Clean Energy Projects Surge After Climate Bill Passage
In the weeks since President Biden signed a comprehensive climate bill devised to spur investment in electric cars and clean energy, corporations have announced a series of big-ticket projects to produce the kind of technology the legislation aims to promote.
Toyota said it would invest an additional $2.5 billion in a factory in North Carolina to produce batteries for electric cars and hybrids. Honda and LG Energy Solution announced a joint venture to build a $4.4 billion battery factory at a location to be named.
Piedmont Lithium, a mining company, said it would build a plant in Tennessee to process lithium for batteries, helping to ease America’s dependence on Chinese refineries — a key aim of the Biden administration. First Solar, a big solar panel manufacturer, said it would invest up to $1.2 billion to build its fourth factory in the United States, probably somewhere in the Southeast, largely because of renewable energy incentives in the climate bill.
But those projects, announced last week, also illustrate how much work remains to be done. Factories take time to build, and until then electric vehicles are likely to remain scarce and expensive. Toyota’s factory in North Carolina and Honda’s venture with LG will not produce batteries until 2025.
Some of the projects were in the works before the federal legislation passed, and before California added an extra push by banning sales of new gasoline cars by 2035. The big climate bill, the Inflation Reduction Act, is the latest in a series of policy moves and geopolitical developments that have pushed automakers and suppliers to invest in the United States. The trade war with China, disruption of supply chains by the pandemic, changes in free-trade agreements with Canada and Mexico, and the bipartisan infrastructure law last year have all had a powerful impact on where companies decide to build factories.
The timing of Toyota’s announcement, two weeks after Mr. Biden signed the climate law, was a coincidence, said Norm Bafunno, a senior vice president at Toyota Motor North America whose responsibilities include the North Carolina plant.
But he added that the legislation could be a “catalyst for our domestic battery production.” And he said Toyota was working hard to fulfill provisions of the bill that encourage companies to get raw materials and components for batteries from the United States and its trade allies.
At a time of economic uncertainty, the legislation gives companies more confidence that they can earn a return on their bets. The investments serve as affirmation of political leaders’ intent: to further accelerate America’s transition away from fossil fuels and to reduce dependence on foreign suppliers, especially those in China.
Investment in renewable energy will total $1.2 trillion by 2035, analysts at Wood Mackenzie estimate, substantially more than would have been the case without the legislation. Spending on solar power installations, for example, will be two-thirds higher because of the law, according to the consultancy.
“We’ve seen an outpouring of interest from all kinds of companies,” including carmakers, battery suppliers and mining companies, said Isaac Chan, a partner in the Chicago office of the management consultancy Roland Berger who advises clients in the auto industry. The climate package, he said, “makes the calculus better for producing in North America as opposed to making E.V.s in Asia and importing them.”
What’s in the Inflation Reduction Act
What’s in the Inflation Reduction Act
A substantive legislation. The $370 billion climate, tax and health care package that President Biden signed on Aug. 16 could have far-reaching effects on the environment and the economy. Here are some of the key provisions:
What’s in the Inflation Reduction Act
Auto industry. Until now, taxpayers could get up to $7,500 in tax credits for purchasing an electric vehicle, but there was a cap on how many cars from each manufacturer were eligible. The new law will eliminate this cap and extend the tax credit until 2032; used cars will also qualify for a credit of up to $4,000.
What’s in the Inflation Reduction Act
Energy industry. The legislation will provide billions of dollars in rebates for Americans who buy energy efficient and electric appliances. Companies will get tax credits for building new sources of emissions-free electricity. The package also includes $60 billion set aside to encourage clean energy manufacturing and penalties for methane emissions that exceed federal limits starting in 2024.
What’s in the Inflation Reduction Act
Health care. For the first time, Medicare will be allowed to negotiate with drugmakers on the price of some prescription medicines. The law also extends subsidies available under the Affordable Care Act, which were set to expire at the end of the year, for an additional three years.
What’s in the Inflation Reduction Act
Tax code. The law introduces a new 15 percent corporate minimum tax on the profits companies report to shareholders, applying to companies that report more than $1 billion in annual income but are able to use credits, deductions and other tax treatments to lower their effective tax rates. The legislation will bolster the I.R.S. with an investment of about $80 billion.
