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Why Patagonia, REI, and just about every other gear retailer are going PFAS-free.
Hiking gear exists so that, when nature tries to kill you, it is a little less likely to succeed. Sometimes this gear’s life-saving function is obvious — a Nalgene to carry extra water so you don’t die of thirst, or a fist-sized first-aid kit so you don’t bleed to death — while other things you don’t necessarily purchase with the thought that they might one day save your life. Like, say, a small Swiss Army Knife. Or, in my case, a raincoat.
Last summer, on a casual day hike in Mount Rainier National Park, my family was overtaken by a storm that, quite literally, rose up out of nowhere. It had been a sunny, clear day when we left the parking lot; at four miles in, we were being lashed by hail and gale-force winds on an exposed alpine trail, with no trees or boulders nearby for shelter.
Then, one member of our hiking party tripped.
In the split second before she stood up and confirmed she could walk out on her own, my mind raced through what I had in my pack. Stupidly, I had nothing to assemble a makeshift shelter, no warmer layers. But I did have my blue waterproof rainshell. In weather as extreme as the storm off Rainier that day, keeping dry is essential; if we’d had to wait out the rain due to a broken ankle, we’d have become soaked and hypothermic long before help arrived. My raincoat, I realized during those terrifying seconds, could save my life.
But what made my raincoat so trustworthy that day on the mountain could also, in theory, kill me — or, more likely, kill or sicken any of the thousands of people who live downstream of the manufacturers that make waterproofing chemicals and the landfills where waterproof clothing is incinerated or interred. Outdoor apparel is typically ultraprocessed and treated using perfluoroalkyl and poly-fluoroalkyl substances, a class of water- and stain-resistant “forever chemicals” that are more commonly referred to as PFAS (pronounced “pee-fass”). After decades of work by environmental groups and health advocates, states and retailers are finally banning the sale of textiles that have been treated with the chemicals, which in the outdoor industry often manifest in the form of Gore-Tex membranes or “durable water repellent” treatments.
These bans are fast approaching: Beginning in 2025 — less than 12 months from now — California will forbid the sale of most PFAS-treated textiles; New York will restrict them in apparel; and Washington will regulate stain- and waterproofing treatments, with similar regulations pending or approved in a number of other states. Following pressure from activists, the nation’s largest outdoor retailer, REI, also announced last winter that it will ban PFAS in all the textile products and cookware sold in its stores starting fall 2024; Dick’s Sporting Goods will also eliminate PFAS from its brand-name clothing.
This will upend the outdoor apparel industry. Some of the best coats in the world — legendary gear like Arc’teryx’s Beta AR and the traditional construction of the Patagonia Torrentshell — use, or until recently used, PFAS in their waterproofing processes or in their jackets’ physical membranes. Though the bans frequently allow vague, temporary loopholes for gear intended for “extreme wet conditions” or “expeditions,” such exceptions will be closed off by the end of the 2020s. (Patagonia has “committed to making all membranes and water-repellent finishes without [PFAS] by 2025,” Gin Ando, a spokesperson for the company, told me; Arc’teryx spokesperson Amy May shared that the company is “committed to moving towards PFAS-free materials in its products.”)
Even if you aren’t buying expedition-level gear, your closet almost certainly contains PFAS. A 2022 study by Toxic-Free Future found the chemicals in nearly 75% of products labeled as waterproof or stain-resistant. Another study found that the concentration of fluorotelomer alcohols, which are used in the production of PFAS, was 30 times higher inside stores that sold outdoor clothing than in other workplaces.
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The reason outdoor companies have historically loved PFAS so much is simple: The chemicals are unrivaled in their water repellency. PFAS are manufactured chains of fluorine-carbon bonds that are incredibly difficult to break (the precise number of carbons is also used in the naming process, which is why you’ll hear them called “C8” or “C6,” sometimes, as well). Because of this strong bond, other molecules slip off when they come into contact with the fluorine-carbon chain; you can observe this in a DIY test at home by dripping water onto a fabric and watching it roll off, leaving your garment perfectly dry.
