Welders aim blazing torch at aluminium sheets in a large hangar in Quonset, Rhode Island. Three new ships measuring 27m in length are starting to take shape. The first ship will be in the water by spring and ferry workers to the New England coast to service wind turbines.
These vessels can only be serviced by the US’s offshore wind sector. The Biden administration is accelerating a plan for decarbonizing its power generation sector. This will result in turbines sprouting along the US coast, increasing demand for services at shipyards and manufacturing centres from Brownsville, Texas to Albany, New York.
Senesco Marine, a Rhode Island shipbuilder, has nearly doubled its workforce since January as it received new orders for larger hybrid ferries and crew transfer vessels. Ted Williams, who was a US Navy officer and is the current chief executive of Senesco Marine, says that recession in America is inevitable. “But it’s happening in shipbuilding.”
It is not happening in America’s clean energy sector. A new revolution is underway across the country in all sectors of solar, nuclear, carbon capture, green hydrogen. Its goals are deep: to revive the country’s industrial rustbelt and decarbonise the largest economy on the planet, as well as to wrest control over the 21st century’s energy supply chain from China, the world’s cleantech superpower.
The world is just starting to grapple with the implications of this. Three years ago, the US abandoned the Paris Agreement on Climate Change. Then-president Donald Trump touted an era of American energy dominance built on America’s fossil fuel abundance. Europeans mocked the US’s inaction on climate.
President Joe Biden has since passed broad legislation to reverse the trend. The colossal Inflation Reduction Act, which includes hundreds of billions in cleantech subsidies, was passed last year. It is designed to encourage private sector investment and accelerate the country’s decarbonisation efforts.
Melissa Lott, the director of research at Columbia University’s Center on Global Energy Policy, says that “it is truly enormous.” It’s industrial policy. It’s the kitchen. It is a clear, strong and direct signal of what the US values most.
According to cleantech developers, the tax incentives make the US attractive to foreign investors and take money from other countries. Climate Power, an advocacy group, reports that $90 billion has been invested in new projects since the passage of the IRA.
“The US is the most opportunity-rich, most aggressive growth, and most prolific market for renewables investments in the world right now,” states David Scaysbrook (managing partner at Quinbrook Infrastructure Partners), a global private equity firm that focuses on cleantech. “And will remain so for quite some time.”
It is also a gamble for the US. Allies have been alarmed by the state’s protectionist ring and its massive intervention in the climate debate. Emmanuel Macron, France’s president, says that the IRA could “fragment” the west. Ursula von der Leyen is the president of the European Commission. She has complained that it will bring “unfair competition” and “closed markets”.
Many analysts are skeptical about the effort to reduce dependence on low-cost components from Asia that has sped up the development of renewables. Can the US, at a time when it is facing high inflation and Russian aggression and attempting to reset the global energy system, create high-paying jobs in cleantech and reduce emissions all at once?
Biden stated in an April speech that there was no reason why blades for wind turbines could not be made in Pittsburgh instead of Beijing.
“Global arms race for clean energy? Daniel Liu, an analyst with Wood Mackenzie, says “Yes.” “But, there must be some collaboration because no country can do it all alone.
A line of workers is assembling batteries in Turtle Creek, Pennsylvania, east of Pittsburgh. The batteries are made from zinc, an alternative to lithium-ion. Its proponents claim that it will provide affordable, non-flammable and dispatchable energy for schools, hospitals, and other stationary users.
This is a young workforce, with many veterans and people of color. Joe Mastrangelo, Edison, New Jersey-based chief of Eos Energy Enterprises (the company that makes the batteries), says, “We’re hiring straight out of high school.”
The factory in Pennsylvania, which is located in western Pennsylvania, will be doubled in capacity to 3-gigawatt hours by 2024. Once fully automated, it will produce a battery every 90 second. To 500, the workforce will also increase by twofold.
Mastrangelo states, “We’re doing it in a place that was historically an energy economy. We are creating not jobs, but career paths for people who want to get to the middle class.”
The IRA is a climate policy initiative. It is also the industrial policy at a large scale, which aims to improve the US’s infrastructure and create advanced manufacturing jobs within rustbelt areas like Pennsylvania, once the centre of the country’s steelmaking sector.
Investments are also being made in lithium-ion energy storage technology, which will be the backbone of electrification for the US automobile fleet, from Ohio to Georgia.
The IRA provides $369bn in tax credits, grants and loans, with many of these guaranteed beyond 2030. You can also sell the credits to wealthy investors with enough tax liability to purchase the credit. This allows you to get more capital for developers quickly.
Credit Suisse believes that the public spending facilitated by the IRA will eventually reach $800bn and $1.7tn when the private spending generated through loans and grants are included.
Developers say that marginal projects have become economically feasible due to the tax breaks. If a battery plant meets certain criteria, such as prevailing wages, domestic sourcing materials, and location within a community that uses fossil fuels, it can earn tax credits up to 50% of its headline costs. Vinson & Elkins estimates that this can result in a reduction of 60-65% of a project’s fair market value.
Mastrangelo says, “It allows us to grow” and provides an additional incentive for those who want to invest.
Wood Mackenzie projects that investment in energy storage will triple by the end the decade and reach $15.8bn. By 2030, energy storage capacity will increase from 5GW to 25% per year. This is enough to power nearly 20 million homes.
Although there are plenty of subsidies for solar and wind, the IRA may have the greatest impact on technologies that have not yet reached scale. This includes carbon capture and bioenergy.
The subsidies cover about half of the cost for green hydrogen, which is a clean alternative to natural gases in steelmaking industries. This makes the US a more attractive destination for future investments than its status as a global no-show in the eyes developers.
