The landmark US Climate, Tax and Spending Act signed by President Joe Biden on Tuesday could trigger an explosion of new renewable energy projects across the country. Clean energy leaders, climate advocates and academics have hailed it, saying it’s the first serious legislative attempt to tackle the emissions that fuel global warming.
But a host of obstacles stand in the way. They range from tariffs and import controls that drive up the cost of solar panels to state land use laws over which the federal government has no control.
The so-called new law is “absolutely a game-changer,” said Jos Shaver, chief investment officer at Electron Capital Partners, a renewable energy-focused asset manager with $2.8 billion under management. “[But] it is an energy transition, not an energy shift. It won’t happen overnight and there will be a lot of bumps in the road.
The Cut Inflation Act will inject a record $369 billion into clean energy. The Biden administration has predicted the law would cut the country’s greenhouse gas emissions by 40% from 2005 levels, putting it on track to meet its commitments under the deal. Paris on the climate.
Think tank modeling broadly aligns with the administration’s emissions impact estimates. However, for the most part, these do not take into account external forces that could delay projects.
“Models generally assume that if something is economical, it will be built,” said Robbie Orvis of Energy Innovation, a Washington think tank. “And we know that in the real world there can be friction in the system.”
At the heart of the bill are tax credits to stimulate investment and production of renewable energy. While these credits aren’t new, previous versions of the credits have expired multiple times, necessitating eleventh-hour expansions.
Now, 10-year credits will give developers unprecedented ability to plan new projects long-term, while a “portability” mechanism that allows the credits to be bought and sold will expand project financing options.
“This really opens the floodgates for us to massively expand the deployment of the project pipeline with a planning horizon that gives us certainty,” said Tom Buttgenbach, chief executive of 8Minute Solar, one of the largest large-scale developers.
But developers fear that other efforts to catalyze a domestic green energy manufacturing industry are slowing down the torrent.
A Commerce Department investigation into tariff circumvention by auto parts makers in Southeast Asia — the source of most panels — is scheduled for this month. Although the president has said that no tariff will be adopted for at least two years, a lack of clarity makes it difficult to plan ahead.
The potential for retroactive tariffs as well as supply chain issues have driven solar installations in the past quarter to their lowest level since the start of the coronavirus pandemic, according to Wood Mackenzie, a consultancy.
“I need to know what my supply chain will look like in four to five years,” Buttgenbach said. “And the current environment is the tariffs this week and the survey next week. It’s just a nightmare when you’re working on these billion-dollar infrastructure contracts.
Another new US law that bans forced labor imports into China – a major source of solar panels and components – has also caused confusion, with customs officials seizing some parts.
Leaders of the nascent offshore wind power industry in the United States are eagerly considering separate legislation that would require them to use only American vessels and crews when installing turbines.
It’s a “real problem right now,” said Pedro Azagra, chief executive of Avangrid, which owns utilities and is one of America’s largest wind developers. “It is something that is not realistic. You don’t have them and it will take time to build them, time to train the crews.
But most developers support the approach taken in the new climate law, which encourages developers to buy locally rather than force the issue. This will allow the development of a local industry over time. “When you have critical mass and you need things, it comes naturally,” Azagra said.
Developing solar and wind farms on a scale that decarbonizes the economy will require construction across large tracts of land. A Princeton Analysis found that reaching Biden’s net-zero emissions goal by 2050 would involve wind farms with a “visual footprint” on a land area equivalent to Illinois and Indiana combined, at a minimum. For solar farms, land at least the size of Connecticut would be needed.
Already, states like New York that have aggressive renewable electricity targets have met resistance from some residents living near energy projects. In Ohio, less supportive of renewables, lawmakers last year passed a law allowing counties to block solar and wind farms, with one saying wind turbines are “ruining the character” of a place.
A recent study by the journal Energy Policy found that 53 large-scale wind, solar and geothermal projects were delayed or stalled between 2008 and 2021.
The construction of new long-distance transmission lines will be required to deliver electricity from remote wind and solar farms to urban areas. However, states also have the power to block interstate transmission projects. A $1 billion project to bring Canadian hydroelectricity to Massachusetts recently hit the ropes, despite being authorized by the federal government, after opposition from the state of Maine.
Lengthy federal permitting procedures and lawsuits can also slow down transmission and other energy projects. As part of his crucial support for the climate bill, West Virginia Sen. Joe Manchin secured commitments to continue reforms of what he called a “broken” permitting process.
As billions in incentives are about to flood the market, some investors see states scrambling to ease onerous licensing rules.
“Some states will, I believe, as a result of this bill, look to improve their processes because capital is mobile,” said Pete Labbat, managing partner at Energy Capital Partners, a private equity firm. “Our capital will seek to invest or invest in areas where permitting can be done in a streamlined way or environmental approvals can be obtained in a relatively easy way.”
Main climate measures in the bill
Methane Penalty: $900 per metric ton of methane emissions that exceed federal limits in 2024, increasing to $1,500 per metric ton in 2026
Carbon capture and storage tax credit of $85 per metric ton, down from $50 previously
$30 billion for solar panels, wind turbines, batteries, geothermal power plants and advanced nuclear reactors, including tax credits over 10 years. Replaces short-term wind and solar loans
$27 billion for a “green bank” to support clean energy projects, especially in disadvantaged communities.
$20 billion to reduce emissions from the agricultural sector
$9 billion in rebates for Americans who buy and renovate homes with electric and energy-efficient appliances.
$60 billion to support low-income communities and communities of color, including grants for zero-emission technology and vehicles, highway pollution mitigation, bus depots and other located infrastructure close to disadvantaged communities
$10 billion in investment tax credits to build manufacturing facilities for electric vehicles and renewable energy technologies
Tax credit of up to $7,500 for the purchase of clean new vehicles and offers for the first time a credit of $4,000 for used electric vehicles for households with a maximum income of $150,000 per year