Inflation Reduction Act of 2022

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Biden Budget Lays Out Battle Lines Against Trump

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President Biden and former President Donald J. Trump offer vastly different policy paths on almost every aspect of the economy.President Biden in his budget this week staked out major economic battle lines with former President Donald J. Trump, the presumptive Republican presidential nominee. The proposal offers the nation a glimpse of the diverging directions that retirement programs, taxes, trade and energy policy could take depending on the outcome of the November election.During the past three years, Mr. Biden has enacted key pieces of legislation aimed at bolstering the green energy economy, making infrastructure investments and reinforcing America’s domestic supply chain with subsidies for microchips, solar technology and electric vehicles. Few of those priorities are shared by Mr. Trump, who has pledged to cut more taxes and erect new trade barriers if re-elected.The inflection point will be arriving as the economy enters the final stretch of what economists are now expecting to be a “soft landing” after two years of high inflation. However, the prospect of a second Trump administration has injected increased uncertainty into the economic outlook, as companies and policymakers around the world brace for what could be a dramatic shift in the economic stewardship of the United States.Here are some of the most striking differences in the economic policies of the two presidential candidates.Sparring over the social safety netAt first glance, Mr. Biden and Mr. Trump might appear to have similar positions on the nation’s social safety net programs. In 2016, Mr. Trump broke with his fellow Republicans and refused to support cuts to Social Security or Medicare. Mr. Biden has long insisted that the programs should be protected and has hammered Republicans who have suggested cutting or scaling back the programs.In his budget proposal on Monday, Mr. Biden reiterated his commitment to preserving the nation’s entitlement system. He called for new efforts to improve the solvency of Social Security and Medicare, including making wealthy Americans pay more into the health program. However, his plans were light on details regarding how to ensure both programs’ long-term sustainability.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    This Arctic Circle Town Expected a Green Energy Boom. Then Came Bidenomics.

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    In Mo i Rana, a small Norwegian industrial town on the cusp of the Arctic Circle, a cavernous gray factory sits empty and unfinished in the snowy twilight — a monument to unfulfilled economic hope.The electric battery company Freyr was partway through constructing this hulking facility when the Biden administration’s sweeping climate bill passed in 2022. Perhaps the most significant climate legislation in history, the Inflation Reduction Act promised an estimated $369 billion in tax breaks and grants for clean energy technology over the next decade. Its incentives for battery production within the United States were so generous that they eventually helped prod Freyr to pause its Norway facility and focus on setting up shop in Georgia.The start-up is still raising funds to build the factory as it tries to prove the viability of its key technology, but it has already changed its business registration to the United States.Its pivot was symbolic of a larger global tug of war as countries vie for the firms and technologies that will shape the future of energy. The world has shifted away from decades of emphasizing private competition and has plunged into a new era of competitive industrial policy — one in which nations are offering a mosaic of favorable regulations and public subsidies to try to attract green industries like electric vehicles and storage, solar and hydrogen.Mo i Rana offers a stark example of the competition underway. The industrial town is trying to establish itself as the green energy capital of Norway, so Freyr’s decision to invest elsewhere came as a blow. Local authorities had originally hoped that the factory could attract thousands of employees and new residents to their town of about 20,000 — an enticing promise for a region struggling with an aging population. Instead, Freyr is employing only about 110 people locally at its testing plant focused on technological development.“The Inflation Reduction Act changed everything,” said Ingvild Skogvold, the managing director of Ranaregionen Naeringsforening, a chamber of commerce group in Mo i Rana. She faulted the national government’s response.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber? Log in.Want all of The Times? Subscribe. More

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    Climate Change Takes Center Stage in Economics

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    With climate change affecting everything from household finances to electric grids, the profession is increasingly focused on how society can mitigate carbon emissions and cope with their impact.A major economics conference this month included papers on wind turbine manufacturing, wildfire smoke and the stability of electricity grids.From left: Joe Buglewicz for The New York Times; Earl Wilson/The New York Times; Zack Wittman for The New York TimesIn early January in San Antonio, dozens of Ph.D. economists packed into a small windowless room in the recesses of a Grand Hyatt to hear brand-new research on the hottest topic of their annual conference: how climate change is affecting everything.The papers in this session focused on the impact of natural disasters on mortgage risk, railway safety and even payday loans. Some attendees had to stand in the back, as the seats had already been filled. It wasn’t an anomaly.Nearly every block of time at the Allied Social Science Associations conference — a gathering of dozens of economics-adjacent academic organizations recognized by the American Economic Association — had multiple climate-related presentations to choose from, and most appeared similarly popular.For those who have long focused on environmental issues, the proliferation of climate-related papers was a welcome development. “It’s so nice to not be the crazy people in the room with the last session,” said Avis Devine, an associate professor of real estate finance and sustainability at York University in Toronto, emerging after a lively discussion.We are having trouble retrieving the article content.Please enable JavaScript in your browser settings.Thank you for your patience while we verify access. If you are in Reader mode please exit and log into your Times account, or subscribe for all of The Times.Thank you for your patience while we verify access.Already a subscriber?  More

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    U.S. and Mexico Try to Promote Trade While Curbing Flow of Fentanyl

