The President of the United States signed the “Big, Beautiful Bill” into law on July 4th. The new legislation brings big changes to the future of U.S. clean energy development. It reduces many (though not all) of the Biden-era subsidies from the Inflation Reduction Act of 2022 (IRA).

This week on the podcast, our guest is Mike Carr, Executive Director at SEMA Coalition—an organization supporting the U.S.-based solar supply chain. Mike has extensive experience in U.S. federal energy policy, including past positions at the Department of Energy and the U.S. Senate Committee on Energy.

Jackie and Peter asked Mike: How would you characterize the Bill’s impact on U.S. clean energy, and what damage has it caused? At a high level, does this major policy shift lessen the appetite for investment, even in areas where subsidies remain, due to concerns about political uncertainty? For clean technology manufacturing, such as solar panels, do the newly introduced restrictions on Foreign Entities of Concern (like China) regarding content, intellectual property, and investment make it more challenging to qualify for the production tax credit (45X)? Renewable energy projects that commence construction within a year of the Bill’s passage can still be eligible for subsidies for the following four years; does this create a construction boom, and what happens afterward? Given China’s dominant position in manufacturing many types of clean energy technology, how should the U.S. compete? Is it better to leapfrog China with innovation, rather than simply following and producing the same technology?

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Episode 291 transcript

Disclosure:

The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.

Announcer:

This is the ARC Energy Ideas podcast, with Peter Tertzakian and Jackie Forrest, exploring trends that influence the energy business.

Jackie Forrest:

Welcome to the ARC Energy Ideas Podcast. I’m Jackie Forrest.

Peter Tertzakian:

And I’m Peter Tertzakian. Welcome back. Well, Jackie, it’s that time of year in Calgary. It’s the Stampede.

Jackie Forrest:

So lots to celebrate because not only is it Stampede, but we have our first LNG shipment on the eve of Canada Day. So it’s definitely a new era in Canadian gas, and everyone’s hoping that this is not one and done. A lot of conversation at Stampede week about momentum building for more big projects around LNG, and maybe even an oil pipeline. We heard the potential for that from our prime minister this weekend.

Peter Tertzakian:

We sure did. So yeah, there’s a lot of upbeat talk at the Stampede, so I think we’re going to hear a lot more as the week progresses on. But this week, we’re going to really look south of the border because there was some big news down there as well. The Big Beautiful Bill as President Trump had coined it has been passed, right?

Jackie Forrest:

That’s right. Everything’s going on time here in Canada. We got our C-5 done for Canada Day, they got their big beautiful build done for July 4th Independence Day, and we’ve been focused a lot on Canadian clean energy, but Canadians need to look across the border to understand what’s happening there because it does have impacts on us. For the last several years, it’s been tough for Canadian clean energy projects to compete with the very generous subsidies that the Americans have been offering, and Biden put those in 2022. So it’s important for us to see, well, what’s happening across the border and what does that mean here in Canada?

Peter Tertzakian:

Yeah. Well, much as President Joe Biden at the time brought in the Inflation Reduction Act, which had huge subsidies for extreme energy and a lot of development ensued, a lot of excitement. The Big Beautiful Bill as it’s termed also has a lot of ramifications because it pulls back a lot of those incentives. And whereas, we in Canada can think of this as a potentially just a US issue, it’s really not because capital flows across borders. So we really need to look more into this, and who better to help us with that. And Mike Carr, Executive Director at SEMA, otherwise known as the Solar Energy Manufacturers for America, it’s a Coalition that supports US-based supply chains for solar energy. So welcome, Mike.

Mike Carr:

Thank you very much, Peter.

Jackie Forrest:

Well, Mike, it’s great to have you on. We had met back in May and you have so much knowledge. Maybe tell us a bit about the SEMA Coalition, but also your previous roles with the US Department of Energy and at the US Senate Committee on Energy.

