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Here’s where Biden’s climate law is having the biggest impact on the automotive industry — and where it’s falling short.
Around this time last summer, it seemed more apparent than ever that 2023 would be the year the gasoline-free automotive future was set to begin. After a decade that included electric vehicle fits and starts, Volkswagen’s diesel cheating scandal, the rise of Tesla, the EV boom in China, and a whole new generation of car buyers more aware of their personal impact on the climate than ever, it felt like the dawn of an EV-focused tomorrow was just around the corner. All it needed was a spark.
The Inflation Reduction Act, an admittedly poorly named piece of legislation packed with climate and green energy provisions, was meant to be exactly that. On the automotive front, the Biden administration’s signature legislation package included massive subsidies for EV battery plants, strict rules around where cars are produced and batteries are sourced, and a reset on America’s outdated EV tax incentive scheme for car buyers. It seemed grand on a scale not seen since the Johnson years: thousands of jobs, some $100 billion in funding, and a chance for America to kneecap China in the EV arms race.
So a year after the IRA’s passage, is all this investment working? The definitive answer is this: mostly, kinda.
While it’s highly questionable that the IRA has successfully Reduced Inflation, the effect of the legislation on America’s automotive manufacturing landscape has already been palpable. A recent report from the Environmental Defense Fund shows EV industry investments in the U.S. rising in 2021 around the passage of the Bipartisan Infrastructure Law, before taking off in a near-vertical fashion after the IRA was passed.
I decided to grade the IRA’s impact on America’s automotive sector — not just the Big Three U.S. automakers, but all companies who make cars here and support them — in a few key areas.
What I found is that a year in, the IRA feels like it could permanently reset our car industry. But in some key areas, its effects aren’t even close to being seen, and on other fronts, the IRA has caused a number of unintended consequences that will play out for years to come.
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This is arguably the biggest shift we’ve seen thanks to the IRA, and it’s certainly working.
Making batteries for tomorrow’s EVs won’t be as simple as turning car engine plants into battery plants; the supply chain, manufacturing process, and labor needs are entirely different. And so new facilities are springing up left and right to meet this moment.
The Electrification Coalition, a nonprofit policy organization that advocates for EV adoption, identified more than a dozen battery manufacturing and recycling factories that have been announced or are under construction thanks to IRA incentives. These projects are, on average, $3 billion or more, and they’ll provide batteries for future cars from General Motors, Rivian, Hyundai, Tesla, Volkswagen’s new electric Scout brand, and more.
Would this new battery ecosystem have happened without the IRA? Maybe. But certainly not this quickly or at this scale. The automakers may be moving in the direction of electrification, but it’s doing so begrudgingly and these incentives — coupled with state and local ones as well — gave them a reason to move quicker than “the market” would’ve done.
That’s good news for batteries. What about the cars themselves? Since the IRA heavily incentivizes batteries and EVs to be made locally — which I’ll touch on in a moment — it’s kicking off a surge in U.S. car manufacturing the likes of which haven’t been seen in decades.
While battery factories themselves are getting the lion’s share of the attention and money, automakers are adding new factories, expanding existing ones, and retooling lines to scale up their EV outputs.
Granted, many automakers are still investing heavily into (or hedging their bets on) their profitable gasoline models, especially big trucks and SUVs. But EV production is ramping up in America and that scale should eventually drive prices down. Simply put, if a car company — GM, Ford, Nissan, BMW, Hyundai, all of them — builds in the U.S., they’re about to start making EVs here too.
There’s an undercurrent that can be found across all of the Biden administration’s climate and tech investments: cutting off a rising China in countless areas. It’s why only EVs with “final assembly” in North America, that don’t source batteries or components from China, qualify for tax incentives. China has made huge investments into not only its own EV industry but controlling the supply chain around it, and America doesn’t want to cede that to a potentially hostile, non-allied peer state that has a horrific record on human rights and civic freedoms.