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    In her Mexico City visit, Treasury Secretary Janet L. Yellen sought to deepen economic ties while countering drug trafficking.The United States and Mexico sought to project a united front on Thursday in their efforts to deepen economic ties and crack down on illicit drug smuggling as the Biden administration looks to solidify its North American supply chain and reduce reliance on China.At the conclusion of three days of meetings in Mexico City, Treasury Secretary Janet L. Yellen announced that the U.S. and Mexico would begin working more closely to screen foreign investments coming into both countries with a new working group to weed out potential national security threats.The collaboration comes as the administration looks to ensure that allies such as Mexico are able to partake of the billions of dollars of domestic energy and climate investments that the United States is deploying. However, as the administration seeks closer cross-border economic integration, it wants to ensure that Mexico is not the recipient of potentially problematic investments from countries such as China.“Increased engagement with Mexico will help maintain an open investment climate while monitoring and addressing security risks, making both our countries safer,” Ms. Yellen said at a news conference on Thursday.In Mexico, Ms. Yellen has had to strike a delicate balance, pushing her counterparts there to work harder to confront fentanyl trafficking into the U.S. while trying to deepen economic ties at a time when China is also investing heavily to build factories there.Ms. Yellen has embraced Mexico, America’s largest trading partner, as a friendly ally during her trip — visiting drug-sniffing dogs and holding talks with top Mexican leaders. But there is growing frustration within the Biden administration over what officials perceive as President Andrés Manuel López Obrador’s unwillingness to invest in efforts to combat fentanyl trafficking in the region. An increasing number of U.S. officials have become more outspoken in recent months over the need to pressure Mexico to do more to crack down on fentanyl.“The illicit trafficking of fentanyl devastates families and communities and poses a threat to our national security while also undermining public safety in Mexico,” Ms. Yellen said.Nearly 110,000 people died last year of drug overdoses in the United States, a crisis that U.S. officials say is largely driven by the chemical ingredients for fentanyl getting shipped from China to Mexico and turned into the potent synthetic drug that is then trafficked over the southern border into the United States.Mr. López Obrador has generally rejected the notion that fentanyl is produced in his nation and described the U.S. drug crisis as a “problem of social decay.” He has argued that American politicians should not use his country as a scapegoat for the record number of overdoses in the United States. The growing number of fentanyl-related deaths have fueled calls by Republican presidential candidates to take military action against Mexico.In February, Anne Milgram, the Drug Enforcement Administration administrator, said her agency was still not receiving sufficient information from Mexican authorities about fentanyl seizures or the entry of precursor chemicals in that country, and that the United States was increasingly concerned over the number of laboratories used to produce fentanyl in Mexico.Both Republicans and Democrats are specifically concerned over a port in Manzanillo, Mexico, which they say is a prime hub for fentanyl precursors.Fernando Llano/Associated PressAnd in October, on the eve of Secretary Antony J. Blinken’s visit with President López Obrador in Mexico, Todd Robinson, the State Department’s assistant secretary of the bureau of international narcotics and law enforcement affairs, told The New York Times that the Mexican president was not acknowledging the severity of the drug crisis in the region.The Mexican president would rather be in the category of “someone who has a problem but doesn’t know it,” he said.Mr. Robinson, as well as officials in the Treasury Department, also believe Mexico must do more to bulk up its ports to intercept fentanyl precursors coming from China. Both Republicans and Democrats are specifically concerned over a port in Manzanillo, Mexico, that they say is a prime hub for fentanyl precursors.The United States in the meantime has increasingly relied on the tools of the Treasury Department to target drug organizations in Mexico that are trafficking the dangerous drug to the United States.Brian Nelson, the under secretary for terrorism and financial intelligence at the Treasury Department, said in an interview in October that the department would continue to use sanctions to pressure cartel organizations and suppliers of fentanyl chemicals.“We will continue to use our tools to map and trace the network’s suppliers of the precursor drugs that are flowing into Mexico from foreign countries, including China; the money laundering organizations that support the financial flows that enable this criminal enterprise,” Mr. Nelson said.The Treasury Department accelerated those efforts this week with the creation of a new “counter-fentanyl strike force” that will aim to more aggressively scrutinize the finances of suspected narcotics dealers. On Wednesday, Ms. Yellen announced that the Treasury Department was imposing new sanctions against 15 Mexican individuals and two companies that are linked to the Beltrán Leyva Organization, a major distributor of fentanyl into the U.S.At the same time that the Biden administration is trying to curb the flow of drugs coming from Mexico, Ms. Yellen emphasized a desire for more trade between the two countries and noted that the U.S. benefits from imports of Mexican steel, iron, glass and car parts.The 2022 Inflation Reduction Act law in the U.S. allows American consumers to benefit from tax credits for electric vehicles that are assembled in Mexico, and Ms. Yellen said that she wants to see the automobile sector supply chain more tightly integrated between the two countries.“The United States continues to pursue what I’ve called friend-shoring: seeking to strengthen our economic resilience through diversifying our supply chains across a wide range of trusted allies and partners,” Ms. Yellen said.At the news conference, Ms. Yellen pushed back against the idea that the U.S. was encouraging Mexico to adopt more rigorous foreign investment safeguards because it wanted to deter Chinese investment there.“As long as there are appropriate national security screens and those investments don’t create national security concerns for Mexico or the United States, we have absolutely no problem with China investing in Mexico to produce goods and services that will be imported into the United States,” Ms. Yellen said. 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    Europe and Asia React to U.S. Push for Tech and Clean Energy