It is also because of this bond that PFAS are so stubbornly persistent — in the environment, certainly, but also in us. An estimated 98% to 99% of people have traces of PFAS in their bodies. Researchers have found the molecules in breast milk, rainwater, and Antarctica’s snow. We inhale them in dust and drink them in our tap water, and because they look a little like a fatty acid to our bodies, they can cause health problems that we’re only beginning to grasp. So far, PFAS have been linked to kidney and testicular cancer, decreased fertility, elevated cholesterol, weight gain, thyroid disease, the pregnancy complication pre-eclampsia, increased risk of preterm birth and low birth weight, hormone interference, and reduced vaccine response in children.
Chemical companies and industry groups often argue that certain PFAS are demonstrably worse than others; the so-called “long-chain” molecules, for instance, are thought to have higher bioaccumulation and toxicity potential, and have mostly been replaced by “short-chain” molecules. But as Arlene Blum, a pioneering mountaineer and the founder of the Green Science Policy Institute, an environmental advocacy organization that opposes PFAS, told me, “in all the cases that we’ve studied,” forever chemicals have been found “to be harmful in one way or another,” whether they’re short or long.
From a health perspective, the good news is that activists are winning. While initial efforts to protect humans and the environment from PFAS in the mid-2000s resulted only in the voluntary phase-out of long-chain chemicals like PFOA and PFOS, the new laws target the entire class of thousands of compounds to prevent an ongoing game of whack-a-mole with chemical manufacturers. (A recent report by The Guardian found that the chemical industry spent $110 million in the last two U.S. election cycles trying to thwart or slow the various bans.) Public pressure campaigns mounted against ostensibly sustainability-minded companies like REI have prompted store-initiated PFAS bans that will also influence future gear sold in the United States. (REI was long a PFAS laggard, and was even hit in 2022 with a class-action lawsuit over allegedly marketing PFAS-containing clothes as “sustainable.” The company declined to comment for this story. Dick’s Sporting Goods did not respond to requests for comment.)
But as the days tick closer to the first PFAS bans coming into effect in stores this fall, outdoor apparel companies are still scrambling to redesign their clothing. Some alternatives to PFAS do exist — Blum swears by her PFAS-free Black Diamond jacket — though even the most ardent supporters of the forever chemical bans will admit the waterproofing alternatives haven’t 100% caught up yet.
“The main concern that most people have in the industry is the amount of work that it’s going to take to meet these guidelines,” Chris Steinkamp, the head of advocacy at the trade association Snowsports Industries America, told me. “Because PFAS is omnipresent. Unfortunately, they’re pretty much in everything.”
Many outdoor apparel companies genuinely want to comply with the coming bans, Karolína Brabcová, the campaign manager for toxic chemicals in consumer products at Arnika, a Czech environmental non-profit, told me. “It’s not such a matter of greenwashing here,” she said. “It’s more about the fact that you’ve got the chemical industry on one side and the downstream users joining the consumers on the other side. And the downstream users don’t know everywhere the PFAS are being used; it’s a business secret.”
In one case detailed by Bloomberg, the Swedish company Fjällräven had stopped using PFAS in its products, only to learn from a 2012 Greenpeace investigation that the chemicals were still present in its apparel. “A supplier using fluorochemistry on another company’s products was cross-contaminating Fjällräven’s,” the Bloomberg authors write, adding that “subsequent testing revealed” just having “products in stores near products from other companies that used the chemicals still resulted in low levels of contamination.”
It isn’t always the case, however, that clothing manufacturers are unwitting victims of chemical sloppiness. Some apparel companies have taken advantage of the alphabet soup of chemical names to look more sustainable than they are. “We’ve seen in recent years products labeled as ‘PFOA-free’ or ‘PFOS-free,’ which suggests that they do not contain the long-chain PFAS that have largely been phased out from production in the United States,” Blum warned me. “That’s really misleading because oftentimes it’s a signal a product likely contains other PFAS chemicals, which may be just as persistent and may also be quite toxic in production to disposal.”
