The Biggest Winners in America’s Climate Law: Foreign Companies

The 2022 climate law unleashed a torrent of government subsidies to help the U.S. build clean-energy industries. The biggest beneficiaries so far are foreign companies.

The Inflation Reduction Act has spurred nearly $110 billion in U.S. clean-energy projects since it passed almost a year ago, a Wall Street Journal analysis shows. Companies based overseas, largely from South Korea, Japan and China, are involved in projects accounting for more than 60% of that spending. Fifteen of the 20 largest such investments, nearly all in battery factories, involve foreign businesses, the Journal’s analysis shows.

These overseas manufacturers will be able to claim billions of dollars in tax credits, making them among the biggest winners from the climate law. The credits are often tied to production volume, rewarding the largest investors.

Japan’s Panasonic, one of the few companies to publicly estimate the impact of the law, could earn more than $2 billion in tax credits a year based on the capacity of battery plants it is operating or building in Nevada and Kansas. The company, which supplies batteries to electric-vehicle maker Tesla, is considering a third factory in the U.S. that would lift that total.

The climate law is designed to build up domestic supply chains for green-energy industries, but the reality is that the technology for building batteries and renewable-energy equipment resides overseas. The incentives are leading these companies to invest in the U.S., often alongside domestic businesses.

“It’s a testament to the fact that we still live in a globalised economy,” said Aniket Shah, head of environmental, social and corporate governance—or ESG—strategy at investment bank Jefferies. “You can’t just out of nowhere put up borders and say, ‘It has to be made in America by American companies.’ ”

The Journal looked at roughly 210 clean-energy projects and company initiatives spurred by the law, including projects tracked by industry groups American Clean Power and E2 (Environmental Entrepreneurs); announcements from companies and state and local governments; and media reports. Of those, about 140 disclosed investment amounts totalling roughly $110 billion.

Projects were characterised as either wholly U.S. ventures or foreign if overseas companies are contributing significant investment or technology. Renewable-power facilities and projects already in the works before the law passed were excluded.

Forecasters estimate the climate law could unleash some $3 trillion in total clean-energy investments over the next decade. U.S. companies are also investing heavily, including Tesla, solar-panel maker First Solar and hydrogen producer Air Products and Chemicals.

Full domestic supply chains for batteries or solar panels are still years away because foreign companies dominate nearly every step in the process, from raw materials to sophisticated parts.

Panasonic is considering the addition of a third battery factory in the U.S. that would increase the Japanese company’s tax-credit haul. PHOTO: JACOB KEPLER FOR THE WALL STREET JOURNAL

The large investments by overseas businesses have generally been welcomed by U.S. communities, many of which have benefited for decades from spending and jobs created by foreign automakers and other companies. But some investments from Chinese companies have fuelled a backlash as tensions between the two countries escalate.

At least 10 of the projects representing nearly $8 billion in investments included in the Journal’s analysis involve companies either based in China or with substantial ties to China through their core operations or large investors.

Some projects are facing resistance, including two in Michigan: a $3.5 billion battery factory that Ford Motor is building with technology and expertise from China’s CATL; and a $2.4 billion battery-component factory from China-based Gotion. Ford is keeping 100% ownership of the battery factory—in part to sidestep the issue of public funds flowing to CATL, according to a person with knowledge of the deal. Ford is licensing the battery-making know-how and services from CATL, the companies said.

But China hawks say the payments Ford makes to CATL mean the Chinese company reaps indirect benefits from government support.

“What we’re seeing is foreign policy conflict with climate policy and trade policy,” Shah said. “We’re going to have to decide as a country what matters more: our enmity with China or our desire to decarbonise quickly.”

Microvast, a startup that was planning to build a more than $500 million battery-component plant in Kentucky, was named as a potential recipient of a $200 million grant from the Energy Department last year. The department later rejected the application. The move followed criticism from Republicans about the company’s ties to China, which include a China subsidiary that accounts for more than 60% of its revenue.

The Energy Department didn’t give a reason for withdrawing the grant. The department takes a number of factors into account when evaluating such projects, including technology risks and the potential for foreign influence, a spokeswoman said.

Microvast, based in Stafford, Texas, says it is a U.S. company and that Chief Executive Yang Wu is an American citizen. The company recently scrapped plans for the Kentucky plant.

“We must be assured that these taxpayer dollars are not being funnelled to the Chinese,” said Cathy McMorris Rodgers (R., Wash.), chair of the House of Representatives committee on energy and commerce, during a June hearing.

Microvast is committed to its goals of investing in the U.S. through other facilities, a spokeswoman said.

The issue is expected to come to a head when the Treasury Department completes rules for electric-car tax credits. The department has proposed that cars using battery materials that were produced by a “foreign entity of concern” such as a Chinese company wouldn’t qualify for tax credits beginning in 2025.

Many expect Treasury to use a loose standard so that some cars qualify, potentially fuelling criticism from some politicians who crafted the climate law such as Sen. Joe Manchin (D., W.Va.), who has argued more lenient criteria go against the intent of the Inflation Reduction Act. Treasury is monitoring shifting markets and supply chains while making rules that advance the law’s goals, a spokeswoman said.

