Friendshore Lithium-Ion

Policies surrounding the lithium-ion battery (LIB) supply chain lie at the intersection of trade, climate, and national security considerations. The LIB supply chain spans the globe, and yet some critical inputs are only produced in a handful of countries — in particular China, which is dominant at several key stages of the technology’s production. The Biden administration appears to have three central, yet misaligned, objectives regarding the LIB supply chain: de-risking away from China’s dominance, reshoring manufacturing capabilities, and accelerating the green transition. To spur the technology’s production and deployment, the United States must undertake several economic and trade policy changes to address gaps in its current approach.

Introduction

Lithium-ion battery (LIB) supply chains encapsulate the profound shift in trade, economic, and climate policy underway in the United States and abroad. Policymakers are conflating national security considerations with climate and trade policies and appear determined to bolster supply chains via reshoring and nearshoring the production of critical items — including those necessary to achieve climate goals. The LIB supply chain spans the globe, but crucial inputs and processing capabilities are centralized in a handful of countries. This dual dynamic of dispersion and concentration renders the global supply chain susceptible to geopolitical disruptions and shifts in trade relationships. Exacerbating this issue is China’s dominance in lithium-ion manufacturing, including in the processing of most mineral inputs and key end uses such as electric vehicles (EVs) — as well as its position as an economic competitor and a long-term strategic threat to U.S. interests.

The Biden administration appears to have three central U.S. objectives. The first is de-risking away from China’s current dominance over manufacturing key goods, such as the lithium-ion battery, given these items’ importance to economic competitiveness and security. The second is bringing manufacturing back to the United States. The country’s sector has gradually lost out to foreign competitors, costing the nation jobs and resilience in exchange for efficiency and competitive prices. The third is accelerating away from hydrocarbons to cut carbon emissions and mitigate the potentially catastrophic effects of global warming, in accordance with U.S. multilateral commitments. The policy dilemma is that the first two goals are not compatible with the third. The United States appears to have decided to pursue the first two at the expense of the third, as this paper will discuss. If the United States wants to accelerate its carbon reduction goals, then changes in policy will be required.

De-risking away from China’s dominance, bringing manufacturing back to U.S. shores, and accelerating the green transition are three goals inherently at odds. Liberalizing trade with the China would enable U.S. manufacturers to significantly scale up operations by accessing lower-cost inputs and give consumers access to cheap goods critical to achieving decarbonization goals. However, it would negate de-risking efforts. Focusing on bringing manufacturing back to the United States would boost job growth and de-risk supply chains, but it would deflect attention away from building sustainable and advantageous trade relationships with prospective nearshoring partners.

An effective U.S. LIB production and deployment strategy requires several policy changes. This project aims to shed light on current shortcomings in the U.S. approach and provide recommendations related to different stages of the LIB supply chain. This paper, the last in a series of three, outlines the final steps in producing a lithium-ion battery. The first brief examines the technical steps and policy challenges involved in processing and defining critical minerals and raw materials in a battery. The second brief builds upon these findings by describing the use of these minerals and materials to create cathode and anode active battery materials and other components. This final piece concludes by outlining the LIB supply chain and the assembly of battery cells into modules, which are packed and sold to manufacturers of different end products, including EVs, solar power backup storage, consumer technology products, and emergency power backup systems. This analysis then examines trade and economic policy challenges that hinder the production and deployment of lithium-ion batteries and their end products.

Final Battery Production

Once individual components such as cathodes and anodes are turned into functioning battery cells, manufacturers combine individual battery cells into sets called battery modules. These modules are then assembled to create a battery pack, which, after testing, is fit for commercial use.

Modules

A battery module is created through the attachment and connection of multiple battery cells. The surfaces of the battery cells are cleaned, and the battery cells are checked for leaks. If no such openings are found, an adhesive is used to ensure the batteries stick to the end plates. The cells are then stacked side by side, and the end plates are connected using either a wiring harness or a metallic strip designed for high current distribution. Lastly, a cover is put in place.

While individual battery cells could serve as the foundation for battery packs, a pack of battery cells immediately becomes unusable if a single cell breaks down. To negate this flaw, modules are used as an intermediate step. Modules also have greater structural integrity and vibration resistance than a set of battery cells.

Battery Packs

Once a set of modules has been assembled, they may be connected to form a battery pack. A single battery pack may require different numbers of modules or cells to function depending on its intended use, and it may require a battery management system to evaluate the charge level and service life of the pack. The system uses battery-monitoring units to assess the safety and performance of individual cells within a pack, thereby increasing battery longevity.

