A Chance to Revive and Decarbonize American Manufacturing

After decades of complacency, America’s leaders now recognize the importance of securing domestic supply chains for our nation’s crucial energy and transportation needs.  The recently signed Inflation Reduction Act (IRA) included aggressive sourcing requirements to accelerate domestic production of critical minerals and other electrical vehicle battery components. 

Less heralded, the bill also provided new incentives for U.S. companies to invest in domestic production of strategic industrial materials like steel, iron, and aluminum.  These are not only essential to making automobiles, but to nearly every function of modern life – from aircraft and ships to buildings to the electric grid to packaging and more.   

Because of its lighter weight, aluminum plays a particularly important role in transportation. Increasing the aluminum content in automobiles has enabled major increases in average fuel efficiency. This material is especially important to electric vehicles -- on average requiring 30 percent more aluminum than traditional automobiles -- because of the added range it provides battery powered engines.  Correspondingly, the projected mass adoption of electric vehicles going forward will require significantly more primary aluminum production overall.

But where is all this aluminum coming from? China produces more than 60% of the world’s aluminum, primarily through coal fired electricity.  The world’s leading producer of aluminum using carbon-free, hydro-powered energy is Russia. As with the Middle East for oil, the U.S. is at risk of depending upon unreliable and potentially hostile nations for strategic industrial materials.

The number of aluminum smelters in the U.S. has long been in decline for reasons ranging from energy deregulations to Chinese “dumping” practices.  There were more than 30 smelters in the US in 1985; today, there are six.  The IRA is a step towards reversing this trend by providing opportunities for struggling aluminum smelters to stay open, and for idled plants to come back online. 

And not a moment too soon. Last month, skyrocketing energy costs forced Century Aluminum’s Hawesville, Kentucky plant to curtail production for nine to twelve months.  Beyond the loss of more than 600 manufacturing jobs during that period, Hawesville is the only U.S. smelter that makes the high purity aluminum used in the defense and aerospace industries.  This leaves the Department of Defense almost completely reliant on foreign sources. 

Earlier, in July, the Alcoa facility in Warrick, Indiana curtailed one of its three operational smelting lines.  This represented a loss of 54,000 metric tons per year, and a significant blow to the nation’s already-meager production level. It’s also a big carbon emitter, as the facility is completely coal-powered.

Provisions of the new IRA law are designed to preserve and expand domestic aluminum capacity by procuring dependable and low-cost energy for smelters like Hawesville and Warrick.  The Defense Production Act can now be used to buy-down the cost of electricity which, at 40 percent of total production costs, represents the biggest hurdle for the power intensive aluminum industry to operate within the U.S.  

Importantly, new resources are also being made available to ensure this American-made aluminum is manufactured more cleanly than before. With the establishment of the Advanced Industrial Facilities Deployment Program, the Department of Energy will have the discretion to allocate $5.8 billion in grants, loans and rebates to heavy industry manufacturers to adopt emissions-abating technologies. Companies could choose from an array of technologies and processes to reduce their carbon intensity, including carbon capture installations, energy efficiency upgrades, and green hydrogen.  

Industrial facilities that achieve at least 20% emissions reductions under the Advanced Manufacturing Production Credit would be eligible to receive a tax credit from the $6 billion pot created by the IRA. Also, the legislation will provide $5.5 billion to federal agencies to procure low carbon building and transportation materials to ensure the economic viability of industrial facilities investing in cleaner technologies. 

There is a strong case for the Department of Energy and IRS to make aluminum a priority for IRA-generated resources.  For the Warrick plant alone, these new incentives provide opportunities to clean up production and reduce emissions.  At the same time, Defense Production Act funding for electricity could sustain Warrick’s two remaining smelting lines and potentially reopen the third.    

In all, we now have a historic opportunity to transition what was a dwindling U.S. industry associated with emissions pollution into a growing economic sector – one that advances the de-carbonization agenda, sustains thousands of manufacturing jobs, and enhances America’s national and economic security.  As our government moves into the implementation phase of the IRA, it is an opportunity we cannot afford to miss. 

Admiral Dennis Blair is a former Director of National Intelligence and Chairman of SAFE, an energy security organization. 

Joe Quinn is Director of the SAFE Center for Strategic Industrial Materials.