The History of the Defense Production Act in the Energy Sector, with Ty Priest

Notable Quotes

• Origin of the Defense Production Act: “The Defense Production Act (DPA) was enacted in September 1950, after the North Korean People’s Army invaded South Korea earlier in June, which was quickly followed by a US military intervention to repel the invasion, with support from other United Nation members. The DPA was modeled on the War Powers Acts of 1941 and 1942 during World War II. Basically, it allowed the federal government to prioritize national defense needs over the needs of the private sector and increase the supply of raw materials as it deemed necessary.” (3:41)
• Invoking the Defense Production Act to access natural resources: “What [the Defense Materials Procurement Agency] did was guarantee purchases of minerals that were being developed in other countries for the US strategic mineral stockpile through something called a certificate of essentiality. What this did was it made risky, expensive mining projects abroad more financially viable, by ensuring that at least a portion of a mine’s output would be purchased by the US government. The most important mineral at this point in time was manganese, which is an essential ferroalloy for steelmaking. In 1949, the Soviet Union was a major source, through the client state of Georgia. The Soviet Union embargoed manganese in 1949, so Truman and the steel industry were desperate to find new sources.” (6:26)
• Continued use of the Defense Production Act: “In 1994, after Hurricane Andrew, Congress amended the DPA to broaden the concept of national defense to include emergency preparedness in the event of ‘a hazard upon the civilian population’ (in the language of the amendment). So, the Department of Defense has routinely used Title I authority, prioritization, and allocation thousands of times a year, to make sure contractors prioritize government orders. But the authority has also been used in other ways by presidents and other federal agencies in the twenty-first century.” (11:02)

Top of the Stack

• Global Gambits: Big Steel and the US Quest for Manganese by Tyler Priest
• “‘Can We Please Stop Talking about Energy Independence?’” by Daniel Raimi
• Energy Crises: Nixon, Ford, Carter, and Hard Choices in the 1970s by Jay Hakes
• The Bridge: Natural Gas in a Redivided Europe by Thane Gustafson

The Full Transcript

Daniel Raimi: Hello, and welcome to Resources Radio, a weekly podcast from Resources for the Future (RFF). I'm your host, Daniel Raimi. Today we talk with Ty Priest, associate professor of history and geography at the University of Iowa, about the Defense Production Act, and how it has been—and is being—used in the context of energy development in the United States.

I'll ask Ty about the original purpose of the act, how it was used to respond to past energy crises, its role in responding to COVID-19, and the recent invocation of the act by the Biden administration, which is seeking to spur the production and processing of minerals that are critical to the manufacturing of batteries for electric vehicles. There is so much fascinating history in today's episode, so stay with us.

Welcome, Ty Priest, from the University of Iowa, to Resources Radio. It's great to have you with us today.

Ty Priest: Thank you, Daniel. It's a pleasure to be with you.

Daniel Raimi: So, Ty, we are going to talk today about the Defense Production Act, or the DPA. But before we get into details about that act, and kind of where it comes from and how it's being used today, can you give us a sense of how you got interested in working on energy or environmental issues, either as a kid or maybe later in life?

Ty Priest: Sure. I became interested in natural resource industries when I was a kid growing up in Billings, Montana. I remember in fifth grade, I read a book called The Copper Kings of Montana. It was a popular book directed at young readers about the epic battles between titans of industry over the control of the copper industry in Butte for the material that would wire the world for electricity. So I just started paying attention to how our lives were dependent on things taken out of the earth. Billings was the center of many different resource industries, and a regional headquarters for the oil and coal companies. There was an oil refinery on the north end of town and a sugar beet refinery on the south, where my dad worked; and they were two most imposing things in the city. And the biggest man-made creation I'd ever seen was this colossal coal-fired power plant down the highway in a town named appropriately, Colstrip.

Every morning in the 1970s, when I was entering my teens, I saw the subjects of oil, coal, and copper plastered across the front page headlines in my local paper. And in 1975, Great Western Sugar, where my dad was employed, was purchased by the oil men, brothers Bunker and Herbert Hunt. Then, the sugar company went bankrupt after the Hunt's disastrous efforts to corner the silver market in 1980. So the boom-and-bust cycles of resource extraction, and the effects of resource speculation left kind of a deep imprint on me. The political economy of natural resources has kind of been an interest of mine ever since.

Daniel Raimi: Yeah. That's fascinating. I didn't know that, about where you grew up; and you were really in the middle of it.

