Biden’s signature climate change-related spending policy, the Inflation Reduction Act, is said to be going under the knife once Trump takes office in January. But with Republican districts now full of solar, and solar manufacturing facilities, the real risk is changes to the so-called 45X tax credit – in short, the credit that allows for tax write-offs for spending on producing solar cells and modules.
CPA is strongly supportive of using industrial policy measures like 45X to boost domestic manufacturing. However, we have led the charge to ensure those credits don’t also benefit Chinese entities.
Who gets these tax credits has become controversial because most of the foreign companies setting up shop in the U.S. because of the IRA are Chinese. China’s dominance in the solar supply chain was one of the reasons behind the IRA – to build a domestic supply chain and build up American players in the space. Instead, the law allows for any foreign multinational to get the tax credits so long as they’re making solar here, and that includes the dominant China players. In a way, they are doubly subsidized – first at home with the variety of financial benefits granted by Beijing and the provinces they call home, and then again in the U.S. under the IRA.
“Congress needs to find revenue and one way to get revenue out of the IRA is to add a foreign entity of concern (FEOC) rule to the 45X for solar because it would mean fewer tax breaks going out the door,” said Warren Payne, Senior Advisor at Mayer Brown in their international trade practice, and a former economic advisor for the International Trade Commission. Payne represented the Republican take on solar in a one hour webinar organized by Intersolar and Energy Storage North America. Rob Gardner of the Solar Energy Manufacturers for America Coalition, a group of non-Chinese solar manufacturers, moderated the panel on Thursday afternoon.
“If you add an FEOC to the 45x for solar that will be low hanging fruit to make cuts,” Payne said. He said to look for where Sen. Jon Ossoff (D-GA) comes down on this issue to see if the 45x tax rule is changed to remove China from the mix.
“Ossoff is considered the godfather of the 45x. If he takes it up, it will be a strong signal of the FEOC criteria being applied to 45x,” Payne said.
Greta Peisch, a trade lawyer with Wiley Rein and a former USTR general counsel, represented the Democratic Party’s side of the debate. Worth noting, there was nothing that Peisch or Payne ever disagreed on, suggesting solar was not under the threat of being removed from IRA benefits, nor would Trump scrap solar altogether in favor of oil and gas.
“For FEOC, the discussion will be on what will help U.S. manufacturers short term and long term,” she said. “An FEOC decision can mean different things in different contexts, so it depends how an FEOC is described. But for sure domestic industry should think about where they are aiming to get their supplies now,” she said.
Trump will consider solar part of his industrial policy of reshoring. He will also consider solar an energy security matter and not a climate issue like the Biden administration did, for the most part.
What Are Trump’s Plans For Solar in the Inflation Reduction Act?
Biden’s signature climate change-related spending policy, the Inflation Reduction Act, is said to be going under the knife once Trump takes office in January. But with Republican districts now full of solar, and solar manufacturing facilities, the real risk is changes to the so-called 45X tax credit – in short, the credit that allows for tax write-offs for spending on producing solar cells and modules.
CPA is strongly supportive of using industrial policy measures like 45X to boost domestic manufacturing. However, we have led the charge to ensure those credits don’t also benefit Chinese entities.
Who gets these tax credits has become controversial because most of the foreign companies setting up shop in the U.S. because of the IRA are Chinese. China’s dominance in the solar supply chain was one of the reasons behind the IRA – to build a domestic supply chain and build up American players in the space. Instead, the law allows for any foreign multinational to get the tax credits so long as they’re making solar here, and that includes the dominant China players. In a way, they are doubly subsidized – first at home with the variety of financial benefits granted by Beijing and the provinces they call home, and then again in the U.S. under the IRA.
“Congress needs to find revenue and one way to get revenue out of the IRA is to add a foreign entity of concern (FEOC) rule to the 45X for solar because it would mean fewer tax breaks going out the door,” said Warren Payne, Senior Advisor at Mayer Brown in their international trade practice, and a former economic advisor for the International Trade Commission. Payne represented the Republican take on solar in a one hour webinar organized by Intersolar and Energy Storage North America. Rob Gardner of the Solar Energy Manufacturers for America Coalition, a group of non-Chinese solar manufacturers, moderated the panel on Thursday afternoon.
“If you add an FEOC to the 45x for solar that will be low hanging fruit to make cuts,” Payne said. He said to look for where Sen. Jon Ossoff (D-GA) comes down on this issue to see if the 45x tax rule is changed to remove China from the mix.
“Ossoff is considered the godfather of the 45x. If he takes it up, it will be a strong signal of the FEOC criteria being applied to 45x,” Payne said.
Greta Peisch, a trade lawyer with Wiley Rein and a former USTR general counsel, represented the Democratic Party’s side of the debate. Worth noting, there was nothing that Peisch or Payne ever disagreed on, suggesting solar was not under the threat of being removed from IRA benefits, nor would Trump scrap solar altogether in favor of oil and gas.
“For FEOC, the discussion will be on what will help U.S. manufacturers short term and long term,” she said. “An FEOC decision can mean different things in different contexts, so it depends how an FEOC is described. But for sure domestic industry should think about where they are aiming to get their supplies now,” she said.
Trump will consider solar part of his industrial policy of reshoring. He will also consider solar an energy security matter and not a climate issue like the Biden administration did, for the most part.
Solar Tariffs Will Remain, And Possibly Expand
The Section 201 solar safeguard tariffs will not only be extended in Trump’s term, but they could see a percentage increase, Payne and Peisch agreed.
“There are lots of tools at the administrations fingertips like the IEPPA, the International Emergency Presidential Powers Act, which could be used to impose tariffs more quickly than before,” Peisch said. “The Trump administration will have to weigh different competing interests and will bring countries to the negotiating table with tariff threats. But we will have to see what happens,” she said. “He has a lot of different options.”
Payne called Trump’s pick to replace Katherine Tai as the USTR, Jamieson Greer, an agency veteran, “a smart trade lawyer who knows his stuff and comes with the knowledge of experience on how to use all these statutes that Greta mentioned, like IEPPA. He knows all the statutes and knows all of the nuts and bolts that Trump will need to employ on trade,” he said.
“There is a coalescence behind using tariffs as an aggressive tool,” Peisch said.
The biggest takeaway in the webinar is that Democrats and Republican trade lawyers see eye-to-eye on solar as a critical part of American industry and energy matrix. Barring the climate angle, both parties see solar as a domestic industry, something that was created here and was later lost to the forces of globalization and the inability to compete against China’s overproduction and pricing power.
The IRA’s biggest risks will hit the EV segment, with solar being next. Other sectors, like wind, were not mentioned in the webinar. The U.S. has no major wind turbine producers, but it does have a top ten solar company in First Solar.
Existing definitions on FEOC will have to be redefined, however, as they do currently single out Chinese state owned enterprises, companies with 25% or more CCP ownership, and CCP members in executive or board positions. None of the Chinese solar companies in the U.S. are state owned, or have any significant CCP-government ownership of shares. It is unclear if the major companies here, like JA Solar and Jinko Solar, have CCP members on their boards at this time.
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