Key End Uses

The lithium-ion battery is becoming a ubiquitous input for several goods critical to the U.S. economy. These end uses are set to accelerate the green transition and enhance the U.S. energy security landscape. They will transform the landscape of consumer electronics and revolutionize transportation. In short, the sectors for which lithium-ion batteries are destined hold tremendous importance. Chief among them are solar panels, emergency power backup systems, EVs, and consumer technology.

The lithium-ion battery is becoming a ubiquitous input for several goods critical to the U.S. economy. These end uses are set to accelerate the green transition and enhance the U.S. energy security landscape.

Solar Panels

A solar panel in its most basic form is a collection of photovoltaic cells that absorb energy from sunlight and transform it into electricity. Over the past few years, these devices have become exponentially more prevalent. In 2023, the United States generated 238,000 gigawatt-hours (GWh) of electricity from solar power, an increase of roughly 800 percent since 2014. While these panels can generate electricity only in sunlight, they use lithium-ion batteries to store excess power accumulated during the day for use at night and on cloudy days, allowing for uninterrupted flow of electricity.

These batteries must be connected to solar panels to charge and store excess electricity. This connection is achieved using charge controllers to adjust the voltage and current to ensure the battery is not damaged. The lithium battery pack is plugged into the charge controller, which is then connected to the solar panels via single-contact electrical (MC4) connectors. While lithium-ion batteries are roughly 10 times more expensive than lead-acid batteries (the main alternative battery type for solar batteries), they make up for this cost difference by being 20–30 percent more efficient and lasting roughly 10 times longer. As a result, lithium-ion technology accounted for 90 percent of the installed power and energy capacity of battery storage in the United States in 2019.

Emergency Power Backup Systems

Increasing adoption of renewable energy creates additional challenges for grid operators. Renewable energy sources, such as wind and solar power, generate electricity based on the availability of their respective resources. Consequently, grid operators must effectively manage electricity supply to ensure reliability, as these sources are inherently intermittent.

As countries prioritize integrating renewable energy into their grids, adoption requires the immediate purchasing of electricity generated from renewable sources. However, renewable energy plants often generate surplus electricity beyond current demand. While traditional fossil fuel and thermal power plants can be shut down during periods of low demand to conserve fuel, the intermittent nature of wind and solar energy means that simply shutting them off is seldom a viable option. This surplus electricity has spurred the development of grid energy storage systems to store and manage excess energy efficiently.

Lithium-ion batteries serve as a versatile backup power solution and are not limited to the solar energy domain. They can be connected to wind turbines and generators as well as the electric grid. In all of these cases, lithium-ion batteries store excess energy for later use that would otherwise be wasted. These systems may be divided into two subcategories: Behind-the-meter systems are generally geared toward individual consumers and small businesses and are meant to allow for emergency power storage or continuous power use from an energy source. Front-of-the-meter systems, in contrast, are larger, made up of a greater number of battery packs, and link directly to the power grid. Utilities and large firms often use them as a means to address network congestion or to alleviate demand for new power lines. These systems are then installed at the distribution substation level, where power is transformed from medium to low voltage and sent to individual households. Front-of-meter systems allow for excess power to be returned to other distribution centers, or these systems may simply serve as storage for a planned or unplanned outage.

Among the existing electricity storage technologies — such as pumped hydro, compressed air, flywheels, or vanadium redox flow batteries — lithium-ion batteries have the advantages of fast response rate, high energy density, good energy efficiency, and reasonable life cycle. Substantial growth is anticipated in the United States for both types of storage systems. U.S. cumulative installed battery storage capacity, which stands at roughly 17 GWh, is expected to increase to 50 GWh by 2025. Overall, solar power alone is also predicted to see large increases in adoption and will represent roughly 7 percent of total energy generation in 2025. As a result, global demand for battery storage systems is set to increase by 30 percent annually. By 2030, these storage systems will account for roughly 700 GWh of global demand, a figure equal to the total global demand for batteries in all industries as of 2022.

Electric Vehicles

The EV sector accounted for 80 percent of global LIB demand in 2023, or roughly 800 GWh. EVs are distinguished from conventional cars by the presence of an underpan, or the area below the car where the batteries are stored. Commercial and public transport EVs may have multiple battery packs located in the front or back or even on the roof of the vehicle. The battery pack, which is generally made up of six modules, each of which has 12 cells, is connected to an inverter that converts the power supply from AC to DC. In turn, the inverter is connected to an electric motor that powers the vehicle.