Is it working? So far, yes. However, it’s not going to happen overnight. Just as the Center for Strategic and International Studies called it last year, “in the short term it will be difficult to avoid Chinese supply chains.” That’s true of chips, minerals, and everything else.
Moreover, don’t expect automakers to give up the potential of exporting Chinese-made cars. Tesla already sells China-made EVs in Canada, and Volvo has found a George Washington-era loophole to sell the affordable EX30 electric crossover in America without steep tariff penalties. IRA rules may keep Chinese batteries out of our country and stiff tariffs hamper automakers like BYD for now, but this side of things is far from settled.
Now, it’s time for our lesson in unintended consequences. The new $7,500 EV tax credits have strict requirements; essentially, the cars and their batteries have to be built in North America. Given the long-term nature of these investments, not every automaker with an EV lineup can meet those rules for now, leaving a lot of cars out of the credit. (South Korea’s Hyundai Motor Group, in particular, got pretty burned here, leaving its excellent EVs on the expensive side.)
Long-term, these cars and their batteries will be built locally and more cars will qualify for the tax credit. For now, the high cost of EVs is proving to be a major deterrent to adoption. Buyers, squeezed by interest rates and the rising cost of everything, are having trouble justifying the switch. So far the biggest winner is Tesla, which has always been building EVs and batteries in America.
I think a better approach would’ve been to allow all EVs to qualify for the full tax credit until, say, 2026 or so; after that, and perhaps after a gradual phase-in, automakers would have to build local or charge higher prices. That would’ve given them time to ramp up these factories and pushed EV adoption harder at the same time. At the start of the year, before a ton of EVs and hybrids got kicked out of the program, that’s exactly the trend we saw.
That’s what I would’ve done. But, to date, Joe Biden has not put me in charge of such things.
This one is due to be an objective win for the IRA. That Environmental Defense Fund report counts 84,800 jobs that have been announced for the EV industry in America since the IRA’s passage.
According to their data, nearly all of those are located in Southern states. Georgia’s the biggest winner here, believe it or not. And Tennessee, South and North Carolina, and Kentucky are all seeing, or will soon see, big booms in EV-related job growth. The same is true for Michigan, the home of America’s auto industry, as well as lithium-rich Nevada, where Tesla has had a foothold for years.
Again, there’s another universe where the IRA didn’t pass and all of those jobs went to China instead as America’s automakers put their patriotism on the back burner to chase lower labor costs and easy profits. The U.S. is getting a major employment boost instead.
But there’s a difference between “jobs” and “good jobs.” Take a newly militant United Auto Workers union, currently locked into unusually bitter contract negotiations with the Big Three American automakers. One thing they’re mad about: those battery factories going up everywhere, especially the joint-venture ones, don’t automatically lead to union jobs. (One GM-LG battery plant in Ohio voted to unionize with the UAW last year but doesn’t have a contract yet.)
The result is that those battery plant workers could make considerably less money than America’s unionized auto workers, as my colleague Emily Pontecorvo reported in June. Adding insult to injury, EVs generally need fewer parts and labor than conventional cars to assemble; indeed, those battery plant jobs could one day form the bulk of America’s automotive labor force.
The UAW did support the IRA’s passage last year. But that also happened before the union’s much tougher current leadership came in; I’m not convinced it would have gone the same way today. In general, the law doesn’t do a ton for labor, and that’s why the reliably Democratic UAW has held off on endorsing Biden.
So far, the Biden administration doesn’t have a great answer for this, either. The president himself is doing the “Can’t we all just get along?” dance, but that may be the best he can do as he navigates climate, geopolitical, industry, and labor needs at the same time. And the move to EVs is expected to define the automotive labor world — here and globally — for the next few decades.
As Ryan Cooper astutely noted this week, the IRA’s biggest problem is arguably one of awareness. Very few people seem to know about these investments or what’s coming from them. That lack of awareness could be the IRA’s biggest threat.
Maybe that’s a problem more for Biden than the EV industry, America’s supply chain, or the climate, but when nobody knows about the president’s biggest achievement — especially in all those red states where the jobs are going — you have to wonder what a change at the White House next year could mean for all of this momentum. It’s not like those battery plants under construction will just disappear, but I wouldn’t put it past a less climate-focused White House (or Congress) to find a way to thwart all this progress.
