Biden’s ‘Made in America’ Pledge Collides With His Climate Goals

WASHINGTON—The Biden administration’s plans to quickly reduce carbon emissions are colliding with its pledge to revitalize manufacturing in the U.S.

The Inflation Reduction Act unleashed a gusher of tax breaks and credits for producing clean energy, purchasing electric vehicles and developing new low-carbon technology. Many of the incentives require companies to source materials for the projects from the U.S., setting off a lobbying campaign to shape how the Biden administration defines “made in America.”

The debate pits some U.S. manufacturers and lawmakers, who want to strictly enforce the law’s requirements that many parts and materials come from the U.S., against automakers and foreign allies who warn that could make it more expensive to deploy technology lowering carbon emissions. 

In the latest salvo, a group of the largest steelmakers in the U.S., as well as the United Steelworkers union, criticized the Treasury Department’s proposed approach to a bonus tax credit for clean-energy projects that rely largely on U.S.-made metal and components. 

They argue that the department’s treatment of a key component of solar panels would let firms use steel from abroad and still qualify for the 10% credit, which would be available on top of other subsidies for building solar and wind farms. 

“If the current Guidance were to be made final, it would significantly damage U.S. domestic steel producers, putting at risk 1.5 million tons of production and jeopardizing the livelihoods of millions of Americans who depend on our industry,” wrote the union and the companies, including U.S. Steel and Nucor. 

The group sent the letter, which was viewed by The Wall Street Journal, to Treasury Secretary Janet Yellen and Internal Revenue Service Commissioner Daniel Werfel on Tuesday. 

“We’re going to refine and look at the comments that we get, but directionally, we’re seeing firms make decisions to make investments in the United States to get access to the domestic-content boost,” Wally Adeyemo, deputy Treasury secretary, said.

China is the dominant supplier of many clean-energy products, as well as the largest global producer of steel by far. The Biden administration is seeking to reduce U.S. dependence on China in key areas, but it has at times found its goals at odds as it irons out the details of tax incentives offered under the IRA.

President Biden has made rebuilding American manufacturing a central talking point in his re-election bid. He has courted unions such as the United Steelworkers, who endorsed him in 2020, and he has tried to win back rank-and-file union members who moved toward the Republican Party in recent years. 

At the same time, lowering carbon emissions is another priority for the Biden administration. Imports from China are often cheaper for companies trying to stand up new clean-energy facilities in the U.S. The domestic-sourcing rules have also unnerved allies in Europe and Asia, who say the subsidies for U.S.-made components will hurt their products.

“There’s a general theme where they are clearly trying to balance the two goals but the leaning has historically been towards decarbonization,” said Kevin Book, managing director at ClearView Energy Partners. 

At issue for the steel industry is the Treasury Department’s classification of photovoltaic trackers, which rotate solar panels so they follow the sun’s movement over the course of the day. In guidance released in May, the department said those trackers were a “manufactured product,” meaning they could include foreign metals and still potentially qualify for the bonus credit. 

The steelmakers want the metal used to build the trackers to instead be deemed as “iron and steel products,” which must come from the U.S. in order for the project to be eligible for the incentive. 

“Categorization of tracking systems as manufactured products would permit many of the structural steel components of new solar projects in the U.S. to be imported from China,” the companies said. 

The Solar Energy Industries Association, which represents companies that develop solar farms, praised Treasury’s guidance when it was released in May. The group’s CEO said Treasury’s approach would “spark a flood of investment in American-made clean energy equipment and components.”

Other battles over IRA subsidies have involved electric vehicles. For example, for consumers to get the full $7,500 tax credit to buy an EV, much of the minerals in its battery must come from the U.S. or a country with a free-trade agreement with the U.S. 

Many close allies, however, don’t have traditional free-trade agreements with the U.S. To get around that, administration officials crafted a special deal with Japan for minerals used in clean-energy technologies, and they are in talks with others about similar arrangements.

Sen. Joe Manchin (D., W.Va.), a centrist whose support was critical to the passage of the climate law, has repeatedly lambasted the Treasury Department’s implementation of the electric-vehicle tax credit, including criticizing its decision to consider Japan a free-trade partner.

Automakers, including Ford Motor, have pushed for looser interpretations, including a requirement that none of an EV battery’s minerals or components be linked to a “foreign entity of concern,” which could potentially include any Chinese company. Ford has joined with China’s Contemporary Amperex Technology to build a battery factory in Michigan. 

Yellen said in a recent interview that the climate law’s goals of reducing emissions and boosting domestic production can be difficult to navigate.

“We want to see a lot of electric vehicles be on the road,” she said. “But having more resilient supply chains is also clearly a goal of the legislation, and sometimes the two things do come into tension.”

Write to Andrew Duehren at [email protected]