Poorly-conceived business proposals vying for a share of the US$500 billion in United States government funding for clean energy and infrastructure could lead to “disastrous” results, warns Anne Clawson, principal and founder at Cascade Strategies.
U.S. President Joe Biden’s administration aims to use large sums provided by the Inflation Reduction Act (IRA), the CHIPS Act, and the Bipartisan Infrastructure Law to boost the clean economy, bolster domestic supply chains, and create jobs in the U.S., Clawson writes in an opinion piece for Utility Dive.
The IRA alone directs nearly $400 billion to clean energy through tax incentives, grants, and loan guarantees—with the potential to lower economy-wide emissions 35 to 43% below 2005 levels in 2030, including 49 to 83% lower emissions in the electricity sector, a recent U.S. Environmental Protection Agency report found.
“The catch,” Clawson says, is that most of this funding expires in five to 10 years. So if American business is not ready, the bidding rush “has the potential to be disastrous if it goes wrong.”
Clawson points to a recent failure as an example: in 2017, iPhone assembler FoxConn promised to invest $10 billion to build a factory in Wisconsin that would bring 13,000 jobs to the area. The Donald Trump administration at the time touted its support for bringing on a manufacturing renaissance.
But five years on—with $500 million in taxpayer money spent, and after many people left good jobs for the promise of new ones—only 1,500 spots were created. Clawson says that’s because the company and political leaders, amid the heady opportunity of government funding, rushed an announcement for an investment that didn’t make sense.
Similarly, in Kansas, Panasonic’s $4-billion investment in an electric vehicle battery plant is hurting the local community after the company and government officials failed to realize the location lacks sufficient electricity. The local utility has had to extend the life of some coal-fired plants—“an irony for a clean energy project”—and is also seeking to raise electricity rates by up to 10% for residential consumers to help power the Panasonic plant.
The “sense of urgency” brought about by the infusion of funding means “companies and states may think nabbing any federal money is better than missing out,” Clawson writes. But as demonstrated by FoxConn and Panasonic, “this attitude risks hurting everyone involved.”
The solution for stakeholders is to make smart decisions, Clawson advises. Solid business cases are crucial— meaning projects must still be profitable even if some government incentives fall through. And siting proper locations—based on guaranteed infrastructure and resources—is wiser than basing decisions on the promises of local governments keen for investment dollars.
On that note, local governments must be cautious about what they can offer and whether any new economic burdens are realistic for their existing populations. The federal government must also do its part to ensure that projects can pass through permitting processes on timelines that match the availability of investment dollars.
“None of the solutions I’m proposing are complicated or, frankly, innovative,” Clawson writes. “And yet these basics are being overlooked.”
The Biden administration’s funding can transform the U.S. economy for the better, she concludes. But “it has to happen the right way, and it has to happen as if our communities depend on it—because they do.”