Powering growth
In a warehouse in Turtle Creek, just east of Pittsburgh, Pennsylvania, a line of workers is assembling batteries, each about the size of a suitcase, based on zinc—an alternative to lithium-ion that its proponents say will offer competitively priced, non-flammable, dispatchable energy for hospitals, schools, and other stationary users.
It’s a young cohort of workers, many people of color and military veterans. “We’re hiring right out of high school,” says Joe Mastrangelo, the Edison, New Jersey-based head of Eos Energy Enterprises, the company making the batteries.
His goal for the factory in Western Pennsylvania is to double its total capacity to 3 gigawatt-hours in 2024, producing a battery every 90 seconds once the plant is fully automated. The workforce will also double to 500.
“We’re doing this in a location that was historically an old energy economy, creating not jobs but career paths for people to get to middle class,” Mastrangelo says.
Climate is central to the IRA. But it is industrial policy on a grand scale, too, aiming to revamp the US’s decrepit infrastructure and create advanced manufacturing jobs in Rust Belt regions like Western Pennsylvania, once the heart of the country’s steelmaking industry.
From Ohio to Georgia, investment is also pouring into lithium-ion energy storage, the technology that will underpin the electrification of the US auto fleet.
All told, the IRA offers $369 billion of tax credits, grants, loans, and subsidies, many of them guaranteed past 2030. The credits can be sold, too, allowing deep-pocketed investors with enough tax liability to buy the credit—a way to get more capital to developers, quickly.
Credit Suisse thinks the public spending enabled by the IRA could eventually reach $800 billion, and $1.7 trillion once the private spending generated by the loans and grants is included.
The tax breaks have made marginal projects suddenly economical, say developers. A battery plant can generate tax credits of up to 50 percent of headline costs if it meets several criteria, including prevailing wage requirements, domestic sourcing of materials, and location in a fossil fuel community. This can translate into an effective reduction of 60 to 65 percent of a project’s fair market value, according to law firm Vinson & Elkins.
“It enables us to grow and also enables a further incentive for people that want to invest,” says Mastrangelo.
Wood Mackenzie estimates investment in energy storage will more than triple by the end of the decade, reaching $15.8 billion. Energy storage capacity additions will grow from 5 GW to 25 GW per year by 2030, enough to power almost 20 million homes.
While juicy subsidies are also available for wind and solar, the IRA’s biggest impact may be on technologies that have yet to achieve scale, including carbon capture and bioenergy.
For green hydrogen, a potential clean alternative to natural gas in industries such as steelmaking, the subsidies wipe out about half the project cost, vaulting the US from its position as a global also-ran in the eyes of developers to the most attractive destination for future investment.
For Europe, which hopes scaling up domestic supplies of green hydrogen can speed decarbonization and help replace the loss of Russian natural gas, the US now poses a threat. The EU is scrambling to respond, but the US incentives are so comprehensive—tax breaks for every section of the green hydrogen supply chain—that it will be hard to compete, say analysts.
“If you look at the price at which a well-located green hydrogen project, let’s say in Texas, exporting through the port of Corpus Christi, could generate green hydrogen if they can access low-cost renewable power—it’s pretty untouchable,” says Scaysbrook. “It’s a pretty potent trade advantage.”
The geopolitics of the IRA
Gaining a similar advantage over China, however, will be far harder. About two-thirds of the world’s batteries for electric cars and nearly three-quarters of all solar modules are currently produced in China, according to the International Energy Agency. BloombergNEF estimates China invested $546 billion in its energy transition in 2022.
Meanwhile, the domestic supply of raw materials, parts, and processing capacity is lacking, too. The lithium refineries, and nickel and cobalt for batteries; the rare earth materials for solar modules; the nacelles and monopoles for offshore wind—almost everything can be sourced more cheaply from abroad.
Together, China and Europe produce more than 80 percent of the world’s cobalt, while North America makes up less than 5 percent of production, according to the IEA. China also accounts for 60 percent of the world’s lithium refining.
“The Germans make a lot of this stuff. The Chinese make a lot of this stuff. So we are still facing the irony that for the IRA to succeed in the short term, it still relies a lot on China,” says Scaysbrook.
