By Tom Lewis, Senior Policy Advisor for Manufacturing & Industrial Policy

Clean technology manufacturing is having a moment. In order to address climate change, we are going to need to produce a lot more solar panels, wind turbines, heat pumps, building efficiency products, electric vehicles, batteries, and other clean energy goods. Since passage of the Inflation Reduction Act, manufacturers have already announced more than $200 billion in private investment for solar, wind, energy storage, and electric vehicle projects in the U.S.

Producing these components domestically is essential to:

• ensure workers capture the economic gains of clean energy;
• redress the economic and racial inequities fed by the decline of manufacturing jobs;
• build reliable and affordable clean energy supply chains; and
• counter the pollution and worker exploitation that plague some overseas clean energy supply chains.

Guidance released today by the U.S Department of Treasury (Treasury) and the U.S. Department of Energy (DOE) for the first tranche of the Advanced Energy Project Credit, better known as 48C, will further strengthen our domestic clean technology supply chains.

The History and Future of the 48C Program

Congress first established 48C in the American Recovery and Reinvestment Act of 2009, providing a 30% investment tax credit (ITC) to clean technology manufacturing projects. During a four year period between 2009 and 2013, nearly 200 manufacturing projects across 43 states received $2.3 billion from 48C to expand and construct facilities that manufacture solar and wind components, electric vehicles,building efficiency products, hydropower, and other clean technologies. The initial funding supported 58,000 jobs, and had three times more applicants than the program could fund.

Unfortunately, when funding was depleted, Congress chose not to reauthorize the program. Until last year. The Inflation Reduction Act revived 48C with $10 billion in new funding, including a $4 billion set-aside for coal communities. Congress also expanded the program to include important new priorities in clean technology manufacturing, like energy storage, electrolyzers, recycling, and investments to cut emissions in steel, aluminum, cement, and other energy-intensive manufacturing sectors. Research shows the expanded 48C program could support 110,000 jobs over the next ten years. Treasury and DOE have an opportunity to use this funding to help create good union jobs, grow domestic manufacturing capacity, advance environmental and economic justice, and build a cleaner, fairer economy for all.

To show the breadth of communities that stand to benefit from 48C investments in clean technology manufacturing, we have created this map of the current U.S. industrial base for the clean economy. The map shows all known U.S. facilities that manufacture components for the solar, wind, energy storage and battery, grid, and building materials sectors. From coast to coast, workers and communities are already starting to reap the economic benefits of manufacturing the nuts and bolts of clean energy—benefits that could expand with 48C investments. The map also reveals several emerging clusters of new clean technology industries such as offshore wind manufacturing in New York, solar in Georgia, batteries in Michigan and Ohio, and heat pump assembly throughout the Midwest.

If you have trouble viewing the map, click here.

48C is a capped tax credit, so when the $10 billion allocation runs out, Congress will need to provide additional funding for other projects to be supported. Because of this, Treasury is working with the DOE to select projects that they believe have the highest potential for success. The previous allocation rounds for 48C considered factors, such as geography, diversity of technology, regional economic development, and project size. Importantly, DOE has the power to consider additional criteria such as projects that fill the biggest gaps in the supply chain, that create and support good-paying jobs, and that deliver tangible benefits to local communities.

48C Isn’t the Only Game in Town

The 48C program isn’t the only new program supporting domestic manufacturing. The Inflation Reduction Act also included the creation of the Advanced Manufacturing Production Tax Credit (45X) to expand domestic production of solar, battery, and wind components. Other programs such as DOE funding under the Defense Production Act (DPA), Title XVII from the Loan Programs Office (LPO), and the Industrial Demonstrations Program can also support clean technology manufacturing and industrial transformation. As a result, the federal government now has access to more than $50 billion dollars to build our clean energy future on a foundation of good jobs, clean manufacturing, and more reliable and equitable supply chains.

Because of the limited funds for 48C and the overwhelming interest these tax credits are expected to attract, DOE should prioritize awarding 48C funding to projects that reflect the program’s value-added role as part of a holistic green industrial strategy. This strategy should take into account the comparative advantage 48C offers compared to the various Inflation Reduction Act, Bipartisan Infrastructure Law (BIL), and other federal funding streams and incentives that support reduced industrial emissions and expanded clean technology manufacturing.

Where Are the Gaps?

The 48C tax credit is particularly well suited to build U.S. manufacturing capacity in specific segments of clean energy supply chains where we face the biggest gaps—gaps that are reflected in this new spreadsheet.

The BlueGreen Alliance produced this spreadsheet after assessing existing clean technology domestic supply chains to identify manufacturing capacity gaps that exist in the solar, wind, energy storage and battery, grid, and building materials sectors. Our approach builds on an indicator that DOE developed for assessing domestic manufacturing capacity and risks. For each component in these critical supply chains, we quantified current U.S. manufacturing capacity and assigned one of four categories:

1. None: Domestic production meets 0% of domestic demand, or there are no known domestic facilities manufacturing this component.
2. Limited: Domestic production supplies less than 25% of domestic demand, or there is evidence of one to two domestic facilities manufacturing this component.
3. Moderate: Domestic production supplies between 25% to 75% of domestic demand, or there is evidence of three to six domestic facilities manufacturing this component.
4. Significant: Domestic production supplies over 75% of domestic demand, or there is evidence of more than six domestic facilities manufacturing this component.

