North Carolina, California and Nevada.
Governor Gavin Newsom has promised to make California the “Saudi Arabia of Lithium,” with two projects in “Lithium Valley” that could produce lithium by 2024. It’s estimated that lithium deposits in California’s Salton Sea could eventually meet as much as 40 percent of the world’s lithium demand. The Salton Sea is a particularly promising source for lithium: because its lithium is liquid, it can be extracted with minimal environmental damage.
Congress should steer more financial incentives and any technical assistance federal experts can provide to get these extraction projects built, and built fast. To promote speed and efficiency, Congress could experiment with “fading subsidies”: Authorize agencies to set an ambitious but feasible goal for completion of an infrastructure project like a lithium mine. If the project meets or beats that goal, it gets 100 percent of the promised subsidy. If it falls behind schedule, the subsidy fades out — say, a 10 percent dockage for each six months of delay.
Clear Away the Roadblocks
Even with the most enticing financial incentives, new mines can’t just pop up overnight. They can take a solid decade to get up and running. In the near term, American EV manufacturers will have no choice but to rely on minerals sourced from abroad. In the longer term, we should aim to increase our energy independence by producing lithium and manufacturing batteries at home as much as possible.
We can speed up domestic lithium extraction by streamlining permitting. Permitting processes and local opposition can tie up proposed mines in regulatory and legal limbo for years. For example, a 2016 Government Accountability Office report found that while the average time it took for the Bureau of Land Management to grant permits to new hard rock mines was two years, in some instances, it took up to eleven years.
We should strive to ensure that mineral extraction projects avoid as much environmental degradation as possible. But while lithium mining does inflict harm on local land and water supplies, it’s unfortunately a necessary evil for the greater good of reducing greenhouse gas emissions.
Because mineral resources are often found on federal land, new mines have to run the federal legal and regulatory gauntlet of the National Environmental Policy Act, the Clean Water Act, Clean Air Act, Endangered Species Act, and equivalent state laws (more on these below) before securing approval. Several of the new potential U.S. lithium mines are caught up in legal disputes and local resistance. The Bureau of Land Management granted the Thacker Pass mine in Nevada a critical permit in 2021, but locals have sued the BLM demanding that it conduct a more thorough environmental review of the project. Another proposed lithium mine in Nevada has been held up by conservationists’ efforts to protect a rare wildflower located near the mine site.
Congress and the administration should work to streamline permitting for lithium mines and other critical materials for EVs. Time is of the essence to curb emissions — we simply cannot afford to let the EV supply chain get bogged down in years and years of regulatory red tape. We need to ease the permitting morass by rebalancing national strategic imperatives (like clean energy) with reasonable protections for local environments in the context of imminent climate change. We should at also impose a “shot clock” for permitting decisions that guarantees an up-or-down decision by regulators within a reasonable period of time.
The complication here is that Congress is likely quite limited in what it can accomplish to reform the federal permitting process in a budget reconciliation package. The Biden administration has some ability to ease permitting burdens through executive action, and recently announced a Permitting Action Plan to accelerate permitting and environmental review. Otherwise, substantive permitting reform would likely need to be done through bipartisan legislation that can clear sixty votes in the Senate.
This may be a job for Manchin’s bipartisan energy working group. Senator Mitt Romney has been an advocate for permitting reform. The Washington Post reported in May: “Romney told reporters after Monday’s meeting [with Manchin’s working group] that attendees discussed the importance of mining for critical minerals used in electric vehicle batteries, as well as reforming the permitting process for large infrastructure projects under the National Environmental Policy Act.”
One tweak that could fit in a reconciliation deal to help on permitting: funding to staff up federal permitting offices with more experts, including biologists, archaeologists, geologists and engineers. More knowledgeable hands on deck means that permitting decisions will be issued faster.
There’s also the issue of state-level “mini-NEPAs.” Twenty states and localities layer their own additional environmental review requirements on top of federal requirements — most notoriously, the Golden State’s California Environmental Quality Act. State laws must be reformed by state legislatures, so Congress is again limited in what it can do about permitting roadblocks at the state level. But it could follow the Race to the Top model to award competitive grants to states and local governments that enact pro-efficiency reforms to their environmental review processes that support faster, less burdensome determinations, especially for projects critical to the clean energy economy.
