Some green energy projects may not be ‘Made in the USA’ enough for subsidies

The U.S. currently lags behind manufacturing equipment in industries like solar, but incentives in the Inflation Reduction Act are spurring a shift.

By Alexandra HartMarch 28, 2023 11:57 am, ,

Between COVID supply chain issues and rising geopolitical tensions with China, there’s been renewed interest in the United States for American-made goods. But what does “Made in America” mean?

Seems pretty straightforward, but the definition may not be so clear-cut, at least when it comes to a new program to encourage homegrown green energy projects. And that could have major financial implications for companies hoping to pursue subsidies.

Phred Dvorak reported on this conundrum for the Wall Street Journal, where she covers climate and the energy transition, and joined Texas Standard to discuss. Listen to the interview above or read the transcript below.

Texas Standard: First, can you explain why the “Made in the USA” label matters to companies that are involved in green energy infrastructure? 

Phred Dvorak: There are a number of ways in which the Inflation Reduction Act, which is one of the sources of a lot of subsidies for green energy projects, encourages things to be made in the USA, and it does that by giving bonus tax credits, for example. If your project has enough “Made in America” equipment or maybe it has some criteria in order to get some tax credits, you have to have a certain amount of U.S.-made or ally-made materials and other sorts of things. 

So that seems pretty straightforward to me. I mean, if you make it here, you get a break. But there is some gray area – some ambiguity, as you report. Where does that come from? 

Well, if you think of a product like a solar panel – it’s made of the panels, obviously. But then there are all kinds of components, like the aluminum frames that they sit in or silicon that is crafted in various ways, sliced and made into all these subcomponents. So which parts of those have to be made in the USA in order for it to qualify as a “Made in the USA” product? That’s a big question because, right now, the USA doesn’t have much of anything. 

Oh, interesting. Could you say a little bit more about the ways in which we’re lagging behind being able to deliver some of these pieces of infrastructure? 

Well, the U.S. doesn’t manufacture much in solar, for example. The solar supply chain is largely controlled by China. In fact, China is the leader in most of these green energy manufacturing and technologies. So in some parts of the supply chain, the solar supply chain, China controls 97-98% of that component. And so if you wanted to build a solar panel in the U.S. all the way from the beginning to the end, there is a lot of investment in a lot of different pieces in manufacturing that have to be brought here. 

So are we seeing a scramble to set up the kind of manufacturing infrastructure required to make some of these components here in America to take advantage of the incentives from the Inflation Reduction Act? I mean, how are companies trying to take advantage of this? 

Yes, there is definitely a scramble to take advantage of the incentives, and part of that is moving factories to the U.S. or starting up factories in the U.S. There are also, if you are a green project developer, like an energy developer – if you are making a solar farm – then you get a bonus credit if enough of your project has “Made in America” equipment. So everybody’s trying to figure out what that means, what is enough and what is the equipment. Depending on the answer, you may get more or less factories deciding that they can locate here. 

Well, I think the next natural question then is who gets to decide that answer of what is enough or what are the right components? 

Well, officially, it’s the job of the IRS because a lot of this is being done through tax credits. And so it’s the Treasury and the IRS that are deciding these details. But, of course, they’re getting a lot of help. The Department of Energy, I think, is consulting with them. Plus they have asked for comments from the public. And there are dozens and dozens and dozens of letters from companies and governments and industry associations lobbying for various ways of defining this domestic content. 

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