Mike Carr:

Sure. Thanks again. I appreciate you guys having me here. I guess, I’ll start with me. I’ve been in Washington DC now for about 30 years. I am trained as a lawyer with a specialization in environmental law, and I really worked the very bulk of my career around climate and energy policy. I worked at various stints set at different government agencies, including the Department of Interior and the US House of Representatives. But the bulk of my sort of climate and energy career really began at the Senate Energy and Natural Resources Committee in 2004. I worked there as a senior council for about eight years, and that was sort of during the era where in particular the United States was trying to figure out what’s next. Oil prices, as you may remember, had sort of spiked in that 2006, 2007, and 2008 timeframe, and it’s really when the United States began to think hard about how we would develop the next generation, the resources, and how the United States would fit into that.

And that’s when I really first became enmeshed in examining our industrial policy or at that time lack thereof, around manufacturing in particular. That my boss, the chairman of the committee at the time, Senator Bingham of New Mexico, was particularly concerned that the United States was losing ground to our international competitors. So we began designing policies both on the regulatory side, which was the jurisdiction of the committee, but he also served on the finance committee which develops tax policy. So we began working on tax credits such as the EV purchase incentives back then, the loan programs in the energy committee, and the like to try to reinvigorate manufacturing in the United States. I did that until he decided to retire in 2012, and I went from there as a political appointee in the Obama administration at the Department of Energy as the number two at the energy efficiency and renewable energy division within the Department of Energy.

I did that for about three years. And then with a couple of my colleagues left to try to work it from the industrial side and began talking to companies in the clean energy and manufacturing space about what it really took to pull this industrial policy together and advance our goals. After a few iterations around 2019, led to several solar manufacturers in the United States getting together and really digging into why we had fallen so far behind, and what it would really take to catch up.

And when I say catch up, fall behind, at this point, it really is about China’s industrial policy around manufacturing. And what we had seen was a dedicated effort by the Chinese manufacturer or the Chinese government to in effect monopolize manufacturing across a number of clean energy spaces, including batteries and solar. And we came to believe that really to advance the technology, to secure supply chains, to really arrive at a place where we could solve these larger problems around deployment of clean energy as well, it was necessary to build out a complete supply chain for that in United States and with our allies in North America. And so that was how the SEMA Coalition was originally born and then sort of took it from there.

Jackie Forrest:

That’s interesting, Mike. I mean, I think the US had some real successes in your time, like a support of Tesla, which turned out very well. And we’re going to get to this issue about China because it hasn’t gotten any better since 2004. It’s gotten much worse in terms of their dominance and their scale and their expertise in many of these areas.

Peter Tertzakian:

So Mike, it strikes us across the border here that the Big Beautiful Bill is quite consequential to the Inflation Reduction Act. In other words, it’s almost like a sledgehammer, if not a scalpel or both to a lot of the programs that were put into place by the Biden administration. So could you categorize exactly what this means in terms of the clean energy, transition/revolution, whatever you want to call it in the United States. On a scale of 1 to 10, how damaging is this to the momentum that the United States was trying to achieve in the face of that Chinese competition we talked about earlier and that we’ll come back to?

Mike Carr:

Well, that’s right, Peter. It is in fact a dramatic reversal of industrial policy when it comes to clean energy. In particular, technology such as solar and wind we’re singled out for very, very strong reversals in policy at various places. Storage was in that category, hydrogen policy was in that category, and then adjustments were made along the way. To some extent, we need to see how this plays out, but whether it’s a 10 or a seven or an eight on the 1 to 10 scale, it is certainly in the higher registers there. This was, choose your analogy. Was it a sledgehammer taken to industrial policy? Was it a sharp U-turn, wrenching the wheel? There’s a lot of ways to look at it, but very dramatic. And in fairness, the Inflation Reduction Act credits, which carried a lot of this sort of manufacturing industrial policy, were a pretty significant change in direction as well.

The United States has been very leery of engaging in direct industrial policy to compete with China. We have generally relied on tariffs, which I think we can talk about the limitations of tariffs and trade policy. But I think there were a lot of folks who had argued that the United States was sort of asleep with the switch as the industrial core of our economy was hollowed out by these industrial policies from China. And this was often characterized as sort of the IRA, I’m saying, was often characterized as sort of a wake-up call and a beginning to rebuilding that manufacturing base. And I think for a variety of reasons, some mere partisanship, some discomfort with industrial policy, and in many cases focus on competing interests, this was a very strong rebuke of that effort and an attempt to really reverse the momentum on those technologies.