The recyclability, fast charging speed, and long life cycle of these batteries have spurred a boom in global demand for both EV batteries and the vehicles they power. Global demand for batteries from the EV sector has increased by 470 percent since 2020, when demand from the EV sector stood at 175 GWh. While these increases have been significant, LIB demand is forecasted to increase to 4.1 terawatt-hours (TWh) in the EV sector by 2030, and EVs are set to account for 40 percent of global auto sales by 2030 — an amount equal to 40 million EVs as well as an additional 20 million hybrids sold per annum. The average EV releases only 150 grams of greenhouse gas per mile (accounting for the power generation necessary to charge EVs), roughly 230 grams per mile less than the average conventional vehicle. This significant difference means replacing 40 million conventional vehicles with EVs will decrease greenhouse gas emissions by 395 billion pounds per annum — a critical step in achieving U.S. decarbonization goals.

Consumer Technology

The lightweight nature of lithium-ion batteries and their relatively long battery life and lifetime longevity make them ideal power sources for portable electronic devices such as laptops and digital watches. Lithium-ion batteries may also be found in cell phones, cameras, and tablets, as well as home appliances such as wireless vacuum cleaners; they are present in certain mobility products, such as scooters and hoverboards. The energy density and long lifetime of these batteries ensure that the electronics that rely on them are replaced far less often. Given their ubiquity, lithium-ion batteries will be essential to replacing internal combustion engines, not only in cars but also in boats, further reducing pollution and harm to the environment.

The high energy density of these batteries renders them far superior to previous battery technologies, such as nickel cadmium (NiCd) and nickel metal hydride, especially in contexts where a smaller battery may allow for adding more hardware to a device. Rather than include modules, many devices use individual cells, ranging from three for mobile phone batteries to six in laptop batteries. The LIB market is rapidly expanding, and its total value is projected to increase by 14.5 percent per year, from $4.9 billion as of 2022 to $18.8 billion as of 2032.

Trade and Domestic Manufacturing Challenges

Several trade and economy policy gaps are hindering LIB deployment, as well as the production of LIB-powered end uses — ultimately affecting the Biden administration’s stated goal of accelerating U.S. decarbonization. Altogether, these gaps reveal that policymakers have not adopted a unified approach to strengthen the technology’s supply chain. Instead, reshoring and de-risking policies are hindering progress, and existing permitting and infrastructure defects further exacerbate the issue.

Policymakers have not adopted a unified approach to strengthen the technology’s supply chain. Instead, reshoring and de-risking policies are hindering progress, and existing permitting and infrastructure defects further exacerbate the issue.

The chief issue with LIB production is not supply shortages; rather, global production capacity vastly outmatches demand. As the United States intensifies its initiatives to bring back the LIB supply chain within its borders, it is becoming apparent that demand shortages may pose significant challenges for nations aiming to develop their homegrown industry.

According to BloombergNEF, demand for lithium-ion batteries in EVs and stationary storage reached approximately 950 GWh last year. However, global manufacturing capacity exceeded this by more than double, reaching close to 2,600 GWh. China’s battery production in 2023 alone matched worldwide demand. The United States is not the sole player aiming to expand its slice of the global battery market through tax incentives and domestic content requirements. Canada is keeping pace with U.S. incentives, and European countries, India, and other regions are also providing subsidies to bolster their battery sectors. This indicates that the oversupply situation is poised to worsen before any signs of improvement emerge.

Barriers to Growing Demand

The United States must overcome significant foreign trade and domestic economic challenges related to increasing demand for LIB-powered goods. In the case of EVs, there is an evident alternative — internal combustion engines, which still present several advantages. Chief among these advantages is purchase cost. EVs are still more expensive than their gasoline-powered counterparts, primarily due to expensive battery technology. The large charge required to provide a minimum range for most owners requires a costly manufacturing process.

In addition, there are remaining issues with charger incompatibility that work to dampen consumer demand: the type of plug, power requirements, and app can all vary significantly, sometimes preventing EV owners from effectively using available infrastructure. Related to this problem is the relative lack of charging infrastructure. Today, most electric car and van charging relies on private chargers, mainly at the driver’s residence. Public and workplace charging stations are increasingly valuable for those living in multiple-unit habitations where charger availability could be limited. The stock of workplace chargers is expected to increase about eightfold by 2030 across the scenarios, while the number of public chargers is forecasted to increase around fivefold.

