Tax credit for clean energy raises concern from some U.S. industries
HomeHome > Blog > Tax credit for clean energy raises concern from some U.S. industries

Tax credit for clean energy raises concern from some U.S. industries

Jan 05, 2024

As the Biden administration pushes the solar and wind power industries to move their manufacturing back to the United States, a soon-to-be-enacted tax incentive is touching off heated debate over who should get the credit for making products here.

The shape of a new, lucrative "domestic content" bonus for clean energy manufacturing came into focus Friday morning when the Treasury Department unveiled its plan for awarding the subsidy. The tax credit, part of the landmark climate package President Biden signed last year known as the Inflation Reduction Act, is expected to help drive billions of dollars in new investment for companies that build their products in the United States and source their steel, iron and other materials domestically.

But the proposal also underscores how challenging it will be to move some lines of production away from China. In the case of the solar industry, some American manufacturers were disappointed to learn that panels will qualify for the 10 percent tax credit even if a crucial component in them, polysilicon wafers, does not come from the United States.

China dominates the market for the wafers and the polysilicon used in them, controlling some 95 percent of the supply. Even as American companies make plans to revive a domestic industry for those products, some solar trade groups warned that too many firms would lose out on the credit if it were conditioned on a domestic wafer supply chain that does not yet exist.

Mike Carr, executive director of the Solar Energy Manufacturers for America Coalition, a group that represents domestic companies seeking to manufacture wafers, called the administration's plan for the credit "a missed opportunity to build a domestic solar manufacturing supply chain and advance our climate goals."

"Today's announcement will likely result in the scaling back of planned investments in the critical areas of solar wafer, ingot, and polysilicon production," Carr said in a statement. "As long as the U.S. does not have an end-to-end solar manufacturing supply chain of all the core components of a solar panel, there is more work to be done."

The battles over how the government should award subsidies meant to drive domestic production are growing increasingly heated. Sen. Joe Manchin III (D-W.Va.), the centrist who was instrumental in pushing the Inflation Reduction Act through Congress, has since become harshly critical of how the administration is structuring the measure's billions of dollars in tax incentives. Manchin says too many taxpayer dollars are going to subsidize products not made in the United States, undermining the intent of the historic bill.

Despite the tensions, the administration framed its plans for the domestic content bonus as another win for American manufacturers, ticking off in a call with reporters some of the many announcements that companies have made about plants they will build in the United States since the Inflation Reduction Act was signed.

"These tax credits are key to driving investment and ensuring all Americans share in the growth of the clean energy economy," Treasury Secretary Janet L. Yellen said in a statement. Energy Secretary Jennifer Granholm, in the same statement, pointed to "a boom in clean energy manufacturing with hundreds of new or expanded facilities announced across the nation."