Democrats’ climate plan languishes, putting hundreds of billions in private investment on hold

WASHINGTON - The chief executive of a Portland area-based battery company believes his products could play a critical role in fighting climate change, storing the energy produced by wind and solar for hours instead of having it dumped whenever consumer demand dips.

But Eric Dresselhuys has put on hold ESS’s plans to expand production by as much as eightfold, fearing the projects will pay off for developers and his company only if Democratic lawmakers enact the clean-energy tax credits they proposed as part of the Build Back Better bill. The legislation’s uncertain future has frozen hundreds of billions of dollars in private capital, according to analyses by industry groups and nonpartisan analysts, and complicated America’s much-touted clean-energy revolution.

“It would be too risky to pull the trigger on it right now,” Dresselhuys said in an interview. “I want to spend tens of millions of dollars to create tons of jobs, but I have to know there is going to be a market on the backside. The tax credit pushes the economics of this group of projects over the hump.”

For now, ESS has a 45,000-square-foot warehouse that could house equipment capable of making up to 2-gigawatt hours of batteries a year - which remains vacant.

The proposed bill, backed by President Joe Biden, would pump about $550 billion into the clean energy and climate business, according to the Joint Committee on Taxation, about $311 billion of it in the form of tax credits and incentives.

“Investors are waiting in the wings to deploy capital for clean energy, with this industry poised to be the major engine of 21st-century prosperity,” said Leah Stokes, an assistant professor of political science at the University of California at Santa Barbara. “Without these government incentives, that capital won’t get deployed. With them, we are poised to have a prosperous clean-energy economy.”

Conservative climate policy experts say that imposing a tax on carbon instead would achieve these aims more efficiently than providing the subsidies outlined in Biden’s plan. Some top Democrats briefly considered the idea last year, but abandoned it.

“The clean-energy tax credits would cost $300 billion and are stuffed with expensive union and protectionist mandates that will raises costs, violate global trade rules and risk retaliatory tariffs from abroad,” said Brian Riedl, a policy analyst at the Manhattan Institute, a libertarian-leaning think tank. “Green investments driven by securing Washington tax credits often divert investment dollars from more productive, innovative opportunities that cannot clear the hurdles required for tax credits.”

For months, investors, venture capitalists and manufacturers like Dresselhuys have been preparing to tap the tax incentives to help finance hundreds, if not thousands, of new or expanded projects in solar, wind, carbon capture, hydrogen, electric vehicles and more sustainable aviation fuel, which could help wean the United States off fossil fuels.

Industry groups, as well as climate activists, have been frustrated by the delays. More than 260 clean-energy companies wrote to congressional leaders in January saying that each month of delay to the Build Back Better tax incentives costs the U.S. economy as much as $2 billion in economic activity. The letter cited an analysis by the American Clean Power Association that found the legislation would more than double clean-energy investment to $750 billion over the next 10 years, while creating hundreds of thousands of new American jobs.

The same analysis projected that the credits would cut carbon emissions from the U.S. power sector by roughly 70% below 2005 levels - the equivalent of powering 175 million American homes with “reliable clean energy,” the industry group said.

The bill has also called for expanding tax credits for electric vehicles to as much as $12,500, as Detroit automakers invest billions into new plants to produce EVs.

Democrats remain optimistic that the credits will be approved. Democratic Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona - whose opposition has stymied the bill - have expressed support for some of its key climate provisions, including most of the clean-energy tax incentives. But Manchin has also made clear this month that he does not want to approve an economic package right away and is focused on other legislative priorities.

Many other clean-energy industry officials say their plans will move more slowly without the tax incentives. Michael Garland, chief executive of Pattern Energy, a major wind- and solar-power developer, said in an email that his firm had “a more aggressive growth scenario plan under” the Build Back Better bill but that “without its passage we will not proceed with several projects in excess of $6 billion of investment.”

Garland said that the Build Back Better provisions “will be required to reach the climate goals in the timeframes set out.”

Bringing those renewables to market will also face setbacks. Developers of new transmission lines - connecting big population centers with solar in the southwest and wind in the Great Plains - warn that high-voltage transmission lines could be built faster if Congress passed a long-term investment tax credit, part of the stalled package.