Ty Priest: Yeah. Yeah. I just remember the coal severance tax. It was a constitutional amendment that was very hotly debated and contested in 1976. Yeah. I wrote my first book on the US quest for strategic minerals, which included a section on the DPA, the Defense Production Act. And then, after moving to Houston in 1995, I began studying the history of the oil and gas industry; and that's really been my focus ever since.

Daniel Raimi: Mm-hmm (affirmative). That's great. Well, let's talk now about the DPA. When was the Defense Production Act enacted, and what was its original purpose?

Ty Priest: The Defense Production Act was enacted in September, 1950, after the North Korean People's Army invaded South Korea earlier in June, which was quickly followed by a US military intervention to repel the invasion, with support from other United Nation members. The DPA was modeled on the War Powers Acts of 1941 and 1942 during World War II. And basically, it allowed the federal government to prioritize national defense needs over the needs of the private sector, and increase the supply of raw materials as it deemed necessary.

In 1950, a moment of heightened crisis in the emerging Cold War between the United States and communist Soviet Union in 1949, China, the Chinese Communist Revolution had just happened. In 1949 also, the Soviet Union successfully detonated a nuclear device. And so, the DPA granted broad powers to the president; and President Harry Truman used the DPA to help supply domestic production of steel, heavy industry, machine tools, electronics, and avionics for a massive military expansion; the blueprint for which had been laid out even before the outbreak of war in Korea, by National Security Council Document 68.

Under the DPA, Truman created the Office of Defense Mobilization, which oversaw a whole bunch of different mobilization agencies. He used Title I of the DPA to prioritize production and supply contracts for the military, and force private companies to accept them, as well as allocate scarce or potentially scarce materials to military suppliers. Title I is about prioritization and allocation, and that remains part of the Defense Production Act.

Today, there were other titles of the act that gave the president a lot of other powers, such as imposing wage and price controls, and mediating labor disputes, and requisitioning equipment and supplies for a defense manufacturer. But these titles were not renewed after the war.

The other title that sort of remained in the Defense Production Act is Title III. So, Title I and Title III are the ones that are mainly relevant today. And that provides for the "encouragement of exploration development and mining of critical and strategic minerals and metals," using tools like loans and loan guarantees and purchase commitments. The Truman administration used Title III to promote new strategic minerals projects abroad, through an initiative called the Defense Materials Procurement Agency. What this agency did was guarantee purchases of minerals that were being developed in other countries for the US strategic mineral stockpile through something called a certificate of essentiality.

What this did was it made risky, expensive mining projects abroad more financially viable, by ensuring that at least a portion of a mine's output would be purchased by the US government. The most important mineral at this point in time was manganese, which is essential ferroalloy for steel making. In 1949, the Soviet Union was a major source, through the client state of Georgia. The Soviet Union embargoed manganese in 1949, so Truman and the steel industry were desperate to find new sources. That's the subject of my first book, Global Gambits: Big Steel and the US Quest for Manganese.

Daniel Raimi: Huh. That's so interesting. I did not know that.

Ty Priest: Oh, I should also mention, in 1951, incidentally, Truman established the President's Materials Policy Commission, to study US raw materials needs and the global supply of them. And it recommended, in its report in 1952, the creation of an independent organization to analyze these issues going forward, which led to the creation of your employer Resources for the Future.

Daniel Raimi: Yes. There we go. Coming full circle today. We're actually going to do an episode on the early days of RFF and the history of RFF.

Ty Priest: And oh, great. That would be fascinating.

Daniel Raimi: We'll dive into that. Well, let's move forward in time a little bit. So, we have a sense of when and why the act was established in the first place. How else has it been used in recent decades? We're going to talk about COVID specifically in a couple minutes, but up until COVID, in what ways has it been used, and has it ever been used in an energy context?

Ty Priest: Well, in the fifties—it's kind of a cautionary tale—after the Korean Armistice, the Eisenhower administration … The DPA was renewed in 1955. It has a sunset provision, so it has to be renewed every so often; it's been renewed more than 50 times. And it was renewed with many of its original titles stripped out except for Titles I and II, which I spoke about.

There was a key difference between Truman and Eisenhower; whereas Truman focused on increasing production of minerals that met the steel industry's and military's own specifications, and placed control over the stockpile with the military, Eisenhower transferred control to civilian authorities, and used DPA funds to directly finance the mining of low-grade domestic minerals, for which the steelmakers and industry had very little use, or in quantities far beyond what the industry could ever use. It became a boondoggle to enrich domestic mining companies who were strong supporters of the Republican party and who had officials installed in the administration like foxes in the hen house. But that chicanery was exposed under Kennedy.