There’s also the rising right-wing backlash to EVs in general, predicated more on the messaging power of the fossil fuel industry and our own endlessly stupid culture wars. In short, though these investments do take time, very few people seem to know about them or see the benefits that will come from them.
Auto industries are always heavily subsidized and regulated by the countries they come from. It was true of Japan after World War II, it’s been true of China for the past 20 years, and it’s certainly been true in various ways in America for a century. The IRA is just the biggest such move the U.S. has seen to modernize, compete and innovate in a world where gas cars could eventually be discarded as obsolete technology.
The groundwork has been laid. Now we’ll find out if it has staying power.
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Amarillo-area residents successfully beat back a $600 million project from Xcel Energy that would have provided useful tax revenue.
Power giant Xcel Energy just suffered a major public relations flap in the Texas Panhandle, scrubbing plans for a solar project amidst harsh backlash from local residents.
On Friday, Xcel Energy withdrew plans to build a $600 million solar project right outside of Rolling Hills, a small, relatively isolated residential neighborhood just north of the city of Amarillo, Texas. The project was part of several solar farms it had proposed to the Texas Public Utilities Commission to meet the load growth created by the state’s AI data center boom. As we’ve covered in The Fight, Texas should’ve been an easier place to do this, and there were few if any legal obstacles standing in the way of the project, dubbed Oneida 2. It was sited on private lands, and Texas counties lack the sort of authority to veto projects you’re used to seeing in, say, Ohio or California.
But a full-on revolt from homeowners and realtors apparently created a public relations crisis.
Mere weeks ago, shortly after word of the project made its way through the small community that is Rolling Hills, more than 60 complaints were filed to the Texas Public Utilities Commission in protest. When Xcel organized a public forum to try and educate the public about the project’s potential benefits, at least 150 residents turned out, overwhelmingly to oppose its construction. This led the Minnesota-based power company to say it would scrap the project entirely.
Xcel has tried to put a happy face on the situation. “We are grateful that so many people from the Rolling Hills neighborhood shared their concerns about this project because it gives us an opportunity to better serve our communities,” the company said in a statement to me. “Moving forward, we will ask for regulatory approval to build more generation sources to meet the needs of our growing economy, but we are taking the lessons from this project seriously.”
But what lessons, exactly, could Xcel have learned? What seems to have happened is that it simply tried to put a solar project in the wrong place, prizing convenience and proximity to an existing electrical grid over the risk of backlash in an area with a conservative, older population that is resistant to change.
Just ask John Coffee, one of the commissioners for Potter County, which includes Amarillo, Rolling Hills, and a lot of characteristically barren Texas landscape. As he told me over the phone this week, this solar farm would’ve been the first utility-scale project in the county. For years, he said, renewable energy developers have explored potentially building a project in the area. He’s entertained those conversations for two big reasons – the potential tax revenue benefits he’s seen elsewhere in Texas; and because ordinarily, a project like Oneida 2 would’ve been welcomed in any of the pockets of brush and plain where people don’t actually live.
“We’re struggling with tax rates and increases and stuff. In the proper location, it would be well-received,” he told me. “The issue is, it’s right next to a residential area.”
Indeed, Oneida 2 would’ve been smack dab up against Rolling Hills, occupying what project maps show would be the land surrounding the neighborhood’s southeast perimeter – truly the sort of encompassing adjacency that anti-solar advocates like to describe as a bogeyman.
Cotton also told me he wasn’t notified about the project’s existence until a few weeks ago, at the same time resident complaints began to reach a fever pitch. He recalled hearing from homeowners who were worried that they’d no longer be able to sell their properties. When I asked him if there was any data backing up the solar farm’s potential damage to home prices, he said he didn’t have hard numbers, but that the concerns he heard directly from the head of Amarillo’s Realtors Association should be evidence enough.
