Sign In or Create an Account.

By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy

Politics

The Senate Bill’s Anti-China Clean Energy Killer

A new “foreign entities of concern” proposal might be just as unworkable as the House version.

A container ship entering a storm.
Heatmap Illustration/Getty Images

In the House’s version of Trump’s One, Big, Beautiful Bill Act Republicans proposed denying tax credits to clean energy companies whose supply chains contained any ties — big or small — to China. The rules were so administratively and logistically difficult, industry leaders said, that they were effectively the same as killing the tax credits altogether.

Now the Senate is out with a different proposal that, at least on its face, seems to be more flexible and easier to comply with. But upon deeper inspection, it may prove just as unworkable.

“It has the veneer of giving more specificity and clarity,” Kristina Costa, a Biden White House official who worked on Inflation Reduction Act implementation, told me. “But a lot of the fundamental issues that were present in the House bill remain.”

The provisions in question are known as the “foreign entities of concern” or FEOC rules. They penalize companies for having financial or material relationships with businesses that are “owned by, controlled by, or subject to the jurisdiction or direction of” any of four countries — Russia, Iran, North Korea, and, most importantly for clean energy technology, China.

The Inflation Reduction Act imposed FEOC restrictions on just one clean energy tax credit — the $7,500 consumer credit for electric vehicles. Starting in 2024, if automakers wanted their cars to qualify, they could not use battery components that were manufactured or assembled by a FEOC. The rules ratcheted up over time, later disallowing critical minerals extracted or processed by a FEOC.

The idea, Costa told me, was to “target the most economically important components and materials for our energy security and economic security.” But now, the GOP is attempting to impose FEOC restrictions liberally to every tax credit and every component, in a world where China is the biggest lithium producer and dominates roughly 80% of the solar supply chain.

Not only would sourcing outside China be challenging, it would also be an administrative nightmare. The way the House’s reconciliation bill was written, a single bolt or screw sourced from a Chinese company, or even a business partially owned by Chinese citizens, could disqualify an entire project. “How in the world are you going to trace five layers down to a subcontractor who’s buying a bolt and a screw?” John Ketchum, the CEO of the energy company NextEra, said at a recent Politico summit. Ketchum deemed the rules “unworkable.”

The Senate proposal would similarly attach FEOC rules to every tax credit, but it has a slightly different approach. Rather than a straight ban on Chinese sourcing, the bill would phase-in supply chain restrictions, requiring project developers and manufacturers to use fewer and fewer Chinese-sourced inputs over time. For example, starting next year, in order for a solar farm to qualify for tax credits, 40% of the value of the materials used to develop the project could not be tied to a FEOC. By 2030, the threshold would rise to 60%. The bill includes a schedule of benchmarks for each tax credit.

“That might be strict, but it’s clearer and more specific, and it’s potentially doable,” Derrick Flakoll, the senior policy associate for North America at BloombergNEF, told me. “It’s not an all or nothing test.”

But how companies should calculate this percentage is not self-evident. The Senate bill instructs the Treasury department to issue guidance for how companies should weigh the various sub-components that make up a project. It references guidance issued by the Biden administration for the purposes of qualifying for a domestic content bonus credit, and says companies can use this for the FEOC rules until new guidance is issued.

Mike Hall, the CEO of a company called Anza that provides supply chain data and analytics to solar developers, told me he felt that the schedule was achievable for solar farm developers. But the Biden-era guidance only contains instructions for wind, solar, and batteries. It’s unclear what a company building a geothermal project or seeking to claim the manufacturing tax credit would need to do.

Costa was skeptical that the Senate bill was, in fact, clearer or more specific than the House version. “They’re not providing the level of precision in their definitions that it would take to be confident that the effect of what they’re doing here will not still require going upstream to every nut, bolt, screw, and wire in a project,” she said.

It’s also hard to tell whether certain parts of the text are intentional or a drafting error. There’s a section that Flakoll had interpreted as a grandfathering clause to allow companies to exempt certain components from the calculation if they had pre-existing procurement contracts for those materials. But Costa said that even though that seems to have been the intent, the way that it’s written does not actually achieve that goal.

In addition to rules on sourcing, the Senate bill would introduce strict ownership rules that could potentially disqualify projects that are already under construction or factories that are already producing eligible components. The text contains a long list defining various relationships with Chinese entities that would disqualify a company from tax credits. Perhaps the simplest one is if a Chinese entity owns just 25% of the company.

BloombergNEF analyzed the pipeline of solar and battery factories that are operational, under construction, or have been announced in the U.S. as of March, and quite a few have links to China. The research firm identified 22 firms “headquartered in China with Chinese parent companies or majority-Chinese shareholders” that are behind more than 100 existing or planned solar or battery factories in the U.S.

