Five big questions emerging from the OBBB

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I'm Shale Kahn, and this is Catalyst. I think you can make a case that solar in particular would be relatively robust to an expiration of the tax credits, but I think that the Semi existence of tax credits really complicates things. It's cliche to say it, but like, you know, capitalism loves certainty, and that's like I completely agree with you. Coming up, the wonkier questions that emerge from the one big beautiful bill.

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I'm Shell Khan. I invest in early stage companies at Energy Impact Partners. Welcome. Well, the O Triple B, as I guess some people call it, has passed.

And like the original Inflation Reduction Act itself, it contains a lot. So rather than speculating at the high level about every sector it affects, What I thought we should do here is pull out a few of the more nuanced questions that I think fall out of the legislation and talk about what they might portend for the various markets that are affected, from batteries to wind to solar to hydrogen to CCS.

And as usual, my partner in prognostication for this one is Andy Lubershane, who is my partner at EIP and our head of research. So before Andy and I get into it. Uh I'm hosting an Ask Me Anything episode coming up. It's I think the third or fourth of these that we've done. I will attempt to answer as many of your questions as I possibly can. We've actually already gotten a bunch of really good questions, so thank you for sending them in. Please keep them coming. Email us at

Catalyst at latitudemedia.com. That's catalyst at latitudemedia.com. Episode will be soon. And in the meantime, here's Andy. Andy, welcome. Hey, thanks Chail. Always great to be back on Catalyst. Speaking of being back, I had, as you know, our mutual friend Nat Bullard back on a few weeks ago to talk through some interesting utility tariff finding stuff and and utility docket stuff.

And he pointed out to me both there and then publicly thereafter that he thinks he's the most frequent guest on Catalyst, beating you out as number two recently. I wonder how you think about that. I I heard uh through the grapevine that Nat was boasting about that. And I just wanna set the record straight that um if you include both Catalyst and your prior podcast, the interchange, I think. I think I win hands down. Um

Although I I will say like it's it's clearly not a fair competition just because uh I think I like I have the home court advantage. You have me on speed slack. Yeah. Uh It's true. Though you get a lot of credit for the the deep cut of the previous iteration of this podcast. Anyway, let's just we'll use this one to to one up Nat for you. Um I did it. Yeah. All right. There's so much to talk about on this.

Okay, first of all, what's your shorthand for this bill? What do you what do you call it when you're just like in conversation? I've heard people say O Triple B, OBBB, the beautiful beautiful bill, the budget bill. Had to refer to it in that many times. Like I I O B B B A, but that's too long. Too long. Uh yeah. The bill. The b the bill. Let's call it the big bill. All right.

There's a lot to talk about on the big bill, as there was with the IRA in the first place when it passed. And this this bill is mostly changing the IRA, at least as it pertains to the stuff that that we're gonna talk about here. But I think what we want to do rather than opine at the really high level is just focus in on some areas that we think are the biggest, most important open questions that emerge from the bill. So we're gonna run through five of them that you and I identified before.

Let's start with the first one. I'm gonna call this one what the fiak. Um So fiak restrictions abound in this bill. Talk me through, I guess, at the high level, the fiak restrictions, like where do they come into play, and then your high level view on what it means. I think Fiat is the biggest question mark because it's so omnipresent. You know, it cuts across a like the the the three most important categories, at least in my opinion.

of of the tax credits that are being modified here. And those are the ITC and PTC for renewable projects and storage projects. I mean deployed projects, that is. And then the manufacturing production tax credit, the 45x, all of which are subject to slightly different versions of fiak restrictions. Um, which, you know, very simply in my mind, I'm just thinking about as, you know, you can't buy stuff that is originating in or controlled by companies in China, basically.

Um, it's more complicated than that. I'm sure uh lawyers would jump down my throat and point out all the the nuance there, but that's the basic gist of it as far as at least as far as I think I need to understand. Um And, you know, that has really different impacts across each of those categories, right? So for wind projects, it's not a huge impact because it's very easy to source components from non-China sources. There's plenty of

you know, wind turbine component manufacturing in America, in Europe, et cetera. Not a big deal. Um Although you know, wind has other troubles in the in the b uh the big bill. Um for solar and battery storage it's it's more complicated, right? I think yeah. And and then for manufacturing, I think it's probably the most complicated. Project.