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    Other governments, particularly in Europe, are trying to counter the Biden administration’s industrial policies with their own incentives.The United States has embarked on the biggest industrial policy push in generations, dangling tax breaks, grants and other financial incentives to attract new factories making solar panels, semiconductors and electric vehicles.That spending is aimed at jump-starting the domestic market for crucial products, but it has implications far outside the United States. It is pushing governments from Europe to East Asia to try to keep up by proposing their own investment plans, setting off what some are calling a global subsidy race.Officials, particularly in Europe, have accused the United States of protectionism and have spent months complaining to the Biden administration about its policies. Governments in the European Union, in Britain and elsewhere are debating how to counteract America’s policies by offering their own incentives to attract investment and keep their companies from relocating to the United States.“I think we all deny that there is a subsidy race, but up to a certain extent, it’s happening,” said Markus Beyrer, the director general of BusinessEurope, Europe’s largest trade association.The United States is deploying nearly $400 billion in spending and tax credits to bolster America’s clean energy industry through the Inflation Reduction Act of 2022. Another $280 billion is aimed at facilities that manufacture and research semiconductors, as well as broader technological research.The Biden administration says the full agenda will unleash $3.5 trillion in public capital and private investment over the next decade. It is both a response to the hefty subsidies offered by governments in China and East Asia and an attempt to rebuild an American factory sector that has been hollowed out by decades of offshoring.Fredrik Persson, left, and Markus Beyrer, executives of BusinessEurope, a large trade group. “I think we all deny that there is a subsidy race, but up to a certain extent, it’s happening,” Mr. Beyrer said.Virginia Mayo/Associated PressThe administration says the investments will put the United States in a better position to deal with climate change and make it less dependent on potentially risky supply chains running through China.But the spending has sparked concerns about taking government resources away from other priorities, and adding to the debt loads of countries when high interest rates make borrowing riskier and more expensive. Gita Gopinath, the first deputy managing director of the International Monetary Fund, said in an interview in October that the spending race was “a matter of concern.”Ms. Gopinath pointed to statistics showing that whenever the United States, the European Union or China enacts subsidies or tariffs, there is a very high chance that one of the other two will respond with its own subsidies or tariffs within a year.“We are seeing a tit-for-tat there,” Ms. Gopinath said.The spending competition is also straining alliances by giving the companies that make prized products like batteries, hydrogen and semiconductors the ability to “country shop,” or play governments against one another other as they try to find the most welcoming home for their technologies.Freyr Battery, a company founded in Europe that develops lithium ion batteries for cars, ships and storage systems, was partway through building a factory in Norway when its executives learned that the Inflation Reduction Act was under development. In response to the law, the company shifted production to a factory in Georgia.“We think it is a really ingenious piece of modern industrial policy, and consequently, we’ve shifted our focus,” Birger Steen, Freyr’s chief executive officer, said in an interview. “The scaling will happen in the United States, and that’s because of the Inflation Reduction Act.”Mr. Steen said the company was keeping the Norwegian factory ready for a “hot start,” meaning that production could scale up there if local policies become friendlier. The company is talking to policymakers about how they can compete with the United States, he said.Some countries are reaping direct benefits from U.S. spending, including Canada, which is included in some of the clean energy law’s benefits and has mining operations that the United States lacks.Canada’s lithium industry stands to benefit as battery manufacturing moves to the United States and companies look for nearby sources of raw material.Brendan George Ko for The New York TimesKillian Charles, the chief executive at Brunswick Exploration in Montreal, said in an interview that Canada’s lithium industry stood to benefit as battery manufacturing moved to the United States and companies looked for nearby sources of raw material.But in most cases, the competition seems more zero-sum.David Scaysbrook, the managing partner of the Quinbrook Infrastructure Partners Group, which has helped finance some of the largest solar and battery projects in the United States, said that America’s clean energy bill was the most influential legislation introduced by any country and that other governments were not able to replicate “the sheer scale” of it.