Steel Production Expansion through the One Big Beautiful Bill Act

The One Big Beautiful Bill Act, signed into law on July 4, 2025, has been acknowledged as a sweeping clean energy and industrial policy. Much of the attention has focused on wind, solar, and battery storage, but buried within its hundreds of pages lies a striking policy shift: metallurgical coal has been added to the list of “critical materials” eligible for production tax credits under Section 45X of the Internal Revenue Code. This little-noticed provision connects directly to the Administration’s emphasis on revitalizing domestic steelmaking as a cornerstone of economic and national security.

Metallurgical coal—or “met coal”—is fundamentally different from thermal coal used for power generation. In May 2025, the Department of Energy formally designated metallurgical coal as a “critical material” due to its central role in steelmaking and the vulnerability of global supply chains. Specifically, the rulemaking stated, “Meeting the policy goal of U.S. steel dominance will require dramatic increases in domestic metallurgical coal production and use and thereby supports the determination that metallurgical coal used for steelmaking is a DOE critical material.”

The OBBBA expands Section 45X tax credits to include metallurgical coal, making producers of met coal eligible for a production tax credit equal to 2.5 percent of costs incurred between 2026 and 2029. This credit is designed as a short-term incentive, with the express purpose of stimulating immediate investment in production capacity rather than establishing a long-term subsidy. Unlike other critical minerals, which benefit from a gradual phase-out schedule through 2033, the tax credit for met coal ends completely on December 31, 2029.

One of the most unusual features of the statute is its lack of a domestic production requirement. Producers are not confined to U.S.-based operations. Coal mined either inside or outside the United States may still qualify, provided it is sold to an “unrelated person.” This global eligibility significantly expands the pool of producers who could take advantage of the incentive, but it also raises policy concerns about whether subsidizing foreign coal production aligns with the Administration’s broader objectives of strengthening domestic supply chains. To address potential loopholes, the law includes a sales structure provision: if a producer sells to a related entity that then sells to an unrelated buyer, the transaction will be treated as if the producer sold directly to the unrelated party, thereby preserving eligibility for the credit.

At the same time, there remains a U.S. nexus: the party claiming the credit must be a U.S. taxpayer, and the credit applies only upon the sale of an eligible component to an unrelated person. In this way, the provision still benefits U.S. companies by lowering their after-tax production costs, encouraging investment in U.S. operations, and helping domestic producers remain competitive against foreign supplies who do not receive equivalent tax incentives through the OBBBA. 

Also notable, Section 45X defines “metallurgical coal” as “coal which is suitable for use in the production of steel,” referencing the Department of Energy’s notice titled “Critical Material List; Addition of Metallurgical Coal Used for Steelmaking” (90 Fed. Reg. 22711, May 29, 2025). However, the statute does not specify criteria for what constitutes “suitable” coal, leaving ambiguity regarding the quality and characteristics required for eligibility. This lack of definition has been a point of contention. Opponents of the inclusion of met coal as a critical material, for instance, argue that metallurgical coal fails to meet the legal definition of a “critical material” because it is a fuel material and does not face a high risk of supply chain disruption.

The absence of specific purity or testing requirements for metallurgical coal under the OBBBA contrasts with the stringent standards applied to other critical minerals. While many critical minerals must meet defined purity thresholds or undergo transformation into eligible components, met coal qualifies as long as it can be used to produce commercially viable coke. The result is a credit that is accessible, flexible, and potentially broad in scope, but also open to questions about implementation and oversight.

The OBBBA has transformed metallurgical coal from an afterthought into a temporary but potentially significant beneficiary of federal tax policy. With the clock ticking toward the 2029 expiration date, industry participants should move quickly to understand the credit mechanics, structure transactions accordingly, and prepare for further regulatory clarification.

If you have questions about this alert, please contact the authors of this alert or the Womble Bond Dickinson attorney with whom you normally work.