The 30D Tax Credit

The Inflation Reduction Act (IRA) 30D tax credit aims to address the potential demand shortages caused, in part, by the issues mentioned. The credit, which incentivizes consumers to acquire EVs by providing a tax break of up to $7,500, and the guardrails around it have become emblematic of the anchoring of the current U.S. climate approach in nearshoring and reshoring through industrial policy. To be eligible for the credit, vehicles must undergo final assembly in North America. In addition, to receive half of the credit ($3,750), at least half of the battery components must be manufactured or assembled in North America. That requirement increased to 60 percent in 2024 and will gradually increase to 100 percent by 2029. To qualify for the other half of the credit ($3,750), the battery must contain a certain percentage of critical minerals produced in the United States or a country with which the United States has a free trade agreement. That percentage requirement likewise increased to 50 percent in 2024 and will reach 80 percent by 2029.

The percentage-based content requirements required more detailed final rulemaking. After considering public feedback in response to the proposed rules, the U.S. Department of the Treasury released final guidance regarding taxpayer and vehicle eligibility for the new and previously owned clean vehicle credit, as well as critical minerals, battery components requirements, and Foreign Entity of Concern (FEOC) restrictions.

The rules are part of a compliance review process of critical mineral and battery input requirements, along with FEOC restrictions, which started in the summer of 2024. The Internal Revenue Service conducts the up-front review, assisted by the U.S. Department of Energy. In addition, the Department of the Treasury has announced a novel “Traced Qualifying Value Test,” which requires manufacturers to perform a thorough supply chain review to assess the value-added percentage for extraction, processing, and recycling, which will be key in determining the value of the qualifying critical minerals.

The FEOC restriction final rules make the accounting requirements for relevant critical minerals contained in a battery cell permanent, though they also note that some materials are untraceable. The guidance has generally remained the way it was originally proposed in late 2023: an EV containing battery components manufactured or assembled by an FEOC — defined as an entity that is “owned by, controlled by, or subject to the jurisdiction or direction of a government of a foreign country that is a covered nation” (China, Russia, Iran, or North Korea) — does not qualify. This definition includes entities that are “headquartered, incorporated or performing relevant activities in a covered nation, if 25 percent or more of its voting rights, board seats or equity interest are held by the government of a covered nation, or if the entity is effectively controlled by an FEOC through a license or contract with that FEOC.”

The credit’s strict requirements slash the number of EV models eligible for the tax incentives. In 2023, Stanford University’s Institute for Economic Policy Research determined that only 11 EV models qualified for the credit under the IRA. Even after the law’s provisions were modified in January 2023, the total number of eligible EVs remained constant at 11.

As the first report of this series notes, the leasing loophole — which presents a gap in the 30D tax credit’s friendshoring and household income requirements — has allowed consumption of EVs to continue to rise despite the IRA’s restrictive intent. Nevertheless, the guardrails around EV restrictions are undoubtedly curtailing their deployment, placing critical impediments on a key technology to achieve U.S. decarbonization goals. By curbing demand through limits around vehicle choices, guardrails around 30D prioritize de-risking from Chinese inputs and spurring domestic manufacturing over accelerating EV adoption.

In addition, the guardrails around the IRA tax credits — including 30D — may well violate U.S. commitments to multilateral trade rules. World Trade Organization (WTO) rules are designed to ensure a level playing field of competition in the global marketplace. The act’s use of local content requirements — which make tax credits for EV and battery manufacturing accessible to purchasers of cars only if significant portions of the items are obtained or manufactured within the United States or its free trade agreement allies — have the potential to distort the global green technology market. China has already notified the WTO of its intent to invoke the organization’s dispute settlement procedures regarding the impact of the IRA tax incentives; despite the country’s trade rules violations, it may prevail in this dispute.

Trade and Economic Challenges against Setting Up a Viable Domestic Landscape

U.S. prioritization of reshoring over friendshoring is unlikely to be effective, as the current domestic landscape is not favorable to rapid LIB deployment; it will therefore hinder the country’s ability to lessen dependence on China. In addition, because domestic conditions in the United States are not yet capable of adequately taking on a reshoring agenda, the U.S. green transition will likely be hobbled. As the United States imposes additional trade barriers to promote domestic production, it is increasingly oversaturating a homegrown market that cannot achieve decarbonization goals or significantly scale up manufacturing.

Trade Barriers

Gaps in U.S. trade policy also drive up the costs of LIB production and deployment in the United States, as well as the manufacturing and deployment costs of key LIB-powered products — worsening issues related to demand. In addition to lowering content requirements around state-led investments, the United States can improve access to this key decarbonization technology by pursuing free trade policies. The benefits of lower barriers in a broad swath of goods would support LIB production. For instance, the levying of high and broad tariffs on imports and exports has disrupted the chemical value chain and the industries that rely on it, including green technologies.

