President Biden signed the Inflation Reduction Act (IRA) into law on August 16, 2022. In the intervening months, the U.S. Departments of Treasury (Treasury Department) and Energy (DOE) and the Environmental Protection Agency (EPA) have been racing to finalize guidance and issue funding opportunity announcements consistent with the IRA’s expedited timelines. The Treasury Department, in particular, has its hands full, as it is administering approximately $300 billion in clean energy tax credits.
While the implementation of any ambitious legislation is likely to pose challenges, history suggests that the most significant barriers may come not from within, but from congresspeople with their own views on how programs should work and a willingness to exert their power. This dynamic is exacerbated by republican control of the House of Representatives, including their promise to make extensive use of their oversight and subpoena authority to investigate potential malfeasance.
The American Recovery and Reinvestment Act provides a cautionary tale about how congressional oversight can not only impede, but nearly stymie, program implementation. In 2009, Congress funded authorities administered by DOE’s Loan Programs Office (LPO) to facilitate the financing of clean energy projects. Despite multiple high-profile successes and making money for American taxpayers, LPO today might remain best known for guaranteeing a loan to Solyndra, a once-promising company that ultimately went bankrupt. The congressional investigations into Solyndra and DOE took a toll on the agency, which as a result largely issued very few loans until the Biden administration took office in 2021.
It won’t take another “Solyndra” to spur congressional oversight of the IRA and other federal spending programs. Those efforts have already started, and their impacts are already being felt.
Congressional oversight is already causing bureaucratic delays. Late last year, Republicans in Congress issued oversight requests to DOE inquiring about a battery manufacturing grant recipient with potential ties to China. In response, DOE leadership announced that it is conducting “post selection” review of project applicants, including performing fulsome national security reviews in concert with federal intelligence agencies.
DOE’s “post selection review” of recent grant recipients portends poorly for those hoping that federal agencies could distribute IRA funding quickly. The pressure to ensure that the recipients of federal funding do not have a nexus to China is extending the length of the due diligence process for certain DOE-administered programs, and risks creating a backlog that prevents the administration from obligating federal funds before programs expire. It may also create uncertainty for project applicants, who cannot be sure that any awards they receive are final until funds are actually disbursed. This is particularly concerning given the forthcoming presidential election, as subsequent presidential administrations may use the post-selection review process to second-guess funding award announcements that are not finalized in 2023 or 2024.
Although the IRA has already been written, congressional stakeholders will exercise every tool at their disposal to continue to shape these programs. That pressure manifests in different ways, with two examples illustrating the methods by which Congress can exercise its prerogatives.
Clean Vehicle Tax Credit. The Clean Vehicle Tax Credit was the subject of significant congressional input. As written, the program permits consumers to receive a $7,500 tax credit for vehicles that meet certain requirements, including if the critical minerals in a vehicle’s battery were extracted or processed in the United States or in any country with which the United States has a free trade agreement. In March, the Biden administration responded to concerns about the IRA from European allies by initiating discussions about executing limited trade agreements under which European countries will be deemed have free trade agreements with the United States, and it executed a similar agreement with Japan around the same time. This approach is getting pushback from members of Congress, including from Chairman Wyden (D-Ore.) and Ranking Member Crapo (R-Idaho), who contest the Administration’s ability to execute these limited agreements without congressional input. For his part, Senator Joe Manchin (D-WV) has also taken issue with the administration’s implementation of the Clean Vehicle Tax Credit and opposed the Biden administration’s nominee to be IRS commissioner in protest of the program’s implementation. Whether this opposition materially affects the program’s administration remains to be seen, but at a minimum Congress is likely to hold committee hearings and conduct rigorous oversight of the administration’s approach.
Energy Infrastructure Reinvestment Program. DOE’s Energy Infrastructure Reinvestment (EIR) Program has also been subject to behind-the-scenes lobbying by members of Congress. The EIR provides DOE with up to $250 billion in lending authority to help finance projects that reduce or eliminate emissions of air pollutants like greenhouse gases, including by replacing energy infrastructure that has ceased operations. Progressive members of Congress have made clear that their intent in passing the EIR Program was to facilitate the retirement of coal generating assets and that they will be watching DOE closely to ensure that DOE uses the full extent of its authority. More conservative members, however, are largely opposed to using the EIR Program to accelerate the retirement of coal plants, and have not been shy about communicating those concerns to DOE. Given these competing interests, DOE risks political backlash regardless of its approach, and we may not have a sense of how DOE intends to implement the Program until DOE starts funding projects in 2024. What is clear is that entities seeking federal funding for the purpose of retiring and replacing coal generating assets should be prepared to respond to congressional oversight requests and even possibly testify before congressional committees.
Congress can affect the design and implementation of federal spending programs and in some instances undermine them all together. In fact, congressional oversight is already having an effect in how the IRA is being implemented, causing the Biden administration to perform more rigorous due diligence reviews in response to congressional concerns about China’s influence. And although it remains to be seen whether congressional feedback will affect the administration’s program design and funding decisions, we can expect congressional stakeholders to continue to use all mechanisms at their disposal to exert their influence.
