The fallout from the COVID-19 pandemic and the Russian invasion of Ukraine are only the most recent events that have put enormous strain on clean energy supply chains around the world. This has led to escalating prices of oil and gas, and shortages of the minerals necessary for manufacturing in the clean energy technology sectors.
Notably, the U.S. is at a critical moment in terms of a clean energy industry. Public support for clean energy is strong, and the nation is poised to make enormous investments in order to reduce the nation’s emissions by 50% by 2035. The Inflation Reduction Act of 2022 (Act), signed by President Biden on August 16, 2022, is a $369 billion package of climate investments that are considered by many to be the most significant legislation ever to deal with climate change. It includes subsidies for U.S. solar and wind energy development, electric vehicles and much more. After decades of environmental activists and politicians struggling unsuccessfully to rally political support for serious climate action, the bill is a big step forward.
Critically, it brings the country closer to meeting its 2030 emissions reduction target. But U.S. Congress also had economic and geopolitical objectives in passing the legislation — specifically, catching up with a rival superpower.
For New York State and the U.S. to be competitive both economically and environmentally, green energy products and their supply chains must be viewed holistically and from a local perspective. Building green energy supply chains is not a race; it’s a journey that must balance economic and environmental sustainability.
Lithium-ion battery technology and its key components, such as metal oxide cathodes, were invented in the U.S. However, the U.S. is currently at a significant supply chain disadvantage with respect to lithium-ion batteries, lagging behind China in all segments of the supply chain, and behind other countries in Asia and Europe in some segments. The American lithium-ion battery industry is particularly weak in terms of raw material acquisition and refining as well as in producing midstream components, such as cathodes and anodes.
Similarly, the U.S. had a leading position in the semiconductor industry, a key technology essential for the operation of nearly every electronic device, including those that are critical to decarbonization such as electric vehicles (EVs). However, its position in the semiconductor industry is eroding, especially with respect to domestic manufacturing and advanced packaging. The European Semiconductor Industry Association estimated that in 1995, 26% of global semiconductor manufacturing capacity was located in the U.S.; this decreased to 10% by 2020. China also now dominates in the production of EVs.
Today, the U.S. supply chain is heavily dependent on foreign supply chains. China dominates in the renewable area of solar panels, controlling at least 75% of each key stage of solar photovoltaic manufacturing and processing. It has the manufacturing capability to meet global demand through 2030. After China, India is the next leading nation in solar panel manufacturing.
China also dominates in the area of wind power. China built more offshore wind turbines in 2021 than all other countries combined since 2016 and is the leading processor of the earth minerals integral to manufacturing magnets that power turbine generators. The U.S. is disadvantaged in this green energy technology due to low labor costs offshore, especially for labor-intensive operations such as blade manufacturing.
To achieve this strategic advantage in clean energy technology, for years China has offered low-interest loans, free property to build manufacturing facilities and other incentives to create an integrated energy supply chain.
The U.S.’s reliance on China and other countries’ energy supply chains has resulted in the forfeiture of millions of manufacturing jobs. In addition, the country has made itself vulnerable to supply chain disruptions. As an example, in 2022, a series of supply chain disrupting events occurred throughout China impacting polysilicon, a crucial solar input mostly found in China. Lockdowns in Shanghai, a drought-induced power crisis in Sichuan, and a factory fire in Xinjian, all interrupted exports of the photovoltaic material. In August of 2022, polysilicon spot prices spiked to levels not seen for over a decade, and the shortage continues.
In addition, strides made in producing renewable energy products in China and other nations are offset to a certain degree by coal generation in those countries. As of 2022, China has 1,110 operational coal-fired generation plants. India has 285. This compares with 240 in the U.S.
In February 2022, the U.S. Department of Energy (DOE) published a comprehensive plan to build an Energy Sector Industrial Base. Titled America’s Strategy to Secure the Supply Chain for a Robust Clean Energy Transition, it analyzes clean energy technologies, and charts a course for revitalizing the U.S. economy and domestic manufacturing by securing the country’s most critical supply chains. The report takes a deep dive into the supply chains of 11 specific green energy technologies, including:
This DOE supply chain review found a broad range of risks and vulnerabilities, depending upon the technology in question. It also identified seven strategic opportunities to reduce threats in the supply chain, including:
The U.S. energy sector has recently implemented many positive and significant changes, including rapid cost reduction and increased deployment of solar and wind energy; widespread commercial and residential use of efficient LED lighting; power grid digitization; and the genesis of electric vehicles. In the near future, the energy sector will evolve at an accelerated pace reflecting continued innovation, investment trends in private capital markets, and the existential need to combat global climate change. Demand for clean energy is projected to increase dramatically as the nation marches towards its climate goals to cut emissions in half by 2030, create an emissions-free power sector by 2035, and achieve net zero emissions economy-wide by no later than 2050.
This energy transition creates enormous economic, social and geopolitical opportunities for the U.S. to:
Additionally, there is a compelling argument for viewing renewable energy supply chains as a critical national security issue. Energy security has long been a national security priority of the U.S. and most other countries. During the past decade, the U.S. has substantially increased its domestic energy base through innovations —such as hydraulic fracking — that have increased the availability of oil and natural gas. Renewable energy offers an avenue to sustaining and ultimately increasing energy security in a way that does not contradict its climate goals.
As the energy transition ramps up, state and local governments are eager to accrue whatever economic value can be gained from onshore manufacturing in terms of dollars and jobs. To be competitive, New York must offer additional incentives, subsidies and grant-funding opportunities for innovation, manufacturing opportunities, capital investment and job creation. Regulators and utilities must adopt market mechanisms that accelerate the deployment of renewables. New York procurement policies must prioritize purchases from certified clean energy manufacturers. Grant programs that invest in disadvantaged communities to address disproportionate environmental and public health harms related to pollution and climate change should be leveraged by the state tax code and other public policies.
Pressure is placed on local electric distribution systems, especially in traditional rust belt neighborhoods, which epitomize the definition of a disadvantaged community. Bringing equity and environmental justice to these communities is not mutually exclusive to also bringing wealth, jobs, smart growth and overall economic opportunity. We must be more holistic in our planning strategies by looking at economic opportunity and environmental sustainability collectively. Upgrading local electric systems to accommodate decarbonization tactics and economic growth, along with incentives to attract innovation and green energy product attraction and expansion, will send a strong message that it is time to concentrate on rebuilding rust belt states. America’s rust belt neighborhoods led the industrial revolution; they can now lead the green energy transition to position New York and the U.S. as global climate leaders.
Thoughtful planning, siting and permitting of clean energy projects, with input from organized labor and the environmental justice communities, is critical to success. It is incumbent upon state agencies and utility regulators to encourage viable developments while protecting ratepayers and residents from projects that rely on unproven or more costly technologies.
States and cities will play a critical role—perhaps the most critical role—in delivering the full potential of the Act. By taking full advantage of the provisions within the Act, states and cities will be able to elevate their own climate commitments and policies while providing tangible benefits, such as job creation and reduced energy costs, to their constituents.
All these initiatives and incentives will help move New York and the country toward a stronger, more resilient clean energy domestic supply chain to secure a safer and more healthful future for all. As a leader among the states in climate change action, it is imperative that New York show the way.
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