Gaps in U.S. trade policy also drive up the costs of LIB production and deployment in the United States, as well as the manufacturing and deployment costs of key LIB-powered products.

Current U.S. most-favored nation (MFN) rates for lithium-ion battery products still impose barriers on the ability to procure these goods. Primary cells and primary batteries, as well as their parts, still face a 2.7 percent rate. Likewise, the rate is approximately 4 percent for critical minerals and 5 percent for magnets. Trade agreements with allies which eliminate these MFN rates would enhance the ability of U.S. companies to acquire products from markets other than China at more competitive costs.

The most evident example of U.S. trade barriers negatively affecting the country’s access to LIB inputs is the imposition of tariffs on Chinese goods. In May 2024, the Biden administration announced a significant extension of tariffs on Chinese goods, including some affecting the LIB supply chain. As part of this review, tariffs will increase, particularly in industries such as clean technology, EVs, semiconductors, steel, and aluminum, which have been prioritized by President Biden’s industrial policy. For instance, Chinese EVs will now face a 100 percent tariff, while tariffs on solar cells and semiconductors will double to 50 percent. Additionally, certain steel, aluminum, battery, and medical glove products will see tariffs rise to 25 percent.

When the original 301 tariffs were implemented, the Office of the U.S. Trade Representative established a process that permitted private parties to seek exclusion from the tariffs for specific products. Each request underwent individual assessment. The agency outlined its criteria for decisionmaking, taking into account (1) the product’s availability from non-Chinese suppliers, (2) efforts made by importers to procure the product domestically or from other nations, (3) the potential significant economic impact on the importer or other U.S. interests due to Section 301 tariffs imposition on the specific product, and (4) the strategic significance of the product in initiatives such as Made in China 2025 or similar Chinese industrial programs. The exemption process provides a potential road map to reduce the additional costs these tariffs may impose on supporting LIB and LIB end-use development in the United States.

U.S. barriers encapsulate the inherent contradiction of imposing additional restrictions on trade with China, which include several goods key to enabling the green transition, while enacting policies to accelerate decarbonization. The new tariffs broadly do not affect products currently being imported in large quantities — in part, due to previous tariffs. However, they further undercut the United States’ ability to use China’s comparative advantages in producing green technologies and reduce the chances of both nations cooperating to address climate issues. In addition, China’s inevitable retaliation to the tariffs may cause further supply chain disruptions; China may, for instance, cut off supplies of key minerals, harass Western companies operating in China, or impose retaliatory tariffs that burden U.S. exporters in critical sectors

In short, such barriers hinder the effectiveness of the United States’ efforts to switch to renewables through reshoring capabilities and diversifying away from China. The latest imposition of tariffs reinforces this dynamic. The tariffs also encapsulate the misalignment of U.S. decarbonization policies: they were imposed just as the U.S. Department of the Treasury released final rules on the clean vehicle provisions of the IRA which provide additional flexibility in minerals and battery sourcing. The two developments, at odds with each other, show the Biden administration’s inability to adopt a unified in approach in spurring the green transition.

Identifying Friendshoring Partners

Identifying friendshoring partners — instead of simply supporting onshoring policies — should be a critical part of the U.S. drive to secure the lithium-ion supply chain. These partners will help the country more efficiently acquire the inputs it needs to strengthen its domestic manufacturing capabilities while diversifying away from China’s dominance.

• Japan: A handful of major battery makers exist in Japan, including Panasonic, Mitsubishi, and Toshiba. Additionally, Japanese companies such as Asahi Kasei, Toray Industries, and Sumitomo Metal Mining lead in the manufacturing of separators and positive electrode materials. In mid-2022, Japan’s Ministry of Economy, Trade and Industry revealed an industrial strategy aiming to boost the capacity of Japanese manufacturers to 600 GWh globally by 2030, equivalent to 14.4 million units of standard EV batteries, and to achieve a domestic production capacity of EV and energy storage batteries of 150 GWh by 2030.

• South Korea: South Korean battery manufacturers currently hold 37 percent of the market share, with companies such as LG Chemicals, SK, and Samsung leading the charge, placing the country in a formidable position to enhance the diversification of battery supply chains. Seoul has long been proactive in implementing targeted industrial policies for the battery sector. Under the leadership of President Yoon Suk Yeol, ambitious targets have been set for the battery industry, aiming to capture 40 percent of the global market share by 2030. To support this goal, the Yoon administration plans to expand investment tax credits — increasing them from 8 percent to 15 percent for large companies and from 16 percent to 25 percent for small and medium-sized enterprises — while also broadening the scope of credits to include mineral processing. These measures, initially set to expire in 2024, have been extended until 2025.