I think it's manageable largely because the supply chain has already moved outside of China. This is where we get into the nuance of it, right? Like we're already not really buying solar panels from China. We are buying solar panels that have wafers from China. We are buying solar panels from companies that are based in China, manufacturing in Southeast Asia. And so the nuances of all the fiak restrictions get really complicated there when it comes to

solar projects, I think. On solar manufacturing side it seems more clearly A challenge. Yeah, for solar projects I think I agree. I think we're pretty much

fine when it comes to fiak. Like I think most solar projects already can figure out a way to avoid that restriction. Uh mainly because like you said, we've already uh the solar industry has already been uh avoiding uh companies and and sources that are associated with China or that have already been found to be, you know, circumventing uh tariffs on China in in certain Southeast Asian countries, for example.

Um, and it sounds like, you know, everything I'm hearing and reading is that uh the global solar industry has done a pretty good job already diversifying to India and some some other countries in South and South Southeast Asia. Yeah, and there will probably be more of that, and there are new tariffs that could be introduced separate from this. There's an ongoing AD C V D case, uh anti dumping case.

on on a bunch of Southeast Asian countries. Like it's you know, the solar supply chain has gotten increasingly messy and complicated. But the fact that it has already been somewhat messy and complicated in some ways insulates us a little bit from the basically the battery equivalent, which we're gonna talk about in in a second, which is where the introduction of the Fiat restrictions in this bill, the again fiak being foreign entity of concern, which basically means China, um

present a yu a unique challenge. I think there's a challenge in solar, but it doesn't seem like it's like It's not the the end all be all because the solar supply chain has already been spreading out. Yeah, I I agree. Um, uh, with the exception potentially for solar manufacturing, like you noted, in which

Um, the one area in which the solar supply chain has not become a lot more flexible yet is in-get and wafer manufacturing. In fact, like If you look across all of the areas of clean energy that we care about and everything that the IRA was focused on, you know, I think ingot and wafer manufacturing is actually probably the most concentrated of of all of those like supply chain steps in China still and From what I can gather

you know, that's okay today, right? If you were to start up a new solar cell manufacturing facility in the US today, you could probably qualify even buying wafers from China, right? Because You know, together in the ingot and wafer manufacturing steps are like a little bit of a little bit of a little ballpark somewhere around a third of the cost of a complete cell. And you only need 50% non-FEOC components, you know, start starting in 2026.

But by 2029, you need 85% non-FEOC components. And so that could present a problem, like if you were still reliant on Chinese wafers by that point.

Right. And and that gets to this. I guess this bigger thing, which is gonna be the segue into talking about batteries here. Which is um on the manufacturing side, right? So the big thing about the IRA was that it It brought with it this boom in planned domestic manufacturing of solar, as you said, lots of solar cell and module stuff, but I think even more so of batteries and battery components.

Uh, and that was driven by like this combined carrot and stick approach where you had tax credits for the ultimate consumption of a thing that were that were tied to uh either fiak restrictions or in the case of batteries. complicated stuff around friendly countries and so on. But then also the carrot on the manufacturing side, which is really the bigger one, which is the tax credits for the manufacturing itself.

And so there is this incentive, but a lot of that manufacturing is not has not been stood up yet. A little bit of it has, um, but a lot of it hasn't actually been built yet and was planned. And so the question is what happens to all of that? Manufacturing in light of the changes to the IRA, which sort of remove or at least uh place an early sunset.

on a lot of the uh demand side incentives, the EV tax credit, for example, or you know, the ITC PTC for solar and wind, which expires earlier than it would have in the in the IRA, but on the other hand, keep Forty five X, which is the manufacturing tax credits all the way through the early twenty thirties.

So you still have but of course introduces fiak, right? So it's like a very complicated equation to determine is it still worth it to stand up your new I don't know, battery cell factory in the U. It's super interrelated and that's why it's so hard to parse. But I actually think that battery manufacturing, simulating battery manufacturing, in my opinion, is probably the most important thing that the IRA was trying to do when it t when it comes to

making uh clean energy manufacturing overall more more robust and less subject to geopolitical risk and tension in the US. And One, you know, so I I I think it's worth starting at the beginning, which is like, can you comply with these fiak restrictions and make battery cells in the US?