The reason I could count on my raincoat to protect me in the mountains, though, was because, like most expedition-level gear, it is made of a membrane manufactured by Gore-Tex, with an additional DWR waterproofing finish that also contains PFAS. Gore-Tex is known in the outdoors industry for making the holy grail of performance fabrics: Its membranes are waterproof, durable, and breathable enough to exercise in, a challenging and impressive combination to nail. But to achieve this, the company has traditionally used the fluoropolymer PTFE, a notorious forever chemical you probably know by the trademarked name Teflon.
This technology — or rather, these chemicals — are incredibly and irresistibly good at what they do. “The terrible truth,” Wired wrote in its list of raincoat recommendations updated this past December, “is that if you’re going to be exposed [to inclement weather] for multiple hours, you are probably not going to be able to rely on a [PFAS]-free DWR to keep hypothermia at bay.”
When I reached out to Gore-Tex about its use of PFAS, company spokesperson Julie Evans told me via email that “there are important distinctions among materials associated with the term PFAS” and that the fluoropolymers Gore uses, such as PTFE, “are not the same as those substances that are bioavailable, mobile, and persistent.” She stressed that “not all PFAS are the same” and that PTFE and the other fluoropolymers in the Gore arsenal meet the standards of low concern, and are “extremely stable and do not degrade in the environment,” are “too large to be bioavailable,” and are “non-toxic [and] safe to use from an environmental and human perspective.” The National Resource Defense Council, by contrast, writes that PFAS polymers like PTFE, “when added as a coating or membrane to a raincoat or other product, can pose a toxic risk to wearers, just as other PFAS can.”
Some of the environmental health advocates I spoke with said Gore-Tex’s language was misleading. Mike Schade, the director of Toxic-Free Future’s Mind the Store program, which pressures retailers to avoid stocking items that use hazardous chemicals, told me that while it is “laudable that the company has phased some PFAS out of their products … what we’re concerned about is the entire class. We think it’s misleading to consumers and to the public to suggest that other PFAS are not of environmental concern.”
Blum, of the Green Science Policy Institute, admitted that while “probably your Gore-Tex jacket won’t hurt you” — there is limited evidence that PFAS will leech into your body just from wearing it — there’s a more significant issue at the heart of the PFAS debate. “When you go from the monomer to the polymer” in the chemical manufacturing process, she said, it “contaminates the drinking water in the area where it’s made.” The disposal process — and especially incineration, a common fate for discarded clothing — is another opportunity for PFAS to shed into the environment. People who live near landfills and chemical manufacturing plants in industrial hubs like Michigan and many cities in Bangladesh suffer from PFAS at disproportionate levels.
So then, where do we go from here? Hikers, skiers, mountaineers, fly-fishers — they all still need clothing to stay dry. “Our industry is committed to performance and making sure that the gear that people are sold can live up to the standards that athletes need,” Steinkamp said. “I know that is top of mind, and that’s what’s making [the transition] so hard.”
But it also might be the case that our gear is too waterproof. “When we think about the intended performance of outdoor gear, there’s a lot of expectation that your gear will keep you extremely dry,” Kaytlin Moeller, the regional sustainability manager at Fenix Outdoor North America, the parent company of outdoors brands like Fjällräven and Royal Robbins, told me. “But when we really start to look at it,” she added, “I think part of the question is: What is the level of functionality that is really necessary for the customer to have a positive experience outdoors and be prepared for their adventure?”
It’s probably less than you think; consumers frequently don Everest-level technologies to walk their dogs for 15 minutes in a drizzle. “As responsible creators of products, it’s our job to balance functionality with impact,” Moeller said. “And in terms of [PFAS], it just wasn’t worth the risk and the carcinogenic qualities to continue putting that treatment on our products when there are other innovative coatings and constructions that we can use.”
Those alternatives, like innovative fabric weavings and proprietary waxes, might not sound as high-tech as hydrophobic chemicals. Still, for the vast majority of regular people — and even most outdoor recreators — it’s likely more than enough to stay comfortably dry. “We’ve been going into the outdoors for hundreds and hundreds of years without these chemicals,” Schade pointed out. “We can do it again.”