Many of the complaints against Oneida 2 were the sort of stuff we’re used to at The Fight, including fears of fires and stormwater runoff. But Cotton said it really boiled down to property values – and the likelihood that the solar farm would change the cultural fabric in Rolling Hills.
“This is a rural area. There are about 300 homes out there. Everybody sitting out there has half an acre, an acre, two acres, and they like to enjoy the quiet, look out their windows and doors, and see some distance,” he said.
Ironically, Cotton opposed the project on the urging of his constituents, but is now publicly asking Xcel to continue to develop solar in the county. “Hopefully they’ll look at other areas in Potter County,” he told me, adding that at least one resident has already come to him with potential properties the company could acquire. “We could really use the tax money from it. But you just can’t harm a community for tax dollars. That’s not what I’m about.”
I asked Xcel how all this happened and what their plans are next. A spokesperson repeatedly denied my requests to discuss Oneida 2 in any capacity. In a statement, the company told me it “will provide updates if the project is moved to another site,” and that “the company will continue to evaluate whether there is another location within Potter County, or elsewhere, to locate the solar project.”
Meanwhile, Amarillo may be about to welcome data center development because of course, and there’s speculation the first AI Stargate facility may be sited near Amarillo, as well.
City officials will decide in the coming weeks on whether to finalize a key water agreement with a 5,600-acre private “hypergrid” project from Fermi America, a new company cofounded by former Texas governor Rick Perry, says will provide upwards of 11 gigawatts to help fuel artificial intelligence services. Fermi claims that at least 1 gigawatt of power will be available by the end of next year – a lot of power.
The company promises that its “hypergrid” AI campus will use on-site gas and nuclear generation, as well as contracted gas and solar capacity. One thing’s for sure – it definitely won’t be benefiting from a large solar farm nearby anytime soon.
And more of the most important news about renewable projects fighting it out this week.
1. Racine County, Wisconsin – Microsoft is scrapping plans for a data center after fierce opposition from a host community in Wisconsin.
2. Rockingham County, Virginia – Another day, another chokepoint in Dominion Energy’s effort to build more solar energy to power surging load growth in the state, this time in the quaint town of Timberville.
3. Clark County, Ohio – This county is one step closer to its first utility-scale solar project, despite the local government restricting development of new projects.
4. Coles County, Illinois – Speaking of good news, this county reaffirmed the special use permit for Earthrise Energy’s Glacier Moraine solar project, rebuffing loud criticisms from surrounding households.
5. Lee County, Mississippi – It’s full steam ahead for the Jugfork solar project in Mississippi, a Competitive Power Ventures proposal that is expected to feed electricity to the Tennessee Valley Authority.
A conversation with Enchanted Rock’s Joel Yu.
This week’s chat was with Joel Yu, senior vice president for policy and external affairs at the data center micro-grid services company Enchanted Rock. Now, Enchanted Rock does work I usually don’t elevate in The Fight – gas-power tracking – but I wanted to talk to him about how conflicts over renewable energy are affecting his business, too. You see, when you talk to solar or wind developers about the potential downsides in this difficult economic environment, they’re willing to be candid … but only to a certain extent. As I expected, someone like Yu who is separated enough from the heartburn that is the Trump administration’s anti-renewables agenda was able to give me a sober truth: Land use and conflicts over siting are going to advantage fossil fuels in at least some cases.
The following conversation was lightly edited for clarity.
Help me understand where, from your perspective, the generation for new data centers is going to come from. I know there are gas turbine shortages, but also that solar and wind are dealing with headwinds in the United States given cuts to the Inflation Reduction Act.
There are a lot of stories out there about certain technologies coming out to the forefront to solve the problem, whether it’s gas generation or something else. But the scale and the scope of this stuff … I don’t think there is a silver bullet where it’s all going to come from one place.
The Energy Department put out a request for information looking for ways to get to 3 gigawatts quickly, but I don’t think there is any way to do that quickly in the United States. It’s going to take work from generation developers, batteries, thermal generation, emerging storage technologies, and transmission. Reality is, whether it is supply chain issues or technology readiness or the grid’s readiness to accept that load generation profile, none of it is ready. We need investment and innovation on all fronts.