• European Union: European LIB manufacturers are striving to localize production and adhere to EU regulations while safeguarding their supply chains against geopolitical disruptions. The region aims to establish approximately 50 gigafactories within the next decade to bolster its battery supply chain and meet production targets. Momentum is building in Europe, with several prototype and full-scale battery plants underway. The Volkswagen Group’s battery division, PowerCo, is constructing two gigafactories in Salzgitter, Germany, and near Valencia, Spain. Automotive Cells Company (ACC), backed by Stellantis, Mercedes-Benz, and TotalEnergies, has inaugurated the first of three planned European battery gigafactories in Douvrin, France. Initially, this gigafactory boasts a production line capacity of 13 gigawatt-hours (GWh), set to increase to 40 GWh by 2030. With the capability to manufacture 56,000 battery cells per day, or over 2.4 million battery modules annually, it will support the production of 200,000 to 300,000 EVs each year.

• United Kingdom: In late November 2023, the UK Department for Business and Trade revealed the country’s battery strategy alongside its Advanced Manufacturing Plan. The strategy entails a governmental pledge of over $2.5 billion in capital and research and development (R&D) investment. This funding aims to bolster the manufacturing and advancement of zero-emission vehicles, batteries, and associated supply chains until 2030. To attain this goal, the UK battery strategy adopts a threefold approach. The initial component aims to enhance the nation’s R&D capabilities by creating batteries superior to current models. To achieve this, the strategy fosters innovation, provides financial support for scaling up, and establishes safety and product standards. The second aspect involves fortifying the battery supply chain, including endeavors such as accessing new markets, expediting energy grid connections, and revising planning and permitting procedures. Lastly, the strategy aims to sustain the sector by pinpointing necessary skills, minimizing trade obstacles, and channeling investments into a circular economy.

These are just four examples of potential partners with which the United States could more closely collaborate to friendshore the lithium-ion supply chain. In some countries, such as the South Korea, the dominant landscape and new industrial plan make the nation a reliable partner for a significant portion of the supply chain. In other instances, the United States could identify the comparative advantages of prospective partners. For instance, the United Kingdom has a competitive R&D landscape, which recent investments will bolster. Southeast Asia is expected to be an important hub for electric two-wheeled vehicles — in addition to its significant critical minerals processing and refining capabilities. In any case, collaborating with these nations, instead of relying on the currently inadequate U.S. domestic landscape, will be critical to strengthening the LIB supply chain.

Inadequate Chemistry Permitting Process

Several chemistry changes could improve the energy density of lithium-ion batteries, especially with regard to anodes. For instance, silicon could be used to replace all or some of the graphite to make the battery lighter and enhance its energy density, mitigating two key issues with LIB deployment as well as U.S. exposure to China’s dominance over global graphite production, which China could leverage in an escalation of trade tensions. Furthermore, additional LIB battery chemistry choices would present several advantages. First, critical mineral prices can have an impact on the chemistry choice. Given price volatility, a greater range of battery chemistry choices would enhance the market’s competitiveness and protect it against unforeseen shocks. Issues with critical mineral supplies could stem from black swan events unrelated to geopolitics, such as a natural disaster. However, given China’s hold over minerals and materials processing and refining — as well as the willingness of the government under President Xi Jinping to leverage export curbs to serve China’s foreign policy interests — expanding battery chemistry choices would also shield U.S. manufacturers and consumers from overdependence on Chinese inputs.

In short, novel chemistry technologies must be brought swiftly to the market to be competitive. In addition, given current U.S. nearshoring and onshoring goals, it would be in the United States’ interests to foster a regulatory landscape that encourages additional diverse domestic chemistry manufacturing capabilities. However, current barriers concerning the review of new chemicals for commercial uses do not allow for timely deployment. In some cases, backlogs can result in unexplained regulatory approval delays of two to three years.

The U.S. Government Accountability Office (GAO) conducted a study on permitting processes for clean technology deployment. When significant delays occurred, the GAO found the primary causes were usually insufficient funds and staff at permitting agencies. Addressing issues and delays in permitting requires retaining and expanding agency expertise and staffing in permitting and environmental review, providing clarity and guidance on necessary steps and information submissions during the permitting process, and enhancing interagency coordination and cooperation. However, setting up these additional capabilities may take time. U.S. permitting agencies may be better served by first setting up a fast-track process for permitting requests concerning green technologies.