Luckily for everything and everyone on the planet, new waterproofing products are getting better by the day. Gore-Tex has spent “the better part of the last decade” developing its new PFAS-free “ePE membrane,” Evans told me. Short for expanded polyethylene, ePE is fluorine-free (albeit, derived from fossil fuels) and has been adopted by Patagonia, Arc’teryx, and others in the outdoor industry as a PFAS-free alternative. Evans described it as feeling “a little lighter and softer” than old-school Gore-Tex, but “with all the same level of performance benefits” as the historic products.
Other companies, including Patagonia, have been transparent about their phase-out goals and the ongoing difficulties of the PFAS-free transition; Gin, the Patagonia spokesperson, told me that as of this fall, “92% of our materials by volume with water-repellent chemistries are made without” PFAS, and that the new waterproofing “stands up to the demands of our most technical items.” Deuter, Black Diamond, Outdoor Research, Jack Wolfskin, Mammut, Marmot, and prAna are among other outdoor brands that are working to remove PFAS from their gear.
“We have to work together, collaboratively, if we really want to eliminate them — to the point of the verbiage around being [PFAS]-free,” Moeller stressed. “No one can be [PFAS]-free ‘til everyone in the industry is, because of the risk of cross-contamination.”
Then there are the consumers who will need to adjust. I admit, in the weeks before beginning the reporting for this article, I bought myself another raincoat. It was on sale from one of my favorite outdoor brands, and I was attracted to its aggressively cheerful shade of Morton Salt-girl yellow, which I thought would also help me stand out in the case of a future emergency.
At the time, I hadn’t even thought to check what it was made of; what mattered to me was how, when I slipped it on, I became amphibious — like some kind of marine mammal, slick and impervious to the rain. Stepping out of my front door and into a downpour, I felt practically invincible.
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On Israel and Iran, G7, and clean-energy jobs
Current conditions: Fairbanks will “cool” to 85 degrees Fahrenheit on Monday after NOAA issued the first heat advisory in Alaska’s history over the weekend • Nashville’s total rainfall for the year is 33.25 inches, making it the city’s wettest since 1979 • It could hit 124 degrees Fahrenheit in Ar Rabiyah, Kuwait, today, potentially setting a new hottest temperature of June so far.
An Israeli strike on the Shahran oil depot in Tehran.Stringer/Getty Images
Oil analysts and investors are bracing for further escalation after Israel and Iran’s attacks on each other’s energy infrastructure this weekend. On Saturday, Iran reported that Israel had struck its natural gas processing facility near the South Pars field, as well the main fuel depot in Tehran — targets that “suggest Israel is attempting to weaken and disrupt Iran’s domestic gas and fuel supply chains to cause shortages, rather than pursuing the country’s oil and gas production or exports, which would rock the markets,” the Financial Times writes. Iran responded on Saturday by hitting an Israeli refinery and damaging pipelines north of Tel Aviv. Israel preemptively cut off the natural-gas flow from its oil fields in case those pipelines become additional targets, with Egypt and Jordan reporting they’ve already seen disruptions to their supplies as a result, The Wall Street Journal reports.
Iran has the second-largest natural gas reserves and the fourth-largest crude oil reserves in the world, and is the third-largest producer in the Organization of the Petroleum Exporting Countries. The country has also threatened to close the Strait of Hormuz, a major transit route for a third of the world’s oil, although many analysts are skeptical of such a threat, given that it would also cut off Iran’s own export route to its biggest customer, China, Bloomberg reports. While some analysts expect President Trump to call on OPEC+ to increase its production capacity if the global oil supply is disrupted, “it’s unclear whether the Organization of the Petroleum Exporting Countries could offset a severe and prolonged outage in Iran, which pumps around 3.4 million barrels a day,” Bloomberg adds. Brent crude rose 5.5% to $78.32 a barrel at the start of trading on Monday morning, after gaining 7% on Friday — the most in three years.
