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If you haven’t already, get to know the “border adjustment.”
While climate policy has become increasingly partisan, there also exists a strange, improbably robust bipartisan coalition raising support for something like a carbon tax.
There are lots of different bills and approaches floating out there, but the most popular is the “border adjustment” tax, basically an emissions-based tariff, which, as a concept, is uniquely suited to resolve two brewing trade issues. One is the European Union’s Carbon Border Adjustment Mechanism, which will force essentially everybody else to play by its carbon pricing system. Then there’s the fact that China powers its world-beating export machine with coal, plugged into an electrical grid that is far dirtier than America’s.
For Republicans, some kind of tax on imports would be a way of leveling the playing field in the face of what are, to their minds, punitive environmental restrictions on American energy producers and manufacturers. For Democrats, a border adjustment could be appealing both as a way to favor American manufacturing and as a way of encouraging other countries to clean up their grids.
There are currently two carbon border adjustment bills bouncing around the Senate, one introduced by Louisiana Republican Bill Cassidy — whose record on climate is far friendlier than many of his GOP colleagues’ — and the other by Rhode Island Democrat Sheldon Whitehouse, one of the most active and vocal Democratic senators on environmental issues.
In a hearing on the challenge of load growth before the Senate Committee on Energy and Natural Resources, Cassidy raised the issue of China’s energy mix, arguing that coal plants on the country’s Pacific coast mean at more pollutants in the United States.
“To the degree that our energy policy increases the cost of energy, and therefore encourages someone to move to China, we are actually worsening global greenhouse gas emissions because we’re increasing consumption of Chinese coal-fired electricity as opposed to clean-burning U.S. electricity,” Cassidy said during the hearing.
“Right on, brother,” the committee’s chair, Democrat Joe Manchin, responded.
Cassidy and Manchin both represent states that are major fossil fuel producers and are no one’s ideas of climate hawks — although they both support some version of permitting reform and Manchin’s was a crucial vote to pass the Inflation Reduction Act — they nevertheless represent two pillars of the idiosyncratic alliance that could get a border adjustment tax over the line. Add in Democratic climate hawks who are also interested in permitting reform such as Whitehouse and California Representative Scott Peters and Republicans who are, in their own way, open to some kind of climate change policy, including Cassidy and Alaska Senator Lisa Murkowski, and this thing starts to look possible.
The first step would be devising a way to calculate how clean the U.S. electricity system is compared to the rest of the world — and lo, there’s a bill for that too: the PROVE IT Act, which passed out of the Senate’s Energy and Natural Resources Committee in January.
That bill, introduced by Delaware Democrat Chris Coons and North Dakota Republican Kevin Cramer, would mandate the Department of Energy measure and report the emissions intensity for 17 categories of products (including fossil fuels) in the United States and a host of other countries. The intent of the bill is to demonstrate that, in many cases, U.S. manufacturing is cleaner than many other countries’, especially China, at least when it comes to greenhouse gas emissions.
The bill managed to win not just from Senators on both sides of the aisle, but also from industry groups that are often somewhere from skeptical to outright opposed to emissions restrictions. These include the American Petroleum Institute and the U.S. Chamber of Commerce. (The American Petroleum Institute is even gathering up a list of House Republicans who could support a version of the bill in that chamber, reported E&E News.) The bill has also been endorsed by a host of more centrist and right-leaning climate and environmental groups, including the Climate Leadership Council and Third Way, a moderate Democratic group.
Armed with the data from the PROVE IT Act, explained the Bipartisan Policy Center's Xan Fishman, the U.S. would be “able to use that in trade negotiations, or with a new border carbon policy.”
The time for the PROVE IT Act and then a border adjustment bill may be this year, Fishman told me, citing bipartisan support for the idea — or else sometime next year, when many of the Trump tax cuts expire, setting off a scramble for revenue to pay for extending popular tax breaks.
“When you have a big giant tax bill where you’re extending or creating new tax credits and you’re looking for revenue to offset that,” Fishman said, suddenly a border adjustment could look pretty handy.
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Featuring China, fossil fuels, and data centers.
