4 days ago
Trump deals a ‘big blow' to clean heat with Energy Department cuts
Last week, the Trump administration canceled $3.7 billion in federal funding for two dozen green industrial projects that the Department of Energy claimed 'failed to advance the energy needs of the American people, were not economically viable, and would not generate a positive return on investment of taxpayer dollars.'
More than a quarter of that spending would have gone to 11 projects designed to cut planet-warming pollution from generating the heat used in factories — one of the trickiest decarbonization challenges to solve.
'This is a really, really significant setback for clean heat in the U.S.,' said Brad Townsend, the vice president of policy and outreach at the think tank Center for Climate and Energy Solutions (C2ES).
The wide-ranging projects included installing industrial heat pumps at up to 10 plants where giant Kraft Heinz Co. produces its foodstuffs, building an electric boiler at one of plumbing-fixture manufacturer Kohler Co.'s Arizona factories, and adding a heat battery to Eastman Chemical Co.'s facility in Texas.
Distributed under the Industrial Demonstrations Program at the Energy Department's now-embattled Office of Clean Energy Demonstrations, the funding promised to bolster the manufacturing sector with a major investment in technologies meant to give American companies an edge in global markets.
Groups such as C2ES and the American Council for an Energy-Efficient Economy estimated the federal support would generate hundreds of thousands of jobs in both direct construction and operations and indirect hiring at real estate firms, restaurants, and retailers near the industrial sites. In addition, federal researchers expected to gather information through the projects that could be used broadly throughout U.S. industry to improve output and bring down energy costs.
'The data and lessons learned in de-risking this technology would then translate into follow-up investment in the private sector,' said Marcela Mulholland, a former official at the Office of Clean Energy Demonstrations who now leads advocacy at the nonpartisan climate group Clean Tomorrow.
'If you were in a technology area covered by OCED, you needed public investment to scale,' she added. 'Something in the proverbial 'valley of death' made it difficult for the private sector to advance the technology on its own.'
With the funding, U.S. industry had the chance to develop new approaches that could produce greener — and cheaper — materials, giving American manufacturers an edge over Asian or European rivals as corporate and national carbon-cutting policies put a premium on products made with less emissions. Absent that, Mulholland said, U.S. companies risk falling behind competitors who benefit from lower-cost labor and easily accessible components from nearby industrial clusters, like those in Vietnam, China, or Germany.
'It's hard to overstate the scale of the loss,' Mulholland said.
Already, a handful of companies are considering shifting production overseas in the wake of the funding cuts, according to two sources who have directly spoken to leaders of firms that lost federal funding. The sources were granted anonymity because they are not authorized to speak publicly about the plans.
'When these projects don't go forward, we're going to see challenges for the companies from a profitability perspective and from a global competitiveness perspective,' said Richard Hart, industry director at the American Council for an Energy-Efficient Economy. 'What happens then is other countries and other companies will step in to meet those demands.'
In the long term, he added, the cuts erode the value of a federal contract.
'When the U.S. government signs a contract with you, it's reasonable to assume that that contract is gold and that you can use that contract to make plans as a company that … you can explain to investors, to employees, and to the full group of stakeholders around your facilities,' Hart said. 'The loss of trust that comes from canceling those contracts is likely to be pervasive. That's very sad.'
Part of the problem is that the contracts were cost-share agreements, which traditionally give the federal government the right to exit the deals without any legal penalty. In theory, OCED could have structured the federal contracts differently through a category known plainly as 'Other Transactions.' The Department of Commerce, for example, issued money from the CHIPS and Science Act to semiconductor companies through such 'other transactions' that lack the same off-ramps for the government.
But the Commerce Department did so under the advice of a legal memo from its general counsel. By contrast, the Energy Department 'is way, way behind' on adopting alternative contract structures when disbursing money, according to a former OCED official who spoke on condition of anonymity.
As a result, the agency stuck to the financing mechanisms with which it was familiar — such as cost-share agreements.
Internally, the Trump administration said the cuts were justified in part because the companies involved were well funded and could manage the investments themselves, the official said.
'But I don't think that's the case. They need a government incentive to make the technological changes they were trying to do,' the former OCED official said.
'I would bet less than half of them keep going by themselves,' the official added. 'It's a big blow.'
