AI Needs Critical Materials, and Fast! But where? Gravel2Gavel Construction & Real Estate Law blog — January 6, 2025
AI hardware relies on familiar elements like
aluminum, silicon and copper, and unfamiliar elements like gallium, germanium and palladium and neodymium to support the computational power and cooling systems required to process vast amounts of data at high speeds. 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. Recently, the United States and China exchanged threats and export restrictions. These actions highlight the risks of relying too heavily on one supplier for participants in the AI revolution. 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). HPA is used in many applications including renewable power generation, military, lithium-ion battery, and more. HPA is a common metal that is used for its chemical purity, mechanical stability and thermal stability. These are all characteristics essential to AI-driven technologies which require clean performance. U.S. producers have stepped up to meet the projected $12.2 billion market in 2030. China is still the largest producer of HPA, but they are now stepping up their production. 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. High-quality silicon is not available in large quantities, but requires extensive refinement that is both complex and expensive. Japan and South Korea are the leaders in wafer production. China is the leader in raw silicon (79%) as well as ultra-high purity polysilicon (75%). 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. The International Energy Agency warns of a possible shortage due to the surge in demand. They predict that current and planned mining will only cover 80% of copper requirements by 2030. In July 2023 the U.S. added the copper to its list of critical materials, making it eligible for the Inflation Reduction Act tax credits. 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. Due to AI advancements, researchers are able to scale up the use of gallium oxide as a promising alternative to silicon in chip technology. Researchers are learning how to scale up the use of gallium as an alternative to silicon for chip technology. In response to U.S. restrictions on trade, China banned gallium in November 2024. China controls the largest global reserve of this material. A potential breakthrough for the first U.S. production may come from a newly discovered gallium deposit in Montana..Germanium
. Germanium is essential for fiber optic cables and supports high-speed data transfer, which is crucial for AI. In a report from March 2024, Matthew Blackwood and Catherine DeFilippo of the U.S. International Trade Commission note that germanium’s ability in fiber optics to minimize signal losses over long distances is becoming increasingly important due to the growing demand for high-performance data networking. Some estimates predict a 60% increase in global demand for Germanium by 2034. Nyrstar, a mining company in Tennessee, has temporarily closed 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. Palladium, in combination with manganese is used to create next-generation memory technologies. Palladium mining has been extremely expensive in the U.S., with costs exceeding its market value. Political instability and economic sanctions have made it difficult to obtain alternative supplies from Russia and South Africa. (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
. Cooling fans and systems rely on motors that use neodymium magnets to maintain optimal temperatures in data centres. This rare earth is used in wind generators and turbines, which provide renewable energy to data centers. China controls over 90% of the rare earth permanent magnets production. MP Materials mines and processes a number rare earths, including neodymium, at the Mountain Pass Mine in California 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. Developers face a well documented challenge in navigating an intricate web of environmental permits and compliance. The National Environmental Policy Act (NEPA), Clean Air Acts, Clean Water Acts, Resource Conservation and Recovery Acts, and other federal and State regulations, all impose strict review processes. These regulatory aspects have been a challenge for projects and proposals in the U.S. for many years, making it difficult to meet the growing demand for materials that are essential to the clean energy and technology industries. The potential legislative reforms include redefining NEPA’s scope, and executive branch agencies could implement categorical regulations or exclusions to consolidate permitting under a single agency. Some proposals have been made to waive certain requirements, especially for projects that are deemed to be critical to national security and 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. Some states, for example, impose their own standards of environmental review that can be just as strict, or even more so, 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. The durability of federal policy changes is critical, given the long-term investment horizons of extraction projects as well as the relevance of local and state processes and background legislation. 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 could mean adopting a holistic approach to regulatory conformity, which includes active stakeholder involvement and detailed planning at each stage of the permit process. Moreover, contingency planning is essential. It is important to prepare for changes in regulatory requirements and litigation outcomes which could affect project feasibility during the planned operation or decommissioning period. Addressing these multifaceted challenges proactively will be critical for companies aiming to navigate the regulatory landscape and bring critical material projects to fruition.
RELATED ARTICLES
Critical Materials for the Energy Transition: Of “Rare Earths” and Even Rarer Minerals01001010 01001010 01001010 01001010