Nevermind Lithium
The other way to strengthen the EV supply chain is to reimagine traditional lithium batteries. That means investing in research and development of new technologies that would yield batteries that move beyond critical minerals like lithium, cobalt, and nickel.
Cobalt, for instance, is one of the most expensive materials used in a battery. And the Department of Energy’s National Blueprint for Lithium Batteries calls for eliminating cobalt and nickel from batteries by 2030. But right now, eliminating cobalt means sacrificing driving range and safety from corroded batteries catching fire.
There is promising work happening on next-generation batteries. Researchers are working on iron-based batteries that move beyond cobalt. And solid-state batteries are the great hope to provide a more dense, safer, and longer-range alternative to lithium batteries — but the technology likely won’t be ready before 2030. Researchers are also experimenting with a number of other possible substitutes for lithium, including salt, seawater (estimated to hold 180 billion tons of highly diluted lithium), magnesium, and even hemp.
Congress should fund additional research and development in the most promising battery alternatives to support and speed up innovation. We could also support R&D for more efficient and sustainable ways to extract lithium, like the promising greener techniques being developed for extracting lithium from the Salton Sea. And we should utilize advance market commitments to kickstart the technological breakthroughs needed for next-generation batteries that can successfully power EVs, including the federal government’s vehicle fleet.
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Industry experts and battery wonks will surely have more creative and tailored ideas for how best to neutralize threats to EV supply over the coming decade. But here’s my general pitch: If Democrats want to promote electric vehicles in America in a way that won’t alienate Joe Manchin, they should focus on clearing blockages in the EV supply chain. For example:
- Boost the financial incentives for American companies to expeditiously produce lithium batteries and to open mineral extraction projects, and provide technical support to get them built,
- Smuggle as much permitting reform as the reconciliation rules will bear to fast-track extraction projects critical to the EV supply chain (and at least staff up permitting offices with more experts to approve permits more quickly), and
- Dangle R&D funding and purchase promises for better, cleaner methods of extracting lithium and for innovations that move beyond traditional lithium batteries.
This approach would build upon and expand the foundation from the Bipartisan Infrastructure Law. Unlike the EV tax credit, these policies wouldn’t aggravate Manchin’s aversion to excess spending and fear of stoking more inflation. And these policies might do more in the long run to protect the stability of the electric vehicle market by keeping more of the supply chain at home. Because battery costs account for about 30 percent of the total cost of an EV, increased battery production and better next-generation batteries will ultimately help make EVs more affordable for consumers — especially as tighter emissions standards squeeze gas-powered vehicles over the coming years. And more EVs on the road will lead to lower carbon emissions.
These supply-side policies would also cost a fraction of the $100 billion proposed for the EV tax credits. Democrats could probably include all three policies, plus several years of extended healthcare subsidies, for the same cost as the EV credits.
There is some degree of novelty in achieving liberal goals through supply-side policy. Democrats know and love a good demand-side subsidy or consumer tax credit. But the EV market may be precisely the terrain that is better served by leaning into the rising line of thought known variously as “Supply-Side Progressivism” (Ezra Klein), “Modern American Industrial Strategy” (National Economic Council Director Brian Deese), the “Abundance Agenda” (Derek Thompson), and the “Abundant Society” (Suraj Patel), among other labels. We need to expand the reach of critical goods like EVs by paying as much mind to overcoming supply constraints as we do to supporting demand and affordability.
I’m being mostly facetious by positing that Manchin might be a secret adherent to this new faith. But not entirely. In an era of closely divided government and institutional sclerosis, perhaps the center-left and center-right can find synthesis on policies to support supply-side abundance: the right, because of its long attachment to supply-side economics and its deregulatory, pro-business DNA; the left, out of an all-means-necessary commitment to build out our clean energy infrastructure, fight climate change, and improve access to social goods.
It’s heartening that Senate Democrats are at long last sounding cautiously positive about striking a climate deal with Manchin. They should take it, on whatever terms he has for the clean energy credits and methane fee. If the EV credit is jettisoned, so be it. But it may be worth a shot to transform the EV credit into a policy principally focused on supporting EV supply. Joe Manchin might even turn out to be the Senate’s most influential supply-side progressive in the process.