As Republicans in Congress go hunting for ways to slash spending to carry out President Trump’s agenda, more than 100 energy businesses, trade groups, and advocacy organizations sent a letter to key House and Senate leaders on Tuesday requesting that one particular line item be spared: the hydrogen tax credit.
The tax credit “will serve as a catalyst to propel the United States to global energy dominance,” the letter argues, “while advancing American competitiveness in energy technologies that our adversaries are actively pursuing.” The Fuel Cell and Hydrogen Energy Association organized the letter, which features signatures from the American Petroleum Institute, the U.S. Chamber of Commerce, the Clean Energy Buyers Association, and numerous hydrogen, industrial gas, and chemical companies, among many others. Three out of the seven regional clean hydrogen hubs — the Mid-Atlantic, Heartland, and Pacific Northwest hubs — are also listed.
Out of all of the tax credits for low-carbon energy, the hydrogen subsidy, which was created by the 2022 Inflation Reduction Act, is among the most generous. It pays up to $3 per kilogram of hydrogen produced, depending on how emissions-intensive the process is. For context, a 15 ton-per-day plant in Georgia owned by hydrogen producer Plug Power has the potential to earn up to $45,000 per day in tax credits.
But the total price of the tax credit depends on how much clean hydrogen production takes off, and the industry is still in its infancy. When the Penn Wharton Budget Model, a research group at the University of Pennsylvania, estimated the fiscal impact of the Inflation Reduction Act, it placed the total cost for the hydrogen credit at $49 billion over 10 years, compared to more than $260 billion for renewable energy and nearly $400 billion for electric vehicles.
Tactically, Tuesday’s letter draws on all of the Trump administration’s favorite talking points. It warns that nixing the tax credit will mean ceding the hydrogen technology war to China, noting that the country now produces more than 60% of the global supply of electrolyzers — equipment that splits water into hydrogen and oxygen using electricity. It also says that hydrogen fuel cells are already being used by tech companies to power data centers.
And even though the tax credit was designed specifically to subsidize “clean” hydrogen, the letter mostly ignores this distinction, painting hydrogen production as an extension of the U.S. fossil fuel industry. Oil and gas companies have the infrastructure, workforce, and supply chains to lead the global hydrogen economy, it says. It points out that hydrogen can be produced from “natural gas, biogas, biomethane, as well as any electricity source (i.e. nuclear energy),” but does not mention wind, solar, or geothermal.
Investment in the nascent hydrogen industry was essentially on hold for more than two years while companies eager to take advantage of the tax credit waited for the Biden administration to finalize eligibility rules. But even after Biden’s Treasury Department published those rules in early January, how the Trump administration will view the program remained uncertain. “Our industry is now poised to invest billions of dollars in deployments and manufacturing facilities across the country,” the letter says. “However, that private sector investment is at risk due to the uncertainty around this crucial incentive … We need to ensure that we do not miss this hydrogen moment and respectfully request that you maintain the Section 45V tax credit.”
Intense debate and controversy surrounded the development of the rules for claiming the tax credit, and while the Biden administration tried to strike a compromise, some in the industry still found the rules too strict. I asked the Fuel Cell and Hydrogen Energy Association whether it wanted Congress to make any changes to the tax credit or to simply preserve it but hadn’t heard back as of publication time.
But some of the signatories have already expressed their intent to request changes. In December, the American Petroleum Institute sent a memo to the incoming Treasury Department outlining its key priorities and “asks.” It says the Biden administration’s hydrogen tax credit rules were “overly restrictive and raised concerns about qualifying pathways for natural gas.”
Core inflation is up, meaning that interest rates are unlikely to go down anytime soon.
The Fed on Wednesday issued a report showing substantial increases in the price of eggs, used cars, and auto insurance — data that could spell bad news for the renewables economy.
Though some of those factors had already been widely reported on, the overall rise in prices exceeded analysts’ expectations. With overall inflation still elevated — reaching an annual rate of 3%, while “core” inflation, stripping out food and energy, rose to 3.3%, after an unexpectedly sharp 0.4% jump in January alone — any prospect of substantial interest rate cuts from the Federal Reserve has dwindled even further.
