Congress has passed and sent to the president a measure that’s been called a “landmark climate bill” – with some additional provisions dealing with health care.
Democrats say the bill will lower energy and health care costs and therefore reduce inflation, which is why they’ve named it the Inflation Reduction Act.
Republicans say it will do no such thing. (They also don’t like the taxes that would get raised on some businesses as part of the bill.)
Who’s right? Man, I have no idea. Neither does anybody else, really. You can find economists on both sides of this, just as you can find economists on both sides of almost anything.
Joseph Stiglitz, a Nobel Prize winner who used to be the chief economist for the World Bank, says it’s a very big deal: “For those worried about excessive demand, there is more than $300 billion in deficit reduction,” he writes in Project Syndicate. “And on the supply side, the bill would mobilize $369 billion of investments in energy security and decarbonization. That will help bring down the cost of energy – one of the main drivers of current price growth – and put America back on track to reduce its carbon dioxide emissions by some 40% (from 2005 levels) by 2030.”
A study by the Wharton School of Business at the University of Pennsylvania says it has “low confidence that the legislation will have any impact on inflation.”
If some of the most respected economists in the country don’t know, then this mere scribbler in the backwoods of Virginia sure doesn’t know, either. However, I can, with more certainty, point to some parts of this bill that would have a more definitive impact on parts of Southwest and Southside.
For instance, the bill extends, on a permanent basis, the current tax rate on coal that is used to fund the Black Lung Disability Trust Fund. According to the U.S. Department of Labor, the rate was raised in 1985 (when Republicans controlled the Senate, Democrats controlled the House and Republican Ronald Reagan was president), effective through 2018. In 2019, those higher rates expired and reverted to the lower 1978 rates. Congress passed temporary increases in 2020 (when Donald Trump was president) and 2021 (when Joe Biden was president), so this has been a bipartisan measure in the past. This bill makes those higher 1985 rates permanent. Last year, some 2,600 Virginians received benefits from the fund, so if you’re one of those, this seems good news that funding won’t be cut. (If you’re a coal company, preserving that current tax rate may not be such a good thing. It won’t raise the price of coal, but it won’t help the price come down, either, and one of coal’s big problems is that it’s getting undercut, pricewise, by renewables.) Sen. Tim Kaine, D-Virginia, was one of the driving forces behind the black lung provision.
The more important impacts on Southwest and Southside, though, may come in the incentives that the bill has to “reshore” the supply chain for electric vehicles and renewable energy. This is more indirect than the Black Lung Disability Trust Fund beneficiaries. We can obviously point to 2,600 or so specific people in Virginia who will benefit from that. The supply chain issues are more in the “potential” category but, if they come to pass, would touch far more people in the state – so let’s walk through those.
- Will we see more clean energy projects locate in coal country? The bill contains incentives to promote more domestic production related to solar and wind; that would help any locality. However, the legislation also specifically expands the investment tax credit for clean energy manufacturers, with $4 billion reserved exclusively for “energy communities.” What that means: There’s $4 billion set aside for clean energy companies that locate in an “energy community,” which is generally defined as any place that in the past 22 years has had coal mining, or oil and gas drilling, or has had a coal plant retired in the past 22 years. One of the central problems of the conversion from fossil fuels to renewables has been that the communities losing fossil fuel jobs haven’t been the ones gaining renewables jobs. Relevant examples: Coal is down in Southwest Virginia but the solar energy boom is taking place across Southside, and the first jobs in Virginia related to offshore wind are in Portsmouth. This provision would seem to be a powerful incentive for renewable energy companies to find locations in coal country, thus providing more of what some call a “just transition” from one form of energy to another.
The InvestSWVA economic group has been making the case that Southwest Virginia should try to get a piece of the supply chain for the wind industry; see our previous story by Cardinal’s Megan Schnabel on this. This provision would seem to create a big tax incentive for companies to do just that. Of note: It’s not just coal country that would benefit from that. Appalachian Power’s coal-fired plant at Glen Lyn in Giles County shut down in 2015. The coal-fired plant in Clover in Halifax County – a joint project of Dominion Energy and the Old Dominion Electric Cooperative – could close in 2025. Under this provision, both Giles and Halifax would qualify as places where these tax credits could be used. Of course, so would suburban Chesterfield County, where Dominion plans to retire the last two coal units at the Chesterfield Power Station in 2023. (Disclosure: Dominion is one of our donors, but donors have no say in news decisions; see our policy. You can be one of our 1,300-plus donors and have no say in news decisions, too.)