Nearly a year ago, two trade groups put together a list of 22 “shovel ready” projects. While many could advance without the legislation, the report’s authors said more could be developed if it passed. “Unfortunately the 22 projects identified in this report provide only a fraction of the total needed to decarbonize the power system.”

“These are interstate highway-type lines; finding a way to recover their costs is the biggest hurdle,” said Rob Gramlich, one of the paper’s co-authors and founder of Grid Strategies. He said these lines are like public goods such as roads, bridges or national security, “where individuals would prefer not to pay for something that benefits others.”

The bill would not only help new businesses, but old ones such as utilities that operate nuclear power plants. Nuclear power still ranks as the nation’s largest source of carbon-free electricity. Constellation Energy has 22 reactors, and a substantial number of them need government support because of tough competition from natural gas and renewable power in regional power grids. Some state governments have already provided relief.

The House-passed version of Build Back Better would provide between $20 billion and $25 billion in subsidies to reactors struggling to stay afloat.

David Brown, Constellation’s senior vice president for federal government affairs and public policy, said Biden had pledged to cut greenhouse gas emissions at least in half by 2030, compared to 2005 levels.

“Fifty percent of clean energy in the country comes out of nuclear units,” Brown said. “We can’t afford to lose them if we’re going to come close to meeting the administration’s goals.”

“The existing nuclear fleet is still not in very good place economically,” said John Larsen, who leads climate policy research at the Rhodium Group, an independent economic research organization. “With Build Back Better, it would be different.”

Rhodium Group modeling shows the legislation’s provision would rescue at least 10 gigawatts to 15 gigawatts of nuclear energy - equal to eight or 10 major plants - that would otherwise be retired.

The Democrats’ bill would also give a boost to carbon capture, a relatively new but expensive technique for sucking carbon dioxide out of the air or from the gases emitted by power or industrial plants. The current provision - known as 45Q - brought together a bipartisan coalition including climate activist Sen. Sheldon Whitehouse, D-R.I., and Sen. John Barrasso, R-Wyo., whose state relies heavily on oil, natural gas and coal.

There are 85 projects in early stages of engineering and design work, according to the Clean Air Task Force, but commercial projects are largely on hold.

Under current legislation, the tax credit for carbon capture at industrial facilities reaches $50 a ton in 2026. Nat Keohane, president of the Center for Climate and Energy Solutions, said in an email that raising the credit for industrial use to $85 a ton, as proposed in the stalled bill, “would go a long way” toward making carbon capture “economically viable for industries like cement, refineries, and steel production - which will be critical for the net-zero transition.”

Big oil companies, which pump naturally occurring carbon dioxide into old wells to extract more oil, are interested, too. Occidental Petroleum has joined with Carbon Engineering in a venture called 1PointFIve, which is building the first of four pilot plants. Some analysts say dozens more could be on the way - if the subsidies for enhanced oil recovery are increased from $35 to $50 a ton.

The changes could mean a windfall for Summit Carbon Solutions, a pipeline company that would capture and store 12 million tons a year of carbon dioxide from ethanol plants. The Build Back Better provision would mean an extra $420 million a year for the project.

Plans to make air travel less environmentally damaging are also on hold. The start-up firm LanzaJet is opening a plant in Georgia this year that will produce a synthetic fuel for airlines that the company says shares the properties of jet fuel without traditional jet fuel’s greenhouse gas emissions. The United States currently consumes 21 billion gallons of jet fuel a year, and only 5 million of those are low-carbon.

Build Back Better would give companies a tax credit of $1.25 per gallon for fuel with at least half the standard emissions and up to $1.75 per gallon for achieving a 100% reduction - a financial incentive key to LanzaJet’s massive expansion plans. LanzaJet joined White House officials in September to announce that it aims to produce 1 billion gallons of sustainable fuel by 2030, a key part of the administration’s goal to produce 3 billion gallons of low-carbon fuel by the end of the decade.

But if the tax credit “does not exist, you won’t see hardly any of that in production,” said Jimmy Samartzis, LanzaJet’s chief executive. “This is one of the things that can give the industry what it needs to take off, or it can really stall things.”

The failure to pass the Build Back Better bill would probably prompt LanzaJet to set up some of its new production facilities outside of the United States instead of here, he added. “It’s a pivotal moment here for us as a country if we’re serious about building this new industry, which does require support to get it off the ground.”