The US is now a threat to Europe, who hopes that increasing domestic green hydrogen supplies will speed decarbonisation and replace the loss of Russian gas. Analysts say that the EU is trying to respond but the US incentives are so extensive — tax breaks for all sections of the green hydrogen supply chains — that it will be difficult to compete.
Scaysbrook says, “If you consider the price at which an economically viable green hydrogen project can be located, let’s just say in Texas, and exporting through Corpus Christi could generate green hydrogen, if they have access to low-cost renewable power, it’s quite untouchable.” It’s a very powerful trade advantage.
However, China will have a much harder time gaining a similar advantage. According to the International Energy Agency, China currently produces nearly two-thirds the world’s battery for electric cars and three-quarters all of all solar modules. BloombergNEF estimates that China will invest $546 billion in its energy transition by 2022.
The domestic supply of raw materials, parts, and processing capacity is also in short supply. It is possible to source almost everything cheaper from overseas, including the lithium refineries and nickel and cobalt batteries and the rare earth materials used in solar modules and the monopoles and nacelles for offshore wind.
According to the IEA, China and Europe together produce more than 80% of the world’s cobalt. North America produces less than 5%. China is also responsible for 60% of the world’s lithium refinery.
This stuff is made a lot by the Germans. This stuff is made a lot by the Chinese. We are still faced with the irony of the IRA’s short-term success being dependent on China,” Scaysbrook says.
Early progress is already being made. GM announced last month that it would invest $650 million to develop the Thacker Pass mine, Nevada. This is the largest US source of lithium. After the passage of the IRA, Honda, Hyundai and Ford all have announced multibillion-dollar plans for building batteries in the US.
It’s still a small drop in the ocean when compared to Chinese dominance. Wood Mackenzie predicts that the US will account for 13 per cent of all lithium battery manufacturing by the end of the decade. This is only a 3 per cent upward revision to the forecasts made before the IRA. Two-thirds of the total will be made up by Asia-Pacific.
When you think of building solar or wind, there are many parts. Marlene Motyka (Deloitte’s US leader in renewable energy), says that it is unlikely that the US will be able to build solar and wind self-sufficiently.
It will require an incredible infrastructure expansion to claim the title of cleantech superpower from China. However, not everyone in America welcomes this.
A 90-minute hearing was held by Scranton’s zoning board about a proposed solar panel on West Mountain. It was located northwest from the city centre.
According to its developers, the array would have created dozens more jobs and been located on an old coal mine. This is exactly the type of project the federal government wants.
Residents were not as impressed. Brian Gallagher, one of the residents, stated that he could see the facility from his front porch. “We are not an asset, but we are a neighbourhood. He stated that he didn’t want to look at the situation. The project was rejected by the board 4 to 1.
The USA may have the most generous subsidy system in the West, and its federal government may be committed towards reshoring supply chain chains. However, permits to build stuff is another matter.
Congress has not made significant progress in loosening the rules, which leaves states and local authorities with considerable power to stop projects. Conservationists and climate activists fear that a looser permitting system will encourage more fossil fuel projects like those sought by the oil sector. It is particularly difficult to build transmission infrastructure across states, especially in windy and sparsely populated areas like Oklahoma.
Paul Bledsoe is a former Clinton White House adviser and now works for Washington’s Progressive Policy Institute. He says that the current permitting rules have caused “chronic sclerosis” in which 95% of projects are delayed by at least five years after they have fulfilled all conditions.
This could reduce the green potential of the legislation. Although credible models show that the law’s provisions can allow the US to reduce emissions by 45 percent compared to 2005 by 2030, which is within striking distance of the Biden administration’s goal of 50 to 52 per cent, slower permitting could lower this figure to 35%, according to Lott at the CGEP.
She adds that “Until those issues are resolved, it doesn’t matter how many production credits or incentives you put up there, you must actually be able build the thing you want to take advantage of those taxes credits.”
Due to the short timeline for the projects to be up and running, both to capitalize on the 10-year tax credits and meet the Biden administration’s decarbonisation targets, worker shortages are another problem.
Anirban Basu (chief economist, Associated Builders and Contractors) says that “we have another generation mega projects ahead of us and the labor market is already strained too the limit.”
According to the ABC, the US will require half a million additional construction workers by 2023 to keep up with the current hiring pace. This is a sign that renewable energy is creating jobs. However, it’s a worrying prospect for developers.
IRA tax credits may also require payment of prevailing wages or apprenticeships. These measures are designed to address long-standing complaints by American workers who have seen their jobs “shipped abroad” over decades of globalization, while also increasing costs.“These standards are actually going to undermine the Biden administration’s clean energy agenda as a whole,” says Ben Brubeck at the ABC.
The pace of the US energy transition will depend on whether or not the Biden administration is willing to compromise on any goals contained in its comprehensive clean energy legislation.
Many supporters are puzzled by how an industrial policy to revive America’s manufacturing centers can be implemented alongside an effort decarbonising the economy in less that a decade. All while the US adopts geopolitical strategies to compete with China in an entirely new clean energy race.
Some say that one cannot be achieved without the other. Either Biden ensured that the fight against climate change would create jobs for Americans or Americans would forget all about climate. Either America’s dependence on foreign supply chains will be ended or America will be left behind in the new global energy system.
“This is the future for ambitious climate legislation that can actually be passed,” states Sonia Aggarwal (a former climate advisor to the Biden administration) who runs the Energy Innovation think tank. “We need to be more holistic. We wouldn’t be able to have the climate policy without including worker policies and including a broader global view of where we are heading.