One example is AESC, a Japanese battery manufacturer that sold a controlling stake in the business to a Chinese company in 2018. AESC has two gigafactories under construction in Kentucky and South Carolina, both of which are currently paused, and a third operating in Tennessee. Another is Illuminate USA, a joint venture between U.S. renewables developer Invenergy and Chinese solar panel manufacturer LONGi; it began producing solar panels at a new factory in Ohio last year. The sources I reached out to would not comment on whether they thought that Ford, which has a licensing deal with Chinese battery maker CATL, would be affected. Ford did not respond to a request for comment.

Hall told me he would expect to see Chinese companies try to divest from these projects. But even then, if the business is still using Chinese intellectual property, it may not qualify. “It’s just a lot of hurdles for some of these factories that are already in flight to clear,” he said.

In general, the FEOC language in the Senate bill was “still not good,” he said, but “a big improvement from what was in the House language, which just seemed like an insurmountable challenge.”

Albert Gore, the executive director of the Zero Emissions Transportation Association, had a similar assessment. “Of course, the House bill isn’t the only benchmark,” he told me. “Current law is, in my view, the current benchmark, and this is going to have a pretty negative impact on our industry.”

A statement from the League of Conservation Voters’ Vice President of Federal Policy Matthew Davis was more grave, warning that the Trump administration could use the ambiguity in the bill to block projects and revoke credits. “The FEOC language remains a convoluted, barely workable maze that invites regulatory chaos, giving the Trump administration wide-open authority to worsen and weaponize the rules through agency guidance,” he wrote.

Blue

You’re out of free articles.

Subscribe today to experience Heatmap’s expert analysis 
of climate change, clean energy, and sustainability.
To continue reading
Create a free account or sign in to unlock more free articles.
or
Please enter an email address
By continuing, you agree to the Terms of Service and acknowledge our Privacy Policy
Q&A

Will Blue States Open Up Their Wallets for Renewables?

A conversation with Heather O’Neill of Advanced Energy United.

The Fight Q&A subject.
Heatmap Illustration

This week’s conversation is with Heather O’Neill, CEO of renewables advocacy group Advanced Energy United. I wanted to chat with O’Neill in light of the recent effective repeal of the Inflation Reduction Act’s clean electricity tax credits and the action at the Interior Department clamping down on development. I’m quite glad she was game to talk hot topics, including the future of wind energy and whether we’ll see blue states step into the vacuum left by the federal government.

The following conversation has been lightly edited for clarity.

Keep reading...Show less
Yellow
Spotlight

The Anti-Renewables Movement is Coming for Your Wires

The Grain Belt Express was just the beginning.

Oklahoma.
Heatmap Illustration/Getty Images

The anti-renewables movement is now coming for transmission lines as the Trump administration signals a willingness to cut off support for wires that connect to renewable energy sources.

Last week, Trump’s Energy Department with a brief letter rescinded a nearly $5 billion loan guarantee to Invenergy for the Grain Belt Express line that would, if completed, connect wind projects in Kansas to areas of Illinois and Indiana. This decision followed a groundswell of public opposition over concerns about land use and agricultural impacts – factors that ring familiar to readers of The Fight – which culminated in Republican Senator Josh Hawley reportedly asking Donald Trump in a meeting to order the loan’s cancellation. It’s unclear whether questions around the legality of this loan cancellation will be resolved in the courts, meaning Invenergy may just try to trudge ahead and not pick a fight with the Trump administration.

Keep reading...Show less
Yellow
Electric Vehicles

AM Briefing: Scientists Decry ‘Surreal’ Climate Attack

On America’s new crude record, coal costs, and Hungary’s SMR deal

Scientists Decry Trump’s ‘Surreal’ Attack On Climate Science
Heatmap Illustration/Getty Images

Current conditions: Coastal storms are pushing water levels on New England’s shores two feet above normal levels • Japan just set a new temperature record of more than 106 degrees Fahrenheit • A cold front is settling over South Africa, bringing gale-forces to KwaZulu-Natal on the east coast.

THE TOP FIVE

1. Scientists decry Energy Department’s climate skeptic report

The Department of Energy issued a report on Tuesday calling into question the global consensus on climate change and concluding that global warming poses less economic risk than previously believed. “The rise of human flourishing over the past two centuries is a story worth celebrating. Yet we are told — relentlessly — that the very energy systems that enabled this progress now pose an existential threat,” Secretary of Energy Chris Wright said in a statement. “Climate change is real, and it deserves attention. But it is not the greatest threat facing humanity.” But scientists whose work appeared in the 151-page report decried an analysis they said “fundamentally misrepresents” their research. I rounded up some comments they’ve made over the past couple of days:

Keep reading...Show less
Yellow