Republican Tax Plan Targets Clean-Energy Supplies Tied to China

A Republican tax plan seeking to cut clean-energy subsidies includes provisions that threaten to end the incentives even earlier than proposed. 

Little-noticed restrictions in the legislation would disqualify companies from claiming key tax credits if they use components, “subcomponents” or critical minerals imported from foreign entities including China, Russia, and North Korea. Because much of the US solar and battery industry relies on materials originating from China, critical manufacturing credits would be unusable well before their official sunset date. The new rules also apply to credits for nuclear, carbon capture, geothermal, heat pumps and biofuels.

The move would constitute “a complete death” for energy projects that rely on complex, global supply chains for solar cells, magnets, batteries and other materials, said Sandhya Ganapathy, chief executive officer for EDP Renewables North America. 

The legislation, which seeks to fund an extension of President Donald Trump’s tax cuts by rolling back $560 billion in spending on energy tax credits from President Joe Biden’s climate law, is slated for a vote before the Memorial Day recess at the end of next week. If passed, the legislation would head to the Senate, where Republicans plan to amend it. 

Read: Senate Republicans Balk at House Plan to Gut Energy Tax Cuts

At a minimum, the foreign-entity rules “could create a cloud of uncertainty around project supply chains until the IRS issues clarifying guidance and could slow new project development,” Evercore Group L.L.C wrote in a research note Tuesday. 

The Internal Revenue Service, under the Trump administration, may not be in a hurry to issue such rules explaining how to comply with the law, said Jesse Jenkins, an assistant professor at Princeton University who specializes in energy and environmental issues. 

“That alone could be the kiss of death for these project,” Jenkins said in an interview. “It would be pretty devastating for the manufacturing renaissance we are seeing.”

With assistance from Mark Chediak.

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