Jackie Forrest:

All right. We’ll get into some of the details, but some of the areas that were spared and mostly preserved, although, I think everything got some changes, like you say, manufacturing. The ability to get tax credits for manufacturing, production tax credits, CCS Carbon Capture Storage, biofuels, geothermals did well, areas that didn’t do so well were large-scale wind and solar, green hydrogen, residential solar EVs. But just taking a step back, there were some spared and some really cut hard. And you can argue in some of these areas that were spared, you should still have the economic case to go forward with your decision to build a new manufacturing plant or maybe build this carbon capture storage plant. But how are companies looking at this massive change? If every four years you could get such a fundamental change in the policy, how do you make 20-year investments? Do you think that this is damaging for all areas, even the areas that were maybe spared more in terms of the subsidies?

Mike Carr:

I think you raised a very good point, Jackie. I mean, I think this was going in perhaps the biggest concern that the business community had in, and was voiced by a number of members of Congress as well, and certainly economists on all sides of the spectrum. And I do think it was largely unprecedented. I have never seen a reversal like this, and I’ve often heard it voiced that a previous Congress may make some policy decisions that the new governing party doesn’t agree with. But they have often said, and certainly I’ve heard my boss say this when we took a majority that we risked undermining our own credibility if we did reverse course on some of these things. And Congress and policymakers across the spectrum, they want the private sector to do things. They understand that markets are not shaped without on their own, markets are shaped by policy decisions. And so if you reverse those policy decisions, then you do lose a great deal of credibility. And the next iteration, you’re not able to get the private sector to believe you.

Peter Tertzakian:

Well, one can’t help but think that actually the Chinese would be quite happy with this bill, at least in the near term because, obviously, it allows them to continue to subsidize and gain more momentum and a lead at least notionally. But another school of thought might be that, well, if you actually cut subsidies and tax credits and what have you, it actually makes pre-market companies even more attuned to driving down costs and innovating and getting ahead. That’s the way I’m thinking about is that tens, if not hundreds of billions of dollars were invested as a catalyst of the IRA. If there could be enough momentum now for companies to innovate on their own and really take it from a free market perspective. I mean, the free markets are hugely innovative, and too much subsidization actually can lead to what I would call, Innovation Laziness. Is there an argument to be made that actually cutting some of these subsidies may actually be a catalyst to kickstart the free market into a more aggressive innovation mode?

Mike Carr:

Yeah, I think there’s a real point to be made there. I like your innovation laziness frame. And what I would say is, that’s frankly what we’ve been seeing in solar for a while because of the Chinese domination and over-subsidization. I think one of our member companies put it very well in a conversation we were having with the senator that was very much along these lines, Peter, where the CEO said, “I’m a free market believer, an advocate, and I am more than happy to compete with other companies, and I’ve been competing with companies my entire life.” But in solar, what you have to recognize is it’s not a company versus another company, it’s a company versus a country. And that’s the way you have to understand these solar manufacturers are seeing the world. They’re not competing versus JA Solar or Longi or any of these Chinese based companies.

They’re competing against the country’s industrial policy, which allows for unlimited subsidization. We’ve all heard the specifics of the subsidization that can be free land, it can be free electricity, it can be cash, but at the end of the day, it is a fundamentally different economic system in China as we all know. And so you can look at it as industrial policy, but another way of just looking at it is it’s a jobs program. The idea is to have manufacturing in all of these provinces throughout the country, and to facilitate that against all comers. And they’re hungry for cash, they can’t sell their product within the country. And from a strict economics perspective, a lot of these investments in manufacturing in China or in their client countries are not productive investments. And I think that that’s really the way you need to judge it.

Jackie Forrest:

Right. And we see this actually in other areas like critical minerals. You can’t get private company funded because the Chinese drive down the prices to the point where there’s money to be made by a private company and building a plant.

Mike Carr:

Exactly. And in those cases, you don’t see advances in mining technology, you don’t see processing advances the way you would like to see them because, let’s say, the externalities of the environmental costs or the energy costs are not taken into account.