“Other countries can’t match that fiscal firepower,” he said. “Obviously, that’s a threat to the E.U. or other countries.”The United States has sought to allay some of its allies’ concerns by signing new trade agreements allowing foreign partners to share in some of the clean energy law’s benefits. A minerals agreement signed with Japan in March will allow Japanese facilities to supply minerals for electric vehicles receiving U.S. tax credits. American officials have been negotiating with Europe for a similar agreement since last year.But at a meeting in October, the United States and Europe clashed over a U.S. proposal to allow labor inspections at mines and facilities producing minerals outside the United States and Europe. Officials are continuing to work toward completing a deal in the coming weeks, but in the meantime, the lack of agreement has cast a further pall over the U.S.-E.U. relationship.Biden administration officials have continued to defend their approach, saying that the Inflation Reduction Act does not signal a turn toward American protectionism and that climate spending is badly needed. Even with such significant investments, the United States is likely to fall short of international goals for curbing global warming.John Podesta, the senior adviser to the president for clean energy innovation, said in a conversation at the Brookings Institution in October that foreign governments had been doing “a certain amount of bitching.” But he said the U.S. spending had ultimately spurred action from other partners, including a green industrial policy that Europe introduced early this year.“So with the bitching comes a little bit more shoulder to the wheel, so that’s a good thing,” he added.Ursula von der Leyen, president of the European Commission, presented the European Union’s Green Deal Industrial Plan in Brussels in February after the United States enacted the Inflation Reduction Act.Yves Herman/ReutersIn addition to the Green Deal Industrial Plan, which the European Union proposed in February, the bloc has approved a significant green stimulus program as part of an earlier pandemic recovery fund, and additional spending for green industries in its latest budget.Japan and South Korea have proposed their own plans to subsidize green industries. In the technology industry, South Korea and Taiwan both approved measures this year offering more tax breaks to semiconductor companies, and Japan has been setting aside new subsidies for major chipmakers like TSMC and Micron.Europe also proposed a “chips act” last year, though its size is significantly smaller than the American program’s. And China has been pumping money into manufacturing semiconductors, solar panels and electric vehicles to defend its share of the global market and prop up its weakening economy.The competition has also given rise to anxieties in smaller economies, like Britain, about the ability to keep up.“The U.K. is never going to compete on money and scale at the same level as the U.S., E.U. and China because we are firstly under fiscal constraints but also just the size of the economy,” said Raoul Ruparel, the director for Boston Consulting Group’s Center for Growth and a former government special adviser.British officials have made it clear that they don’t intend to offer a vast array of subsidies, like the United States, and are instead relying on a more free-market approach with some case-by-case interventions.Some economists and trade groups have criticized this approach and Britain’s resistance to creating a sweeping industrial strategy to shape the economy more clearly toward green growth, with the assistance of subsidies.“The question is, do you want to capture the economic benefits along the way and do you want to tap into these sources of growth?” Mr. Ruparel asked.TSMC is building a $7 billion plant in Kikuyo, Japan. Japan has been setting aside new subsidies for major chipmakers like TSMC and Micron.Kyodo News, via Getty ImagesSome experts insist fears of a subsidy race are overblown. Emily Benson, a senior fellow at the Center for Strategic and International Studies, said the scale of overall spending by the United States and the European Union was not significantly different, though European spending was spread out over time.“I don’t see some huge kickoff to this massive subsidy race that will completely upend global relations,” Ms. Benson said.Business leaders and analysts said the frustration in the European Union stemmed partly from broader economic concerns after the conflict with Russia. The combination of higher energy prices and tougher competition from the United States and China has pushed down foreign direct investment in Europe and sparked other fears.Fredrik Persson, the president of BusinessEurope, said the companies his group represented had “a very strong reaction” to the Inflation Reduction Act.“We fully support the underlying direction with the green transition, but it came at a sensitive moment,” he said.Madeleine Ngo More

