Climate bill could reshape auto and energy industries in the US
By Jack Ewing and Ivan Penn
The $369 billion climate and tax package Democrats in the Senate proposed last week could have far-reaching effects on the kinds of cars that Americans drive, where those cars are made and how the country produces its energy. The legislation also aims to break China’s hold on battery supply chains.
The bill, which came back from the dead after Sen. Joe Manchin, D-W.V., unexpectedly dropped his opposition, could greatly accelerate changes already underway in the automotive and energy industries. The proposal aims to simultaneously fight climate change and energize domestic manufacturing. For the most part, it would do so through tax breaks and other incentives — a carrot, rather than stick, approach that is likely to go down more easily in corporate boardrooms and with voters.
Democrats are proposing to expand cash incentives for buyers of electric vehicles, along with billions of dollars for automakers, battery manufacturers and suppliers to build or retool factories in the United States. There is money to help consumers pay for rooftop solar panels, for electric vehicle chargers and for fuel-efficient heat pumps.
Filled with compromises, the proposal offers something to all sides of the energy industry. There is a 10-year extension of tax credits for wind, solar and other renewable energy and tax credits for carbon capture technology that companies like Exxon Mobil have invested in. The bill would introduce a new fee on methane emissions from oil and gas infrastructure while giving fossil fuel companies access to more leases on federal lands and waters.
But there is more at stake than that, policy analysts said. The legislation also contains a strong dose of industrial policy. It favors companies that get their components and raw materials from the United States or its allies, while effectively excluding China.
Making electric cars more affordable
For the auto industry, one of the most important provisions in the climate bill would eliminate a cap on how many cars from each manufacturer are eligible for a $7,500 tax credit that taxpayers get for buying electric vehicles. Currently, the credits are phased out after a manufacturer has sold 200,000 electric or plug-in hybrid vehicles.
Restoring the credits would be huge for Tesla and General Motors, which have used up their quotas, as well as companies like Ford Motor and Toyota that will soon lose access to the credits. The new tax credit, available through 2032, would make vehicles from those companies more affordable and address criticism that only rich people can afford electric cars.
“A big swath of middle-class Americans will be able to get this credit that otherwise would have been blocked out because of the credit limit,” said Joe Britton, executive director of the Zero Emission Transportation Association, whose members include Tesla as well as makers of charging equipment, suppliers of battery materials and other companies tied to the electric vehicle business. “That’s a big deal.”
For the first time, used cars that are battery-powered would qualify for a tax break of up to $4,000. That is important because most people buy secondhand, not new, cars. The average price of a new electric car has risen above $60,000, out of reach for many buyers even factoring in the fuel and maintenance savings those vehicles provide.
Individuals making more than $150,000 a year or couples earning $300,000 or more would not qualify for incentives for new electric cars. The income limits for the used-car incentive are $75,000 for individuals and $150,000 for couples. The credits would not apply to sedans that sell for more than $55,000 and vans, pickups and sport utility vehicles listed at more than $80,000.
“They are trying to drive adoption among middle-class and lower-class buyers, and that’s a good thing,” said Akshay Singh, a partner at accounting and consulting firm PwC who specializes in the auto industry. “That’s where the bulk of the market is.”
The bill, more than 700 pages long, never mentions China. But several provisions appear designed to undermine that country’s hold over the electric vehicle supply chain while making it harder for up-and-coming Chinese carmakers to export cars to the United States.
More support for renewables and fossil fuels
For the energy industry, the bill seeks to speed up efforts by most utilities to switch to cleaner sources of power and develop new technologies within the United States while easing the burden of high prices on consumers struggling with inflation.
A recent analysis by Rewiring America, a nonprofit organization that is pushing for electrification of homes and buildings, found that 41% of overall inflation is related to a jump in fossil fuel prices. The organization estimates that 103 million families would save money every month, a total of $37 billion a year, just by switching to electric furnaces and water heaters, which would qualify for new tax breaks under the Democrats’ climate bill.
Tax credits are viewed as one of the least expensive ways to reduce carbon emissions. The benefits are worth four times their cost, according to calculations by the Energy Policy Institute at the University of Chicago.
“If we can get this, that’s going to put the United States in a very strong position in meeting the international commitments on climate and industry,” said Dan Reicher, a senior researcher at the Stanford Woods Institute for the Environment.
The measure also includes $60 billion for programs to help disadvantaged communities that often bear the brunt of climate change. Power plants are often in poorer communities, while people who live there lack the means to acquire cleaner technologies.
Any bill this expansive is bound to have opposition. The oil and gas business is not happy with a provision that aims to reduce the amount of methane leaking from wells, pipelines and other equipment. Methane, the main component of natural gas, warms the planet much more than carbon dioxide, though it dissipates faster.
Climate experts have long called for policymakers to do more to rein in methane leaks, but the industry has opposed new regulations and laws, arguing that it is in companies’ financial interest to limit leaks. The bill would require businesses to pay a penalty of $900 per metric ton of methane emissions that exceeds federal limits in 2024, increasing to $1,500 per metric ton in 2026.
“While there are some improved provisions in the spending package released last night, we oppose policies that increase taxes and discourage investment in America’s oil and natural gas,” the American Petroleum Institute, which represents oil and gas companies, said in a statement.
But the CEO of Exxon Mobil, Darren Woods, said he was pleased that lawmakers had defined clean energy to include carbon capture and hydrogen. “We’re pleased with the broader recognition that a more comprehensive set of solutions are going to be needed to address the challenges of an energy transition,” Woods said during a conference call Friday to discuss the company’s second-quarter results.