Critical materials—the collective term for metals and minerals essential for all kinds of advanced technology and clean energy—are vital to the growth of artificial intelligence (AI), which has become pervasive in everyday life. AI hardware relies on familiar elements like aluminum, silicon and copper, and unfamiliar elements like gallium, germanium, palladium and neodymium to support the computational power, data transmission, and cooling systems required to process vast amounts of data at high speeds.
China’s dominant role highlights global supply chain and geopolitical vulnerabilities. The United States and China have recently exchanged export restrictions and tariff threats. For participants in the AI revolution, these actions underscore the risks of over-reliance on a single supplier. Below we explore the essential materials powering AI, and the relative supply positions of both countries and other global sources.
Critical Material Supply Sources for AI Applications
- Aluminum, especially High-Purity Alumina (HPA). Used in renewable power generation, military applications, lithium-ion batteries and more, HPA forms the tiny wafers and insulation around chips. The HPA application of this common metal is in demand for its remarkable chemical purity, mechanical strength and thermal stability—all characteristics vital to AI-driven technologies that necessitate clean performance. China dominates HPA production, but with a projected $12.2 billion market by 2030, U.S. producers are stepping up. Southern Ionics, the largest North American HPA producer, launched a 2023 pilot project in Mississippi to tailor HPA for battery applications.
- Silicon, the cornerstone of semiconductors, is essential for wafers holding billions of transistors, diodes and other components driving AI processing power. Despite its elemental abundance, high-quality silicon requires extensive refining that remains complex and costly. Japan and South Korea lead in wafer production, while China dominates raw silicon (79%) and ultra-high-purity polysilicon (75%) output. A large-scale effort to increase semiconductor fabrication in the U.S. is developing, through the CHIPS and Science Act.
- Mostly processed in Chile, Canada, Peru, and Mexico, copper is used in data centers for wiring and transmission. Amid surging demand, the International Energy Agency has flagged a potential shortage, predicting that current and planned mining projects will only meet 80% of copper needs by 2030. In July 2023, the U.S. added copper to the critical materials list, making it eligible for tax credits under the Inflation Reduction Act. Domestic mines anticipate a production increase of about 4% in 2024, but a larger ramp-up is needed to support the booming demand from AI and other sectors.
- Gallium oxide is five times more conductive than silicon, meaning that its use for AI can reduce energy waste, accommodate the higher voltages needed in data centers, allow for efficient operation at higher temperatures, and generally speed things up. Thanks in part to advances in AI itself (!), researchers are discovering how to scale the use of gallium oxide as a promising alternative to silicon in chip technology. However, gallium was among the four critical materials that China banned in November 2024 in response to U.S. trade restrictions. China controls the primary global reserve of this resource. A potential breakthrough for the first U.S. production may come from a newly discovered gallium deposit in Montana..
- Germanium. Essential for fiber optic cables, germanium supports high-speed data transmission crucial for AI. “Germanium’s ability to minimize signal loss over long distances in fiber optics has become increasingly important given the expanding demand for high performance data networking,” note Matthew Blackwood and Catherine DeFilippo, of the U.S. International Trade Commission, in a March 2024 report. Some estimates indicate we should expect 60% growth in global demand for germanium by 2034.
Though China produces more than half of the world’s germanium (and also banned it for U.S. export), the U.S. domestic alternatives include collecting it as a secondary byproduct of zinc mining in Alaska and Tennessee where germanium is co-located in small quantities in the same mineral deposits. In Tennessee, mining company Nyrstar has temporarily shuttered its zinc mine. Instead, it’s exploring building a germanium and gallium recovery and processing facility that the company says could produce enough of the two minerals to supply about 80% of America’s demand.
- Palladium’s high melting point and strong corrosion and heat resistance make palladium effective in attaching chips to circuit boards, as well as on certain semiconductor plating to enhance longevity and stability. Combined with manganese, palladium is also used in next-generation memory storage technologies. Palladium mining in the U.S. has proven to be extremely expensive, costing more to produce than its market value. Alternative supplies from Russia and South Africa have been challenged by political instability and economic sanctions. (Pillsbury advised on an earlier sale of the Stillwater mine in Wyoming, one of the country’s largest sources of platinum as well as palladium.)
- Neodymium. To maintain optimal temperatures in data centers, cooling fans and systems use motors relying on neodymium-based magnets. This rare earth is also used in wind turbines and generators that provide renewable power to data centers. China controls more than 90% of rare earth permanent magnet production. At the Mountain Pass mine in California, MP Materials is mining and processing a number of rare earths—including neodymium—for use in magnets. The company is also in the process of building an integrated facility in Texas where materials can be refined and magnets manufactured.
Short-Term Policies and Long-Term Evaluations for Domestic Production
The CHIPS and Science Act and Department of Energy grants provide incentives for U.S.-based production of critical materials. However, developers face a well-documented hurdle in navigating the intricate web of environmental permitting and compliance. Key statutes, such as the National Environmental Policy Act (NEPA), the Clean Air Act, the Clean Water Act, Resource Conservation and Recovery Act, and other federal and state regulations impose rigorous review processes. These regulatory aspects have long challenged projects and proposals for mineral extraction in the U.S., complicating efforts to meet growing demand for critical materials essential to clean energy and technology sectors.
The incoming administration’s announced intentions to streamline—or even waive—certain environmental reviews aim to provide companies with accelerated regulatory pathways to foster domestic production. Potential legislative reforms could include redefining NEPA’s scope and executive branch agencies may implement categorical exclusions or regulations to consolidate permitting steps under a single agency. Proposals to waive certain requirements outright have also emerged, particularly for projects deemed critical to national security or economic resilience. While these changes could provide temporary relief to developers, they raise uncertainties about their long-term applicability and resilience, especially in light of litigation risks and the broader statutory framework.
State and local permitting requirements further compound these challenges. For example, some states impose their own environmental review standards that can be as rigorous as, or even more stringent than, federal mandates. Local opposition, public comment periods, and judicial challenges frequently add additional layers of complexity.
Whether companies can rely on relaxed short-term executive branch policies remains an open question. And given the decades-long investment horizon of extraction projects and the relevance of state and local processes and background statute, the durability of federal streamlining policy changes is a critical consideration. Executive orders and agency directives can be reversed by future administrations, creating uncertainty for projects that depend on streamlined processes for financial viability.
Developers, along with their legal, technological, and financial advisers, must thoroughly assess the stability of federal policies and consider scenarios where projects revert to more stringent regulatory environments. This may mean adopting holistic approach to regulatory compliance, one that includes active stakeholder engagement and detailed planning for each stage of the permitting process. Moreover, contingency planning is essential. This includes preparing for potential shifts in regulatory requirements or litigation outcomes that could impact project feasibility over the years of planned operation and decommissioning. Addressing these multifaceted challenges proactively will be critical for companies aiming to navigate the regulatory landscape and bring critical material projects to fruition.
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