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    U.S. Limits China’s Ability to Benefit From Electric Vehicle Subsidies

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    The Biden administration issued new rules to prevent Chinese firms from supplying parts for electric cars set to receive billions of dollars in tax credits.The Biden administration proposed new rules on Friday aimed at shifting more production of electric vehicle batteries and the materials that power them to the United States, in an attempt to build up a strategic industry now dominated by China.The rules are meant to limit the role that firms in China can play in supplying materials for electric vehicles that qualify for federal tax credits. They will also discourage companies that seek federal funding to build battery factories in the United States from sourcing materials from China or Russia.The rules could encourage shifts in automotive supply chains, which continue to rely heavily on China for materials and components of electric vehicles. Automakers are also facing intense cost pressures as they try to modify their factories to make electric cars, and China offers some of the most advanced and lowest-priced battery technology in the world.The Biden administration is trying to use billions of dollars in new federal funding to change that dynamic and create a U.S. supply chain for electric vehicles.The climate law that President Biden signed in 2022 includes up to $7,500 in tax credits to consumers who buy electric vehicles made in the United States using largely domestic materials. The law also included a general ban on Chinese products. Lawmakers mandated that firms in China, Russia, North Korea and Iran be prohibited from providing certain materials to cars that received those tax breaks.But the law left open several questions, including what constitutes a Chinese or Russian company. Administration officials said those definitions included any entity that was incorporated or had headquarters in China or Russia, as well as any firm in which 25 percent of the board seats or equity interest was held by Chinese or Russian governments.Chinese companies that set up operations outside China appear to be able to benefit from the rules as long as the Chinese government is not a significant shareholder. That provision came as a relief to some automakers, which feared that the Biden administration might bar them from contracting with Chinese-owned mines or factories in the United States or other parts of the world.Lithium hydroxide is processed at a facility in Bessemer City, N.C. American companies are investing in factories and technologies aimed at developing the materials needed for electric vehicle.Travis Dove for The New York TimesThe law also requires battery makers that strike contracts or licensing agreements with Chinese firms to ensure that they are retaining certain rights over their projects. That provision is intended to make sure a Chinese firm is not effectively in control of such a project.Some conservative lawmakers had challenged Ford Motor’s plans to license technology from the Chinese battery giant known as CATL for a plant in Marshall, Mich., arguing that such a partnership should not be eligible for federal tax credits. Some Republican lawmakers suggested on Friday that the Treasury Department’s guidance did not go far enough to lessen the country’s dependence on China.“At a time when China is using massive subsidies to undercut U.S. manufacturers and throttle the global market for battery components, Treasury’s naïve new regulations would open the floodgates for American tax dollars to flow to Chinese companies complicit in trade violations and forced labor abuses,” said Representative Mike Gallagher of Wisconsin, chairman of the House Select Committee on the Chinese Communist Party. The rules kick in for battery components in 2024, and in 2025 for critical minerals like lithium, cobalt and nickel. They could be adjusted depending on industry comment.The rules could have a profound impact on the U.S. electric vehicle market, which is rapidly growing — battery-powered vehicles made up about 8 percent of new cars sold in the third quarter. Car and battery makers said Friday that they were still reviewing the rules, and that it would take time to determine how many models would qualify for tax credits.Tesla said on Friday that the two least expensive versions of its Model 3 sedan would qualify for only half the $7,500 credit starting in January. The Model Y sport utility vehicle also might not qualify for the full credit after Dec. 31, Tesla said. The Model Y and Model 3 are the top two electric vehicles by sales in the United States. Tesla buys some batteries from CATL.John Bozzella, the chief executive of Alliance for Automotive Innovation, wrote in a blog post Friday that the rules struck “a pragmatic balance,” including by exempting trace materials. If the administration had banned all minor Chinese parts from the supply chain, no car models might have qualified for tax credits next year, he said.Many cars have already been disqualified from purchase credits by other rules, like a requirement that vehicles be assembled in North America. Only about 20 vehicles currently qualify for the program out of more than 100 electric vehicles sold in the United States.The rules also raised new questions about whether stricter requirements for supply chains could continue a trend of driving more shoppers to lease, rather than buy, vehicles.The prohibition on sourcing from China applies only to vehicles that are sold, not to those that are leased. Consumers can receive tax credits for electric vehicles they lease from auto dealers, and that has led to a boom in E.V. leasing.Jack Fitzgerald, chairman of Fitzgerald Auto Malls, which operates dealerships in Florida, Maryland and Pennsylvania, said he had seen a spike in customers leasing electric vehicles. But he said concern about electric vehicle range and the availability of chargers, more than price, was holding back electric vehicle sales.“That’s the principal thing,” Mr. Fitzgerald said.Auto industry lobbyists have warned that extremely strict rules could stifle electric vehicle sales, and they have urged the administration to strike more trade deals to secure supplies of scarce battery minerals. But Paul Jacobson, the chief financial officer of General Motors, said the company had structured its electric vehicle operations to be successful regardless of the federal rules.“We’re not anchoring the business on saying this has to happen” with regard to regulations, Mr. Jacobson told reporters on Thursday. If regulations change, he added, “it’s not a backbreaking thing for us.”While the rules may create headaches for automakers, they are likely to benefit companies planning to supply batteries from factories in the United States.“It’s actually good news for us,” said Siyu Huang, chief executive of Factorial, a Massachusetts company that is developing next-generation electric vehicle batteries with support from Mercedes-Benz, Hyundai and Stellantis, the owner of Dodge, Jeep and Ram.Acquiring large amounts of lithium, an essential ingredient in batteries, could be difficult because most of the metal is processed in China, Ms. Huang said. But the rules will encourage investment in U.S.-based refineries, she continued. “Its definitely going to be another incentive to build more domestic supply,” Ms. Huang said.John DeMaio, chief executive of Graphex Technologies, which is building a factory in Michigan to process graphite for batteries, said the rules might temporarily slow electric vehicle sales by making it harder to qualify for the tax credit. But in the long run, he added, they will encourage investment in domestic suppliers.“It might be a hiccup,” he said, “but in general it provides certainty and clarity to get people off the fence.”Wally Adeyemo, the deputy secretary of the Treasury Department, said in a briefing with reporters that the rules would help advance the administration’s goals of building up an American clean energy supply chain while also cutting emissions in the transportation sector.“These changes take time, but companies are making the investments and Americans are buying these cars,” he said.Over the past year, companies have invested $213 billion in the manufacturing and deployment of clean energy, clean vehicles, building electrification and carbon management technology in the United States, according to tracking by the Rhodium Group and the Center for Energy and Environmental Policy Research at the Massachusetts Institute of Technology. That is a 37 percent increase from a year earlier..A lithium mine in northern Quebec. A majority of the world’s lithium and cobalt is processed in China.Brendan George Ko for The New York TimesStill, the global electric vehicle industry remains heavily anchored in China, which is the world’s largest producer and exporter of electric vehicles. China produces about two-thirds of the world’s battery cells, and refines most of the minerals that are key to powering an electric vehicle.The rules also restrict automakers from sourcing nickel used in their batteries from Russia, which is one of the world’s largest nickel producers.One of the challenges for automakers will be developing systems to track all the components of their battery through a long, and often opaque, supply chain.Vehicles that are reported incorrectly will be subtracted from an automaker’s eligibility for tax credits, Treasury said, and automakers that commit fraud or intentionally disregard the rules could be declared ineligible for the credit in the future. More

