Memo: Intentionally Unworkable Republican Sourcing Mandates Would Tear Down Budding Domestic Supply Chains, Raise Energy Prices

The House Republicans’ draft reconciliation text for the Ways & Means Committee includes several attempts to kneecap clean energy tax incentives without having to swallow the political poison pill of explicitly repealing these popular programs, at a time of rising electricity demand and rising energy prices for consumers. 

The most nefarious and hardest-to-understand provision? A new, unworkable Rube Goldberg-esque compliance regime restricting where clean electricity project developers and clean manufacturing facilities must source component parts from — without regard for whether those components are actually available or whether these sourcing mandates can be implemented. 

What’s the problem with making more clean energy technologies in America, or diversifying clean energy supply chains away from a reliance on Chinese-made components? Nothing — and indeed that was precisely what the existing clean energy tax credits were designed to do, and they have made more progress than virtually anybody predicted. But blunt mandates that ignore the reality of what it takes to build a domestic manufacturing base and create uncertainty for the private sector will in fact reduce investment in both the power sector and in manufacturing — raising energy costs for consumers and businesses and killing good-paying jobs for workers. 

Unfortunately, that’s exactly what House Republicans’ so-called “foreign entities of concern,” or FEOC, provisions would do. Make no mistake: These provisions would create a thicket of red tape for domestic manufacturers and energy developers alike, smothering thousands of job-creating projects in years of uncertainty and causing private investment to flee back overseas. The Republicans’ approach is nothing short of a full repeal of the policies driving hundreds of billions in private investment over the last two years and threatens to raise electricity prices for consumers by more than $110 annually, starting next year.

What is a Foreign Entity of Concern (FEOC)? 

Provisions preventing federal funds from being awarded to so-called “foreign entities of concern” have been included in a number of laws in recent years, including the 2021 National Defense Authorization Act (NDAA), the 2021 Bipartisan Infrastructure Law, and the CHIPS and Science Act of 2022. These restrictions on appropriated funds have generally been limited in nature, focused on programs with explicit national security purposes (like sourcing semiconductors) and prohibiting certain federal grant funds from going to entities “owned, controlled by, or subject to the jurisdiction or direction of” the “government of a covered nation,” with “covered nations” generally including China, Russia, North Korea, and Iran. 

The Inflation Reduction Act (IRA) of 2022 contained one FEOC provision, in the 30D New Clean Vehicle Credit, expanding this treatment to the tax code for the first time. This provision prevented tax credits from being available to consumers for new clean vehicles that contained battery components or critical minerals sourced from FEOCs, beginning in 2024 for battery components and 2025 for critical minerals. 

These restrictions were complex, but ultimately implementable for two important reasons: 

• First, they were limited only to the vehicle components where there was a compelling economic security, energy security, and national security argument for moving supply chains over time. Before the IRA, global supply chains for critical minerals and EV batteries were overwhelmingly concentrated in China; since the IRA, we have seen significant activity to onshore and friend-shore some of these activities. The FEOC provisions in the 30D new clean vehicle credit did not restrict tax credits from being available for vehicles if they sourced other parts — like every little screw and bolt — from companies headquartered outside the United States. 
• Second, only a handful of automakers produce electric vehicles in North America, and only a limited number of vehicle models in any given year would qualify for the tax credit. This made it possible not only for automakers to focus their efforts to analyze and reorient their supply chains, but to establish a pre-certification system at the Internal Revenue Service for automakers to demonstrate their compliance with the rules for each model line in a given tax year — a time- and resource-intensive undertaking that was necessary for companies to have confidence that they were adhering to the rules. 

The House Republican bill takes that reasoned, measured approach, throws it in a wood chipper, and then lights the wood chipper on fire. It introduces multiple new concepts distinct from previous treatment of FEOCs, all of which would require clarifying guidance from the Department of the Treasury for companies to be able to invest with confidence. It also introduces prohibitions on clean electricity and manufacturing projects from receiving “material assistance” from FEOCs, a concept that is written so broadly as to prohibit every last nut and bolt in a power generating project or a clean energy manufacturing facility from being imported from existing suppliers — even if there is no alternative now or ever. 

How House Republicans’ Unworkable Sourcing Mandates Will Kill Clean Energy Manufacturing

Consider a hypothetical where the U.S. is attempting to reshore the manufacturing of a product that has just three components. Two of the most important components have domestic sources or are made by allied or partner countries, while one of the minor components is currently made only in China. The House Republican bill would make it such that American manufacturers would immediately receive no credit for making a product in the United States, with American workers, if even that one relatively minor component is only able to be sourced from China. 