But the DPA was reauthorized every few years, at which point, the definition of strategic and critical minerals and national defense has been expanded or broadened over time. The Johnson administration used it to fund ordnance plants and prioritize defense orders. But it was increasingly used for additional purposes, especially during the energy crises of the sixties and seventies during the first Arab oil embargo in 1967, for example. The Department of Interior used the DPA to refurbish old oil tankers to increase oil shipments. In the second embargo in 1973, President Nixon used it to force producers to divert oil from existing delivery contracts to the military. A year later, in 1974, Nixon used it to ensure that the Trans-Alaska Pipeline would get first priority on certain materials. Then in 1979, after the Iranian Revolution, President Jimmy Carter used the DPA to direct research on making synthetic fuels from coal and natural gas.

During these years, Congress also passed amendments that explicitly expanded the definition of national defense. The Energy Security Act in 1980 amended Title III to designate energy explicitly as an essential material. At the same time—around the same time—the newly created Federal Emergency Management Authority, FEMA, was also given responsibility for government-wide coordination for DPA authorities. After Hurricane Andrew … in 1994, after Hurricane Andrew, Congress amended the DPA to broaden the concept of national defense to include emergency preparedness in the event of, the language in the amendment was "a hazard upon the civilian population." So, the Department of Defense has routinely used Title I authority, prioritization, and allocation thousands of times a year, to make sure contractors prioritize government orders. But the authority has also been used in other ways by presidents and other federal agencies in the twenty-first century.

Daniel Raimi: That's fascinating. Let's fast forward to COVID-19. This is when I first heard of the Defense Production Act, and I imagine many of our listeners did as well. How have Presidents Trump and Biden used the act in the context of the COVID pandemic?

Ty Priest: Yeah. Trump was more interested in using the Defense Production Act to strengthen the US industrial base, and promote the development of rare earth minerals. He used that even before COVID. He sort of issued an executive order to develop a list of critical minerals that would guide the private sector in exploring and producing minerals at home, in order to reduce our dependence on imports. But then, he reluctantly invoked the DPA to combat the COVID pandemic, creating a task force first, and then claimed to have used Title I to direct General Motors to get involved in making ventilators, although the company had been already working on such a deal before that. But he used it rather narrowly. A lot of people thought he could have used the authority more aggressively.

The CARES Act: The Coronavirus Aid, Relief, and Economic Security Act, provided a billion dollars under the DPA to respond to the pandemic. But most of that money was shifted to military contractors. Trump used the DPA to prohibit 3M and its subsidiaries from exporting N95 masks, and even used it to declare meat processing plants critical infrastructure, to ensure that they stayed open. But a lot of people thought he could have used the DPA more to spur production, especially Title III authority, which was used a handful of times under Trump.

Then when Biden came into office, I think he made greater use of it, using loans and loan guarantees and purchases to spur the production of vaccines and surgical gloves and test kits.

Daniel Raimi: When the federal government issued an advanced market commitment to buy millions and maybe hundreds of millions of doses of vaccine for pharmaceutical companies that could develop them, were they using the DPA to take that act, or were they using some other authority?

Ty Priest: Yes, I believe they were using Title III of the DPA.

Daniel Raimi: Okay. Super interesting. So, let's talk now about how the DPA has been invoked just in the last couple of weeks. The Biden administration recently announced that it would use the act to create stronger domestic supply chains for critical minerals, where it sounds like this has happened before, at least that to some extent under President Trump. These critical minerals that the Biden administration is focused on—I believe they are key inputs to the production of batteries and the other clean energy technologies.

I'm wondering if you could give us a sense of nuts and bolts: How does this actually work? What are the specific tools that the federal government will be using to encourage or incentivize the creation of, let's say, mines or processing plants or other infrastructure that's needed to produce these materials?

Ty Priest: From my read earlier this month, Senators Murkowski and Joe Manchin, of the Senate Energy and Natural Resource Committee, prevailed on Biden to order the Department of Defense to consider at least five metals: lithium, cobalt, graphite, nickel, and manganese, which are the key ones that are in the cathodes of lithium ion electric vehicle batteries, to make them essential to national security under the Defense Production Act. The prices for lithium, cobalt, and nickel, in particular, have reached stratospheric levels in the last year.