The Group of Seven summit begins today in western Alberta, but in a break with precedent, climate policy will not be on the agenda. Canada, France, Italy, Japan, Germany, and Britain will reportedly take pains to avoid “riling” President Trump at the meeting in Kananaskis, The Washington Post reports, while Bloomberg notes that “other G7 leaders won’t even try for a statement of unity on matters such as Ukraine or climate change.” Since 1975, the group has “dedicated an average of 5% of its declarations to climate change at each summit,” The Global Governance Project reports, and it has made “496 climate commitments, taking 6% of the total on all subjects.” But despite the hesitancy to contradict the U.S., certain climate policies will be “integrated into the agenda, a senior government official told a briefing this week, pointing to an effort to improve the international joint response to the growing global forest fire threat,” per the BBC.
The Republican budget bill could potentially threaten 2 million jobs, a new report by BlueGreen Alliance found. In addition to 300,000 direct manufacturing jobs that may be lost if the GOP follows through on eliminating the corresponding tax credits, the report also found that a million indirect jobs (like “supply chain jobs, providing parts for auto or clean energy manufacturing”) and 643,000 induced jobs (like “restaurant workers, store clerks, and the other types of jobs you’d see when an area increases in population or has more money to spend”) are also at risk of evaporating, Electrek notes. Georgia alone could lose 258,000 jobs. “Every bit of data shows clearly that repealing these credits will hurt working Americans,” Ted Fertik, the vice president of manufacturing and industrial policy at BlueGreen Alliance, said in a statement. “We hope the Senate will see reason and reverse these damaging provisions.”
The European Commission, which is set to propose a cut-off date for the European Union’s imports of Russian gas, will not propose similar limits on the nation’s nuclear fuel, Reuters reported Monday. Russia currently supplies the bloc with 38% of its enriched uranium and 23% of its raw uranium, and five EU countries use Russian-designed reactors intended to run on Russian fuel. “The question about nuclear is, of course, complicated, because we need to be very sure that we are not putting countries in a situation where they do not have the security of supply,” EU energy commissioner Dan Jorgensen said. Though the announcement was a reversal from the Commission’s statement in June that it would target Russian enriched uranium, Jorgensen added that “we’re working as fast as we can to also make that a part of the proposal.”
In case you missed it, late last week Meta announced a deal with XGS Energy to add 150 megawatts of geothermal electricity in New Mexico to help the company power its local expansion into artificial intelligence. XGS specifically uses a closed-loop system to prevent water from escaping as it extracts geothermal energy from the rock, which is “especially crucial in a drought-prone state like New Mexico,” The Verge writes. The goal is for the facility to be operational by 2030.
Though the deal between Meta and XGS is no larger than a separate geothermal deal the tech company struck with Sage Geosystems last year, the proposal would still “represent about 4% of total U.S. geothermal production,” Reuters reports. Meta also announced a nuclear agreement with Constellation Energy earlier this month. My colleague Matthew Zeitlin has more on the tech clean-power buying spree, which you can read about here.
The world’s biggest sand battery is now operating in the small municipality of Pornainen, Finland. The nearly 50-foot wide, 43-foot-tall tank is filled with sand that is capable of storing 1 megawatt of thermal power from excess solar and wind electricity, and which can be used to meet one month of Pornainen’s heat demands in the summer or a week of its demands in the winter, per its owner, Polar Night Energy.
How the perpetually almost-there technology could get shut out of the Inflation Reduction Act’s surviving nuclear tax credits.
The House offered a last minute olive branch to the increasingly bipartisan nuclear industry when it passed its version of the budget reconciliation bill now working its way through the Senate, opting to preserve tax credit eligibility for so-called “advanced nuclear facilities” that start construction by 2029. That deadline will be difficult for many nuclear companies to meet, regardless of their technological approach or reactor size. But one much anticipated, potentially world-changing technology won’t even have a shot: nuclear fusion.
That’s not because fusion is so futuristic that the 2029 deadline would be categorically unworkable. As I keep hearing, the tech is finally, possibly, actually on the verge of commercialization, and some industry leaders such as Commonwealth Fusion Systems could probably break ground on a commercial reactor by then.
Fusion won’t have a shot simply because, as defined by Congress and the IRS, it does not fall within the category of an “advanced nuclear facility.” Instead, it’s defined and regulated as a separate class of zero-emission technology, thus excluding it from the nuclear carve out in the budget bill. That distinction was made clear in January, when the IRS released its final regulations for the Inflation Reduction Act, Julien Barber, an investor in multiple fusion technologies at Emerson Collective, told me. That separation happened because “we wanted to regulate them differently,” he said.
