Source: Blog – Alliance for American Manufacturing

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Senators demand guidance be issued ASAP on tax credits — and call for strong domestic content rules to be put into place to ensure our clean energy future is Made in America.

A group of Industrial Heartland senators wrote to Treasury Secretary Janet Yellen and Internal Revenue Service (IRS) Commissioner Danny Werfel to demand action that will ensure the United States will “meet our climate goals while protecting and supporting American workers and industry.”

In the March 29 letter, Sens. Bob Casey (D-Pa.), John Fetterman (D-Pa.), Sherrod Brown (D-Ohio) and Tammy Baldwin (D-Wis.) urged the Treasury Department and the IRS to “issue guidance on the Inflation Reduction Act’s clean energy tax credits quickly and expeditiously, so that manufacturers, investors, and users can have certainty about the tax credits for which they qualify.”

And the senators demanded that the two agencies “issue domestic content rules that mirror the Congressional intent to support domestic supply chain resiliency, American manufacturing of clean energy technologies, and national security.”

When Congress passed industrial policy like the Inflation Reduction Act and Infrastructure Investment and Jobs Act, lawmakers intended tax credits be used as a tool to support and grow American manufacturing. As the senators wrote:

“Provisions that Congress included in this legislation will ensure that this historic investment will benefit American workers, American industry, our domestic manufacturing base, and our Nation’s energy security. We intentionally structured tax credits to not just decarbonize the U.S. economy, but to erase the lead that China and other countries have in manufacturing green infrastructure.”

The United States once led the world in clean energy manufacturing, including for solar panels and wind turbines, the Senators noted. But “the rapid rise and nonmarket practices of Chinese industry” has undermined American manufacturers, and China now dominates production, the Senators wrote.

China’s solar industry — which stands accused of relying on forced labor and a host of other unfair trade practices– now produces 97% of solar wafers and 79% of photovoltaic cells. Meanwhile, the U.S. is now only home to one of the top 10 global wind turbine manufacturers; China has six.

This isn’t the free market at work, the Senators pointed out. “Chinese companies are making wind turbines at prices well below global market averages subsidized by cheap, dirty steel and dumping them into global markets,” they wrote.

But now the United States is at a critical junction. Industrial policy like the Inflation Reduction Act offers the U.S. the chance to “make clean energy cheaper for millions of Americans, re-shore critical clean energy technology supply chains, create millions of well-paying jobs, and secure our climate goals for generations to come.”

But the United States must get the implementation right. The goal of these tax credits isn’t just to support the final assembly of a clean energy product; they should be applied to the entire manufacturing process.

For example, when the Senate Finance Committee marked up the Clean Energy for America Act — the basis for the tax credits included in the final Inflation Reduction Act — the clear intention “was that the 100 percent U.S. iron and steel requirement should follow the Buy America ‘melted and poured’ standard also included in the Infrastructure Investment and Jobs Act,” the senators noted.

Alliance for American Manufacturing President Scott Paul, offered a similar analysis when he wrote to Yellen in November 2022:

“As the Treasury develops guidance regarding domestic content requirements for Bonus Credit amounts, it must adopt robust origin standards that recognize upstream material inputs and supply chain components and subcomponents that are produced in the United States. The adoption of permissive origin standards or loopholes, on the other hand, would not be appropriate as doing so would undermine the entire policy – making the Bonus Credit attainable without the use of domestically produced iron, steel, and manufactured products. Permissive origin standards and loopholes would eliminate the intended outcome of the Bonus Credit incentive, which is for developers of clean energy projects to use iron, steel, and manufactured products that were produced by American workers throughout the domestic supply chain.”

Making sure these tax credits are applied from start to finish of the manufacturing process is really the key takeaway here.

We know that government incentives like the ones in the Inflation Reduction Act work, because we already are seeing the results. Since President Biden took office in 2021, over $435 billion worth of private investments in manufacturing have been made across the United States, including in clean energy. Companies repeatedly have cited the Inflation Reduction Act and other pieces of industrial policy as the impetus for their U.S. investments.

That is why it’s so important to get the implementation of these tax credits right. If the tax credits ultimately encourage only a portion of clean energy manufacturing, it would be a missed opportunity.

Let’s maximize the impact of these industrial policy measures by ensuring that the tax credits are fully applied, encouraging investment in the inputs and other materials needed to build our clean energy future.

As the senators put it: “Without strong domestic content guidance, American manufacturers will not have the certainty they need to make robust investments in domestic supply chains, support millions of jobs, and ensure our Nation is on track to meet its ambitious climate goals.”

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