From my understanding, the order doesn't explicitly fund more mining, but it calls for paying for feasibility studies to determine possible mines' viability, or to finance coproduction and byproduct extraction from mines that are typically yielding other minerals. I think nickel and cobalt are often found together. The order appears to be the first use of the DPA to obtain supplies for clean energy purposes. You mentioned, the four minerals specified are ones used in lithium ion battery cathodes.

It's not clear what the Biden administration tends to do beyond this. It's kind of, it seems like a signal for investments in this supply chain. The administration could certainly use both Title I and Title III authority if it was funded at a high enough level to encourage the mining and processing of these minerals, using loans and loan guarantees and purchase commitments. China dominates the processing of such minerals and the manufacturing of batteries from them. The United States is 100 percent dependent on imports in manganese and graphite. There's a small amount of nickel and cobalt mining in this country, and I think one lithium mine.

But the United States, I doubt, will ever be even close to self-sufficient in any of these minerals. But the DPA could be used, like it was during the Korean War, to promote the development of new mines overseas, that are sort of in countries that are closer allies to the United States than China. I think the Biden administration is trying to feel its way forward in reducing our complete dependence on China for the supply chains for these minerals and the processing of these minerals.

Daniel Raimi: Right. That's really interesting. One of the questions I had, you sort of alluded to it. Are there dollar figures attached to the invocation of this act, or would it require—

Ty Priest: I think right now, there's $750 million in standing authority under the DPA. But I think Congress has to appropriate specific levels of funding for it.

Daniel Raimi: That's fascinating. We've done a little bit of talking on this show about mining projects in the United States and processing projects in the United States, and how challenging they can be from a sighting perspective and a public opposition perspective. It's really interesting to hear that these funds can be used to support mining that happens outside of the United States, as well as processing of metals.

Ty Priest: This was very controversial in the 1940s and 1950s. The domestic mining industry really fought hard to have the stockpiling program oriented toward domestic mines, when the industry preferred much higher grade, less costly mines overseas. So, I don't … We're never going to have a manganese industry in the United States. We tried in the fifties, and it just didn't work. But I'm not sure about, and probably not with nickel, but there appears to be significant lithium deposits, and there are other lithium deposits in the western hemisphere in South America.

There's also been discussion about replacing cobalt. I think like 65 percent of which is mined in the Congo, under really terrible social and environmental conditions. Replacing cobalt with manganese in these batteries, I think Elon Musk has even mentioned it, but I haven't seen too much follow-up on some stories that were run in the last couple years about that.

Daniel Raimi: So, certainly, topics that we're going to be following for years, if not decades to come. It's going to be really fascinating. A related question, you mentioned self-sufficiency a minute ago; as listeners of our show know, there's a long history in the United States, of policymakers seeking to make the United States "energy independent," which, as we both know, Ty, that's not an achievable goal from a policy perspective. But it is a nice bumper sticker, I suppose. But do you see this focus on domestic mining and processing as part of that maybe Sisyphean struggle for energy independence? Or is it more modest in its aims?

Ty Priest: Didn't you just publish an essay in Resources, Daniel, entitled “Can We Please Stop Talking About Energy Independence”?

Daniel Raimi: Indeed. And now, here I am talking about energy independence. I am ashamed of myself.

Ty Priest: No, just kidding. I would think it's possibly a path down the road to reduced reliance on oil. Certainly, if we can effect a rapid transition to electric vehicles, and thus greater energy security, I prefer energy security to energy independence; but it's a long road. I think what the Biden administration is trying to do is reduce the almost complete reliance on China for the production of electric vehicle batteries.

I think the United States is never going to be independent in these minerals. I think the challenge is to create a competitive mineral processing and battery manufacturing industry, which requires a technological commitment, a commitment of financial capital and human capital. I think politicians and the American public, in that whole geopolitical world, would prefer to be less reliant on imported oil. Whether you want to call that independence or what, we're not going to be insulated from global market forces that shape the price of oil. We're now a big oil and gas exporter, but I think we're just getting started on a very long path to try to reduce our reliance on oil, in general.

Daniel Raimi: I think that we have a pretty clear understanding about what some of the geopolitical benefits of reducing our dependence on oil will be. But it seems to me that there are many more questions than there are answers, about the geopolitical implications of these kinds of critical mineral supply chains that are only going to grow over time.

Ty Priest: Yes. And I think that just the huge leaps in prices for these minerals have electric vehicle manufacturers and auto companies very concerned at this point.