Alternative Lithium-Ion Battery Technologies

While the world heavily relies on lithium-ion batteries as a source of energy for EVs, consumer appliances, and emergency backup systems, alternatives to this technology exist. These alternatives, when fully developed, could help the United States diversify its green energy portfolio and deliver performance and safety advantages to lithium-ion technology.

• Sodium-ion batteries: Probably the most promising of these novel battery types is sodium-ion batteries. As their name suggests, these batteries rely on sodium rather than lithium as the core ingredient for the electrolyte solution and the cathode. Extraction of the core ingredients in these batteries is very cost competitive, as sodium is roughly 1,000 times more prevalent in the Earth’s crust than lithium. In addition, these batteries use low-cost materials for cathodes, such as aluminum rather than copper foil. Advocates of a transition to sodium-ion batteries also argue that they are safer to transport, as they can be discharged to zero volts in transit, mitigating the risk of flammability.

  However, critics point to the fact that sodium-ion batteries currently have an energy range of only 140–160 watt-hours per kilogram (wh/kg) — far lower than the energy range of lithium-ion batteries (150–220 wh/kg). A vehicle running on current sodium-ion battery technology would therefore have to be charged far more often than a lithium battery, limiting the marketability of this technology. Sodium-ion batteries are also limited in terms of battery life: they last only 5,000 charging cycles, while the average lithium battery can bear 8,000–10,000 charging cycles. Nevertheless, these batteries could serve as a source of power for fleets of cheap EVs that operate over short-to-medium distances. Perceiving this opportunity, Chinese firm Jiangling Motors Group (JMG) recently released the first generation of electric cars powered by sodium-ion batteries in January 2024. These vehicles cost just $8,000 and are roughly 10 percent cheaper than the lithium-powered cars JMG sells. In short, sodium-ion batteries remain a strong contender, especially in the energy storage sector.

• Lithium-sulfur batteries: Lithium-sulfur batteries use sulfur in the cathode and lithium in the anode. Extraction of core material for these batteries is less resource-intensive and relatively sustainable compared to lithium-ion batteries since sulfur is a by-product of natural gas processing and oil refining. While these batteries have nine times the energy density of lithium-ion batteries, they suffer from poor chargeability and face functionality issues after only 50 charging cycles. Still, businesses are hoping to commercialize the technology. In 2020, for instance, LG Energy Solutions piloted a drone that used the battery, and the company now aims to mass produce these batteries by 2027.

• Solid-state batteries: Solid-state batteries rely on solid rather than liquid or aqueous electrolytes, common in traditional batteries. Two prevalent types of solid electrolytes are inorganic solid electrolytes, which use oxides and sulfides, and solid polymers, which use polymer salts. Solid-state batteries have a lower risk of battery failure than lithium-ion batteries. They are also more energy dense and have a faster charging cycle. However, they are more expensive to produce than lithium- or sodium-ion batteries. Due to high manufacturing costs, these batteries are used only in wearable electronics and home security devices. Nonetheless, researchers at Colorado-based Solid Power have designed sulfide electrolyte batteries that have twice the energy density of lithium-ion batteries. The firm aims to power 800,000 EVs per year with this technology by 2028.

A number of alternative chemistries are available to complement lithium-ion batteries in the push toward deploying renewable energy. Liquid metal and zinc-ion batteries also present attractive alternatives. As long as the shift toward electrification, the energy transition, and other battery-dependent markets continues to drive the need for energy storage, emerging technologies capable of alleviating the strains on associated material supply chains can provide invaluable benefits. This necessity becomes particularly pronounced as the spectrum of scenarios requiring energy storage expands within a swiftly electrifying energy landscape. The increasing diversity of applications presents an opportunity to investigate how novel technological solutions can effectively broaden or diminish mineral inputs to mitigate supply risks. In doing so, advancements in battery technology may also enhance performance and reduce costs compared to the dominant lithium-ion batteries currently available in the market.

Inadequate Grid Capacity

Since the enactment of the IRA, energy specialists have advocated for regulatory adjustments to address grid issues. These adjustments include expediting permits for transmission line installation and facilitating the connection of new power plants to the grid. A report from Princeton University in 2022 revealed that over 80 percent of the IRA’s emissions reduction goals could be jeopardized if the expansion of transmission infrastructure does not accelerate beyond the current annual rate of approximately 1 percent.

For decades, the grid has suffered from underinvestment, making it challenging to authorize improvements that would place greater burdens on the grid. Concurrently, demand for electricity is escalating at a rate surpassing initial projections. A growing number of sectors and goods, such as smart appliances, data centers, and EVs, will require additional U.S. capacity.

