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What Does 'Made in America' Mean? In Green Energy, Billions Hinge on the Answer

Companies pursuing subsidies try to shape the Treasury Department's definition

Virginia-based power company AES Corp. says it is ready to push the button on a solar-panel order of more than $1 billion if a manufacturer will commit to building a factory in the U.S.

If that factory gets built, AES can buy its panels and apply for federal subsidies recently made available to clean-energy developers that use equipment made in the U.S.

There is one problem: The government hasn't decided what "made in the U.S." means, and how strictly to define it.

"You can't sign on the dotted line until this is clarified," said Andrs Gluski, AES's chief executive. The company and two other developers have said they would collectively buy as much as $6 billion in panels from a manufacturer that sets up in the U.S.

Just what qualifies as made in America is one of the biggest questions still hanging over the Inflation Reduction Act, legislation passed in August that offers hundreds of billions of dollars in tax credits and other incentives for clean-energy projects. The issue is more complicated than it might seem, given that almost all clean-energy projects require at least some parts that are manufactured overseas.

The law is supposed to spur not only the deployment of clean energy but also the creation of domestic jobs and industries to underpin that rollout. So lawmakers sprinkled support for U.S.-made products throughout the legislationfrom rebates for buying electric vehicles that contain significant domestic content to bonus tax credits for solar or wind developers that use enough U.S.-manufactured equipment.

"If we're going to use federal tax dollars, we're going to direct that investment into the United States and create some American jobs," said John Podesta, senior adviser to President Biden for clean-energy innovation and implementation, at a Houston energy conference in early March. "We've for too long let our supply chains drift overseas, particularly to China."

As much as half of potentially $500 billion-plus in investment generated by the Inflation Reduction Act's incentives include some sort of domestic-content requirements or bonus, according to an analysis by research institute Rhodium Group.

The money at stake has made defining what it would take to meet those requirements one of the most hotly contested aspects of the law, spurring complaints from governments as well as tussles among companies ranging from U.S. steelmaker Nucor Corp. to power company NextEra Energy Inc.all of which are angling for as much of the green subsidies as possible.

The details are being completed by the Treasury Department and are expected to come out over the next few months. The rules on one important incentivea $7,500 tax rebate for electric-vehicle purchases, if the cars and their batteries meet domestic content and sourcing requirementsare expected by the end of this month.

Meanwhile, many would-be investors are hanging back. In solar, wind and storage projects alone, about $20 billion in investment could be on hold while the government sorts out a variety of tax-credit details, with much of the attention on domestic-content rules, say clean-energy analysts.

A big challenge is that much of the manufacturing the law is trying to spur barely exists in the U.S. today, from the silicon ingots and special glass needed for solar panels to the large steel plates for offshore wind arrays. The bulk of those products and components are instead imported from overseas, particularly China, which offers cheaper prices and controls the supply chain for goods such as solar panels and batteries. Defining "made in America" in a way that excludes most of those imports could mean nobody would meet domestic-content requirements or get the incentives tied to them, some green-energy developers say.

Take solar projects, which under the legislation could in some cases receive 10% more in bonus tax credits if enough of the equipment by value is made domestically. That incentive has sparked a furious debate over solar panels, which alone can comprise 40% of the total equipment cost of a solar plant and are crucial to getting the bonus.

Companies such as NextEra, the U.S.'s biggest developer of solar projects, are urging that panels assembled in the U.S. be considered American-made, even if the ingredients come from overseas. Such a definition would let more developers get bonus credits and encourage the construction of more solar farms, they reason.

Developers need those bonus credits to offset higher panel costs that would come with moving more of the solar supply chain to the U.S., says AES clean-energy head Leonardo Moreno.

Companies such as South Korean conglomerate Hanwha Group's Qcells unit, which is planning a U.S. factory for panel components such as solar cells, disagree. A solar panel shouldn't be defined as U.S.-made if its most important pieces, especially the cells that convert sunlight to electricity, are made overseas, Hanwha said, in public comments submitted to the Treasury Department.

Those components tend to be particularly costly and challenging to make, so the U.S. won't be able to build a domestic solar supply chain unless renewable-power developers are nudged to buy panels that use them, said Michael Carr, a partner at government-affairs consulting firm Boundary Stone Partners, which is lobbying for some manufacturers.

Another contentious point is how to treat equipment made of iron and steel, such as the tower that holds up the engine and blades of a wind turbine. The legislation says the iron and steel should be made in America for a renewable-energy project to qualify for domestic-content bonuses, but is vague on exactly what that means.

Many renewable-energy developers are pushing for a domestic-content definition that would let them import many of those steel components.

Such a definition would "effectively nullify any benefit at all in the IRA," said Robert DeFrancesco, a lawyer at Wiley Rein LLP who is counsel for the Wind Tower Trade Coalition, a handful of big U.S. manufacturers.

U.S. steelmakers have also weighed in, especially because the clean-energy industry's demand for steel is expected to triple by 2030, according to some estimates.

Developers "shouldn't get the credit that was intended to benefit American workers if they are bringing [steel] from overseas," said Al Behr, Nucor's executive vice president for plate and structural steel.