Clean energy tax credits leave the door open for Chinese investment
The Biden administration on Thursday outlined its plans to deploy billions of dollars in tax credits to manufacturers that produce clean energy products in the United States. The incentives are a key part of President Biden’s strategy to reduce America’s dependence on countries like China for electric vehicle production.
The proposed rules, released by the Treasury Department, explain how companies can access the most generous subsidies under the Inflation Reduction Act of 2022. The incentives, which are expected to provide companies with more than $100 billion over the next decade savings are intended to encourage companies to produce solar panels, process minerals and make electric vehicle parts in the United States.
Mr. Biden and his top aides have highlighted investments in clean energy as central to the administration’s strategy to revive U.S. manufacturing, emphasizing investments in poor and rural parts of the country where factories have been decades have been closed.
“Today’s announcement sets the framework for investing in a clean energy future here in America in ways that create good jobs for American workers,” Lael Brainard, director of the White House National Economic Council, said in a statement.
The promise of the tax breaks has attracted investment in the United States, along with controversy.
Chinese battery companies such as Gotion and Contemporary Amperex Technology Company have made multibillion-dollar investments in Michigan and Illinois, but have faced pushback from local officials and Republicans in Washington who view Chinese investments as a threat.
The government has taken steps to limit the ability of Chinese companies to benefit from some of the new subsidies. For example, the Treasury Department this month issued rules stating that to qualify for up to $7,500 in tax credits, electric vehicles must be made without parts from countries considered so-called foreign entities of concern, such as China, Russia . and North Korea.
But the industry tax credits unveiled Thursday have no such restrictions. That could pave the way for Chinese companies to take advantage of American subsidies as they establish themselves in the United States.
Because of the way the law was written, the Treasury Department did not have the authority to include restrictions on foreign companies in the rules governing tax credits for investments in industrial facilities for clean energy and the production of critical minerals. However, officials vowed to continue exploring foreign investments due to national security concerns.
“We have other tools that look at foreign direct investment in the United States, including CFIUS, which will look at foreign direct investment,” said Wally Adeyemo, the deputy treasury secretary, referring to the Committee on Foreign Investment in the United States. “Ultimately, for a company to access this credit, it must add value here in the United States, hire American workers and pay American taxes.”
Mr. Adeyemo said that only 2 percent of clean energy investments in the United States during the Biden administration were made by Chinese companies and the rest were made by American companies or American allies.
Republicans in Congress have called on the Treasury Department to take action to block Chinese investments. This week, Senator Marco Rubio of Florida and Representative Carol Miller of West Virginia unveiled legislation that would ban companies owned or controlled by a “foreign adversary” from any advanced production tax credits.
Mr. Rubio criticized the existing legislation for “allowing foreign adversaries to profit from American tax dollars while at the same time bankrupting American companies.”
The ultimate cost of the tax credits is difficult to quantify because it will depend on how aggressively companies decide to invest in clean energy projects.
The left-leaning Center for American Progress noted in a recent report that manufacturing credits were initially expected to cost $30.6 billion over 10 years, but the Joint Committee on Taxation increased that estimate to $134.9 billion this year. The Coalition for a Prosperous America, a conservative think tank, warned in a report this year that Chinese manufacturers could earn up to $125 billion in tax breaks under the law.