Jackie Forrest:

Right. Okay. Well, let’s go back to the manufacturing and the bill. There are also limitations that were put on in terms of, you kept the production tax credit, I think it’s called the 45X, for building a lot of clean technology including solar panels, but also batteries, electrolyzers, things like that. But there’s a new requirement that to get that, you need to make sure that you don’t have any materials or components from foreign entities of concern. I think it’s being called FEOC, and that you have very limited Chinese ownership or debt. I think something like 25% Chinese ownership and 40% of your debt can be from China. If you’re more than that, then you can’t qualify, and you can’t use much Chinese IP. Well, this is difficult because so much of the supply chain, including the critical minerals, the polysilicon, they all come from China where Chinese IP or companies are behind them. So, how big of a barrier is this? Do you think that a lot of companies won’t be able to actually qualify for these credits because of this Chinese content?

Mike Carr:

Well, it’s going to vary a lot by technology. In the case of solar, we actually have a bit of an advantage, in that the raw materials are not particularly rare. You’re using silica and that’s mined throughout North America. It’s produced in the United States as well as a number of other countries. We actually do have a substantial amount of polysilicon manufacturing in the United States. Two of the largest and highest quality polysilicon manufacturers are in the United States. One is Wacker in Tennessee, I believe, and the other is Hemlock Semiconductor in Michigan. It does explain a little bit of why solar is different than say, battery manufacturing. In the solar space, we don’t have a lot of concerns about FEOC involvement. We have access to the intellectual property that we need. We have access to the raw materials from the polysilicon. What we just don’t have is the facilities right now to manufacture them because we couldn’t finance those facilities.

Now with the IRA, although some of these factories are still under construction, we have in the pipeline facilities that are not interacting with the China, and that is the founding principle behind the SEMA coalition is to have a China-free supply chain. And so we’ve made substantial progress on that for the last few years. And so we don’t find it particularly concerning for solar manufacturing. Manufacturers have access to materials. Stuff is coming online in the near future and, of course, there are a limited number of non-Chinese-based overseas, including places like India where some materials can be acquired. The story is very different when it comes to batteries. For example, this is an area where Chinese dominance has been more profound, and the ability to invest in the United States has been even more hampered. Maybe because it’s a little bit more of a nascent industry and we haven’t seen a lot of grid storage, for example. And so, I think there will be significant challenges when it comes to battery manufacturing from these FEOC provisions.

Peter Tertzakian:

So if that’s the supply and componentry dimension, let’s move on, Mike, to the time dimension, particularly as it relates to wind and solar generation projects. So as I understand it, the final rule in the Big Beautiful Bill allows projects that start operations by the end of 2027, which is now what, two and a half years away. Or start construction within a year from now of the bill’s passing to still get these incentives, right? So in other words, if there’s an accelerant in this thing or a time restriction that you could only get the incentives, basically, if you get going now or you can complete it by 2027. So, are you already starting to sense there’s going to be a big push to get stuff through to get stuff done like a boom?

Mike Carr:

Well, yeah, it’s an interesting dynamic. I will say that the commence construction addition that you mentioned where there’s a year to commence a project, that happened at the very last minute that was something that we were very, very concerned that had been left out. And the reason we were concerned about the so-called placed in service deadline is just the way the market functions in the United States. Developers have to get into interconnect queues in order to bring their projects online, they have to do permitting, they have to do a number of things. And that process is typically 3 to 4 years from acquiring the land or acquiring the lease to build your project, to finally getting it placed in service. And importantly, a big piece of that, particularly the interconnect queue is beyond your control as a developer. So you don’t know when your project will be placed in service, and you really don’t have a lot of influence over when it’ll be placed in service.

And that has massive implications when it comes to financing your project. So if you want to put a 500 megawatt project on the grid in, let’s say, the MISO service area, you have to get into that queue and you hope that they will do their reviews, their grid interoperability reviews, and that they will allow you to be placed in service. Because it has been so long, historically, banks are very leery they won’t take on that risk that you will actually be able to place it in service by the end of 2027. So as a result, our analysis, and I think the way the market has generally reacted to it, that place in service state effectively means if you’ve not already commenced construction before the passage of this bill, and therefore, sort of grandfathered in under the commenced construction standard, there will be no new acquisition of incentives.