Based on our findings, we encourage DOE to prioritize 48C funding for components in the supply chains that have “zero,” “limited,” or “moderate” domestic production. In addition, we encourage 48C funding to target manufacturing of components not covered by the 45X tax credit.

For example, in the solar supply chain, there is currently no domestic production of c-Si ingot, wafers, or PV cells. Downstream manufacturers of modules are almost entirely reliant on imports of these upstream components, often from countries such as China that have more emissions-intensive production and/or well-documented labor abuses. Since the passage of the Inflation Reduction Act, American Clean Power (ACP) has tracked the announcement of 27 new solar manufacturing facilities, mainly producing downstream components, such as modules, inverters, trackers, and racking. This leaves a major upstream gap for U.S. solar supply chains, and 48C can be helpful in plugging these holes. It can also be used for specific components not covered under 45X, such as materials for backsheets, encapsulant film, and flat glass.

The offshore wind sector provides the most glaring example of an industry that is lacking domestic production. There are currently only two cable facilities and one offshore substation facility. These cables are vital—they are what bring the power generated by the turbine back to the mainland. No operating facilities currently produce any of the other major components needed for an offshore wind project, but a number of manufacturing facilities for major offshore wind components have been announced, and will be covered by 45X. 48C can complement the 45X investments by helping steel manufacturers retool their facilities to begin producing the specific grades of steel required by an offshore turbine. Additionally, components like hubs, bearings, and gearboxes—all essential components for a turbine—are only covered by 48C and merit investments.

Within the lithium-ion battery and energy storage supply chain, our analysis reveals very limited capacity for raw material production and processing capacity. Each of the raw materials required for battery cells: anodes, cathode materials, and binders are classified as “limited” in our analysis. No domestic producers of precursor cathode materials were identified.  Much stronger production capacity is seen in downstream segments, particularly for lithium battery cells, modules, and packs used both in energy storage and clean vehicle applications. In addition to supporting upstream production, 48C could also be utilized to jumpstart the construction of alternative battery chemistry facilities, and guarantee early in their development that they have a strong domestic presence.

Another area where 48C could have outsized influence is in manufacturing components for our electric grid, especially large power transformers (LPTs). LPTs play an essential role in powering the U.S. economy. An estimated 90% of electricity produced in the U.S. passes through the nearly 7,000 located across the country. Demand for LPTs is projected to grow since we need to expand the transmission grid and replace aging infrastructure to build out clean energy and put the U.S. on a pathway to net zero emissions by 2050. Our analysis found significant gaps in the domestic supply for LPTs—eight facilities in the country produce LPTs and they represent only 18% of domestic demand. There is currently only one facility in the country producing grain-oriented electrical steel (GOES), an essential component of LPTs. As a result, 88% of GOES was imported in 2019. 48C can help support the development of a robust domestic LPT manufacturing base by expanding production of GOES and other key LPT components such as continuously transposed conduction copper wires, transformer cores, and conservator tanks and bladders.

Domestic Production Alone Isn’t Enough

As equally important as filling supply chain gaps is ensuring the selection criteria upholds strong labor, equity, and environmental criteria. DOE should demonstrate active support for stakeholders impacted by a project by equipping labor unions, community-based organizations, Tribes, disadvantaged communities, and others impacted by a project with the tools and resources to engage early and meaningfully in its design. To align with the rules being put in place for other federal investments, DOE should incentivize the use of community benefit plans to increase economic opportunities for communities and local workers—especially for people of color and low-income communities.

Additional high-road labor standards including prevailing wages, Project Labor Agreements, registered apprenticeship programs, and pre-apprenticeship programs should also be encouraged. You can read more about those policy levers here. These criteria serve several overarching goals:

• ensuring community and labor engagement in project selection and design;
• promoting high-road labor standards to create and support quality jobs; and
• advancing economic, racial, and environmental justice.

We hope our clean technology supply chain analysis can be helpful for not only DOE and Treasury, but also for other federal and state policymakers, developers, journalists, and others trying to break down the complexity of domestic supply chains. As we continue tracking new announcements, we will add additional sectors to our analysis including electrolyzers, geothermal, electric vehicles, and emissions intensive materials like steel, aluminum, and cement that go into solar panels and wind turbines.

The spreadsheet and map show a clear pathway to bridge the gap to a stronger, cleaner, and fairer industrial base for the clean economy in the U.S. Instead of hitching our climate goals to exploitative, vulnerable, and polluting production overseas, let’s build durable, equitable, top-to-bottom domestic supply chains for our clean energy future.