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By Ho-Yin Mak, Georgetown University; Christopher S. Tang, University of California, Los Angeles, and Tinglong Dai, Johns Hopkins University 

Two electrifying moves in recent weeks have the potential to ignite electric vehicle demand in the United States. First, Congress passed the Inflation Reduction Act, expanding federal tax rebates for EV purchases. Then California approved rules to ban the sale of new gasoline-powered cars by 2035.

The Inflation Reduction Act extends the Obama-era EV tax credit of up to US$7,500. But it includes some high hurdles. Its country-of-origin rules require that EVs – and an increasing percentage of their components and critical minerals – be sourced from the U.S. or countries that have free-trade agreements with the U.S. The law expressly forbids tax credits for vehicles with any components or critical minerals sourced from a “foreign entity of concern,” such as China or Russia.

That’s not so simple when China controls 60% of the world’s lithium mining, 77% of battery cell capacity and 60% of battery component manufacturing. Many American EV makers, including Tesla, rely heavily on battery materials from China.

The U.S. needs a national strategy to build an EV ecosystem if it hopes to catch up. As experts in supply chain management, we have some ideas.

Why the EV industry depends heavily on China

How did the U.S. fall so far behind?

Back in 2009, the Obama administration pledged $2.4 billion to support the country’s fledgling EV industry. But demand grew slowly, and battery manufacturers such as A123 Systems and Ener1 failed to scale up their production. Both succumbed to financial pressure and were acquired by Chinese and Russian investors.

China took the lead in the EV market through an aggressive mix of carrots and sticks. Its consumer subsidies raised demand at home, and Beijing and other major cities set licensing quotas mandating a minimum share of EV sales.

China also established a world-dominating battery supply chain by securing overseas mineral supplies and heavily subsidizing its battery manufacturers.

Today, the U.S. domestic EV supply chain is far from adequate to meet its goals. The new U.S. tax credits are designed to help turn that around, but building a resilient EV supply chain will inevitably entail competing with China for limited resources.

A comprehensive national strategy entails measures for the short, medium and long term.

Short-term: What can be done now?

Six of the 10 best-selling EV models in 2022 are already assembled in the U.S., fulfilling the Inflation Reduction Act’s final assembly location clause. The Hyundai-Kia alliance, which has three of the other four bestsellers, plans to open an EV assembly line in Georgia. Volkswagen has also started assembling its ID.4 electric SUV in Tennessee.

The challenge is batteries. Besides the Tesla-Panasonic factories in Nevada and planned in Kansas, U.S.-based battery manufacturers trail their Chinese counterparts in both size and growth.

For the U.S. to scale up its own production, it needs to rely on strategic partners overseas. The Inflation Reduction Act allows imports of critical minerals from countries with free trade agreements to still qualify for incentives, but not imports of battery components. This means overseas suppliers like Korea’s “Big Three” – LG Chem, SK Innovation and Samsung SDI – which supply 26% of the world’s EV batteries, are shut out, even though the U.S. and Korea have a free trade agreement.

The Korea Automobile Manufacturers Association has asked Congress to make an exception for Korean-made EVs and batteries.

In the spirit of “friend-shoring,” the Biden administration could think of a temporary waiver as a stopgap measure that makes it easier for Korean battery makers to move more of their supply chain to the U.S., such as LG’s planned battery plants in partnerships with GM and Honda.

The 2021 Infrastructure Act also provided $5 billion to expand charging infrastructure, which surveys show is critical to bolstering demand.

Medium-term: Diversifying lithium and cobalt supplies

A strong and concerted effort in trade and diplomacy is necessary for the U.S. to secure critical mineral supplies.

As EV sales rise, the world is expected to face a lithium shortage by 2025. In addition to lithium, cobalt is needed for high-performance battery chemistries.

The problem? The Democratic Republic of the Congo is where 70% of the world’s cobalt is mined, and Chinese companies control 80% of that. The distant second-largest producer is Russia.

The Biden administration’s “friend-shoring” vision has a chance only if it can diversify the lithium and cobalt supply chains.