Or put another way, the banks won’t finance under the assumption that you’re going to regain any of the incentives because they don’t have any way of knowing that you’re actually going to be able to place it in service. So effectively, commenced construction is the whole ball game. And so we have got a year to commence construction, and then you are grandfathered in, it’s under the normal IRS published rules which allows you essentially four years to place it in service after that commenced construction. And so from a manufacturing perspective, that means we have the domestic content bonus in effect for a year. The rest of this year, it’ll be 45% domestic content to gain that 10%, and then next year it’ll be 50% domestic content to gain that 10%. And that has been a huge driver to buy the domestic product from these factories that are being established.

There is some tale to that, and I’ll try to explain that, in that if you achieve commenced construction, you have a safe harbor to put that into place and service for four years. And in order to achieve that, you have to make a certain amount of investment, do some activities on the land, have the land acquired and the like, or have the options on the land. But then you can take delivery of the product, the solar panel in this case some years down the road. So, we do think there is likely to be a rush for developers who think they can achieve that four year placed in service period for a year to try to get those credits in place and to place orders for product that can come off those assembly lines in two or three years.

Peter Tertzakian:

Well, let me ask you something else though. I mean, if you’re a manufacturer or operator or whatever and you’ve just gone through this roller coaster, you say there’s this most policy uncertainty fatigue, you just can’t count on any of this stuff.

Mike Carr:

Yeah, I think it’s a real risk. We were talking earlier about the uncertainty and the sort of loss of credibility of reversing policy in quite the way that they have done in this bill. I think you’re exactly right, it does make investors nervous. It makes it difficult to make new investments. For example, there are factories that were ready to break ground at the beginning of this year when the domestic content regulations were finally finalized. And so people knew the value of producing in the United States. There were some wafer factories, for example, very, very high CapEx, multi-billion dollar factories that were ready to go. Investments were finally lined up and this seemed like the environment was certain enough. Those investments, I think, are going to have a very difficult time. The investors now look at that and they say, “Boy, I don’t know that it’s really going to come together.”

It seems like the government has reversed course. Fortunately for solar, there are factories that had gotten substantially past that stage gate. We have large investments companies such as Silfab, Q Cells, such as Hemlock, Corning had made major investments and had already begun construction of their factories and are nearing completion of those factories now. For those people, I think they are in a position to credibly produce product in the next 3 to 4 years when we do expect there will be sort of a maintenance of demand and maybe significant demand if it can all get permitted into that commenced construction phase can probably absorb those products. So it’s going to keep those factory doors open for those that have really gotten pretty near the finish line. But for those that were sort of stuck at the starting gate or were just getting out of the starting blocks, I think there’s a very rough road ahead.

Jackie Forrest:

Now beyond that four years, there’s a lot of outlooks for very rapid growth in US electricity load and a concern that it’s going to be very hard to keep up with that. Natural gas will be part of it, but maybe can’t meet it all because there’s constraints in natural gas equipment. So, do you think beyond these subsidies that you could just see these projects go forward and yeah, the price for electricity is going to be higher because they don’t have subsidies anymore. In that case, do you see a role for domestic product? Because I know you still have the tariffs that are protecting these developers not having to face the Chinese competition directly.

Mike Carr:

Yeah, we could spend a whole hour, I think, talking about sort of whack-a-mole nature of tariff policy and how difficult it is to sort of track these factories down, and how quickly they move and how long trade cases take to process. But suffice it to say, I think there’s a very broad consensus that tariff policy alone can’t really meet the need of protecting American manufacturing. But I think to get to your point, there is accelerating demand for solar power. It is a global phenomenon. It really doesn’t have a lot to do with subsidies. And because it is such an intense need and there’s such intense competition to put solar on the grid, I think one thing it’s important to recognize is these subsidies don’t, generally… The value of them is not really being captured by the developers very much. A lot of it is being passed through to the eventual consumers, keeping costs down.