The immediate effect would be to disincentivize onshoring of the final product as well as the component products — because until everything is available, there is no benefit to making anything in the United States. In short, the House Republican approach is a recipe for onshoring precisely nothing. 

To take one example, the U.S. had just about 9 GW of manufacturing capacity for solar modules when the IRA became law in 2022. Thanks to the IRA’s supply and demand-side incentives, solar module manufacturing capacity more than quintupled over the next two years, and reached 50 GW of capacity early in 2025 — enough to meet domestic demand and catapulting the U.S. to the third-largest producer of solar modules in the world, from 14^th place in 2017. 

However, domestic production of the components of those solar modules is taking longer, as upstream production processes are more expensive to onshore and require expertise that the United States largely ceded to China in the years before the Inflation Reduction Act. There are promising signs of progress — at the end of 2024, the United States produced its first domestic solar cells since 2019, and solar companies Suniva and Heliene reached a landmark agreement with Corning to produce solar modules with domestic polysilicon, wafers, and cells in March. But in 2025, with roughly 50 GW of solar expected to be installed on the grid, the U.S. will have less than 10 GW of domestic wafers and cells available. 

Of course, most manufactured products contain more than a few valuable components, like solar cells and wafers. They contain dozens, if not hundreds, of parts, many of which have relatively little economic value — like wires, nuts, bolts, adhesives, and other bits and bobs that aren’t made in America for any industry. 

That means under the House Republican proposal, rather than continuing to break records for solar deployment and help keep energy costs low for consumers by adding urgently needed electrons to the grid, U.S. solar development could crater for years waiting for more upstream supply and for new sources of minor components to become available, if they ever do — immediately killing jobs, raising prices, and reducing demand for U.S. manufacturers. 

And the House Republican bill is even worse for domestic wind manufacturing. It sunsets manufacturing tax credits for wind energy products after two years, even for existing facilities, regardless of the sourcing of the component parts. That risks stranding billions in investments and destroying thousands of good-paying jobs at recently constructed and expanded facilities for building wind nacelles, blades, towers, iron and steel, and other components. 

How House Republicans’ Unworkable Sourcing Mandates Would Raise Electricity Prices and Stifle Innovation 

All of the same points hold true for electricity generating projects — and conventional renewables like solar and wind aren’t the only electricity sources where investment would be reduced by ham-handed new sourcing mandates. The U.S. still has foundational work to do building up domestic supply chains for technologies congressional Republicans claim to support — and that work will not happen overnight.  

According to a 2024 report on clean energy supply chains from the Department of Energy (DOE), “the U.S. lacks at-scale enrichment capacity for high-assay low-enriched uranium (HALEU), a key input for some nuclear reactor types …. Current production capacity for specialized components — large castings and forgings for advanced reactor components, alloys, specialized equipment to produce reactor components — is also limited and under-developed.” Increasing investment uncertainty for developers of nuclear power plants — whether new or repowered, since repowered plants can also access the clean energy tax incentives under certain circumstances — will make those projects riskier to pursue, raising costs that would likely be passed on to electricity consumers, if the projects materialize at all. 

Similarly, utility-scale grid batteries are an increasingly common part of the electricity mix, thanks to IRA incentives and evolving grid management practices driving increased demand. Investment has skyrocketed, from just 7 GW of new installations in 2023 to an anticipated 18 GW in 2025. While IRA incentives, federal grants, and loan investments have helped jump-start a domestic manufacturing industry for grid batteries, upstream components — including processed critical minerals — are taking longer, with the same DOE supply chain report noting that “demand is forecast to outpace the current pipeline of future supply.” 

Conclusion

Not only are House Republicans’ FEOC proposals complicated, Byzantine, and unrealistic, but they will also put project developers and manufacturers in a fog of uncertainty because of the likelihood that it will take years for the Trump administration to issue clarifying guidance — if they ever do. 

While the Biden Treasury Department set an aggressive pace for providing clarity and certainty to companies, issuing more than 90 tax guidance documents in two and a half years, the first Trump administration took three years to provide guidance on a single clean energy tax incentive — the 45Q Carbon Capture, Utilization, and Storage credit — and that was in an administration that was not nearly so hostile to clean energy deployment as it is today. 

Given the volume of new definitions that would need to be clarified and IRS procedures that would need to be established for a wide range of clean energy and manufacturing facilities and potentially thousands of taxpayers, domestic energy producers and manufacturers will be left hanging — and many will be forced to make the tough choice to move their business back overseas.