Critical Minerals Executive Order Leverages DFC and National Security Authorities

On March 20, nestled in a flurry of other executive orders (EOs), the Trump administration directed a new set of “immediate” actions to increase U.S. domestic mineral production.  The stated purpose of this new EO was to “facilitate domestic mineral production to the maximum possible extent.” Today, the People’s Republic of China provides the United States with over half of its critical minerals – placing immense pressure on the U.S. government to seek alternative sources at home and abroad. While bold action to increase domestic and allied production of these essential building blocks of the global economy is necessary, the recent EO attempts to leverage national security resources and authorities to solve a domestic policy and political dispute over the future of issues like permitting reform, resource extraction on federal lands, and the government’s capacity to invest in strategically important domestic projects through a wide array of financial instruments.

For simplicity, the order’s actions can be divided into three categories of activity:

1. Establishes a priority mining and energy projects list under the purview of the aggressively named National Energy Dominance Council (NEDC) – a body created within the Executive Office of the President through a separate EO issued in February. The priority projects process under NEDC surprisingly mimics internal Biden administration policy processes, led by the various White House implementation teams, to accelerate the permitting and execution of major infrastructure and clean energy projects. NEDC will be chaired by the Secretary of Interior and ostensibly seek to accelerate the exploitation of American mineral resources with a heavy emphasis on increasing commercial access to sources of oil and gas on federal lands. This “priority project” structure will, similar to previous administrations, attempt to leverage the often overlooked capabilities and resources of the Permitting Council, which is a federal agency “charge[d] to bring efficiency and effectiveness to the federal permitting review process” for major infrastructure projects. The agency notably received $350 million under the Inflation Reduction Act for its Environmental Review Improvement Fund to increase the permitting capacity of the federal government. While focused attention on specific major projects can help rebalance permitting resources towards individual high-priority projects, the “priority project” model has historically had limited success pushing major infrastructure projects over the finish line simply through high-level political pressure – and can quickly veer into dubious legal territory as political appointees attempted to influence outcomes.

2. Attempts to invoke emergency authorities to increase access to domestic mineral resources on federal lands. Using a combination of emergency authorities linked to the Day 1 EO entitled “Declaring a National Energy Emergency” and an extreme reading of Defense Production Act (DPA) powers, the Trump administration functionally directs a group of departments and agencies to provide the White House with “a list of all Federal lands known to hold mineral deposits” prioritized by the Secretary of the Interior based on undisclosed policy criteria for near-term exploitation. The agencies that oversee these lands, namely the Departments of the Interior, Energy, Agriculture, and Defense, are then directed to commence a process to allow the rapid permitting and execution of potential projects with commercial industry partners.  This questionable legal strategy is essentially an attempt to circumvent a raft of existing law that governs resource extraction and mineral rights on federal lands – and centralizes in the hands of the Department of Defense’s (DOD) National Security Capital Forum access to this new commercial matchmaking process between industry players and identified mineral deposits. The most recent National Defense Authorization Act tasked the DOD with creating this forum of “institutional financiers, capital providers, investors, entrepreneurs, innovators, business persons, and various representatives from across the private sector, relevant United States Government offices, and from the governments and private sector of the allies and partners of the United States.” Typically, existing laws like the Mining Act of 1872 and processes at other federal agencies (e.g., the Department of the Interior’s Bureau of Land Management) governs the allocation of mineral rights on federal lands. While it will be up to the courts to decide whether this is a reasonable use of executive power, the EO also assumes that mining companies will be willing to expend billions of dollars in upfront investment to use a somewhat slap-dash process to secure their long-term mineral rights to deposits that may take years to profitably access. This level of legal uncertainty may scare away investors and other industry players considering taking advantage of the activities directed under this EO.  

3. Directs the Development Finance Corporation (DFC) to use the authorities available under the DPA to finance domestic mining projects. This is a highly unusual attempt to use the capacity of the DFC to finance domestic mining and energy projects. The order asks the CEO of the DFC (who notably has not yet been confirmed) to work with the Secretary of Defense to establish dedicated funds at the agency for domestic mineral investments. It is unclear whether the DFC has the legal authority to support this type of activity domestic investment activity, even with another agency’s resources, given the DFC’s statutory mandate only to “facilitate market-based private sector development and inclusive economic growth in less developed countries.” The funding for this project will ostensibly be transferred from the DOD to DFC from preexisting DPA and DOD Office of Strategic Capital appropriations. The effort is a re-run of the 2020 pandemic-related delegation of DPA authority to DFC to make domestic investments that would support domestic supply chains and the production of other critical products needed to effectively respond to the COVID-19 pandemic. Notably, the 2020 attempt to route DPA funds and authorities through DFC was unsuccessful. A Government Accountability Office report from November, 2021 found that:

1. “Since the Defense Production Act Loan Program began in June 2020 to respond to the COVID-19 outbreak and strengthen domestic supply chains, DFC and the DOD have received 178 applications. As of mid-October 2021, the agencies have completed no loans.”
2. “DFC did not fully assess and respond to the risks of carrying out the DPA Loan Program along with its primary mission”'

A brief review of all of DFC’s 2020 investments do not yield any indication that DFC ever used this authority successfully. Ultimately, DFC is an instrument of American foreign policy and ill positioned to execute this mission. Both the DOD’s Office of Strategic Capital and the Department of Energy’s Loan Program Office have better existing resources, authorities, and remit to execute this domestic-focused energy and mineral investment effort. While certain components of this order represent a bold attempt to quickly advance U.S. critical mineral projects, its approach to both permitting and financing mining and energy projects on federal lands will likely increase market uncertainty – leading to less development of critical mineral resources on federal lands over the next four years. As the U.S. seeks to produce and process critical minerals to power both the clean energy transition and the economy more broadly, America needs to use the deliberative nature of the legislative process to create consensus on permitting reform and solutions to our dependency on the PRC for critical mineral production, rather than attempting to unilaterally leverage national security tools and international investment resources to solve domestic resource allocation challenges.