Tag: worlds

In a huge hangar in Quonset Point, Rhode Island, welders are aiming blazing torches at sheets of aluminium. The hulls of three new ships, each about 27-metres long, are taking shape. The first will hit the water sometime in the spring, ferrying workers to service wind turbines off the New England coast.

The US barely has an offshore wind sector for these vessels to service. But as the Biden administration accelerates a plan to decarbonise its power generation sector, turbines will sprout along its coastline, creating demand for services in shipyards and manufacturing hubs from Brownsville, Texas, to Albany, New York.

Senesco Marine, the shipbuilder in Rhode Island, has almost doubled its workforce in recent months as new orders for hybrid ferries and larger crew transfer vessels have come in. “Everybody tells me recession in America is inevitable,” says Ted Williams, a former US Navy officer who is now the company’s chief executive. “But it’s not happening in shipbuilding.”

Nor is it happening in any clean energy sector in America. Across the country, a new revolution is under way in sectors from solar to nuclear, carbon capture to green hydrogen — and its goals are profound: to rejuvenate the country’s rustbelt, decarbonise the world’s biggest economy, and wrest control of the 21st-century’s energy supply chains from China, the world’s cleantech superpower.

The world is only just beginning to contend with what it means. Less than three years ago, the US had ditched the Paris agreement on climate change and then president Donald Trump was touting an era of American energy dominance based on the country’s fossil fuel abundance. Europeans chided the US for its foot-dragging over climate.

Since then, President Joe Biden has passed sweeping legislation to reverse course. Last year’s colossal Inflation Reduction Act and its hundreds of billions of dollars in cleantech subsidies are designed to spur private-sector investment and accelerate the country’s decarbonisation effort.

“It is truly massive,” says Melissa Lott, director of research at Columbia University’s Center on Global Energy Policy. “It’s industrial policy. It’s the kitchen sink. It’s a strong, direct and clear signal about what the US is prioritising.”

The tax incentives have made the US irresistible to investors, say cleantech developers, and are sucking money away from other countries. Since the passage of the IRA last year, $90bn of capital has already been committed to new projects, according to Climate Power, an advocacy group.

“The US is now the most opportunity rich, most aggressive growth, most prolific market for renewables investment in the world today,” says David Scaysbrook, managing partner of Quinbrook Infrastructure Partners, a global cleantech private equity group. “And will be for quite some time.”

And yet it is a gamble for the US too. The ring of protectionism, and the sheer scale of the state intervention, has alarmed allies — even those who once implored the US to rejoin the global climate fight. France’s president Emmanuel Macron says the IRA could “fragment the west”. Ursula von der Leyen, the European Commission’s president, has complained it would bring “unfair competition” and “close markets”.

And the underlying effort to break the dependence on cheap Asian components that have sped the advance of renewables in recent years leaves many analysts sceptical. At a time when the White House is also contending with high inflation and Russian aggression, can the US reset the global energy order, create high-paying cleantech jobs at home and cut emissions — all at the same time?

“There is simply no reason why the blades for wind turbines cannot be made in Pittsburgh rather than Beijing,” Biden said in a speech last April.

“Global arms race for clean energy? Certainly,” says Daniel Liu, an analyst at Wood Mackenzie. “But there has to be some level of collaboration because no country can do it alone.”

Powering growth

In a warehouse in Turtle Creek, just east of Pittsburgh, Pennsylvania, a line of workers are assembling batteries, each about the size of a suitcase, based on zinc — an alternative to lithium-ion that its proponents say will offer competitively priced, non-flammable, dispatchable energy for hospitals, schools and other stationary users.

It’s a young cohort of workers, many people of colour and military veterans. “We’re hiring right out of high school,” says Joe Mastrangelo, the Edison, New Jersey-based head of Eos Energy Enterprises, the company making the batteries.

His goal for the factory in western Pennsylvania is to double its total capacity to 3 gigawatt-hours in 2024, producing a battery every 90 seconds once the plant is fully automated. The workforce will also double, to 500.