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    In Biden’s Climate Law, a Boon for Green Energy, and Wall Street

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    The law has effectively created a new marketplace that helps smaller companies gain access to funding, with banks taking a cut.The 2022 climate law has accelerated investments in clean-energy projects across the United States. It has also delivered financial windfalls for big banks, lawyers, insurance companies and start-up financial firms by creating an expansive new market in green tax credits.The law, signed by President Biden, effectively created a financial trading marketplace that helps smaller companies gain access to funding, with Wall Street taking a cut. Analysts said it could soon facilitate as much as $80 billion a year in transactions that drive investments in technologies meant to reduce fossil fuel emissions and fight climate change.The law created a wide range of tax incentives to encourage companies to produce and install solar, wind and other low-emission energy technologies. But the Democrats who drafted it knew those incentives, including tax credits, wouldn’t help companies that were too small — or not profitable enough — to owe enough in taxes to benefit.So lawmakers have invented a workaround that has rarely been employed in federal tax policy: They have allowed the companies making clean-energy investments to sell their tax credits to companies that do have a big tax liability.That market is already supporting large and small transactions. Clean-energy companies are receiving cash to invest in their projects, but they’re getting less than the value of the tax credits for which they qualify, after various financial partners take a slice of the deal.Clean-energy and financial analysts and major players in the marketplace say big corporations with significant tax liability are currently paying between 75 and 95 cents on the dollar to reduce their federal tax bills. For example, a buyer in the middle of that range might spend $850,000 to purchase a credit that would knock $1 million off its federal taxes.The cost of those tax credits depends on several factors, including risk and size. Larger projects command a higher percentage. The seller of a tax credit will see its value diluted further by fees for lawyers, banks and other financial intermediaries that help broker the sale. Buyers are also increasingly insisting that sellers buy insurance in case the project does not work out and fails to deliver its promised tax benefits to the buyer.The prospect of a booming market and the chance to snag a piece of those transaction costs have raised excitement for the Inflation Reduction Act, or I.R.A., in finance circles. A new cottage industry of online start-up platforms that seeks to link buyers and sellers of the tax credits has quickly blossomed. An annual renewable energy tax credit conference hosted by Novogradac, a financial firm, drew a record number of attendees to a hotel ballroom in Washington this month, with multiple panels devoted to the intricacies of the new marketplace. The entrepreneurs behind the online buyer-seller exchanges include a former Biden Treasury official and some people in the tech industry with no clean-energy or tax credit experience.After President Biden signed the climate law last year, it effectively created a new financial marketplace.Doug Mills/The New York TimesTax professionals and clean-energy groups say the marketplace has widely expanded financing abilities for companies working on emissions-reducing technologies and added private-sector scrutiny to climate investments.But those transactions are also enriching players in an industry that Mr. Biden has at times criticized, while allowing big companies to reduce their tax bills in a way that runs counter to his promise to make corporate America pay more.“I wouldn’t call it irony. I would call it, sort of, this unexpected brilliance,” said Jessie Robbins, a principal of structured finance at the financial firm Generate Capital. “While it may be full of friction and transaction costs, it does bring sophisticated financial interests, investors” and corporations into the world of funding green energy, she said.Biden administration officials say many clean-tech companies will save money by selling their tax credits to raise capital, instead of borrowing at high interest rates. “The alternative for many of these companies was to take a loan, and taking that loan was going to be far more costly” than using the credit marketplace, Wally Adeyemo, the deputy Treasury secretary, said in an interview.Some backers of the climate law wanted an even more direct alternative for those companies: government checks equivalent to the tax benefits their projects would have qualified for if they had enough tax liability to make the credits usable. It was rejected by Senator Joe Manchin III of West Virginia, a moderate Democrat who was the swing vote on the law. A modest federal marketplace of certain tax credits, like those for affordable housing, existed before the climate law passed. But acquiring those credits was complicated and indirect, so annual transactions were less than $20 billion — and large banks dominated the space. The climate law expanded the market and attracted new players by making it much easier for a company with tax liability to buy another company’s tax credit.“There weren’t brokers in this space, you know, a year ago or 14 months ago before the I.R.A. came out,” said Amish Shah, a tax lawyer at Holland & Knight. “There are lots of brokers in this space now.” Mr. Shah said he expected his firm to be involved in $1 billion worth of tax credits this year.Mr. Biden’s signature climate law has spawned a growth industry on Wall Street and across corporate America.Gabby Jones for The New York Times“The discussion goes like this,” said Courtney Sandifer, a senior executive in the renewable energy tax credit monetization practice at the investment bank BDO. “‘Are you aware that you can buy tax credits at a discount, as a central feature of the I.R.A.? And how would that work for you? Like, is this something that you’d be interested in doing?’”Financial advisers say they have had interest from corporate buyers as varied as retailers, oil and gas companies, and others that see an opportunity to reduce their tax bills while making good on public promises to help the environment.Experts say large banks are still dominating the biggest transactions, where projects are larger and tax credits are more expensive to buy. For the rest of the market, entrepreneurs are working to create online exchanges, which effectively work as a Match.com for tax credits. Companies lay out the specification of their projects and tax credits, including whether they are likely to qualify for bonus tax breaks based on location, what wages they will pay and how much of their content is made in America. Buyers bid for credits.In order to sell tax benefits under the law, companies have to register their credits with the Treasury Department, which created a pilot registry website for those projects this month. The online platforms to connect buyers and sellers of the credits are not regulated by the government.Alfred Johnson, who previously worked as deputy chief of staff under Treasury Secretary Janet L. Yellen, co-founded Crux, one of the online exchanges, in January. The company has raised $8.85 million through two rounds of funding.Mr. Johnson said his business helped replace the “low-margin” administrative work that happens to facilitate deals. Lawyers and advisers will still be brought in for the more complicated parts of the deal.“It just requires more companies coming into the market and participating,” he said. “And if that doesn’t happen, the law will not work.”Seth Feuerstein created Atheva, a transferable credit exchange, last year. He has no clean-tech experience, but he has brought in green-energy experts to help get the exchange started.Atheva already has tens of millions of dollars in projects available for tax-credit buyers to peruse on the site, with hundreds of millions more in the pipeline, he said. On the site, buyers can browse credits by their estimated value and download documentation to help assess whether the projects will actually pay off. Mr. Feuerstein said that transparency helped to assure taxpayers that they were supporting valid clean-energy investments.“It’s a new market,” Mr. Feuerstein said. “And it’s growing every day.” More

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    A Rural Michigan Town Is the Latest Battleground in the U.S.-China Fight