And it's tricky. I I think there's some real uncertainty there. And it really depends on the kind of batteries you're making because Especially if you're making um, you know, NMC cells, so the the uh more expensive cathode material cells. then you know that cathode active material can be like roughly half the cost of a cell. Now there is supply outside of China. Um there's some, you know, relatively minimal supply of that material today coming in out of the US.

with some more on the way. But if you add up that that CAM, the cathode active material, and then anode material, which is much more concentrated in China, that's, you know, graphite anode powders. um, which is a another say ten to fifteen percent of the cost of a cell, um, then it's hard to comply with Fiat if you were if you were buying those materials from China today because

Right out of the gate, starting in 2026, you need 60% non-China uh components in your battery cells. And so you're gonna need to find another source probably of cathode materials. And again, you know, today that's It's a it exists outside of China, but the market is more limited. And so, you know, at the very least you could see that make it more expensive to produce battery cells in the US. And, you know, there could also be just pure bottlenecks on supply if if you were trying to ramp up.

um, a bunch of new cell manufacturing all at the same time, which, you know, we can talk a little bit more about when I think when we get when we get to EVs, but I am still pretty confident in the fundamental trend of electrification of vehicles, ev even in the US and I think there are still some pretty good signals, pretty strong signals that battery manufacturing is moving forward.

Just to give you like one quick anecdote, um, our colleague Brian Ebright, who uh heads up our our research and commercialization efforts at EIP focused on on electric mobility, he sent me an article earlier today about um About Ford. It was in the New York Times that Ford has basically said we're moving ahead with this$3 billion battery plant in Michigan where they're licensing uh lithium-iron phosphate technology from CATL, the the Chinese battery giant.

Um and they they claim in the article that they'd been in contact with the administration frequently throughout the drafting of this bill and they believe that they have a pathway to Fiat uh you know, f to complying with the Fiat rules and um and and I guess I'll I'll add one more point. This is I think illustrates how the architects of the IRA, especially around battery manufacturing, were being

pretty clever in that they were really trying to insulate the way that they were rolling this out from political risk. And, you know, that Ford plant, for example, is in a county that President Trump won by 56%. s uh gonna be serving battery cells to two new EV facilities in um also in red districts, I think in Kentucky and and one other

uh state that that reliably votes Republican. So there are a lot of jobs now on the line in, you know, um and Republican supporting counties uh that are dependent on these EV battery plants moving forward.

Well I'll tell you one thing about this whole fiak. uh fiasco, so to speak, which is it's great for lawyers. It's gonna be there's just gonna be so much to do to determine compliance, to set up a supply chain for compliance.

Great situation for the lawyers. All right, let's let's move on from the fiak bit. I mean, it's still relevant to everything else that we talked about. As you said, it sort of it it lays above uh a bunch of the other credits. But let's talk about the other thing that that I think is a big open question. Certainly we're sitting in a

45 day period right now, we're in the midst of it, where there is a big remaining open question, which is around the wind and solar ITC PTC, the tax credits for wind and solar, where the rules are set in the bill. Such that you can commence construction by the end of 2026 and then not be subject to a restrictive placed and service date. And so per the historic

precedent of the definition of commencing construction. There's a couple of different ways that you can go about doing it. You can you can begin groundwork and so on, but a lot of people would also do what's called safe harboring, which is to buy some of the equipment, five percent of the cost worth of the equipment. um that allows you to safe harbor and then consider yourself to be in construction and then you can have a few years to to then begin uh operation.

Important, of course, because wind and solar developers don't necessarily control the timeline under which they can enter operation. That is a function of interconnection, amongst many other things, which is uh tough to predict. So That is the bill that passed. Then of course there's an executive order that came right afterwards that says that Treasury basically needs to go look at the rules for

safe harboring and commence construction amongst other things and presumably take a more aggressive stance on those. So we're not w forty five days haven't passed yet. We don't know

What those rules are gonna come out to be. And so we're in this really weird limbo period right now. And I've spoken to a bunch of developers about this too, where like Clearly you want to get as much of your pipeline into quote unquote construction as possible as as quickly as possible, but how to do that and what will definitely qualify is uncertain. So it results in a kind of a strange I think outlook for the next two, three, four, or five years of wind and solar, maybe particularly solar.