“We’re doing this in a location that was historically an old energy economy, creating not jobs but career paths for people to get to middle class,” Mastrangelo says.

Climate is central to the IRA. But it is industrial policy on a grand scale too, aiming to revamp the US’s decrepit infrastructure and create advanced manufacturing jobs in rustbelt regions like western Pennsylvania, once the heart of the country’s steelmaking industry.

From Ohio to Georgia, investment is also pouring into lithium-ion energy storage, the technology that will underpin the electrification of the US auto fleet.

All told, the IRA offers $369bn of tax credits, grants, loans and subsidies, many of them guaranteed past 2030. The credits can be sold, too, allowing deep-pocketed investors with enough tax liability to buy the credit — a way to get more capital to developers, quickly.

Credit Suisse thinks the public spending enabled by the IRA could eventually reach $800bn, and $1.7tn once the private spending generated by the loans and grants is included.

The tax breaks have made marginal projects suddenly economical, say developers. A battery plant can generate tax credits of up to 50 per cent of headline costs, if it meets several criteria including prevailing wage requirements, domestic sourcing of materials and location in a fossil fuel community. This can translate into an effective reduction of 60 to 65 per cent of a project’s fair market value, according to law firm Vinson & Elkins.

“It enables us to grow and also enables a further incentive for people that want to invest,” says Mastrangelo.

Wood Mackenzie estimates investment in energy storage will more than triple by the end of the decade, reaching $15.8bn. Energy storage capacity additions will grow from 5GW to 25GW per year by 2030, enough to power almost 20mn homes.

While juicy subsidies are also available for wind and solar, the IRA’s biggest impact may be on technologies that have yet to achieve scale, including carbon capture and bioenergy.

For green hydrogen, a potential clean alternative to natural gas in industries such as steelmaking, the subsidies wipe out about half the project cost, vaulting the US from its position as a global also-ran in the eyes of developers to the most attractive destination for future investment.

For Europe, which hopes scaling up domestic supplies of green hydrogen can speed decarbonisation and help replace the loss of Russian natural gas, the US now poses a threat. The EU is scrambling to respond, but the US incentives are so comprehensive — tax breaks for every section of the green hydrogen supply chain — that it will be hard to compete, say analysts.

“If you look at the price at which a well located green hydrogen project, let’s say in Texas, exporting through the port of Corpus Christi, could generate green hydrogen if they can access low cost renewable power — it’s pretty untouchable,” says Scaysbrook. “It’s a pretty potent trade advantage.”

The geopolitics of the IRA

Gaining a similar advantage over China, however, will be far harder. About two-thirds of the world’s batteries for electric cars and nearly three-quarters of all solar modules are currently produced in China, according to the International Energy Agency. BloombergNEF estimates China invested $546bn in its energy transition in 2022.

Meanwhile, the domestic supply of raw materials, parts and processing capacity is lacking too. The lithium refineries, and nickel and cobalt for batteries; the rare earth materials for solar modules; the nacelles and monopoles for offshore wind — almost everything can be sourced more cheaply from abroad.

Together, China and Europe produce more than 80 per cent of the world’s cobalt, while North America makes up less than 5 per cent of production, according to the IEA. China also accounts for 60 per cent of the world’s lithium refining.

“The Germans make a lot of this stuff. The Chinese make a lot of this stuff. So we are still facing the irony that for the IRA to succeed in the short term, it still relies a lot on China,” says Scaysbrook.

Some early progress is being made. Last month, GM announced $650mn to develop the Thacker Pass mine in Nevada, the US’s largest known source of lithium. Honda, Hyundai, BMW and Ford have all announced multibillion-dollar plans to build batteries in the US following the IRA’s passage.

But it’s a drop in the ocean compared with the scale of Chinese domination. Wood Mackenzie estimates the US will make up 13 per cent of lithium battery manufacturing by the end of the decade, only a 3 per cent upward revision compared with forecasts before the IRA. Asia-Pacific will still account for two-thirds.