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    Firestorms over Chinese investments, like a battery factory in Green Charter Township, are erupting as officials weigh the risks of taking money from an adversary.Yard signs along the quiet country roads of Green Charter Township, Mich., home to horse farms and a 19th-century fish hatchery, blare a message that an angered community hopes is heard by local leaders, the Biden administration and China: “No Gotion.”The opposition is to a plan by Gotion, a subsidiary of a Chinese company, to build a $2.4 billion electric vehicle battery factory on roughly 270 acres of largely uninhabited scrub land. An investment of that magnitude can transform a local economy, but in this case it is unwelcome by many. Residents fear that the company’s presence is a dangerous infiltration by the Chinese Communist Party and it has led to backlash, death threats and an attempt to unseat the elected officials who backed the project.The debate over the factory has turned a township of about 3,000 people located 60 miles north of Grand Rapids against each other and into an unlikely battleground in the economic contest between the United States and China. The resistance is part of a broader movement by states to erect new barriers to Chinese investment amid concerns about national security and growing anti-China sentiment.“It’s the Communist influences that I’m bothered by, because they have shown repeatedly that they don’t care about our rules, our laws or anything,” said Lori Brock, who lives on a 150-acre horse farm near where the battery factory is being built. “They shouldn’t be able to buy here.”Gotion purchased 270 acres of land in Green Charter Township with plans to build an electric vehicle battery plant.Cydni Elledge for The New York TimesThat sentiment has been reverberating in the United States and on the Republican presidential campaign trail this year. In August, the campaign of Nikki Haley called Michigan’s Democratic governor, Gretchen Whitmer, a “comrade” for backing the Gotion factory. On Wednesday, Vivek Ramaswamy, a Republican candidate who has called for banning Chinese investments, will hold a rally at Ms. Brock’s farm.Gotion has insisted that it has no ideological ties to China. John Whetstone, a company spokesman, said Gotion was “in no way affiliated with any political party,” explaining that it had pledged to the township not to partake in any activity that supports or encourages any political philosophy.Animosity toward China has been deterring Chinese investment in the United States in recent years. Annual investment by Chinese companies has fallen to $5 billion in 2022 from $46 billion in 2016, according to a recent report by Rhodium Group, as relations between the world’s two largest economies soured. Employment at Chinese firms in the United States has declined by nearly 40 percent since 2017, to 140,000 workers.But investment is starting to turn around as a result of new federal incentives — included in the 2022 Inflation Reduction Act — that were meant to spur American production of electric vehicles. Foreign companies, including those from China, are trying to capitalize on tax credits for businesses that manufacture renewable energy products inside the United States.The Coalition for a Prosperous America, which represents American manufacturers, estimates that Chinese companies could gain access to $125 billion in U.S. tax credits related to “green energy manufacturing” investments.“There are really strong commercial logics driving this, and those commercial logics aren’t going away anytime soon,” said Kyle Jaros, a professor at the University of Notre Dame, who studies Chinese investment in the United States.The possibility that American taxpayers could subsidize Chinese firms has stoked anger in local communities and in Congress, where lawmakers are scrutinizing transactions involving companies with ties to China and urging the Biden administration to block them.Experts predict that Chinese companies will continue to pursue investments in the United States but concerns at the local level and in Washington are mounting.Cydni Elledge for The New York TimesSenator Marco Rubio of Florida, a Republican, has introduced legislation that would block subsidies to Chinese battery companies. A House committee has demanded answers about a licensing agreement between Ford and the Chinese battery company Contemporary Amperex Technology Co. Limited. Ford has defended the project and described it as an effort to strengthen domestic battery production.House Republicans have also urged Treasury Secretary Janet L. Yellen to withhold any federal subsidies for the Gotion facility and questioned why the Committee on Foreign Investment in the United States did not block its investment.Gotion has said that it voluntarily submitted documents to the interagency panel, known as CFIUS, and the committee declined to block the transaction.The Inflation Reduction Act does restrict American consumers from getting tax credits if they buy electric cars that have parts that come from “foreign entities of concern,” such as China. However, the law does not allow the Treasury to block Chinese companies from securing tax credits if they build factories in the United States.“We know that the vast majority of investments made through the Inflation Reduction Act are being made by American companies,” said Wally Adeyemo, the deputy Treasury Secretary.The Treasury estimates that only 2 percent of the electric vehicle and battery investments that have been made during the Biden administration involve Chinese companies.Gotion already has operations in California and Ohio and plans to open a $2 billion lithium battery manufacturing plant in Illinois. The company chose Michigan last year after securing nearly $800 million in grants and tax exemptions from the state’s strategic fund, whose officials said the investment would bring jobs, customers and economic vitality to the region. At the time, Ms. Whitmer hailed the factory as a win for the state.Since then, a growing and vocal contingent has been working to halt the project.Much of that effort has been directed at Green Charter Township’s board of trustees, a group of local Republican officials who voted to allow Gotion to secure the state tax breaks. When residents realized that the company that was coming to town had ties to China, township meetings that usually drew a handful of people attracted hundreds of angry critics.Green Charter Township’s supervisor, Jim Chapman, sees the advantages of having a Gotion electric vehicle battery plant in the region.Cydni Elledge for The New York TimesJim Chapman, the township supervisor, has heard residents suggest that they would call in the Michigan militia or exercise their Second Amendment rights to stop Gotion from building the factory. Mr. Chapman, a lifelong Republican and former police officer, has found himself in the position of trying to convince his neighbors that allowing Gotion to bring more than 2,000 new jobs to the area will create a housing boom and bring other new businesses to the area.Yet residents have confronted Mr. Chapman with a host of conspiracy theories including that the plant is a “Trojan Horse” and that it will be used to spy on Americans. Some in town believe that the plant will employ cheap Chinese labor, instead of local workers, and erect cooling towers to conceal ballistic missiles.“No Gotion” groups active on Facebook and other social media platforms have seized on the company’s bylaws, which say the company operates in accordance with the Constitution of the Communist Party of China.Kelly Cushway, an organizer in the Gotion resistance movement, opposes the facility and is running for trustee of Green Charter Township.Cydni Elledge for The New York Times“I will go to my grave and people will curse me for this project,” Mr. Chapman said during an interview in his office inside the Green Charter Township building.After researching the company and the actions of other Chinese businesses that operate in the United States, Mr. Chapman concluded that Gotion was not a threat and that the opportunity to invigorate a relatively poor part of the state was worthwhile.“What are they going to spy on us for in Big Rapids? Are they going to steal Carlleen Rose’s fudge recipe?” Mr. Chapman asked, referring to the owner of a popular confectionery in Big Rapids.Opponents hope that a November recall election can replace the board and stop Gotion in its tracks. Residents are raising money to file lawsuits and petition against every permit that Gotion will need to construct a factory that is expected to span more than a million square feet.“I’m worried about environmental catastrophes — there’s going to be 200 to 300 truckloads of chemicals coming in every day,” said Kelly Cushway, who opposes Gotion and is running for a seat on the Green Charter Township board. “We know China has not worried too much about their environment.”Some community activists such as Ms. Brock are coordinating with counterparts in other states including North Dakota, where Fufeng USA tried and failed to construct a corn mill, to learn how to terminate a Chinese investment.Ms. Brock said she remained hopeful that the Gotion factory in her town could be halted.“We haven’t even started,” Ms. Brock said. “We haven’t even hit them with one lawsuit yet, and it’s coming.” More

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    Want to Spur Green Energy in Wyoming? Aim for the Billionaires.