Where historically whenever the tax credits would be about to expire, you'd see a boom. And then if the tax credits seemed like they were gonna expire, there'd be a bust right afterwards and then the market would kind of cycle and it would come back. Here, there's so many mini boom and bust possibilities that I actually don't know how to Yeah. Frame it. Right. Yes, yes. I mean I I started really like my career

uh uh focused on renewables and cleantech looking uh as as an analyst covering the wind energy industry. And I remember like the first boom bust cycle I lived through was twenty twelve to twenty thirteen, where we went from like 12 gigawatts of wind build because in in 2012, when everyone was expecting the tax credits to expire, and then nothing basically in 2013, uh, it was it was the steepest drop.

really possible. Um, I don't think we're gonna see that again. Um, but this is probably the biggest area of uncertainty. And it's not really because of the bill, it's because of this executive order. Um And and associated reporting around that executive order, which suggests that, you know, Treasury is going to be pretty aggressive uh in terms of redefining um start of construction and and safe harbor rules. And so I think for the forty five days until we

have clarity there and hopefully it is only forty five days. Um I don't think that much happens. I think people kind of sit on their hands. And then after that, if the If the rules are anywhere close to what we've seen in the past for Safe Harbor, where you can spend five percent of a project cost and and kind of continuously make progress, then

I think we see a lot of like the biggest developers who have balance sheets to to buy to to to safe harbor those components like inverters or modules and um And also who have, you know, enough visibility and enough diversity in their project pipeline that they know there'll be a project to to to you know eventually put them into. Um, which favors the bigger, you know, more well capitalized developers, by the way. But um, that's just one other side effect of this. Um

I think I think we'll still see, you know, probably another three, four years, well, past 2017, of pretty pretty solid, consistent wind and solar additions. Because previously the bottleneck. has been interconnection. Like you pointed out, it really hasn't been demand. Um, and especially if they continue to qualify for the tax credits, the economics still look really good. Um You know, I I think there is also just an open question in in the market that we're in today.

And and I wanna be careful about this because the tax credits clearly matter. They make a huge difference to the economics of a of a wind or solar project. But it's not clear how that much they matter. to the near to medium term opportunity to to build more wind and solar because of the the demand conditions that we're seeing out in the power market.

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I think you can make a case and many have made the case that I'm not sure if you're Solar in particular would be relatively robust to an expiration of the tax credits. But I think that the semi-existence of tax credits really complicates things. Like if you you know, if you just absolutely eliminated them overnight, the market would see a shock and every project would get repriced, some projects would die.

You know, the market would have to adapt and then it would end up at the size it ends up at, right? And it probably wouldn't be as big as it is with the tax credits, but it also wouldn't be zero. To me the trickiest thing is is if we're entering this period wherein some project

will qualify for a substantial, like it's 30% tax credit. If you still get the the, you know, domestic content bonus, coal communities, et cetera. Like you can get they're big credit. So some projects will have that and some projects will not. Uh and that to me actually might be more of a risk to the overall scale of the market than if you just had certainty one direction or the other.

It's cliche to say it, but like, you know, capitalism loves certainty. And that's like I completely agree with you. Um, I was looking at some just kind of some basic math a couple days ago just to get, you know. get myself make m give give myself more confidence in in what I thought would happen with wind and solar. if let's say there are highly restrictive new safe harbor rules that make it really hard to qualify. And so basically like twenty twenty seven is the end. Um

And I think like if you have solar wind at twenty five dollars a megawatt hour today, which is feasible, those are good wind and solar projects, but maybe not even the best. Um And you you take uh that that's with the ITC or PTC in the case of wind. And you take away that subsidy, you probably go back up to, you know, forty to forty-five dollars a megawatt hour in both cases, you know, according to a bunch of different sources and and people who've really crunched these numbers.

uh with like really sophisticated cash flow models, right? Um and You know, that that is a big difference because at twenty five dollars a megawatt hour, you are less than the marginal cost of natural gas generation. So you can build those wind and solar resources solely Uh, and you you'll make money solely off the avoided cost of burning gas at existing natural gas power plants. Whereas at forty to forty-five dollars a megawatt hour, it's not so clear. You're closer to the line.

you know, it's harder to compete straight up with with gas. You really need to you need to want that energy as an additional resource, not just to offset gas you're already burning. Um and I think that's probably where the where the line is in the market. Um and why you will see lower

deployment, but still not it's, you know, I don't I don't exactly know how to, you know, bet on the market, but there's still a market there. It's just it is less if if the tax credits really go away in twenty eight.