Fusion reactors can’t melt down and don’t produce the kind of highly radioactive nuclear waste that fission does, meaning that many of the safety constraints on conventional nuclear don’t apply to fusion. In 2023, the Nuclear Regulatory Commission decided to regulate fusion reactors more like particle accelerators, which are typically licensed at the state level, have fewer siting constraints, less stringent security requirements, and are often exempt from full environmental review. Last year, a bipartisan group of senators worked together to pass the Fusion Energy Act, which confirmed the NRC’s decision to separate the regulatory processes.
If the Senate approves the House’s version of the clean energy investment and production tax credits, fusion energy will be subject to the same tight restrictions as other clean energy solutions. The timeline for credit eligibility requires energy projects to begin construction a mere 60 days after the bill’s passage, and be placed in service by 2029. That, Barber said, is “essentially impossible for any of the fusion companies out there.” Brian Berzin, CEO of the fusion startup Thea Energy, agreed. “Most private fusion companies will be left unable to benefit from these financial incentives,” he wrote in an emailed statement.
There’s confusion, however, around whether this fusion exclusion was a deliberate decision from the House or simply an oversight. Barber is betting on the latter.
“This was happening quickly,” Barber told me. “There was some push by some of the companies in the [Fusion Industry Association] to review the language, but they just didn’t have time to review the language in time to write comments, and it just kind of got pushed through as is.”
The bill’s final language also took the CEO of the Fusion Industry Association, Andrew Holland, by surprise. “We had heard that fusion would be part of the carve out too, but then it wasn’t,” Holland told me.
A more pessimistic interpretation is also possible, Barber conceded. “There’s the idea that people don’t think fusion is ever going to be the case,” he told me. Certainly for some both in and out of government, fusion represents a dream perpetually deferred.
What Barber thinks many people fail to realize, though, is that some fusion industry leaders are operating on timelines similar to fission companies building small modular reactors. “If you talk to CFS, they’re going to say, We’re going to be putting our first power plant on the grid by the early 2030s, which is the same timeline as [small modular reactor company] X-energy, right?”
Until this moment, the distinction that top governing bodies such as the Nuclear Regulatory Commission have made between fusion and fission has been nothing but a positive for fusion companies and advocates alike. When the Fusion Energy Act passed, one of the bill’s co-sponsors, Republican John Cornyn of Texas, said that “fusion energy is a promising clean and safe power source that could help address America’s growing energy demands.” Another co-sponser, Republican Todd Young of Indiana, said that fusion “has the potential to usher in a new era of energy production in America.”
But whether generalized Republican support for fusion will extend beyond easing regulations to actively include subsidies for the technology remains to be seen. And for now, most of the companies themselves are staying quiet. As of publication time, CFS, Zap Energy, Type One Energy, and Xcimer Energy all either said they could not comment or else did not respond to my request for comment.
Editor’s note: This story has been updated to include comments from the Fusion Industry Association.
Regardless of who’s eligible for what and when, strict “foreign entity of concern” provisions could make clean energy incentives impossible to take advantage of.
The word of the moment in renewable energy is “unworkable.” That’s how the chief executives of two major renewables developers — John Ketchum of NextEra and Jim Murphy of Invenergy — described new requirements inserted into clean energy tax credits by congressional Republicans in recent weeks.
“The way they’re drafted, they’re unworkable,” Ketchum said of the requirements at a Politico summit held earlier this week. He was referring specifically to a new set of provisions in the House budget reconciliation bill which say that to qualify for the credits, companies must divest their supply chains from “foreign entities of concern,” a group of countries comprising Russia, Iran, North Korea, and China. But really, the rules are about China.
Around 80% of the global solar panel supply chain runs through China, according to the International Energy Agency. The batteries used in many stationary storage systems are almost entirely made in China, to name just a couple isolated examples. Starting in 2026, the bill mandates that developers seeking to claim the clean energy production or investment tax credits may not receive “material assistance” from China. That refers to any component or subcomponent (including critical minerals) that was “extracted, processed, recycled, manufactured, or assembled” by a “prohibited foreign entity,” defined as a company with at least 25% Chinese ownership or 10% Chinese debt holdings, according to a memo by the law firm Norton Rose Fulbright. The rules become even more strict in 2028. Similar strictures were also added to the 45X advanced manufacturing tax credit.