How do conflicts over siting play into solving the data center power problem? Like, how much of the generation that we need for data center development is being held back by those fights?
I do have an intuitive sense that the local siting and permitting concerns around data centers are expanding in scope from the normal noise and water considerations to include impacts to energy affordability and reliability, as well as the selection of certain generation technologies. We’ve seen diesel generation, for example, come into the spotlight. It’s had to do with data center permitting in certain jurisdictions, in places like Maryland and Minnesota. Folks are realizing that a data center comes with a big power plant – their diesel generation. When other power sources fall short, they’ll rely on their diesel more frequently, so folks are raising red flags there. Then, with respect to gas turbines or large cycle units, there’s concerns about viewsheds, noise and cooling requirements, on top of water usage.
How many data center projects are getting their generation on-site versus through the grid today?
Very few are using on-site generation today. There’s a lot of talk about it and interest, but in order to serve our traditional cloud services data center or AI-type loads, they’re looking for really high availability rates. That’s really costly and really difficult to do if you’re off the grid and being serviced by on-site generation.
In the context of policy discussions, co-location has primarily meant baseload resources on sites that are serving the data centers 24/7 – the big stories behind Three Mile Island and the Susquehanna nuclear plant. But to be fair, most data centers operational today have on-site generation. That’s their diesel backup, what backstops the grid reliability.
I think where you’re seeing innovation is modular gas storage technologies and battery storage technologies that try to come in and take the space of the diesel generation that is the standard today, increasing the capability of data centers in terms of on-site power relative to status quo. Renewable power for data centers at scale – talking about hundreds of megawatts at a time – I think land is constraining.
If a data center is looking to scale up and play a balancing act of competing capacity versus land for energy production, the competing capacity is extremely valuable. They’re going to prioritize that first and pack as much as they can into whatever land they have to develop. Data centers trying to procure zero-carbon energy are primarily focused on getting that energy over wires. Grid connection, transmission service for large-scale renewables that can match the scale of natural gas, there’s still very strong demand to stay connected to the grid for reliability and sustainability.
Have you seen the state of conflict around renewable energy development impact data center development?
Not necessarily. There is an opportunity for data center development to coincide with renewable project development from a siting perspective, if they’re going to be co-located or near to each other in remote areas. For some of these multi-gigawatt data centers, the reason they’re out in the middle of nowhere is a combination of favorable permitting and siting conditions for thousands of acres of data center building, substations and transmission –
Sorry, but even for projects not siting generation, if megawatts – if not gigawatts – are held up from coming to the grid over local conflicts, do you think that’s going to impact data center development at all? The affordability conversions? The environmental ones?
Oh yeah, I think so. In the big picture, the concern is if you can integrate large loads reliably and affordably. Governors, state lawmakers are thinking about this, and it’s bubbling up to the federal level. You need a broad set of resources on the grid to provide that adequacy. To the extent you hold up any grid resources, renewable or otherwise, you’re going to be staring down some serious challenges in serving the load. Virginia’s a good example, where local groups have held up large-scale renewable projects in the state, and Dominion’s trying to build a gas peaker plant that’s being debated, too. But in the meantime, it is Data Center Alley, and there are gigawatts of data centers that continue to want to get in and get online as quickly as possible. But the resources to serve that load are not coming online in time.
The push toward co-location probably does favor thermal generation and battery storage technologies over straight renewable energy resources. But a battery can’t cover 24/7 use cases for a data center, and neither will our unit. We’re positioned to be a bridge resource for 24/7 use for a few years until they can get more power to the market, and then we can be a flexible backup resource – not a replacement for the large-scale and transmission-connected baseload power resources, like solar and wind. Texas has benefited from huge deployments of solar and wind. That has trickled down to lower electricity costs. Those resources can’t do it alone, and there’s thermal to balance the system, but you need it all to meet the load growth.