2. Will we see an electric battery plant locate at the Southern Virginia Mega Site in Pittsylvania County? The bill creates a generous $7,500 tax credit for people who buy an electric vehicle where 100% of the battery components are made in North America (this goal is phased in over time). “But there’s a catch,” reports E&E News, which covers energy and the environment. “The EV supply chain required for the tax credit doesn’t exist.” The Verge website reports that most electric vehicles run on lithium-ion batteries and 76% of those are made in China, only 8% in the United States.
The Alliance for Automotive Innovation says that 70% of the electric vehicles now sold in the United States would be ineligible for this tax credit. “And by 2029, when the additional sourcing requirements go into effect, none would qualify for the full credit,” The Verge reports. Some pro-electric vehicle advocates are warning that these incentives actually create a disincentive for EV adoption because they mean few vehicles would actually qualify for this tax credit. (As strict as these “made in North America” requirements seem to be, they could have been even stricter. Sen. Marco Rubio, R-Florida, wanted to require 100% North American battery components immediately. That was defeated. Whether that was a genuine attempt to spur domestic production, or a clever way to sabotage the electric vehicle market is subject to debate.)
Obviously it takes time to build up a North American supply chain. Let’s assume, though, that the basic laws of the free market (even a regulated one) haven’t been repealed. Electric vehicles might feel some short-term pinch for lack of this “made in USA” supply chain but ultimately the free market will correct that. What’s that mean for us? First of all, notice the bill refers to “North American,” so maybe plants in Canada and Mexico get some of these jobs. Secondly, though, automakers have already been rushing to build electric vehicle battery plants in the United States.
As The Verge reports: “Ford and South Korean battery manufacturer SK Innovation are spending $11.4 billion on several new factories in Tennessee and Kentucky, while General Motors is planning four new battery factories in the US with partner LG Chem. Toyota said it would construct a $1.29 billion facility in North Carolina. And Stellantis, parent company of Dodge, Jeep, and Chrysler, selected Indiana as the site for its first battery factory.” In May, Hyundai announced it will build an 8,100-job plant for electric vehicle batteries in Georgia. In July, Panasonic announced it will build a 4,000-job plant in Kanas to make batteries for Tesla.
Presumably now we’ll see automakers – who are rushing to convert to electric vehicles anyway – rush to build more battery plants in the United States. Where will they go? I have no inside information, but we already know that Hyundai’s second choice for that plant that went to Georgia was the Southern Virginia Mega Site, a 3,528-acre site in Pittsylvania County. Supposedly Pittsylvania lost out because the Georgia site was better prepared – better graded – and Hyundai prized “speed to market.” (There might have been some other factors, too, as I wrote in a previous column.) In any case, Virginia is in the process of correcting its slow pace on site development; the state budget that took effect July includes up to $159 million for getting sites ready for market. There’s no guarantee that the next big battery plant will go to Southern Virginia but if that site came in a close second for Hyundai, it stands to reason that it’s got a good chance of coming in first for somebody else. (News sites in Georgia are already reporting that the Peach State is running out of prepared sites, so maybe that state is out of the picture for a while.)
We also know that even without this bill, there will be more electric vehicle battery plants. The quote above about General Motors building four new factories? One is in Warren, Ohio; that will start production this month. A second, in Spring Hill, Tennessee, will open in 2023. The third, in Lansing, Michigan, follows in 2024. The fourth? That site hasn’t been selected yet, according to Yahoo Finance.
Even if that one goes somewhere else, or doesn’t happen at all, the odds seem good that there will be other battery plants that Southern Virginia might land. Obviously that’s speculative, but it does seem a lot more certain that this bill will increase the number of battery plants in the United States – and the more that get built, the more chance that Pittsylvania County has of landing one. Based on election returns, I doubt that many people in Republican-voting Pittsylvania are enthusiastic about a Democratic-backed climate bill – yet Pittsylvania County (and its laborshed neighbors in Southside) could wind up being a big winner out of this. (The same for all those Republican-voting coal counties that would get tax incentives for renewable energy employers.)
Politics, and the economy, are funny that way. Will this bill really reduce inflation? Check back in a few years and we’ll know. However, even if it doesn’t, by then there may still be some companies in Southwest and Southside that aren’t there now.