Former New Hampshire Gov. Chris Sununu delivered a warning to Treasury Secretary Scott Bessent during a recent visit to Washington: Already-high airfares will surge if the war in Iran doesn’t end soon.

Sununu, a Republican who represents some of the biggest airlines as president of the industry group Airlines for America, has for weeks sounded the alarm to Trump administration officials about the economic fallout from high jet fuel prices. The war, Sununu has argued, must come to a close soon, or things will get worse.

Administration officials have gotten the message.

Privately, President Trump’s advisers are increasingly worried that Republicans will pay a political price for the rising fuel costs, according to people familiar with the matter. Many of those advisers are eager to end the war, hoping prices will begin to moderate before November’s midterm elections.

The fallout from the U.S.-Israeli attack in late February has slowed traffic through the Strait of Hormuz, a vital shipping lane, triggering a sharp increase in oil, gasoline and jet-fuel prices.

That means consumers are grappling with high costs ahead of the summer travel season, as they consider vacation plans.

Sixty-three per cent of Americans said they put a great deal or a good amount of blame on Trump for the increase in gas prices, according to a new poll conducted by NPR, PBS and Marist.

More than 8 in 10 Americans said struggles at the gas pump are putting strain on their finances.

Jet-fuel prices roughly doubled in a matter of weeks after the war began, and they have remained high. Airlines have said that will add billions of dollars of additional expenses this year, squeezing profit margins.

U.S. airlines spent more than $5 billion on fuel in March—up 30% from a year earlier, according to government data.

Carriers have been raising ticket prices, hoping to pass the cost along to consumers, and they are culling flights that will no longer make money at higher price levels.

In March, the price of a U.S. domestic round-trip economy ticket rose 21% from a year earlier to $570, according to Airlines Reporting Corp., which tracks travel-agency sales.

So far, airlines have said the higher fares haven’t deterred bookings and they are hoping to recoup more of the fuel-cost increases as the year goes on.

Earlier this week, Trump said the current price of oil is “a very small price to pay for getting rid of a nuclear weapon from people that are really mentally deranged.”

Secretary of State Marco Rubio told reporters that if Iran got a nuclear weapon, the country would have more leverage to keep the strait closed and “make our gas prices like $9 a gallon or $8 a gallon.”

Trump has taken steps in recent days to bring the war to an end. Late Tuesday, the president paused a plan to help guide trapped commercial ships out of the Strait of Hormuz, expressing optimism that a deal could be reached with Iran to end the conflict.

Crude oil prices fell below $100 a barrel on Wednesday, after reports that Iran and the U.S. are working with mediators on a one-page framework to restart negotiations aimed at ending the conflict and opening the strait.

Sununu said Trump administration officials are conscious of the economic fallout from the war: “They get it…and I think that’s why they’re trying to get through the war as fast as they can.”

But he cautioned that it could take months for prices to return to prewar levels.

“Ticket prices won’t go down immediately” after the strait is fully reopened, Sununu said. “You’re looking at elevated ticket prices through the summer and fall because it takes a while for the prices to go down.”

Since the initial U.S.-Israeli attack in late February, Sununu has met in Washington with National Economic Council Director Kevin Hassett, representatives from the Transportation Department and senior White House officials.

A White House official confirmed that Hassett and Sununu have discussed the effect of increased fuel prices on the airline industry. The official said the conversation touched on how the industry can mitigate the impact of high jet fuel prices on consumers.

“The president and his entire energy team anticipated these short-term disruptions to the global energy markets from Operation Epic Fury and had a plan prepared to mitigate these disruptions,” White House spokeswoman Taylor Rogers said, pointing to the administration’s decision to waive a century-old shipping law in a bid to lower the cost of moving oil.

Rogers said the administration is working with industry representatives to “address their concerns, explore potential actions, and inform the president’s policy decisions.”

A Treasury Department spokesman pointed to Bessent’s recent comments on Fox News that the U.S. economy remains strong despite price increases. The spokesman said Treasury officials have met with airline executives, who have reaffirmed strong ticket bookings.

“We’re cognizant that this short-term move up in prices is affecting the American people, but I am also confident, on the other side of this, prices will come down very quickly,” Bessent told Fox News on Monday.

The war has already contributed to one casualty in the industry: Spirit Airlines. Company representatives have said they were forced to close the airline because the sustained surge in jet-fuel prices derailed the company’s plan to emerge from chapter 11 bankruptcy.

The Trump administration and Spirit failed to come to an agreement for the company to receive a financial lifeline of as much as $500 million from the federal government.

Transportation Secretary Sean Duffy has argued that the Iran war wasn’t the cause of Spirit’s demise, pointing to the company’s past financial struggles, as well as the Biden administration’s decision to challenge a merger with JetBlue.

Other budget airlines have also turned to the federal government for help since the U.S.-Israeli attack. A group of budget airlines last month sought $2.5 billion in financial assistance to offset higher fuel costs, and they separately wrote to lawmakers asking for relief from certain ticket taxes.

The Biggest Winners in America’s Climate Law: Foreign Companies

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Administration officials have spoken to the airline industry, which has voiced concerns about the rising costs.