• March 12, 2021

    How the Administration’s Climate and “Buy American” Goals May Clash

    Dan Byers, John Murphy.

To govern is to choose. For the Biden administration, tough choices may lie ahead given the potential conflicts between its climate and “Buy American” goals.

On the one hand, a commitment to tackling climate change is evident across the administration’s appointments and policies. One of President Biden’s first actions in office was rejoining the Paris Agreement, and a week later he issued a sweeping executive order on “Tackling the Climate Crisis at Home and Abroad.”

On the other hand, the Biden administration is committed to “Ensuring the Future Is Made in All of America by All of America’s Workers,” as captured in the title of a January 25 executive order. That measure will extend the reach of “Buy American” rules in federal procurement. In the same vein, the administration inherits tariffs imposed on diverse goods by the Trump administration with the ostensible goal of favoring domestic production.

Batteries and Electric Vehicles

These conflicts are surfacing in the electric vehicle (EV) battery sector. This industry is one of four fast-tracked for review in a White House supply chain order, with a report due in 100 days.

The administration appears to be considering extending the reach of “Buy American” rules to the EV battery sector in a way that could restrict EV federal procurement options to a narrow range of qualifying vehicles. Perversely, such a move could leave the government with very limited options and thus depress federal purchases of such vehicles aimed at reducing greenhouse gas emissions.

For industry, this possible challenge comes shortly after the United States-Mexico-Canada Agreement (USMCA) imposed new “rules of origin” intended to incentivize new investments in North America. OEMs have been working overtime to deploy multi-year plans approved by the last administration to meet those terms.

However, those rules of origin may be driving capital investments in legacy internal combustion technology as opposed to EVs. As Center for Automotive Research Vice President Kristin Dziczek told Politico recently, EVs today have low U.S. content, adding: “It’s going to be a big, heavy lift to get battery electric vehicles up to the 75% rule,” she said, referring to the USMCA domestic content rules. In this scenario, non-EVs would be favored.

If “Buy American” rules for EV batteries are piled on top of the USMCA rules of origin, the regulatory burden and its contradictions could sap the competitiveness of U.S. manufacturers and complicate the achievement of climate goals at the same time.

Solar Cells and Panels

These conflicts will also play out in the solar industry. The Trump administration in 2018 imposed a 30% tariff on imports of solar cells and panels; while the tariff rate was originally set to decline by 5% annually, a further White House move last October increased the duties to 18% and reinstated tariffs on bifacial solar panels.

At issue are Biden administration goals to make the U.S. power sector carbon-free by 2035. Energy experts are united in arguing that continued tariffs will increase the cost of a continued solar buildout and undermine the contribution solar can make to the energy transition.

A collection of 17 solar energy industry groups argued against the tariffs in a February 11 letter to President Biden. They argued that the tariffs “created significant business uncertainty, added new costs to solar projects that were already contracted, and delayed numerous solar projects. We can no longer miss the opportunity to create new, well-paying jobs across the country, including construction and skilled trade jobs,” the letter stated.

The groups further explained that the tariffs “did not and will not spur domestic manufacturing,” which government data support. Looking at the sector broadly, there are far more American jobs in the installation and development of solar capabilities in the United States. “Because of these tariffs, “the groups added, “we lost 62,000 American job opportunities across the solar value chain and carbon dioxide emissions increased by 26 million metric tons, equivalent to the output of 5.5 million automobiles or 7 coal plants.”

Broader Implications

“Buy American” rules have been a feature of U.S. government procurement law for decades, and they are extensive. A very large majority—approximately 97%—of the federal government’s procurements by value go to U.S. firms.

However, history shows that efforts to extend the reach of “Buy American” rules rarely go unanswered. Copycat measures in foreign markets can have a profoundly negative impact on U.S. businesses across a broad range of energy technology sectors.

U.S. Chamber members recognize that climate change is not just an environmental challenge but a business opportunity. American businesses are investing billions in research, development, and deployment of climate technology solutions because they recognize that leading on clean energy presents a major export opportunity. That won’t happen if a clean energy trade war leaves U.S. technologies, products, and services shut out of global markets.

As a recent Bloomberg editorial argues, “the U.S. wants, or ought to want, other countries to open their own procurement to American suppliers... Biden’s announcement won’t encourage other countries to lower their barriers. If other governments decide to follow America’s lead and tighten their own procurement rules, U.S. jobs will be lost.”

Finally, extending “Buy American” rules isn’t a magic wand capable of compelling the onshoring of production in every sector. In areas where U.S. government procurement accounts for a small sliver of the broader U.S. market, “Buy American” preferences are likely to add costs—for both businesses and the taxpayer—but won’t redirect billions in investment to retool supply chains. Policymakers should reject measures that offer a good soundbite but just won’t achieve their stated objectives.

Finding a path forward will require balance. Addressing climate change and incentivizing U.S. manufacturing are laudable goals. Achieving both will require pragmatism and close consultation with industry.