Some early progress is being made. Last month, GM announced $650 million to develop the Thacker Pass mine in Nevada, the US’s largest-known source of lithium. Honda, Hyundai, BMW, and Ford have all announced multibillion-dollar plans to build batteries in the US following the IRA’s passage.
But it’s a drop in the ocean compared with the scale of Chinese domination. Wood Mackenzie estimates the US will make up 13 percent of lithium battery manufacturing by the end of the decade, only a 3 percent upward revision compared with forecasts before the IRA. Asia-Pacific will still account for two-thirds.
“There are so many components when you think about building solar and wind. It’s not going to be realistic that the US is going to become totally self-sufficient in that way,” says Marlene Motyka, US renewable energy leader at Deloitte.
“You have to be able to build the thing”
To claim the mantle of cleantech superpower from China will take an extraordinary expansion of infrastructure—but not everyone in the US welcomes it.
This month, authorities in Scranton, Pennsylvania—the city Biden regularly invokes to remind Americans of his blue-collar heritage—held a 90-minute zoning board hearing about a proposed solar array on West Mountain, northwest of the city’s center.
The array, said its developers, would have created dozens of jobs and been sited on a former coal mine—exactly the kind of project that the federal government wants to coax along.
But residents were less impressed. One of them, Brian Gallagher, said he would be able to see the facility from his porch. “We’re not an asset, we’re a neighborhood. We don’t want to wake up and look at this,” he said. The board voted 4:1 against the project.
The US may have the West’s most generous subsidy regime and its federal government may be committed to restoring supply chains, but permits to build stuff are another matter.
Congressional efforts to loosen the rules have made little progress, leaving states and local authorities with significant power to block projects. Some climate campaigners and conservationists fear a laxer permitting regime would encourage more fossil fuel projects, like the pipelines sought by the oil industry.
But building transmission infrastructure across state lines—crucial if windy, sparsely populated regions such as Oklahoma are to be connected with big consumer centers on the coasts—is especially difficult.
Paul Bledsoe, a former Clinton White House adviser who now works for Washington’s Progressive Policy Institute, says the “chronic sclerosis” of current permitting rules means that by the time projects have met all the conditions demanded of them, about 95 percent have been delayed by five years or more.
This could limit the green potential of the legislation. While credible models suggest the law’s provisions could allow the US to cut 45 percent of emissions compared with 2005 levels by 2030, putting it within spitting distance of the Biden administration’s target of 50 to 52 percent, slower permitting could reduce this to 35 percent, says Lott, at the CGEP.
“Until we resolve those things, it doesn’t matter how many production tax credits or incentives you put out there, you have to actually be able to build the thing to take advantage of those tax credits,” she adds.
Given the tight timeline to get the projects up and running—both to capitalize on the 10-year tax credits and to meet the Biden administration’s decarbonization targets—worker shortages are another pressing problem.
“We have another generation of mega projects in front of us and the labor market is already strained to the limit,” says Anirban Basu, chief economist at the Associated Builders and Contractors.
The ABC estimates the US will need to add half a million more construction workers in 2023 on top of the normal hiring pace to meet demand: a sign that clean energy is creating the jobs, but an alarming prospect for the developers.
Yet some of the IRA tax credits also depend on paying prevailing wages and including apprenticeships in the workforce—measures designed explicitly to address the longstanding complaints of American workers who have watched jobs “shipped overseas” over decades of globalization, but which are also increasing costs.
“These standards are actually going to undermine the Biden administration’s clean energy agenda as a whole,” says Ben Brubeck at the ABC.
It leaves the pace of the energy transition in the US depending on how, or whether, the Biden administration will be willing to compromise on any of the goals in its sweeping clean energy legislation.
Even many supporters wonder how an industrial policy to rejuvenate America’s manufacturing heartlands can happen alongside an effort to decarbonize the economy in less than a decade—all while the US adopts a geopolitical strategy to compete with China in a new clean energy race.
Others say one cannot happen without the others. Either Biden ensured the fight for the climate would bring jobs for Americans, or Americans would forget about climate. Either the reliance on foreign supply chains would be broken, or America would be relegated in the new global energy order.
“This is the future of ambitious climate legislation that can actually pass,” says Sonia Aggarwal, a former Biden climate adviser who now runs the Energy Innovation think-tank. “We have to actually be more holistic. Without including worker policies, and including this broader global perspective of where we are going, we wouldn’t have the climate policy at all.”
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