The “Lithium Triangle” of South America is one region to invest in. Also, Australia, a key U.S. ally, leads the world in lithium production and possesses rich cobalt deposits. Waste from many of Australia’s copper mines also contains cobalt, lowering the cost. GM has reached an agreement with the Australian mining giant Glencore to mine and process cobalt in Western Australia for its Ohio battery plant with LG Chem, bypassing China.

A way to avoid cobalt altogether also exists: lithium-iron-phosphate batteries are about 30% cheaper to make because they use minerals that are easy to find and plentiful. However, LFP batteries are heavier and have less power and range per unit.

For years, Chinese companies like CATL and BYD were the only ones making LFP batteries. But the patent rights associated with LFP batteries expire this year, opening up an important opportunity for the U.S.

Since not everyone needs a high-end electric supercar, affordable EVs powered by LFP batteries are an option. In fact, Tesla now offers Model 3s with LFP batteries that can travel about 270 miles on a charge.

The 2021 Bipartisan Infrastructure Law set aside $3.16 billion to support domestic battery supply chains. With the Inflation Reduction Act’s emphasis on supporting more affordable EVs – it has price caps for vehicles to qualify for incentives – these funds will be needed to help scale up domestic LFP manufacturing.

Long-term: US critical mineral production

Replacing overseas critical materials with domestic mining falls under long-term planning.

The scale of current domestic mining is minuscule, and new mining operations can take seven to 10 years to establish because of the lengthy permitting process. Lithium deposits exist in California, Maine, Nevada and North Carolina, and there are cobalt resources in Minnesota and Idaho.

Finally, to build an industrial commons for EVs, the U.S. must continue to invest in research and development of new battery technologies.

Also, end-of-life battery recycling is essential to the sustainability of EVs. The industry has been kicking the can down the road on this, as recycling demand has been minuscule thus far given the longevity of batteries. Yet, as a proactive step, the Inflation Reduction Act specifically permits battery content recycled in North America to qualify for the critical mineral clause.

To make this happen, the federal and state governments could use takeback legislation similar to producer responsibility laws for electronic waste enacted in more than 20 states, which stipulate that producers bear the responsibility for collecting, transporting and recycling end-of-cycle electronic products.

What’s ahead

With the new law, the Biden administration has set its sights on a future transportation system that is built in the U.S. and runs on electricity. But there are supply chain obstacles, and the U.S. will need both incentives and regulations to make it happen.

California’s announcement will help. Under the Clean Air Act, California has a waiver that allows it to set policies more strict than federal law. Other states can choose to follow California’s policies. Seventeen other states have adopted California’s emissions standards. At least three, New York, Washington and Massachusetts, have already announced plans to also phase out new gas-powered cars and light trucks by 2035.

About the Author:

Ho-Yin Mak, Associate Professor in Operations & Information Management, Georgetown University; Christopher S. Tang, Professor of Supply Chain Management, University of California, Los Angeles, and Tinglong Dai, Professor of Operations Management & Business Analytics, Carey Business School, Johns Hopkins University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

By Jasmina Burek, UMass Lowell 

Energy efficiency can save homeowners and renters hundreds of dollars a year, and the new Inflation Reduction Act includes a wealth of home improvement rebates and tax incentives to help Americans secure those saving.

It extends tax credits for installing energy-efficient windows, doors, insulation, water heaters, furnaces, air conditioners or heat pumps, as well as for home energy audits. It also offers rebates for low- and moderate-income households’ efficiency improvements, up to US$14,000 per home.

Together, these incentives aim to cut energy costs for consumers who use them by $500 to $1,000 per year and reduce the nation’s climate-warming greenhouse gas emissions.

With so many options, what are the most cost-effective moves homeowners and renters can make?

My lab at UMass Lowell works on ways to improve sustainability in buildings and homes by finding cost-effective design solutions to decrease their energy demand and carbon footprint. There are two key ways to cut energy use: energy-efficient upgrades and behavior change. Each has clear winners.

Stop the leaks

The biggest payoff for both saving money and reducing emissions is weatherizing the home to stop leaks. Losing cool air in summer and warm air in winter means heating and cooling systems run more, and they’re among the most energy-intensive systems in a home.

