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
Politics

Public Transit on the Brink

Riders in Chicago, Philadelphia, and the San Francisco Bay Area are staring down budget crises, with deep service cuts not far behind.

A train going off a cliff.
Heatmap Illustration/Getty Images

Three of the country’s largest public transportation systems are facing severe budget shortfalls that have left them near a breaking point. Transit riders in Chicago, Philadelphia, and the Bay Area of California could see severe service cuts as soon as next year if their representatives don’t secure funding to fill significant gaps in their operations budgets, the result of dwindling ridership and federal aid.

Should these lawmakers fail or fall short, they could kick off what transit advocates refer to as a “death spiral,” where higher fares and worse service leads to lower ridership, which leads to more cuts, etc., until there’s effectively no service left.

Keep reading...Show less
Green
AM Briefing

‘Messy’ at Energy

On Detroit layoffs, critical mineral woes, and China hawks vs. cheap energy

Chris Wright and Donald Trump.
Heatmap Illustration/Getty Images

Current conditions: Two tropical waves are moving westward across the Atlantic, with atmospheric conditions primed to develop into a storm in the Caribbean • Douala, Cameroon’s largest city and economic capital, notched its highest October temperature since records began in the 1800s, at nearly 95 degrees Fahrenheit • In Spain, average temperatures have eclipsed 86 degrees every day of this month so far.


THE TOP FIVE

1. Energy Secretary Chris Wright may be on the outs with Donald Trump

Secretary of Energy Chris Wright. Alex Wong/Getty Images

Keep reading...Show less
Green
Sparks

Major Renewables Nonprofit Cuts a Third of Staff After Trump Slashes Funding

The lost federal grants represent about half the organization’s budget.

The DOE wrecking ball.
Heatmap Illustration/Getty Images

The Interstate Renewable Energy Council, a decades-old nonprofit that provides technical expertise to cities across the country building out renewable clean energy projects, issued a dramatic plea for private donations in order to stay afloat after it says federal funding was suddenly slashed by the Trump administration.

IREC’s executive director Chris Nichols said in an email to all of the organization’s supporters that it has “already been forced to lay off many of our high-performing staff members” after millions of federal dollars to three of its programs were eliminated in the Trump administration’s shutdown-related funding cuts last week. Nichols said the administration nixed the funding simply because the nonprofit’s corporation was registered in New York, and without regard for IREC’s work with countless cities and towns in Republican-led states. (Look no further than this map of local governments who receive the program’s zero-cost solar siting policy assistance to see just how politically diverse the recipients are.)

Keep reading...Show less
Yellow