The North American Electric Reliability Corporation (NERC) assessed during a December 2023 webcast that U.S. power grids are anticipated to confront heightened vulnerability in the forthcoming years. This vulnerability arises from the dual factors of escalating peak demand and the retirement of aging generators. NERC depicted a problematic outlook for certain power markets in the United States, foreseeing capacity shortages due to the accelerated growth in demand propelled by widespread electrification, outpacing the pace of new generation capacity additions and the retirement of outdated facilities.

Deployment of lithium-ion batteries will require a nationwide infrastructure that can withstand rapid electrification. Yet assessments of current U.S. grid capabilities show the grid is vastly unprepared to accommodate a broad switch to LIB-powered goods.

Conclusion

The production of lithium-ion batteries and deployment of end uses face several challenges. The United States is currently prioritizing reshoring lithium-ion production capabilities over the green transition. This will slow down the country’s shift to renewables and hinder the United States’ ability to meet multilateral commitments. If the Biden administration wants to rectify this, a whole-of-government policy should be enacted. For starters, the United States should undertake the following:

1. Prioritize trade agreements to enable the green transition. To accelerate LIB deployment, the Biden administration should focus on taking down barriers to trade on inputs for lithium-ion batteries, as well as the batteries themselves, between the United States and its allies. Eliminating MFN tariffs on goods related to lithium-ion batteries should be a high-priority item for nations with long-term environmental ambitions. One way to achieve that would be for the Biden administration to initiate negotiations for a non-MFN plurilateral specifically focused on batteries and their inputs.

2. Reconsider barriers limiting the import of green technologies and their inputs. High and broad tariffs on imports and exports have disrupted the LIB supply chain and the industries that rely on it — including green technologies. The Office of the U.S. Trade Representative should take green transition priorities into account when it considers exemptions to tariffs, including the Section 301 tariffs on a broad swath of Chinese goods. For instance, the items critical to LIB manufacturing could be granted exemptions to support decarbonization efforts.

3. Establish an effective fast-track process for permitting the production of key green transition technologies. An efficient Environemntal Protection Agency permitting process is critical to supporting the production and commercialization of green technologies. Current backlogs are hindering long-term U.S. environmental goals. Projects to produce items key to the green transition such as lithium-ion batteries — or inputs to these goods, such as developing alternative chemistries — should be placed on a fast-track permitting process.

4. Design future climate and infrastructure investments to renew funding for grid improvements. The grid faces capacity shortages as demand surges, outpacing the rate of new generation capacity additions and the retirement of obsolete facilities. Past underinvestment has made authorizing improvements difficult. Simultaneously, electricity demand is escalating beyond initial forecasts, primarily driven by the proliferation of data centers and the expanding electrification of various economic sectors.

The Biden administration’s conflation of reshoring and de-risking objectives with the green transition has limited the country’s ability to decarbonize. The clean vehicle tax credit, for instance, hinders the act’s potential to spur demand for EVs by curbing critical minerals sourcing and final assembly options. In turn, shutting down economic partners’ opportunities to contribute to the U.S. decarbonization process harms the U.S. goal of strengthening critical supply chains through diversification. Moreover, embedding national security considerations in U.S. state-led investments further limits manufacturers of key goods such as lithium-ion batteries, given China’s dominance over green technology supply chains.

These contradictions are present at every level of the LIB supply chain, as outlined by the first two papers in this project. At the upstream end, U.S. failure to negotiate additional critical minerals agreements has hindered manufacturers’ ability to source eligible minerals and has exacerbated bitterness over IRA local content requirements, as discussed in the first two papers. Further along the supply chain, U.S. efforts to reshore cathode and anode active battery materials production have already run into debilitating workforce shortages. On the downstream end, tax incentives to spur demand for EVs — a key LIB end use — are also proving too restrictive to qualify a sufficient number of existing cars.

In addition, policies based on reshoring are set to encounter shortcomings in the U.S. economy’s capabilities, which is already true when it comes to LIB manufacturing. For instance, the government’s permitting process and the nation’s electric grid infrastructure are overwhelmed. A readjustment of trade policies that favors fostering robust relationships with economic allies over reshoring, gradual de-risking policies over hasty decoupling, and state-led investments without geographic requirements, which may violate multilateral trade rules, will help usher in a carbon-neutral economy.

William Reinsch holds the Scholl Chair in International Business at the Center for Strategic and International Studies (CSIS).

Meredith Broadbent serves as a senior adviser (non-resident) with the Scholl Chair in International Business at CSIS.

Thibault Denamiel is an associate fellow with the Scholl Chair in International Business at CSIS.

Elias Shammas is a research intern with the Scholl Chair in International Business at CSIS.