Gaps along the baseboard where the wall meets the floor and at windows, doors, pipes, fireplace dampers and electrical outlets are all prime spots for drafts. Fixing those leaks can cut a home’s entire energy use by about 6%, on average, by our estimates. And it’s cheap, since those fixes mostly involve caulk and weather stripping.

The Inflation Reduction Act offers homeowners a hand. It includes a $150 rebate to help pay for a home energy audit that can locate leaks.

While a professional audit can help, it isn’t essential – the Department of Energy website offers guidance for doing your own inspection.

Once you find the leaks, the act includes 30% tax credits with a maximum of $1,200 a year for basic weatherization work, plus rebates up to $1,600 for low- and moderate-income homeowners earning less than 150% of the local median.

Replace windows

Replacing windows is more expensive upfront but can save a lot of money on energy costs. Leaky windows and doors are responsible for 25% to 30% of residential heating and cooling costs, according to Department of Energy estimates.

Insulation can also reduce energy loss. But with the exception of older homes with poor insulation and homes facing extreme temperatures, it generally doesn’t have as high of a payoff in whole-house energy savings as weatherization or window replacement.

The Inflation Reduction Act includes up to $600 to help pay for window replacement and $250 to replace an exterior door.

Upgrade appliances, especially HVAC and dryers

Buildings cumulatively are responsible for about 40% of U.S. energy consumption and associated greenhouse gas emissions, and a significant share of that is in homes. Heating is typically the main energy use.

Among appliances, upgrading air conditioners and clothes dryers results in the largest environmental and cost benefits; however, HVAC systems – heating, ventilation and air conditioning – come with some of the highest upfront costs.

That includes energy-efficient electric heat pumps, which both heat and cool a home. The Inflation Reduction Act offers a 30% tax credit up to $2,000 available to anyone who purchases and installs a heat pump, in addition to rebates of up to $8,000 for low- and moderate-income households earning less than 150% of the local median income. Some high-efficiency wood-burning stoves also qualify.

The act also provides rebates for low- and moderate-income households for electric stoves of up to $840, heat-pump water heaters of up to $1,750 and heat-pump clothes dryers of up to $840.

Change your behavior in a few easy steps

You can also make a pretty big difference without federal incentives by changing your habits. My dad was energy-efficient before it was hip. His “hobby” was to turn off the lights. This action itself has been among the most cost-saving behavioral changes.

Just turning out the lights for an hour a day can save a home up to $65 per year. Replacing old lightbulbs with LED lighting also cuts energy use. They’re more expensive, but they save money on energy costs.

We found that a homeowner could save $265 per year and reduce emissions even more by adopting a few behavioral changes including unplugging appliances not being used, line-drying clothes, lowering the water heater temperature, setting the thermostat 1 degree warmer at night in summer or 1 degree cooler in winter, turning off lights for an hour a day, and going tech-free for an hour a day.

Some appliances are energy vampires – they draw electricity when plugged in even if you’re not using them. One study in Northern California found that plugged-in devices, such as TVs, cable boxes, computers and smart appliances, that weren’t being used were responsible for as much as 23% of electricity consumption in homes.

Start with a passive solar home

If you’re looking for a home to rent or buy, or even to build, you can make an even bigger difference by looking at how it’s built and powered.

Passive solar homes take advantage of local climate and site conditions, such as having lots of south-facing windows to capture solar energy during cool months to reduce home energy use as much as possible. Then they meet the remaining energy demand with on-site solar energy.

Studies show that for homeowners in cold climates, building a passive design home could cut their energy cost by 14% compared with an average home. That’s before taking solar panels into account.

The Inflation Reduction Act offers a 30% tax credit for rooftop solar and geothermal heating, plus accompanying battery storage, as well as incentives for community solar – larger solar systems owned by several homeowners. It also includes a $5,000 tax credit for developers to build homes to the Energy Department’s Zero Energy Ready Homes standard.

The entire energy and climate package – including incentives for utility-scale renewable energy, carbon capture and electric vehicles – could have a big impact for homeowners’ energy costs and the climate. According to several estimates, it has the potential to reduce U.S. carbon emissions by about 40% by the end of this decade.

About the Author:

Jasmina Burek, Assistant Professor of Engineering, UMass Lowell

This article is republished from The Conversation under a Creative Commons license. Read the original article.