So that's a good segue to topic number three, which is, you know, you're referencing uh solar wind versus natural gas. Now, the other category here are other forms of clean energy that did not see their tax credit expiration dates moved up. So specifically

nuclear, geothermal, and I guess you could include carbon capture, which retains its credits for a longer period of time, as well here. Um so, you know Again, it's hard to predict how this goes without knowing exactly how long solar and wind projects will still have the tax credits.

there assuming that this version of the law holds, there will be some period of time, starting later this decade sometime, when nuclear geothermal and CCS projects will get tax credits and solar and wind projects oh, and by the way, storage projects also will get tax credits and solar and wind will not. So in your mind, does that change or does that significantly change the calculus for I don't know the volume of nuclear and geothermal we build and over what time period?

Yeah, I d I don't think it changes my calculus within the next five years, because I think for pretty much all three of those resources, nuclear, geothermal, and then and then carbon capture gas with carbon capture and sequestration, which is the other the other one that, you know, continues to get um get subsidized. Um

You know, I I think all of those, like nuclear in particular, obviously takes longer to develop. I don't think we're gonna see we might see a little bit, you know, in the twenty thirty, early twenty thirties time frame, but I think for the most part we're talking twenty thirty-five. And beyond when we'd when we'd actually have new nuclear power at at scale coming online. Um, and I think in that time frame. The the tax credits really help.

But um what matters most is how much power we need, really. Like it Um nuclear, I my my own view is really never gonna look great from a pure economic basis. on paper, relative to say, just more natural gas power generation, unless we have like significant uh gas natural gas resource constraints, which we might have bottlenecks in in the US, but you know, there's there's a lot of gas underground. Um, so I think I think nuclear is really, you know, we turn to nuclear as a hedge again.

Natural gas resource constraints, and because we want clean power more and more over time. Um, and because you just can't build and and and uh extract. enough new gas fast enough. And so that's where the value in in starting to develop new nuclear projects today really is. I don't think it crowds out wind or solar at all, really. I think they're sort of added for separate reasons. Um

And probably the same thing with geothermal. You know, geothermal um is much more resource, much more geographically constrained. I think we're really only talking about the western US, you know, Nevada, California, places where you have heat that still rises fairly naturally, uh reasonably close to the surface of the earth and

And in those regions, like probably solar is still cheaper on a levelized cost of energy basis than geothermal, even subsidized, uh, even when geothermal is subsidized and solar is not.

for quite some time, but you don't you don't add geothermal um because you're competing with you know, you're not geothermal's not really competing with solar. It's it's being added as an additional energy and capacity resource. Um And I think similarly about CCS, um, though the C C S story is is more complicated for a bunch of reasons. Yeah, I guess on the margin it advantages nuclear and geothermal over wind and solar in practical terms.

it might not be that important. I think that that said, nuclear and geothermal really do need the tax credits, I think. Like more so. They are more expensive resources, at least in the near and medium term. And so If you were to remove those tax cuts, it'd probably even more painful than it is for win and seller. So in that light, like Extending them further sort of makes sense. There's like it's just a much better economic and political argument you can m make that we we want these

resources to come down the cost curve faster. And one way to do that is to give them a little boost. I mean, that's kind of what we did 15 years ago with wind and solar.

Yeah, exactly. Okay, so on to topic number four. So we've talked about wind, solar, fiak. Let's talk about hydrogen. Um hydrogen went through kind of a whirlwind over the course of the drafting and changing of the legislation of the bill. It's a reminder, hydrogen In the US it's it's already been a journey, right, since the IRA. Like the there was this extremely lucrative on paper tax credit, three dollars up to three dollars per kilogram.

But then the government under the Biden administration took a really, really, really long time to actually set the rules under which you could qualify. So there was a ton of uncertainty in the market. Then they set the rules and the rules were really strict. It's this three pillars. guidelines for what you have to do in order to source clean energy that qualifies you to generate the three dollar tax credits at least. And then basically immediately after that, Trump got elected

A bunch of new uncertainty got introduced. Then the bill gets sort of introduced first in the house. And most versions of the bill early on would have killed the credit for any hydrogen projects entirely that didn't begin construction by the end of this year, which is very few projects. There are, I don't know, a couple under construction. Um, not very many. Then of course the final version of the bill extends that a bit. So that gets it out to beginning construction by the end of 2027.