A small modular reactor has at least 10,000 component parts, Ketchum told the Politico audience. “We come to find out that one of the screws in the bolts, used by one of the suppliers five layers down … was actually sourcing the bolt and the screw from China. Guess what happens? You’re disqualified, all your tax credits for that small modular reactor go away,” Ketchum said.
“How in the world are you going to trace five layers down to a subcontractor who’s buying a bolt and a screw?”
Murphy, the Invenergy CEO, put it more succinctly at an industry conference last week. “The supply chain can not support that, and won’t be able to support that for several years. It’s just an unworkable provision.”
While these may sound like the exaggerations of executives eager to avoid paperwork or costly new investments, analysts who have looked at the bill’s language have similarly concluded that the language is both so vague and so broad that determining whether a company has complied would be almost impossible.
Analysts at the investment bank Evercore wrote in a note to clients last week that while the new FEOC framework “ostensibly aims to keep China out of U.S. energy supply chains, it would likely bury companies and their suppliers in such onerous paperwork and diligence that the remaining tax credits are rendered largely unusable.”
Foreign entity of concern rules are not new — versions of them appear in the CHIPS and Science Act and the Inflation Reduction Act’s electric vehicle tax credits. The FEOC rules in the One Big, Beautiful Bill are far more extensive, however.
The Senate may look to loosen the rules, according to Axios, andseveral House Republicans have signed (yet another) letter, this one referring to the restrictions as “highly restrictive and onerous” and “overly prescriptive and risk undermining U.S. competitiveness.”
Should the FEOC provisions become law, their exact implementation will be up to the IRS. In the case of EVs, the tax agency came out with proposed guidelines in the months after the Inflation Reduction Act was enacted, but didn’t finalize them until 2024. Even complying with those required a “Herculean” effort from the EV and battery industry, Albert Gore, head of the Zero Emission Transportation Association, told me.
Gore also questioned whether the rules would be “workable” as written. To determine whether compliance would be worth it, Gore said, you have to evaluate how close an industry is to complying in the present, and the value of complying in the future, and the cost to get there.
Given that the clean energy and manufacturing credits sunset after 2031 (except for wind components, which sunset earlier), that calculation may very well come out negative. And then there’s the deadline to even qualify for the clean energy tax credits in the first place, starting construction two months after the bill passes, according to the House language.
The EV rules did ultimately support U.S. manufacturing, Gore told me. “It was a pretty efficient investment in American manufacturing, kind of disguised as a consumer EV credit,” he said. “But it was a very, very stringent credit.”
Xan Fishman, senior managing director of the energy program at the Bipartisan Policy Center, was skeptical that the FEOC provisions in the budget reconciliation bill would do anything to bolster U.S. manufacturing. “Intricate and complicated doesn’t make it more effective,” he told me.
“You would have a disallowance of credit if you are a foreign entity of concern, or you are a foreign influenced entity of concern, which might mean that one of your suppliers is a foreign entity of concern, or one of your supplier’s board members is from China or they have a family member that’s from China that runs a foreign entity of concern, or that family member has some business transaction involving debt with a foreign entity of concern, and their suppliers actually might have board members who have family members who have some debt arrangement with the foreign entity of concern,” Fishman elaborated.
This is where workability really comes in.
“If the result of this is we have less U.S. manufacturing, we won’t have achieved the goal” of raising America’s global competitiveness. “Nor will we have been tough on China,” Fishman said.
The ironies of the legislation abound. “There's sort of that double whammy in there with the start of construction deadline, which to some extent, makes the FEOC moot,” Murphy, the Invenergy CEO, said at the conference. “If you don't start construction by the deadline, who cares about it?”
Ironically, if the Senate put in a more relaxed deadline to qualify for the credits, “then we have to really address those foreign entity of concern provisions,” Murphy added.