Daniel Raimi: Ty, I want to ask you one more question before we go to our Top of the Stack segment, which is about the potential application of the DPA to a broader set of clean energy activities. There's been legislation proposed fairly recently by some congressional Democrats, that I believe would dedicate $100 billion specifically for clean energy manufacturing facilities here in the United States. I'm curious about your view on whether that type of investment would be consistent with past uses of the Defense Production Act, or whether it would be outside the norm.

Ty Priest: It's interesting. I think it's outside the norm. The bill I looked at was sponsored by Representatives Jason Crow and Cori Bush and Bernie Sanders, which would designate energy efficiency and renewable energy systems and technologies as strategic and critical materials. It proposes using that Title III authority to establish an industrial base and manufacturing capabilities for such systems. I don't think it's really what the DPA was intended to do, which was to get the United States through temporary national defense emergencies. But it has been used for an expanding set of purposes over time.

I'd say $100 billion is a lot of money to give to a president to use as he or she wishes. The DPA really gives the president a lot of flexibility in how to spend that money. I doubt Congress would provide this level of money under the DPA. There's a lot of mention of electric heat pumps in that bill, but it seems to me, electric heat pumps are being adopted rather rapidly. They don't need a lot of help, especially in the south. There may be better ways to do this, to promote this; and things that are being done without the government getting so directly involved. I personally would maybe think that level of funding might be better for government-sponsored research and development.

Daniel Raimi: Right. Yeah. Something we've talked about a lot on the show, the sort of relative role of government in R&D versus deployment versus really scaling up industries.

Ty Priest: Yeah. Not really my area of research expertise, but it's an interesting proposal.

Daniel Raimi: Yeah.

Ty Priest: At least, it's calling attention to, "Yeah. We're going to use the DPA for all these various things. Why can't we use it for our priorities or these priorities?"

Daniel Raimi: It sort of falls into that line of thinking of … You mentioned the DPA being intended for use for temporary emergencies. Some would argue that the climate crisis is an emergency that requires some sort of immediate investment. That may be part of the rationale there.

Ty Priest: For sure.

Daniel Raimi: Well, Ty, this has been a fascinating conversation. I've learned a ton, as I always do when I speak with you. Let's go now to our last segment, which is called Top of the Stack, where we ask you to recommend something that you've read or watched or heard, that you think our listeners would enjoy. So Ty, what's at the top of your literal or your metaphorical reading stack?

Ty Priest: My wife complains that I have many stacks. I have a lot of books stacked up. But there are two that I'm reading now and enjoying, and that I think are relevant to what's happening in the world. One is Jay Hakes's Energy Crises: Nixon, Ford, Carter, and Hard Choices in the 1970s. I read it as a reviewer for the University of Oklahoma Press. It came out in 2021. I'm reading it again because it's just so interesting and instructive about how politicians and administrations confront the energy problems, and how difficult they are. Jay was the Director of the Energy Information Administration under Clinton, and was the director of the Jimmy Carter Presidential Library. I think it's a fantastic book. If you think you know what happened in the 1970s, you need to read Jay's book.

The other one is Thane Gustafson's The Bridge: Natural Gas and a Redivided Europe, which came out in 2020. But if you want to know how Europe got so dependent on Russian gas imports, this is the book for you.

Daniel Raimi: Fascinating. So, two books that are very much in line with the crisis we find ourselves in at the moment with energy. Fascinating. Thank you so much, Ty, for those recommendations. And thank you for coming on the show, and telling us all about the Defense Production Act, which is new to many of our lexicons, but we're quickly getting familiar with it. We just really appreciate your time and your expertise.

Ty Priest: It's been a pleasure to talk with you, Daniel.

Daniel Raimi: You've been listening to Resources Radio. Learn how to support Resources for the Future at rff.org/support. If you have a minute, we'd really appreciate you leaving us a rating or comment on your podcast platform of choice. Also, feel free to send us your suggestions for future episodes.

Resources Radio is a podcast from Resources for the Future. RFF is an independent, nonprofit research institution in Washington, DC. Our mission is to improve environmental, energy, and natural resource decisions through impartial economic research and policy engagement.

The views expressed on this podcast are solely those of the podcast guests and may differ from those of RFF experts, its officers, or its directors. RFF does not take positions on specific legislative proposals. Resources Radio is produced by Elizabeth Wason with music by me, Daniel Raimi. Join us next week for another episode.