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
Climate

Wildfires Have Crashed the East Coast’s Air Quality

Same goes for the Midwest, according to Stanford air quality researcher Marshall Burke.

A wildfire.
Heatmap Illustration/Getty Images

It’s not just you: Summers are getting smokier.

For the third year in a row, cities like Detroit, Minneapolis, Boston, and New York are experiencing dangerously polluted air for days at a time as smoke drifts into the U.S. from wildfires in Canada.

Keep reading...Show less
Yellow
Climate

AM Briefing: Trump Tightens Tax Credit Rules

On TVA’s new nuclear deal, plastics talks’ ‘abject failure’, and powerless Puerto Rico

Trump Tightens Tax Credit Rules For Renewables
Heatmap Illustration/Getty Images

Current conditions: After briefly strengthening into a Category 5 storm, Hurricane Erin continues toward Puerto Rico as a Category 4 • China is reeling from flash floods that killed 10 in Inner Mongolia on Sunday • Spain is battling 20 major wildfires as blazes across Europe displace thousands.


THE TOP FIVE

1. Trump tightens the vise on wind and solar tax credits

The Internal Revenue Service released guidance on Friday for wind and solar projects attempting to access the federal tax credits that start phasing out next year. For more than a decade, renewable developers needed to show only that they’d spent 5% of the total cost of the construction to qualify in a given tax year. Once the new rules kick in next month, almost all new projects will need to actually begin physical construction to be eligible. The change comes in response to an executive order President Donald Trump issued after signing the One Big Beautiful Bill Act, which directed the Treasury Department to raise the hurdles for wind and solar developers to tap what remained of the federal tax credits the new law had dramatically curtailed.

Keep reading...Show less
Yellow
Ideas

Now We Decide the Future of U.S. Climate Policy

On the third anniversary of the signing of the Inflation Reduction Act, Heatmap contributor Advait Arun mourns what’s been lost — but more importantly, charts a path toward what comes next.

Biden signing the IRA into law and solar panels.
Heatmap Illustration/Getty Images

Today, the Inflation Reduction Act would have turned three years old — if it hadn’t been buried alive in a big, beautiful grave. While the IRA was a hodgepodge of programs salvaged from President Biden’s far more ambitious Build Back Better agenda, it still represented the biggest climate investment in U.S. history. It catalyzed over $360 billion in energy and manufacturing investments and was expected to drive the installation of over 155 gigawatts of new solar and wind energy by 2030. And now Republicans have taken a sledgehammer to its achievements.

The timing could not be worse — not just for the climate, but also for the energy systems that we rely on. At a moment when the energy sector requires $1.4 trillion worth of upgrades by 2030 just to keep up with rising energy demand and increasingly erratic weather, Republicans have instead delivered a one-two punch of tariffs and tax hikes, sabotaging the industrial base required to deliver those investments and raising the retirement age of our power generation fleet.

Keep reading...Show less
Blue