Making Sense of Biden’s Green Energy Defense Production Act Announcements
June 9, 2022
By Todd N. Tucker
Earlier this week, the Biden administration made a series of announcements declaring an electricity emergency and invoking the Defense Production Act (DPA) of 1950 to develop more robust onshore production of clean energy-related sectors. This unprecedented action to address the climate crisis and build domestic green jobs follows calls going back to 2020 from members of Congress, the Congressional Progressive Caucus, and my own work for the federal government to make more extensive use of the DPA.
What These Announcements Mean
The DPA is a long and multifaceted statute, and Monday’s actions fall only under Section 303, which consists of two main tools. First, there is wide-ranging authority for the federal government to mandate, allocate, and install equipment within private and public facilities¹—a topic explored in a Roosevelt Institute brief this past January. To put it in business terms, this tool could be thought of as capital, capital equipment, or capital expenditures. Wage costs are higher in the US than in China or Southeast Asia—one factor commonly cited for products like solar panels being made there and not here. By invoking Section 303, the government can gift or subsidize the cost of physical capital equipment for firms—currently existing or new start-ups—and the cost differential could begin to close.
Second, the government can make advance market commitments to buy up a certain chunk of heat pumps or other clean energy products. Unlike procurement, where the government buys up goods and services for its own use, advance market commitments allow the government to buy up goods and redistribute them to firms, households, or foreign allies (at a profit, at cost, at a discount, or for free). While this tool has been most common in vaccine development (notably, Operation Warp Speed for COVID-19 vaccines), it is increasingly being contemplated for green energy uses. Concessional gifting of products like heat pumps to frontline communities could go toward meeting Justice40 targets,² and do so more directly and effectively than tax credits. (On the latter, see the recent Democracy Journal essay by Sylvia Chi and my Roosevelt colleague Lew Daly.)
Additionally, Title 303 has other, more open-ended authorities that allow the government to encourage the development of productive capacities more generally or the use and diffusion of emerging technologies.
Monday’s actions applied these authorities to certain energy-related sectors, namely solar modules and components; electrolyzers, fuel cells, and platinum group metals; transformers and electric power grid components; electric heat pumps; and insulation. The selection of these sectors is not by chance: They comprise some of the primary industries profiled in the administration’s extensive supply chain resilience reports that I reviewed for the Roosevelt Institute and Washington Post’s Monkey Cage last month.
Does It Mean Anything without Money?
There was some skepticism about whether these announcements mean anything without Congress acting to make appropriations for them. While reasonable, this take downplays the significance of these actions.
First, keep in mind that—though the DPA is a broad authority that includes free-standing, non-traditional defense mandates like maximizing the supply of domestic renewable energy—past administrations have been reluctant to use it for generalized civilian economy purposes. Among the exceptions were acute and/or temporary crises like the California electricity crisis in 2000–2001 and the COVID-19 pandemic (and those examples are themselves outliers). The challenges targeted by the latest DPA actions are different in kind, aiming at creating, maintaining, and expanding the long-term competitiveness of onshored industry over decades to come. Some, like solar modules, face business- and policy-induced shortages, while heat pumps have a relatively developed domestic footprint. (I recently spoke with Adam Aton of Politico about implications for heat pumps.) While the climate crisis is undoubtedly a crisis, it is slower-moving and different in kind than the types of crises the DPA has been used for in the past. The legal and political precedent alone of using the DPA to address the climate crisis is therefore hard to understate.
Second, not all Section 303 actions need money, and not all need money now. Title 303 could be interpreted to encourage standard setting on technology and equipment. (Remember: Biden’s use of the DPA is novel, so the exact contours of the authority haven’t yet been tested.) It certainly encompasses transfer of technology and equipment that the government already possesses or could produce. (A topic for further research is the extent to which the DPA could interact with other, say, stockpiling authorities to make this most feasible.) Moreover, nothing is stopping the Biden administration from making advance market commitments now, and committing to seek appropriations later. There are a number of vehicles for doing so, whether that is the must-pass annual National Defense Appropriations Act or the Energy Security and Independence Act of 2022 introduced by Sen. Bernie Sanders (I-VT) and Reps. Cori Bush (D-MO) and Jason Crow (R-CO). Indeed, there is no policy reason why the $555 billion in proposed Build Back Better climate spending could not be reshuffled into one of these vehicles, or alternatively have a reshaped reconciliation bill route funds through the DPA.³
Third, the declaration of the electricity emergency opens up the possibility of moving around already appropriated money. The Trump administration showed the way with its declaration of a border emergency to build the border wall. While they lost some legal challenges in intermediate courts, the conservative-dominated Supreme Court seemed favorably disposed toward this type of use of executive power (see here and here).4 Because Congress has reaffirmed the DPA more than 50 times, it has been favorably treated by courts, and any attempt by Congress to limit it now would face a presidential veto for which there would not be sufficient votes to override. And while Trump manufactured emergencies and downplayed the necessity (as opposed to mere convenience) of his actions, Biden left a clear paper trail documenting the real and widely supported assessment of the climate crisis.
Fourth, while the administration’s June 6th announcements are limited to Section 303, there is nothing to preclude them later announcing actions under other parts of the DPA, from allocating green energy resources across the economy, to combatting energy price gouging, and more.
Finally, use of—or even a threat to use—any of these tools can be a powerful source of leverage to compel private sector action or even to compel Congress to finally pass all or parts of Build Back Better (over which it would have more traditional jurisdictional oversight than is currently the case under DPA).5 As I recently told Scott Paul on The Manufacturing Report podcast, even just using the DPA or other authorities to establish aspirational numerical targets for volume of onshored economic activity can increase consumer demand for clean products and make businesses change how they are thinking about their upcoming capital expenditures.
We’ll be watching closely whether and how these DPA declarations lead to actual material changes for workers and communities on the ground. In the meantime, finding ways to improve DPA funding and transparency mechanisms are an important next step.
1.The exact language is “(e) Installation of equipment in industrial facilities
(1) Installation authorized
If the President determines that such action will aid the national defense, the President is authorized—
(A) to procure and install additional equipment, facilities, processes or improvements to plants, factories, and other industrial facilities owned by the Federal Government;
(B) to procure and install equipment owned by the Federal Government in plants, factories, and other industrial facilities owned by private persons;
(C) to provide for the modification or expansion of privately owned facilities, including the modification or improvement of production processes, when taking actions under section 4531 of this title, 4532 of this title, or this section; and(D) to sell or otherwise transfer equipment owned by the Federal Government and installed under this subsection to the owners of such plants, factories, or other industrial facilities.”
2. The market value of heat pumps could be tallied up, with the discounted amount counting as an environmental justice benefit.
3. Historically, DPA monies have been spent through a “DPA Fund” controlled by the Department of Defense, though the Congressional Research Service notes that the American Rescue Plan included workarounds that empowered other agencies.
4. I should note: While the immediate implications of the emergency appear targeted at suspending duty collection on imported solar panels (a controversial decision, which deserves its own post but which I’ve weighed in on elsewhere, the precise language of the emergency declaration is not strictly limited: “NOW, THEREFORE, I, JOSEPH R. BIDEN JR., President of the United States, by the authority vested in me by the Constitution and the laws of the United States of America, including by section 318(a) of the Tariff Act of 1930, as amended, 19 U.S.C. 1318(a), do hereby declare an emergency to exist with respect to the threats to the availability of sufficient electricity generation capacity to meet expected customer demand.” The operative words here are “including by,” as opposed to a formulation like “only by.” That said, since the specific policy actions following this language relate to import duties, additional policy actions would be on safer ground if formalized in subsequent proclamations.