The game in the US Congress over key provisions of the Inflation Reduction Act is causing a shake up in the aluminum industry. On June 30th, the Aluminum Industry Association, together with several companies, submitted an urgent petition to Congress warning that if the 45X advanced manufacturing tax credit policy is implemented according to the revised Senate plan, the US aluminum supply chain will face an “irreversible strategic contraction”.

As the only remaining “policy lifeline” for the domestic aluminum industry in the United States, the current 45X provision provides a tax credit equivalent to 10% of production costs for four major in production smelters, including Alcoa and Century Aluminum. According to the company’s financial report, in 2023, Alcoa received a subsidy of $58 million, and Century Aluminum also received $23 million, directly covering 15% -20% of its electricity costs. Industry calculations show that the annual electricity consumption of a single newly-built smelter can reach up to 6 billion kilowatt hours, equivalent to the annual electricity consumption of Boston, and electricity costs account for more than 40% of the total cost of aluminum smelting.

The policy adjustment plan presents a divide between the two houses: the House of Representatives passed a version in May calling for the complete termination of subsidies by 2030, while the Senate extended the exit date to 2034 and set up a phased withdrawal mechanism. However, the Aluminum Association bluntly stated that it is still not enough to cover the 4-6 year construction cycle and the initial investment risk of 4-6 billion US dollars. Association President Charles Johnson presented data at the hearing: from the closure of 23 smelters in 2000 to only 4 in operation, if existing production capacity loses subsidy support, it may be further reduced by 30% by 2030.

Behind the strategic game lies the struggle for the security of the key mineral supply chain. Sara Miller, the strategic director of Alcoa, pointed out that the essence of the 45X policy is to “use tax leverage to hedge the cost advantage of China Aluminum’s 45% global production capacity”. If the policy is reversed, the self-sufficiency rate of US primary aluminum will fall below the 40% warning line from the current 62%. It is worth noting that the Senate amendment adds a “carbon intensity linkage” clause, requiring subsidized enterprises to achieve a 35% reduction in carbon emissions per unit product by 2030, which sets a hard threshold for industry transformation.

With Congress setting July 4th as the final voting deadline, the aluminum industry lobbying has entered a sprint phase. The industry proposes to establish a “dynamic subsidy mechanism” that links the credit amount to the strategic reserve of aluminum ingots, and suggests including electrolytic aluminum in the list of key materials under the National Defense Production Law. The outcome of this policy game may determine whether the United States can achieve the goal of the “Local Aluminum Revitalization Plan” by 2035.