“There are so many components when you think about building solar and wind. It’s not going to be realistic that the US is going to become totally self-sufficient in that way,” says Marlene Motyka, US renewable energy leader at Deloitte.

‘You have to be able to build the thing’

To claim the mantle of cleantech superpower from China will take an extraordinary expansion of infrastructure — but not everyone in the US welcomes it.

This month, authorities in Scranton, Pennsylvania — the city Biden regularly invokes to remind Americans of his blue-collar heritage — held a 90-minute zoning board hearing about a proposed solar array on West Mountain, north-west of the city’s centre.

The array, said its developers, would have created dozens of jobs and been sited on a former coal mine — exactly the kind of project that the federal government wants to coax along.

But residents were less impressed. One of them, Brian Gallagher, said he would be able to see the facility from his porch. “We’re not an asset, we’re a neighbourhood. We don’t want to wake up and look at this,” he said. The board voted 4:1 against the project.

The US may have the west’s most generous subsidy regime and its federal government may be committed to reshoring supply chains, but permits to build stuff are another matter.

Congressional efforts to loosen the rules have made little progress, leaving states and local authorities with significant power to block projects. Some climate campaigners and conservationists fear a laxer permitting regime would encourage more fossil fuel projects, like the pipelines sought by the oil industry.

But building transmission infrastructure across state lines — crucial if windy, sparsely populated regions such as Oklahoma are to be connected with big consumer centres on the coasts — is especially difficult.

Paul Bledsoe, a former Clinton White House adviser who now works for Washington’s Progressive Policy Institute, says the “chronic sclerosis” of current permitting rules means that by the time projects have met all the conditions demanded of them, about 95 per cent have been delayed by five years or more.

This could limit the green potential of the legislation. While credible models suggest the law’s provisions could allow the US to cut 45 per cent of emissions compared with 2005 by 2030, putting it within spitting distance of the Biden administration’s target of 50 to 52 per cent, slower permitting could reduce this to 35 per cent, says Lott, at the CGEP.

“Until we resolve those things, it doesn’t matter how many production tax credits or incentives you put out there, you have to actually be able to build the thing to take advantage of those tax credits,” she adds.

Given the tight timeline to get the projects up and running — both to capitalise on the 10-year tax credits and to meet the Biden administration’s decarbonisation targets — worker shortages are another pressing problem.

“We have another generation of mega projects in front of us and the labour market is already strained to the limit,” says Anirban Basu, chief economist at the Associated Builders and Contractors.

The ABC estimates the US will need to add half a million more construction workers in 2023 on top of the normal hiring pace to meet demand: a sign that clean energy is creating the jobs, but an alarming prospect for the developers.

Yet some of the IRA tax credits also depend on paying prevailing wages and including apprenticeships in the workforce — measures designed explicitly to address the longstanding complaints of American workers who have watched jobs “shipped overseas” over decades of globalisation, but which are 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.

It leaves the pace of the energy transition in the US depending on how, or whether, the Biden administration will be willing to compromise on any of the goals in its sweeping clean energy legislation.

Even many supporters wonder how an industrial policy to rejuvenate America’s manufacturing heartlands can happen alongside an effort to decarbonise the economy in less than a decade — all while the US adopts a geopolitical strategy to compete with China in a new clean energy race.

Others say one cannot happen without the others. Either Biden ensured the fight for the climate would bring jobs for Americans, or Americans would forget about climate. Either the reliance on foreign supply chains would be broken, or America would be relegated in the new global energy order.

“This is the future of ambitious climate legislation that can actually pass,” says Sonia Aggarwal, a former Biden climate adviser who now runs the Energy Innovation think-tank. “We have to actually be more holistic. Without including worker policies, and including this broader global perspective of where we are going, we wouldn’t have the climate policy at all.”