Clean Energy Tax Credits Leave the Door Open to Chinese Investment

The Biden administration on Thursday outlined its plans for deploying billions of dollars’ worth of tax credits for manufacturers that produce clean energy products in the United States. The incentives are a key part of President Biden’s strategy to reduce America’s reliance on countries like China for production of electric vehicles.

The proposed rules, released by the Treasury Department, explain how corporations can gain access to the most generous subsidies contained in the 2022 Inflation Reduction Act. The incentives, which are expected to provide companies with more than $100 billion of savings over a decade, are intended to encourage businesses to produce solar panels, process minerals and make electric vehicle components in the United States.

Mr. Biden and his top aides have highlighted the clean energy investments as central to the administration’s strategy for reviving American manufacturing, emphasizing investments in poor and rural parts of the country that have seen factories close in recent decades.

“Today’s announcement creates the framework for investing in a clean energy future here in America in ways that create good jobs for American workers,” Lael Brainard, the director of the White House’s National Economic Council, said in a statement.

The promise of the tax benefits has attracted investments in the United States, along with controversy.

Chinese battery companies such as Gotion and Contemporary Amperex Technology Company have made multibillion-dollar investments in Michigan and Illinois, but have faced backlash from local officials and Republicans in Washington who view Chinese investment as a threat.

The administration has taken steps to curtail the ability of Chinese companies to benefit from some of the new subsidies. For instance, the Treasury Department outlined rules this month stipulating that, in order to qualify for up to $7,500 in tax credits, electric vehicles must be made without components from countries considered to be so-called foreign entities of concern, such as China, Russia and North Korea.

But the manufacturing tax credits that were unveiled on Thursday do not have such restrictions. That could pave the way for Chinese companies to profit from American subsidies if they set up shop in the United States.

Because of the way the law was written, the Treasury Department did not have the authority to include restrictions on foreign companies in the rules that will govern the tax credits for investing in clean energy industrial facilities and production of critical minerals. However, officials pledged to continue to scrutinize foreign investments for national security concerns.

“We have other tools that look at foreign direct investment in the United States, including CFIUS, that will look at foreign direct investment,” said Wally Adeyemo, the deputy Treasury secretary, referring to the Committee on Foreign Investment in the United States. “Ultimately, for a company to get access to this credit, they have to be adding value here in the United States, hiring American workers and paying American taxes.”

Mr. Adeyemo said that only 2 percent of the clean energy investments made in the United States during the Biden administration have been made by Chinese companies and that the rest have been made by American companies or U.S. allies.

Republicans in Congress have been calling on the Treasury Department to take action to block Chinese investments. This week, Senator Marco Rubio of Florida and Representative Carol Miller of West Virginia unveiled legislation that would prohibit companies that are owned or controlled by a “foreign adversary” from receiving any advanced manufacturing tax credits.

Mr. Rubio criticized the existing legislation for “giving foreign adversaries the opportunity to benefit from U.S. tax dollars while they simultaneously put American companies out of business.”

The ultimate cost of the tax credits has been challenging to quantify because it will depend on how aggressively companies decide to invest in clean energy projects.

The left-leaning Center for American Progress noted in a recent report that the manufacturing credits were initially projected to cost $30.6 billion over a decade, but the Joint Committee on Taxation increased that estimate to $134.9 billion this year. The Coalition for a Prosperous America, a conservative think tank, warned in a report this year that Chinese manufacturers could earn up to $125 billion in tax credits under the law.