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    If the area around Jackson, Wyo., boasts two things, they’re natural resources and very rich locals. Nathan Wendt is trying to use the Biden administration’s clean energy incentives to bring the two together.Mr. Wendt, the president of the Jackson Hole Center for Global Affairs, has spent years working on issues related to climate change and local economic development. And as President Biden pushed one climate-related policy after another through Congress — first the infrastructure law, and then the Inflation Reduction Act — and a dizzying array of tax credits, loans and grants became available, he sensed an opportunity.“For Jackson Hole investors looking for the next big thing, there’s no need to look beyond state lines,” Mr. Wendt wrote this spring in an opinion essay in The Jackson Hole News & Guide, where he extolled the “flush tax credits” the law provided. “This decade’s great money-making opportunity,” he wrote, “will be in investing in net zero projects in energy communities, including in Wyoming.”Wyoming is both the nation’s largest coal producer and a Republican stronghold where the clean energy transition has at times faced stark opposition. Its entire congressional delegation voted against the Inflation Reduction Act. But the state is unusually well suited to benefit from some of the green incentives the government is offering.Wyoming’s geology and legal landscape make it a top candidate for fledgling carbon capture technologies, which the law promotes through sweetened and extended tax credits. Its existing pipeline infrastructure and energy industry work force could help with hydrogen development. And, perhaps most important, the state has plenty of people whom the Inflation Reduction Act is courting — well-heeled investors who are looking for a way to turn a profit off the green energy transition.Nathan Wendt is hoping that Wyoming’s combination of wealthy residents, a work force primed for energy industries and local resources could make the state a magnet for clean energy investment.Ryan Dorgan for The New York TimesThe Biden administration’s climate law works by attracting private capital to clean energy. While the plan includes targeted grants, many of its potentially most significant provisions aim to transition the nation’s energy supply — and its energy work force — by luring people with capital to invest. Tax breaks and other incentives mean it’s more attractive to make financial bets on risky, but possibly transformational, green technologies.That has Mr. Wendt and other climate researchers across the state looking at Jackson, a town full of potential investors who could pour money into new projects. The elite enclave nestled next to Grand Teton National Park boasts the highest-income county in the United States by some measures. And, Mr. Wendt reasons, many of its millionaires and billionaires work in financial markets but decamped from big coastal cities because they loved the natural beauty that Wyoming has to offer.They might, he figures, have both the money and the motivation to make local climate investment a reality.“Teton County has been historically disconnected from the wider Wyoming economic story,” Mr. Wendt said on a late August morning in Jackson’s town square, a few yards away from an arch made of elk antlers and a few hundred yards away from a number of wealth management offices. “We’re trying to bridge that gap.”Mr. Wendt said, “Teton County has been historically disconnected from the wider Wyoming economic story.”Ryan Dorgan for The New York TimesThe town of roughly 10,000 is the only municipality in Teton County, which boasts the highest per capita income of any county in the United States.Ryan Dorgan for The New York TimesLocal climate activists see Jackson as a place that could help bankroll local clean energy development.Ryan Dorgan for The New York TimesIt’s not just Mr. Wendt who has sensed a profit opportunity. Investors and companies across the country have taken notice. Just since August, about 150 corporations have talked about the Inflation Reduction Act during investor presentations, based on Bloomberg transcripts.In fact, interest has exceeded expectations. The Congressional Budget Office had at one point forecast that energy and climate outlays tied to the law would total about $391 billion from 2022 to 2031, with more than 60 percent of that coming from claims for various tax credits.But Goldman Sachs analysts have estimated that the total could be three times that amount, as people and businesses make much heavier use of the incentives than the government expected. That could mean that some $3 billion pours into green energy investment over the coming decade — $1.2 trillion from the government in the form of tax credits and other incentives, matched by even more in capital from private companies. While their estimates are on the high side, other research groups and the government itself have revised their forecasts upward.Wyoming, for its part, could be well placed to take advantage of some of the law’s more cutting-edge provisions. Some estimates have suggested that the state could see the largest per capita investment related to the legislation of any state in the nation.The opportunities are linked to both local policies and local resources, said Scott Quillinan, the senior director of research for the School of Energy Resources at the University of Wyoming.For instance, the law incentivizes hydrogen development with a new tax credit, making it a much cheaper potential fuel. Wyoming already has pipeline and rail networks that could help transport hydrogen mixtures, Mr. Quillinan said.The law also expanded a tax credit for what is known as direct carbon sequestration, the process of removing carbon from the air and storing it underground or turning it into new products. Wyoming is home to spongelike rocks filled with pockets of saltwater, which are ideal for storing captured carbon. It is also easier to get the necessary permits to set up such projects in Wyoming than in many other states.And while it used to be difficult to make cost-intensive direct capture projects pencil out, the law changed that, increasing the credit for directly captured carbon stored in saline rock formations to $180 per ton from $50.“The incentives finally make these investments profitable,” said Michele Della Vigna, a researcher at Goldman.Environmentalists sometimes question both hydrogen and direct carbon capture technologies, in part because they’re relatively untested. But since the law’s passage last year, announcements of carbon capture projects — including a large one in Wyoming — have spiked.Project Bison, a carbon capture facility under development by the firm CarbonCapture, is set to be the biggest project of its kind, and big names like BCG and Microsoft have signed on for its carbon removal credits.Jonas Lee, CarbonCapture’s chief commercial officer, said that, without the law, the project would most likely have been smaller and slower moving. Even with the law’s help, its planned opening this year has been delayed. Mr. Lee did not provide a reason or a new opening date, but said the firm still expected to operate at scale. Rusty Bell, the director of the Office of Economic Transformation at the Gillette College Foundation in Wyoming, thinks the administration’s climate push is destined for such hiccups. New technologies take time to roll out. The maze of incentives and grants on offer can be difficult to navigate.But Mr. Bell, who wrote the opinion essay with Mr. Wendt, also says Campbell County, where he is based, recognizes that its future as a coal-producing area will hinge partly on seizing new technologies. Residents can look at flailing coal communities elsewhere and realize “we don’t want to be like that in 10, 15, 20 years,” he said.The law also expanded a tax credit for direct carbon sequestration, the process of removing carbon from the air and storing it underground or turning it into new products.Ryan Dorgan for The New York Times More