Which is a big difference, right? Two and a half years to begin construction on a project is again, depending on the definition of commencing construction, which we talked about. It's a fair amount of time. On the other hand, those really strict guidelines for the three pillars still apply. And so I think the fundamental question in in clean hydrogen is Uh how many projects

can satisfy the three pillars criteria, can source enough clean power. Like really you gotta go buy you know, essentially twenty-four seven clean power from resources that were constructed in the last three years or new resources that are deliverable to you. you know, that are time match. You gotta do that. And that gets you the ability to qualify for this credit. And because

We're also sort of limiting the amount of new solar and wind that can get developed. And because there's all this other demand from data centers and other things, it's like really hard to find that stuff. And that stuff is getting more expensive, as we've talked about before. So It's an interesting dynamic in hydrogen where it got a real reprieve, but it doesn't mean it's gonna be easy to go qualify for the credits in the first place. So I wonder how you think about that.

You know, when the elec right after the election, actually my assumption was because of some of the political e economic variables around hydrogen.

I assumed that actually one of the biggest I I assumed that if there were a bill like this that hydrogen that the tax credits would be extended similarly to CCS, um, largely because they're at times and again hydrogen's been through a roller coaster, but at least during the first um, you know, big, big uh surge in hype around hydrogen, there was a lot of excitement from the oil and gas industry, um, which I thought would have made it more politic the the tax credits more politically robust.

Um and in fact, you know, my assumption was that if anything, we'd we'd get some guidance from the administration to Treasury to loosen those three pillars restrictions, which would make for a bigger hydrogen market. And I actually I haven't heard anything about that recently. I'm curious if you have because

If they were to loosen those restrictions, uh, especially if they were to do it soon, right? Like again, if you had an accelerated you know, uh rulemaking timeline like in the next 45 days, similar to the the under construction and and safe harbor rules. that made those restrictions looser, then yeah, maybe I could I could imagine more projects getting done or getting started in the in the next two and a half years. Absent that. Given

We're also seeing all this uncertainty around renewables builds, right? So you need new renewables, but we're not sure what new renewables cost and and how much you can build, and all the demand we're still seeing for power, period, clean power in particular, from highly price insensitive buyers like data centers. Uh, hydrogen anyone making hydrogen is not gonna be a price insensitive buyer. They're very price sensitive. They want the cheapest clean power. Um

I don't know. I I I'm not personally super bullish on this making helping make hydrogen make a turnaround, but you you're actually closer to this world than I am, so I'm curious if you think differently. I broadly, if you're looking at it from the high level market perspective, I think that's right. I think I think you won't see, you know, a booming hydrogen economy as a result of this this bill and the extension from from end of twenty five or I guess the

early expiration being not as early as it could have been. I it does mean I think some projects are gonna move forward. Like very, very, very few would have moved forward if the rule was commenced construction by the end of this year.

The extra two years will make a difference. Like there it's not it's not zero projects, it's not one or two projects that can figure out how to source enough clean power, but it's probably not a hundred projects either. So I think you're gonna get a a much narrower market. that generally again favors the larger developers, larger projects who can go buy big chunks of clean power and piece together multiple resources and so on.

Yeah, it's interesting'cause you think about the two pathways, right? The the bill was trying to incentivize clean hydrogen and it was trying to incentivize battery manufacturing in the US. Battery manufacturing's moved fairly quickly. And we now see um a bunch of new plants getting up and running today or already under construction and again building constituencies for those tax credits because they are hiring jobs in

specific locations where they're going to make a big difference for the community. Hydrogen, because of all the uncertainty around um qualification for the PTC, because of the the pretty um pretty strict three pillars didn't get off the ground under Biden. And so there's not a constituency for it to like advocate. And I'm not sure that two and a half years and a few more projects builds a constituency just from a like political economy standpoint um to to make much of a difference.

The hydrogen hubs the hydrogen hubs were where there was a A constituency and this is why you saw I think like Senator Shelley Moore Capito from West Virginia s talked a bunch about hydrogen. Um, she seemed to be one of the advocates of of continuing those tax credits. There's a hydrogen hub there. I think that's to the extent there was. You're right. But yeah, I mean, this was one of the areas where

The slow rollout of guidance during the Biden administration, I think, hurt the the political heft of the of the nascent market. Nonetheless, let's see what happens. I think there will be certainly more hydrogen, large clean hydrogen projects in the US than there would have been under previous versions of the the bill. Certainly fewer than there would have been had the IRA held entirely and the guidance come out sooner. Last one.