And so I think that’s a core point you were making, Jackie, because there is so much demand for solar, we will see the PPA prices around those tick up because nobody will be gaining the credit effectively after this period after a year. What we’ll likely see is pretty much a wholesale move to Chinese products for projects where they will effectively be taking advantage of the subsidies that China is putting on those products and keeping those prices low. I think it really does fundamentally come down to, do you want the panels in those and the inverters and the like? Do you want them to be from a domestic source or not? And I think the environment we’re now seeing as a result of this bill is starting in August of 2026. We’ve now removed any incentive for those to be domestic products versus Chinese products.

Jackie Forrest:

So maybe some changes there still coming once they see that reality. Well, let’s come to the last question, Mike. This has been a fascinating conversation, and you’ve really highlighted many times throughout this conversation the problem with China. How can we compete against a country that has such scale that is subsidizing these businesses, and in every area of clean energy, it pops up as an issue? And it got me thinking like maybe we’re doing it the wrong way. We’re always doing fast following, right? We’re trying to build the batteries just like they are, the same chemistry and try to do it better. Well, how can we do it better when they’ve got such massive scale? And could we actually try to leapfrog them by just developing brand new technologies? And I know there’s some exciting companies out there in the US, but is that maybe the better approach at this point because they’re so far ahead?

Mike Carr:

This has been a debate in energy policy for a few decades now. I think it is an interesting point, and it’s an attractive idea that we can just sort of leapfrog ahead, as you said, create a new technology that can get ahead of the curve. I guess, I would say, we’ve tried that a lot, and I hate to raise the specter of this, but Solyndra was an example of a technological leap forward. It was a thin film technology produced in an environment where silicon… All these silicon prices were very, very high. And the idea was, “Oh, well, these will never become cheap enough for us to displace it, so we’ll leapfrog ahead to thin film technology.” And they had an expensive process, obviously. But basically, I think we have found again and again, that manufacturing prowess is rules the day. A lot of these technologies, for example, the lithium iron phosphate batteries that we see CATL and BYD dominating in today, were actually developed in the United States.

And I think the challenge that we need to recognize our R&D complex, I think in North America, I would include Canada in this is really second to none. And we do develop these new technologies, we throw them off all the time. But the environment that we see again and again is when the technology is ready to move from the lab into the commercial space, the manufacturing prowess simply isn’t here anymore to actually turn those into viable technologies. And so to the extent that there is a leapfrog available, those companies, A123 was a good example of the earliest iteration of this leapfrog technology of lithium ion phosphate batteries. Eventually, that company went bankrupt because we didn’t have enough support for them in the United States, and they were sold to a Chinese company, and now they’re bringing that technology back to us. I think we’ve seen that movie a few times at this point, and it really does…

You have to advance both policies at the same time. You have to build a manufacturing base to really turn these into commercially viable technologies. Certainly, we never want to be in the position of fast following, but we do want to be in the position of having enough manufacturing capacity that that leapfrog technology is available to us. And in solar, the example that everybody cites to is tandem technology. So our expectation is that perovskite layers will be deposited on top of silicon layers to dramatically increase efficiency.

The entire industry knows that this is the next generation. Perovskites are very cheap. We have a technological advantage in perovskites, but what we hear from the perovskite companies when you go talk to them is, “Well, we need a manufacturing partner in order to bring this to market, and we don’t have the capacity here in the United States.” So that’s exactly what we’ve been trying to address for the last few years through this industrial policy. I think the end state ends up exactly as you outlined, Jackie, where we do have a leapfrog technology, but we got to have at least enough ability to manufacture the existing product to make sure that that doesn’t follow the same path to China as we’ve seen in the past.

Peter Tertzakian:

Yeah. I mean, as I’m listening to the conversation and thinking it’s the only thing we can predict, for sure, is there are going to be more policy surprises coming, I think. And I think there’s going to be more technological surprises both on the product innovation and the necessary manufacturing process innovations as well. Well, Mike Carr, executive director at the Solar Energy Manufacturers for America, otherwise known as SEMA Coalition. Thanks so much for joining us, and helping us at least momentarily understand American energy and industrial policy. We’ll see how it changes that goes forward. But for now, thanks very much for joining us.

Mike Carr:

Thanks again for having me. I appreciate the time. I had a good time.

Jackie Forrest:

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