Clean energy legislation would expand tax credits and payments for wind and solar power, electric vehicles and carbon capture, but require those industries to use substantial amounts of American-made technology.

WASHINGTON - For more than a decade, the United States has relied on cheap technology from abroad to fuel its shift towards clean energy.

Now President Joe Biden and Democrats are looking to bring that practice to an end, as they seek to pass sweeping new climate legislation deterring clean energy developers from using foreign-made technology. Over time they hope to establish new American factories for clean energy technology that could compete with those in China and other developing nations.

The Democrat’s more than 700-page energy and health care bill, called the Inflation Reduction Act and introduced last week by Senate Majority Leader Chuck Schumer, D-N.Y., and Sen. Joe Manchin, D-W.V., would spend almost $370 billion to expand tax credits and payments for wind and solar power, electric vehicles and carbon capture, but to qualify for the full benefit of those policies those industries would be required to use substantial amounts of American-made technology.

Democrats have championed such an approach for years. With this legislation they are undertaking, “one if not the most significant industrial policies of this era,” said Harry Godfrey, managing director at the trade group Advanced Energy Economy, a trade group representing clean energy and technology companies including NRG and Microsoft.

“We are late to the game in industrial policy, but we have realized the economic and national security risks of not doing it,” he said. “It’s the opportunity to start turning the ship.”

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China dominates the manufacturing of wind turbines and solar panels, with a supply chain that extends across Asia, Africa and South America. It is fast doing the same with batteries, with plans to have almost 150 plants operating by 2030 - compared to just 11 in North America - according to the trade publication Benchmark Mineral Intelligence. And while Austin-based Tesla might lead the world in global electric vehicle sales, a host of Chinese automakers are introducing new electric models to try to take Tesla on.

“They have the scale and the government support to be able to produce these technologies at a low cost,” said Ilaria Mazzocco, a fellow with the think tank Center for Strategic and International Studies. “It’s going to be tough to provide the incentives to restructure these supply chains.”

Driving the U.S. shift away from Chinese technology is increasing political tension with Beijing, as President Xi Jinping seeks to expand his nation’s influence over the global economy. Republicans and Democrats alike have come to question U.S. reliance on China for everything from steel to smart phones.

Earlier this year, the Commerce Department opened an investigation into whether solar panel manufacturers in Cambodia, Malaysia, Thailand and Vietnam are covertly selling Chinese-made solar panels into the United States.

“There’s a huge powerful undercurrent trying to extricate China from these supply chains,” said Gabe Collins, a fellow at Rice University’s Baker Institute for Public Policy. “It’s not a big jump to think maybe we have had years of successful procurement from suppliers based in China, but who’s to say if geopolitical tensions ramp up if those supply chains are still available to us.”

The question facing U.S. policy makers is how to build a domestic supply chain for batteries and solar farms without driving up costs to the point clean energy growth here slows.

Analysis by the California clean energy think tanks Energy Innovation projects that by 2030 the legislation will result in emissions reductions up to 41 percent below 2005 levels. And while manufacturing the technology in the United States will inevitably be more expensive than doing so in Asia, the scale of the incentives should offset any price increases, said Robbie Orvis, a senior director at Energy Innovation

“Given the amount of the tax credits and the incentives for bringing clean energy technology manufacturing to the U.S., I wouldn’t expect to see a large increase in cost,” he said.

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But within the clean energy industries themselves, not everyone is so certain.

Under the draft legislation released last week, which remains under negotiation in the Senate and is scheduled for a vote Saturday before it moves to the House, wind and solar developers would have to meet a series of labor and domestic content requirements if they are to claim the same tax breaks they have enjoyed for more than a decade.

Asked how easily solar developers could meet the requirements and at what cost, Erin Duncan, vice president of congressional affairs at the trade group Solar Energy Industries Association, said they were still in the process of figuring that out.

“We’re actually doing research on that right now,” she said, adding the solar industry supported the effort to expand the domestic supply chain for solar energy.

“We all lived through the experience of COVID when we didn’t have enough supply,” she said. “Currently, domestic supply only meets a fraction of what the industry needs. In order to keep pace with the growth we know is coming. it’s of critical importance we build out the supply chain here.”

In the case of electric cars, for which car buyers could now earn a $7,500 rebate for a new vehicle, the manufacturer must source 50 percent of battery components from factories in the United States, Mexico or Canada, increasing to 100 percent by 2029.

In addition, the critical minerals used in those vehicles, such as lithium and cobalt, must increasingly come from the United States and countries with which it has free trade agreements, which includes mining giants Australia and Chile, hitting 80 percent by 2027, Godfrey said.

“It is a high hurdle,” he said. “Industry will have to stretch to meet it.”

For carbon capture and storage projects, including several along the Gulf Coast, the legislation increases what was a $50 per ton tax credit to an $85 direct payment, under the condition that the projects expand their use of steel, iron and equipment made in the United States.

“The developers I’ve talked to, they said it shouldn’t be a problem,” said Jessie Stolark, public policy manager at the non-profit Carbon Capture Coalition. “We are going to see a tremendous amount of interest and uptake in projects because of this.”

The legislation still needs approval by the Senate Parliamentarian, who must decide whether provisions like incentivizing domestic technology fit within the rules on what a ruling party can and can not include in a spending bill passed with a simple majority - a process known as reconciliation.

With almost $360 billion in federal funding at stake, clean energy developers will have plenty of incentive to find domestic suppliers if it passes.

Congress is looking to help with tens of billions of dollars in tax credits to get new manufacturing facilities built. And Manchin has said that Democrats plan to pass legislation later this year to speed up permitting for energy projects, potentially including new mines as well as transmission lines and natural gas pipelines.

“There will likely be a pretty brutal competition between states as to who gets those factories and facilities,” Collins said. “If you look at where the existing industrial infrastructure associated with EVs and wind and semiconductors, what we’re seeing increasingly is places like Arizona, Texas, Georgia and other southern states have a magnetic pull on these companies.”

James Osborne covers the intersection of energy and politics from the Houston Chronicle's bureau in Washington D.C.

Solar companies, homeowners and trade groups say the time involved in getting permits to connect panels to CenterPoint’s service area has gone from one month to six.