Renewable energy development is especially sensitive to higher interest rates. That’s because renewables projects, like wind turbines and solar panels, have to incur the overwhelming majority of their lifetime costs before they start operating and generating revenue. Developers then often fund much of the project through borrowed money that’s secured against an agreement to buy the resulting power. When the cost of borrowing money goes up, projects become less viable, with lower prospective returns sometimes causing investors not to go forward .
High interest rates have plagued the renewables economy for years. “As interest rates rise, all of a sudden, solar assets that are effectively bonds become less valuable,” Quinn Pasloske, a managing director at Greenbacker, a renewable investor and operating company, told me on Tuesday, describing how the stream of payments from a solar project becomes less valuable as rates rise because investors can get more from risk-free government bonds.
The new inflation data is “consistent with our call of an extended Fed pause, with only one rate cut in 2025, happening in June,” Morgan Stanley economists wrote in a note to clients. Bond traders are also projecting just a single cut for the rest of the year — but not until December.
Federal Reserve Chair Jerome Powell told the Senate Banking committee Tuesday, “We think our policy rate is in a good place, and we don’t see any reason to be in a hurry to reduce it further.”
The yield for the 10-year Treasury bond, often used as a benchmark for the cost of credit, is up 0.09% today, to 4.63%. While this is below where yields peaked in mid-January, it’s a level still well above where yields have been for almost all of the last year. When Treasury yields rise, the cost of credit throughout the economy goes up.
Clean energy stocks were down this morning — but so is the overall market. Because while high interest rates are especially bad for renewables, they’re not exactly great for anyone else.
The Army Corps of Engineers, which oversees U.S. wetlands, halted processing on 168 pending wind and solar actions, a spokesperson confirmed to Heatmap.
UPDATE: On February 6, the Army Corp of Engineers announced in a one-sentence statement that it lifted its permitting hold on renewable energy projects. It did not say why it lifted the hold, nor did it explain why the holds were enacted in the first place. It’s unclear whether the hold has been actually lifted, as I heard from at least one developer who was told otherwise from the agency shortly after we received the statement.
The Army Corps of Engineers confirmed that it has paused all permitting for well over 100 actions related to renewable energy projects across the country — information that raises more questions than it answers about how government permitting offices are behaving right now.
On Tuesday, I reported that the Trump administration had all but paralyzed environmental permitting decisions on solar and wind projects, even for facilities constructed away from federal lands. According to an internal American Clean Power Association memo sent to the trade association’s members and dated the previous day, the Army Corps of Engineers apparatus for approving projects on federally shielded wetlands had come to a standstill. Officials in some parts of the agency have refused even to let staff make a formal determination as to whether proposed projects touch protected wetlands, I reported.
In a statement to me, the Army Corps has confirmed it has “temporarily paused evaluation on” 168 pending permit actions “focused on regulated activities associated with renewable energy projects.” According to the statement, the Army Corps froze work on those permitting actions “pending feedback from the Administration on the applicability” of an executive order Trump issued on his first day in office, “Unleashing American Energy,” and that the agency “anticipates feedback on or about” February 7 from administration officials.
While the statement demonstrates how vast the potential impacts to the renewables sector may be, it also leaves several important questions unanswered. It’s unclear whether each pending permit action that has been frozen applies to its own individual project, or whether some projects have more than one permit pending before the Army Corps, so it is still fuzzy precisely how many projects may be impacted. The Army Corps did not say whether that feedback would lead to the lifting of holds on permitting activity, nor did it explain why the holds were enacted in the first place.
Finally, there’s one big question that still needs answering: The executive order in question focuses on fossil fuel projects and says nothing about renewable energy — no mentions of “renewable,” no “solar,” no “wind.” Why did this order trigger a permitting freeze in the first place? This level of confusion and ambiguity is part and parcel with other statements in the ACP memo, including that guidance and agency perspectives have varied widely in recent weeks depending on who in the government is being asked.
Climate advocates are already pressing the panic button. “This is a 5 alarm fire alert. This could decimate all the clean energy we worked to pass under Biden,” Nick Abraham, state communications director for League of Conservation Voters, wrote on Bluesky in response to my reporting.
I asked the Army Corps for clarity on how the executive order led to a pause on their permitting activity, and we’ll update this story if we hear back.