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IRA manufacturing friction

Mar 12, 2024
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Illustration: Annelise Capossela/Axios

We're seeing a fresh round of Hill Democratic anxiety about implementation of the IRA's energy manufacturing incentives.

Why it matters: It highlights a fundamental tension in the law between quickly decarbonizing and decoupling wind, solar and EV supply chains from China.

  • Democrats in manufacturing and extracting states increasingly want the Treasury Department to do more under the law to bring those supply chains to the U.S.

Driving the news: At a Senate Finance hearing Tuesday, Sen. Sherrod Brown said he's working with lawmakers "on both sides of the aisle to tighten restrictions on the 45X credit to ensure that taxpayer money isn't going to Chinese companies."

  • That incentive, you may recall, is for companies that manufacture wind, solar and battery components in the U.S.
  • Brown wants to block companies affiliated with "foreign entities of concern" from getting it, similar to the restrictions in the IRA's EV credit.
  • "Our tax code is supposed to support American manufacturing and building out the domestic supply chain," he said. "It shouldn't be exploited by the Chinese Communist Party."

Sen. Catherine Cortez Masto raised concerns that Treasury's proposed rule for 45X excludes mineral extraction costs (that is, mining for raw materials) from the credit.

  • That reflects industry concerns — and it'll likely be one of the sticking points on the credit moving forward.

Zoom in: The domestic content bonus credit was also a consistent point of conversation at the hearing.

  • That comes after a dozen Democratic senators, including Finance Chair Ron Wyden, sent a letter to Treasury last month arguing that the administration's guidance for the incentive "undermines building out a comprehensive American solar supply chain."
  • The lawmakers and some solar manufactures say the final regulations should go deeper down the supply chain to touch wafer and polysilicon production, since China controls the lion's share of global supply of both.
  • "To simply allocate domestic content criteria benefits to module assembly does nothing for us," First Solar CEO Mark Widmar told the panel.

Our thought bubble: Big picture, Democrats are really happy with the IRA. But the hearing offered a good sense of where the friction points will be as the implementation ramps up.

  • It also highlighted a point that lobbyists have been making recently: The real IRA fight is about implementation, not repeal (even if Republicans may try that).
  • A future Trump administration, for example, could underscore its anti-China rhetoric by rewriting the domestic content bonus, or setting strict rules around 45X and the EV credits.

The bottom line: "These are spirited debates. Is there tension between groups? Sure," Wyden told Axios afterward. But ultimately the law is "generating a lot more private investment than anybody thought."

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