On June 6, 2022, President Biden released a White House Fact Sheet (“Fact Sheet”) outlining “President Biden’s Bold Executive Action to Boost Domestic Clean Energy Manufacturing” along with five presidential decisions related to the Defense Production Act (“DPA”). (“Presidential Determinations”) and a declaration of emergency and authorization for temporary extension of time and duty-free importation of solar cells and modules from Southeast Asia (the “Declaration”). The fact sheet states that the President (1) authorizes the use of the DPA to accelerate domestic production of clean energy technologies; (2) encourage domestic solar manufacturing capacity through the use of supply framework agreements with enhanced domestic preferences; and (3) creating a two-year trade regulatory bridge as domestic manufacturing of solar products expands. The White House said these steps are being taken to reduce energy costs, reduce risk to the power grid and mitigate climate change. The Department of Energy (“DOE”) also released a statement June 6 on the DPA Presidential Rulings that outlines DOE’s concerns with each material or technology for which a ruling has been issued. Statements made by the White House and the DOE also make it clear that these actions to use the DPA are part of the administration’s broader “whole of government” approach to addressing environmental justice, with the intent “to d strongly encourage projects with environmental justice outcomes that empower the clean energy transition in low-income communities historically burdened by legacy pollution.
Defense Production Act
The five presidential rulings together affirm that insulation, electrolysers, fuel cells, platinum group metals, electric heat pumps, transformers, power grid components, and solar photovoltaic module modules and components ( including ingots, wafers, solar glass and cells) are industrial. resources, material or critical technological elements essential to national defence. The determinations authorize the DOE to enter into agreements under Section 303 of the DPA (“Title III”), 50 U.S.C § 4533, for the purpose of developing a domestic industry sufficient to meet U.S. requirements for these various products and to avoid shortages of products that would harm defense capabilities. Section 303 funding agreements may relate to specific purchases of industrial resources or critical technology items for government use or resale; purchase commitments for the same; for the encouragement of exploration, development and extraction of critical and strategic materials or other materials; for the development of production capabilities and for increased use of emerging technologies to support the transition from research and development to commercial or national defense applications.
In 2012, Executive Order 13603 delegated broad DPA powers to the DOE under Title I (priority and allocation authorities), Title III (production capacity and supply expansion), and Title VII (voluntary agreements, among others). The June 6 presidential rulings provide additional determinations and guidance on what the DOE may exercise its DPA authority over.
The 2-year solar tariff exemption
The Declaration authorizes a 24-month tariff exemption for solar cells and modules, exported from Cambodia, Malaysia, Thailand and Vietnam, and which are not already subject to an anti-dumping or countervailing order as of June 6, 2022. This action helps to temporarily resolve uncertainty caused by an ongoing Commerce Department investigation into whether supply routes to and from these countries have been established to circumvent tariffs imposed on Chinese-produced solar equipment. The possibility of having to pay retroactive tariffs, combined with global supply chain and labor issues related to the global pandemic, has suspended many solar development projects and canceled others.
New solar projects benefiting from the tariff relief provided by the Declaration could also benefit from the 26% investment tax credit (“ITC”) provided that the projects are started before the end of 2022 and commissioned before the end of 2022. January 1, 2026. For projects started in 2023 and commissioned before January 1, 2026, the rate drops to 22%. For commercial projects launched after 2023, the rate drops permanently to 10% and residential projects would no longer be eligible for an ITC unless the richer and expanded credit provisions of the latest Build Back Better Bill are reintroduced into the under other legislation.
It is unclear what the full impact of the presidential decisions will be on the energy industry in general or how soon these impacts will occur. Similar to executive and legislative actions taken in late 2020, late 2021 and early 2022 regarding critical mineral supply chain issues, these Presidential actions will support the long-term development of certain energy technologies and materials. However, more immediately, given the critical importance of tax fairness agreements in financing solar projects, President Biden’s solar tariff relief provides a much-needed opening for the solar industry to take advantage of credit rates from higher taxes and rebuilding the solar development pipeline.