What’s in the Inflation Reduction Act
Low-income communities. The package includes over $60 billion in support of low-income communities and communities of color that are disproportionately burdened by climate change. Among the provisions are grants for zero-emissions technology and money to mitigate the negative effects of highways and other transportation facilities.
What’s in the Inflation Reduction Act
Fossil fuels industry. The legislation requires the federal government to auction off more public space for oil drilling and expand tax credits for coal and gas-burning plants that rely on carbon capture technology. These provisions are among those that were added to gain the support of Senator Joe Manchin III, Democrat of West Virginia.
What’s in the Inflation Reduction Act
West Virginia. The law is expected to bring big benefits to Mr. Manchin’s state, the nation’s second-largest producer of coal, making permanent a federal trust fund to support miners with black lung disease and offering new incentives to build wind and solar farms in areas where coal mines or coal plants have recently closed.
Even with the $369 billion in direct funding, loans and loan guarantees that the Inflation Reduction Act will pump into corporations, consumers and states, slashing greenhouse gas emissions remains a challenge, analysts and industry representatives say.
For example, money alone won’t eliminate some of the main hurdles to upgrading long-distance transmission lines and distribution equipment that will be needed to get power from solar and wind farms to homes and businesses. Winning approval for such projects can be laborious and prickly because so much land is affected.
Transmission projects are a big part of the Biden administration’s plan, because they will be needed to carry solar and wind power from regions that produce it to areas that want clean energy. Mr. Biden would like to see thousands of turbines generating electricity off the East Coast and West Coast, requiring significant investments in power lines.
“We need to be able to build infrastructure in this country to meet clean energy and climate goals,” said Rob Gramlich, president of Grid Strategies, a company that aims to eliminate carbon dioxide emissions by the electric grid through use of clean energy. Transmission, he said, “is the key to wind and solar growth, which in turn are key to decarbonizing transportation and building heating.”
But landowners, environmentalists and businesses have raised concerns about offshore wind farms near fisheries and power lines that cross farmland.
“The local issue and the state issue and the biggest challenge that we would have is building the transmission lines through the farmland,” said State Senator Sue Rezin, an Illinois Republican who sits on an energy task force with the National Conference of State Legislatures. “And I support the farmers, period.”
After the huge victory for the clean energy industry, organizations like the Solar Energy Industry Association plan to focus more on selling the merits of clean energy projects to people affected by them.
“We’ve always known there was going to be this next stage of challenges,” said Abigail Ross Hopper, the president of the association. “I think there’s a fair amount of education to be done.”
Raw materials for batteries are another big concern. The bill contains numerous provisions designed to encourage automakers and battery makers to buy lithium, nickel and other key raw materials from suppliers in North America or from the United States’ trade allies.
Only one mine in the United States is producing lithium, a site in Silver Peak, Nev., operated by Albemarle, a mining company based in Charlotte, N.C. The mine’s output amounts to a tiny percentage of the domestic auto industry’s demand, and the lithium must be sent overseas to be refined to battery-grade material.
Money from the bill will help finance Albemarle’s plans to establish refineries in the United States and develop more mines while also encouraging sales of electric vehicles and spurring overall demand for lithium, said Ellen Lenny-Pessagno, vice president for government and community affairs for Albemarle.
“It’s an incredibly positive step forward,” she said of the legislation.
The climate package has faced criticism from some industry groups that say very few electric vehicles will qualify for $7,500 tax credits because so many strings are attached. The law sets standards, which grow more stringent over time, for how much of a battery’s components and raw materials must come from the United States or its trade allies.
While it may take a few years for automakers to adjust their supply chains and comply with the requirements, once they do, electric vehicles could become cheaper to buy than gasoline cars. In addition to the $7,500 tax credits, the law provides financial incentives worth thousands of dollars to automakers that use U.S.-made batteries. If carmakers pass on all of the savings to buyers, a $50,000 electric car would cost much less than $40,000 to buy, or less than the average new car in the United States.
The climate law “is dangling some very serious carrots,” Mr. Chan of Roland Berger said. “If it takes a few years to develop the supply chain, that is well within the intent of the law.”
Still, the onus is also on automakers to make electric vehicles affordable, Mr. Bafunno of Toyota said. While demand for battery-powered cars is high, so are prices. An electric vehicle costs about $16,000 more than a comparable gasoline model, Mr. Bafunno said.
“Is that sustainable over time for everyone?” he said. “We certainly think no. We have to reduce costs to get them to be equivalent. And that’s going to take time.”
