The U.S. Treasury Department recently determined that developers of solar energy projects can claim a new subsidy for facilities built with American-made products even if the system’s panels contain cells made entirely with Chinese materials. The policy is being criticized by U.S.-based makers of solar products, who say the guidelines do not go far enough to reclaim solar manufacturing from China, who dominates world production. President Biden’s Inflation Reduction Act (IRA) provides tax credits for facilities using American equipment to speed decarbonization of the U.S. power sector, create domestic jobs and reduce the country’s reliance on China for solar products. The IRA contains a 30 percent tax credit for renewable energy facilities like solar and wind farms, with an additional 10 percent of the project cost for using domestic content. The Treasury Department, however, would offer a 10 percent additional tax credit for facilities assembling solar panels in the United States, even if they import the silicon wafers used to make those panels from foreign countries, including China.
The United States solar business relies heavily on Chinese manufacturers for low-cost solar modules, and many Chinese-owned factories make these goods in Vietnam, Malaysia and Thailand to avoid U.S. tariffs on Chinese solar modules. China also supplies many of the key components in solar panels, including more than 80 percent of the world’s polysilicon, which most solar panels use to obtain energy from the sun. And a significant portion of Chinese polysilicon comes from the Xinjiang region, where cheap coal generation is used to produce it. The U.S. government has banned imports from the region because of concerns over forced Uyghur labor. There is no current U.S. supply of polysilicon-based cells, the dominant technology in the market. China is home to about 98 percent of global wafer production. Thus, as the United States moves to use solar and wind energy in its transition to green energy, it is becoming highly dependent on China, an autocratic country, vying to replace the United States as the #1 world superpower.
Biden has clashed with domestic solar manufacturers over a separate trade case that would impose tariffs on solar products imported from Chinese companies based in Southeast Asia. In December, a U.S. trade court ruled that four Chinese companies had illegally tried to dodge American tariffs on solar products sent from China by routing their products through factories in Southeast Asia. Instead of imposing tariffs, Biden decided to waive the tariffs for two years to move his climate program forward, without regard to the U.S. solar manufacturing industry. His decision not to impose the tariffs on the Chinese solar makers violates U.S. trade rules and fails to defend American workers, according to many in the U.S. Congress. Recently, the House and Senate approved a measure to reverse the president’s decision, which Mr. Biden is expected to veto.
The Biden administration has set a goal of generating 100 percent of the nation’s electricity from carbon-free energy sources by 2035, a goal that would likely require more than doubling the annual pace of solar installations. More solar panels from China would assist in that goal.
Inflation Reduction Act and Treasury Guidance
The IRA has been viewed as a major promoter of domestic solar manufacturing, which has struggled for years to compete with cheap imports from China. Since passage of the IRA, companies have announced more than $13 billion in U.S. factory investments.
As mentioned above, the IRA contains a 30 percent tax credit for renewable energy facilities with a bonus worth an additional 10 percent of the project cost for using U.S. made content. To qualify for the bonus, the IRA specifies that all of a project’s iron or steel products must be “melted and poured” domestically and that 40 percent of the cost of the manufactured products must be made in the United States. For offshore wind, a new U.S. industry, domestic content must make up 20 percent of costs. According to Treasury’s proposed guidelines, the manufactured products in a typical solar energy facility would include modules, trackers and inverters. To meet the requirement, 40 percent of the components that go into those products, combined, would need to be American-made.
That means that solar cells, which are assembled into panels, could be made overseas so long as the domestic content cost threshold is met by other components in a facility’s manufactured products. Solar cells account for about 30 percent of the costs of the products that make up a solar facility and the majority of those solar cells are made in China using cheap coal-based electricity and forced labor.
According to U.S.-based manufacturers of solar products, the rules issued by the Biden administration on solar tax credits will “cement China’s dominance” over the solar industry by allowing the bonus credit to apply even if solar cells are imported from China. In making that rule, the Treasury Department is hoping to meet Biden’s climate goals, but it will be continuing to make the United States more and more dependent on China, an autocratic government, for its energy. After arguing for decades about how to establish American “energy independence,” that goal appears to have been set aside in pursuit of the new “green transition,” with much of the “green technology” manufactured in Red China.