So EVs took a beating from a tax credit perspective in the bill and the EV tax credits expire pretty quickly. Um, you alluded to this earlier. You know, you have a pretty sanguine view, I think, on on consumer EV demand despite this. So make make your case. Yeah, I I continue to be very bullish on electrification. Um, I think at a fundamental lec level, E Vs are a better product. I think they are going to win in the medium term globally. In fact, globally we're already seeing that happen.

And I think we've basically just gotten to the point at the consumer level where the$7,500 tax credit, like of course it makes a difference on the margins. There's no question about that. And would the market be bigger next year if the tax credit remained in place? I have no doubt that it would be somewhat bigger next year and and every year thereafter.

But I don't think this changes this changes the the timing of the curve, but I don't think it changes the shape of the curve all that much. And it certainly doesn't kill the market because consumers are not buying cars still for the most part on on all that rational economic grounds, right? If if you are an EV consumer, you're buying a a s still today, especially in the US where where we're at, you know, around ten percent uh new new vehicle um purchases are electric, like it's still a pretty

unusual consumer who's buying an electric vehicle and that person is probably not as price sensitive. So yeah, it it makes a difference, but I think the the market goes on and and I still have high confidence in in the medium term. Um, and in part that's actually because I think we're still seeing uh American auto OEMs lean in. We're still seeing battery manufacturing in America.

progress, um, even despite some risks to the tax credits from these fiak rules that we talked about earlier. Like there's all kinds of activity right now. Uh LG Energy in partnership with a couple of different automakers is standing up battery manufacturing facilities and and electric vehicle manufacturing facilities associated with them. So um I still think we're seeing mostly positive signals from the market on the consumer side. Um

On the commercial front, you know, I'm less bullish in the near term. Uh and I will say it's not just It's not just the big bill. There's this other uh administration action that I think will will make a real impact, which is um uh which is clamping down and and um uh stopping California from pursuing its own um vehicle emission standards under uh this waiver from the Clean Air Act, um, which, you know, California under

uh under those standards had extremely ambitious aggressive targets, not just for consumer EVs, but for zero emissions vehicles, which basically means electric vehicles at the commercial level as well. Honestly, like

targets that I would consider probably overly ambitious. And I'm a big believer in electrification. And and a bunch of other states had adopted those standards under the same waiver that California had as well. And so uh there's now a lawsuit going on between a bunch of those states and the Trump administration, but if uh those states are no longer if they are indeed no longer allowed to set more uh aggressive Zero emissions vehicle mandate.

for commercial vehicles, I think that makes a b a big difference too, at the same time as you're losing the tax credit. Yeah, and that forty thousand dollar commercial for like mid heavy duty vehicles, that forty thousand dollar tax credit is is meaningful. And that market is less.

It has less of a foothold, right? Like consumer EVs, there's a market there already. It's it there's reasonably high penetration in some places. Not true yet in the the medium and heavy duty world. So it feels like you're you're sort of battering that market when it doesn't yet have solid footing, which I think is concerning. And and also commercial entities, fleet owners.

They're making decisions about whether to electrify and how much of their fleet to electrify, mostly on an economic basis, right? They're not unlike consumers who are like, Oh, I really want an E V, I'll you know, oh, it's a little bit more expensive this year, no big deal. Um commercial fleets are very sensitive to to cost. And so when EVs are the right economic choice.

uh and they feel confident in the infrastructure availability and you know in the performance, the the range that they can get, they'll buy them, I think. And that's what, you know, we we will still see that happen to a certain extent, but this does This sets that decision back by a few years at least, I would imagine.

All right. Well, that was five interesting questions coming out of this bill. I'm sure there will be a dozen more as the market unfolds a little bit, but As usual, fun to talk to you about it, Andy. I think you you've retaken the crown for number of podcast appearances, but we'll have Nat back on. You guys can see that. Really my goal here and also to force myself to uh think more clearly about the impacts of this bill.

Um and I guess we're all waiting um on pins and needles for forty-five days in particular. Forty two days now. I I don't remember when the EO came out. I don't know how many days it is. The point is, you thought it was done, it's not done. Andy Luberschain is my partner at Energy Impact Partners and our head of research. The show is a production of Latitude Media. You can head over to latitudemedia dot com for links to today's topic.

Latitude is supported by Prelude Ventures. This episode was produced by Daniel Waldorf, mixing and theme song by Sean Marquon. Stephen Lacey is our executive editor. I'm Shale Khan, and this is Catalyst.