On July 4, 2025, President Donald Trump officially signed H.R.1, or the One Big Beautiful Bill Act (OBBBA), into law. This regulation establishes significant changes in the country’s tax and budget systems, reforms to social welfare programs and healthcare services, as well as immigration and border security policies. One of the most notable aspects of OBBBA is the revision of the Inflation Reduction Act (IRA), which eliminates several programs that previously contributed significantly to the energy sector and mineral supply chain. While the law aims to accelerate the procurement of critical mineral resources domestically and reduce US dependence on China, at the same time, the OBBBA also removes several important incentives in the IRA that previously encouraged growth in demand from downstream sectors. This creates new challenges for long-term investment in the critical minerals sector and alters the structure of the global supply chain, which has long been dominated by Beijing.
OBBBA Revision to IRA Provisions: Impact on Critical Mineral Producers
One of the most notable policy changes in the One Big Beautiful Bill Act (OBBBA) is the repeal and adjustment of various incentives previously regulated in the Inflation Reduction Act (IRA), particularly those related to the critical minerals sector. This move marks a strategic shift by the Trump administration, which no longer prioritizes energy transition and the expansion of renewable technology and electric vehicles as national policy priorities. Instead, the focus is now on meeting domestic needs without relying on the green incentive schemes introduced during the Biden administration.
- Elimination of Clean Vehicle Incentives: Domino Effect on Mineral Demand
One of the policies discontinued through the OBBBA is the Clean Vehicle Credit as stipulated in Section 30D of the IRA. This $7,500 incentive was previously provided to consumers who purchased electric vehicles (EVs) with components sourced from the United States or free trade agreement (FTA) partner countries. The aim was to strengthen the domestic EV supply chain while reducing dependence on imported raw materials, particularly from China.
With the end of these incentives, a ripple effect on the sector is inevitable. Demand for electric vehicles is likely to decline, and with it, demand for minerals as key raw materials will also weaken. This creates market uncertainty for automotive manufacturers, who are ultimately reluctant to commit to long-term agreements for mineral procurement.
Another consequence is the difficulty domestic mining projects face in securing investment, especially in the current environment of sharply declining commodity prices. Data shows that between 2022 and 2025, cobalt prices have fallen by 60%, nickel by 73%, and lithium by as much as 87%. This situation creates a dilemma, where, without strong domestic demand, many mining projects may shift their focus to China as a source of funding and buyers. This trend is evident in the increase in mine acquisitions by Chinese companies in 2024, which is the highest in more than a decade. This is part of Beijing’s broader strategy to secure control over the supply chain of important raw materials amid rising geopolitical tensions.
- Revision of Article 45X: Investment Uncertainty in Mining Amid Structural Pressures
In addition to revoking electric vehicle incentives, the OBBBA also amended Article 45X, which previously offered a 10% Production Tax Credit for critical mineral production activities, from extraction to refining, that met certain standards. This incentive was originally designed to strengthen domestic production capacity in the face of challenges posed by new mining projects, which require significant time, capital, and high risks. Under the IRA, the critical minerals sector was exempted from the phase-out schedule until after 2032.
However, the OBBBA revokes this exemption and establishes a phase-out schedule: the incentive will be reduced to 75% in 2031, 50% in 2032, and 25% in 2033 before being fully phased out by December 31, 2033. Now, only mineral projects that were already in operation before 2032 can access full credits for the next few years. Given the long time it takes to develop new mines and increase production, this revision reduces the effectiveness of Section 45X. Additionally, this change makes investors prefer older mining projects (brownfield) that are nearing production but have lower-quality reserves, rather than new projects (greenfield) that are more promising in the long term.
Redefining Foreign Entities of Concern (FEOC) and Its Implications for Critical Mineral Projects
One of the most important aspects of the One Big Beautiful Bill Act (OBBBA) is the redefinition of the category of Foreign Entities of Concern (FEOC), which are foreign entities deemed ineligible to receive fiscal support from the US government. In the current geopolitical context, this change is explicitly aimed at limiting Chinese companies’ access to US tax incentives by narrowing eligibility criteria and preventing Chinese investment in US mineral and energy projects.
The OBBBA introduces two new classifications:
- Specified Foreign Entities (SFEs) include various types of companies that have previously been placed on federal watch lists. These include: (1) Chinese military companies; (2) battery manufacturers prohibited from contracting with the US Department of Defense; (3) entities listed on the US Department of Commerce’s list; and (4) companies involved in forced labor violations under the Uyghur Forced Labor Prevention Act.
