The Department of Defense announced on Monday morning a $37.5 million grant for Graphite One Inc., a start-up developing North America’s largest deposit of the material. Back in March 2022, with Russia’s then-recent invasion of Ukraine amping up the geopolitical mood music, Biden issued a presidential determination that domestic mining of minerals for making large-capacity batteries is “essential to the national defense.” Under Title III of the Korean War-era Defense Production Act, the federal government can advance loans, grants or contracts to spur industries deemed critical to national security, with the definition of the latter having expanded a lot since the 1950s.
Graphite — one of five minerals named in Biden’s announcement — is the single biggest ingredient by weight in the batteries that go into electric vehicles and the power grid, far ahead of lithium. (Graphite also happens to be used in a variety of defense applications, including jet engine components, rocket nozzles and, in a grim coincidence, a type of bomb that knocks out power grids).
Despite its importance, the US produces no graphite and hasn’t since around the time the Defense Production Act was passed. Even if it were mined domestically, China dominates the processing capacity to produce battery-grade graphite. Indeed, it is tough to think of any other critical mineral where the US, and much of the world, is so wholly dependent on China for supply (see this). Eight years ago, former Republican Senator James Inhofe of Oklahoma tossed a snowball on the chamber’s floor to display his contempt for the notion of climate change. Last week, Republican Senator Lisa Murkowski brandished a lump of Alaskan graphite to make the case for addressing climate change with domestic, rather than Chinese, resources.
After the Democratic Party secured Congress with a razor-thin majority, the White House advanced its green industrial policy on twin tracks, with heavy reliance on executive powers alongside eventually passing climate legislation, chiefly in the form of the Inflation Reduction Act.
Graphite One is currently conducting a feasibility study at the Graphite Creek deposit on the Seward Peninsula in western Alaska. It plans to eventually mine it and ship the ore to a proposed facility in Washington state for refining into anode-ready graphite, alongside a recycling plant. The latter is crucial, both in order to keep the supply chain fully within the US and to take advantage of Washington’s vast hydropower resources, reducing the graphite’s carbon intensity (which is, after all, the point here). The grant is intended to help cut the time needed for the feasibility study almost in half, to 15 months (the rigors of operating in sub-Arctic Alaska add time to everything).Title III grants, alongside loans from the Department of Energy, such as the recent one to a Ford Motor Co. battery joint-venture, act effectively as a very relaxed form of venture capital for nascent parts of the domestic cleantech supply chain. One condition of Graphite One’s grant is that the company match it by raising the same amount; an equity raise looks imminent (the current market cap is $132 million). Besides the money itself, the added benefit of the grant is that it confers some legitimacy, given the due diligence DoD will have conducted already, akin to the role of an anchor investor in a venture funding round. With Graphite One still needing to fund the proposed processing facility, too, the Department of Energy’s Loan Programs Office may also note the nod from the Pentagon.The grant epitomises the underlying rationale of Biden’s green industrial policy, which brings to the fore two externalities: climate change and national security. Neither are adequately priced in the market. We know this because, despite an existing and growing need for graphite in the US, market signals forged a supply chain over decades that is wholly outsourced, highly concentrated and carbon-intensive to boot. None of these conditions are now acceptable.
