As we wrote back in August, the recently signed Inflation Reduction Act is a bit of a mixed bag for inflation. However, it contains some bright spots for U.S. manufacturers and the future of the clean energy industry. Will the U.S. finally become a player in the renewable energy manufacturing game?
There are hopeful signs. The IRA contains $30 billion in tax credits to accelerate U.S. manufacturing of solar panels, wind turbines, batteries, and critical minerals processing. Another $10 billion in tax credits is available for building new renewable technology manufacturing facilities. These tax credits will support U.S. manufacturing jobs while reducing reliance on foreign nations for renewable energy supplies.
U.S. companies are jumping at the opportunity to spur domestic clean energy production. Multiple firms have already announced plans to take advantage of the growing demand for renewable energy components as well as the lucrative tax credits. And why wouldn’t they?
Building these products in the U.S. makes sense. After all, investing in the manufacturing sector creates jobs for Americans and supports a growing economy. U.S. manufacturing is a win for the environment as well. Currently, the solar energy supply chain relies heavily on products from China, and that’s a problem. Supply chains have been notoriously constrained in the wake of the Covid 19 pandemic, making it challenging to import Chinese solar products, even if we want to.
For another, Chinese companies often manufacture these products using lax environmental standards. Rare earth minerals for solar PV panels are often mined under third-world conditions, exposing miners to toxic chemicals and polluting drinking water supplies with toxic wastewater. There have also been allegations of other human rights abuses. In short, sourcing renewable energy supplies from China raises serious ethical questions.
Some problems will need to be addressed. For instance, which components will need to be built domestically to receive the tax credit will need to be clearly defined. Additionally, it will also take some time to build new factories. And, of course, even getting the supplies to manufacture these products remains a challenge. However, tax experts see the program as being successful once these details are worked out.
Pairing incentives for production and deployment of renewable energy is “one of the most brilliant industrial policies I have seen,” says Daniel Nelson, vice president of tax at Avantus. “You see almost daily the announcements of [manufacturing] expansions in the U.S.”
While it may take a few years to fully see the effects of these new renewable energy manufacturing incentives, the effects on the U.S. economy and renewable energy growth could be huge. Building clean energy components in a sustainable, ethical way can only be good news for our shared energy future.