- Foreign-Influenced Entities (FIEs) include companies that, although not directly registered as SFEs, still have structural or financial links with such entities. FIE qualification applies when an SFE has control over the executive or board of directors and the SFE owns ≥25% of the shares.
The OBBBA not only restricts who can receive incentives, but also creates a new evaluation system for mineral facilities or projects. One important instrument in this evaluation is the material assistance cost ratio, which is the ratio between the total manufacturing costs of non-PFE sources and the total manufacturing components in the project. This ratio serves as the basis for determining whether a facility qualifies for fiscal incentives. Furthermore, OBBBA implements a mineral-specific approach. By December 31, 2027, the U.S. Department of the Treasury is required to establish new thresholds for each of the 50 minerals listed in Section 45X(c), including aluminum, cobalt, lithium, and nickel.
Can New Budget Allocations Improve Critical Mineral Security?
Under Section 20004, the One Big Beautiful Bill Act (OBBBA) establishes a number of strategic budget allocations aimed at strengthening the security of the United States’ critical mineral supply. For the year 2025, US$2 billion has been allocated to the Secretary of Defense to expand the national strategic reserve through the National Defense Stockpile Transaction Fund. This fund serves as a safeguard in national emergencies, such as natural disasters, regional conflicts, and major wars, where the need for minerals for the defense industry becomes critical. Additionally, the OBBBA allocates an additional 5 billion US dollars, available until September 30, 2029, through the Industrial Base Fund (under Section 10 of the US Code) to support the development of the national mineral supply chain.
However, this budget allocation emphasizes the supply side and has not been balanced with measures that can stimulate long-term demand from key sectors such as defense, the semiconductor industry, automotive, and energy. Without stable demand support, investment in critical mineral sectors will continue to face structural barriers.
The Challenge Without IRA Incentives: Can Demand for Critical Minerals Continue to Grow?
While opportunities exist, driving growth in demand for critical minerals without the support of clean energy incentives from the IRA requires consistent and comprehensive policy signals. The United States needs a cross-sector strategy that not only supports mining and processing activities but also ensures there is a market to absorb the production output from sectors such as defense, semiconductors, automotive, and renewable energy.
Currently, mining projects in the US face significant pressures, including declining commodity prices, high operational costs, and aggressive competition from Chinese companies benefiting from state subsidies, cheap labor, and market intervention. These conditions have made many projects in Western countries no longer economically viable, ultimately weakening private investment flows into this sector, both domestically and in strategic partner countries.
To reverse the trend, strategic fiscal incentives such as production tax credits and direct subsidies are essential. These incentives will help reduce investment risk and enhance the competitiveness of mining projects in Western countries. To be effective, the scope of incentives needs to be expanded beyond minerals used in electric vehicle batteries to include high-tech minerals such as gallium and germanium, which are critical to the production of semiconductors and other advanced technologies. Tax credits should also be provided for midstream processing, both within the United States and in allied countries with production potential, to encourage the emergence of large-scale projects vital to the global supply chain.
Expanding the List of Incentive-Eligible Countries: The Key to US Mineral Diplomacy?
Currently, the list of countries eligible for US mineral incentives is limited to trading partners under FTAs, which may not necessarily have significant reserves of critical minerals in terms of geography and geology. For example, Morocco is the only country in Africa with an FTA with the US, despite having relatively small mineral reserves. Conversely, other African regions hold extraordinary wealth in the form of copper, cobalt, lithium, graphite, rare earth metals, manganese, and chromium.
This limitation creates a structural gap between the location of mineral resources and the scope of US trade policy, which ultimately makes it difficult for domestic industry players, particularly automotive manufacturers, to meet incentive requirements. As a result, only a few electric vehicle (EV) models qualify for subsidies, which in turn weakens the overall effectiveness of clean energy policy.
To address this, it is necessary to expand the list of countries eligible for mineral production and processing incentives. This approach is a strategic step in strengthening U.S. mineral diplomacy, enabling the U.S. to build new partnerships with resource-producing countries while encouraging them to channel mineral exports to the U.S. and allied markets rather than relying on long-term contracts with China.
Written by: Nazwa
Reference:
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