General

Manufacturers risk losing out on several climate and energy tax credits if they don’t act fast—and will miss an opportunity to save millions.

That’s the message from Brian McGoff, president and chief operating officer of Dalrada Corporation—a manufacturing solutions provider focused on sustainability. The Biden administration and Congress have created additional financial incentives for manufacturers that embrace sustainable practices, but these incentives won’t be around forever.

The benefits: Currently, manufacturers can access a wide range of climate and energy-focused tax credits, grants and other benefits, from new programs and funds created through the Inflation Reduction Act to legacy tax credits like the 179D tax deduction—a provision that was expanded recently to offer significantly more value.

• “If you make qualified upgrades or a retrofits to your existing building or facility, the government used to give you a tax credit through 179D that was worth $1.88 per square foot times your tax rate,” said McGoff.
• “Now, it’s $5 per square foot for projects that meet the prevailing wage and apprenticeship requirements. T hat’s a direct tax credit—so if you define the project, design it, start implementation and have the proper software to demonstrate the required savings, you can apply.”
• “The lifetime cap on the maximum deduction allowed for a property was replaced with a more favorable three-year cap,” he added. “Companies are allowed to elect an alternative deduction for energy-efficient retrofits in the year the retrofitting plan is certified, to reduce the building’s energy usage intensity by at least 25%.”

How it works: The 179D commercial buildings energy-efficiency tax deduction primarily enables building owners to claim a deduction for installing qualifying systems in buildings, says McGoff.

Read the full story here.
 

The fight to get inflation down to the Federal Reserve’s 2% target “has a long way to go,” Federal Reserve Chairman Jerome Powell said Wednesday, according to Reuters (subscription).

What’s going on: In testimony before the House Financial Services Committee, Powell said that “‘[i]nflation pressures continue to run high’” and “‘nearly all’ participants expect further rate increases will be appropriate by the end of the year.”

• Last week at its June meeting, the Fed kept the target federal funds rate unchanged at 5.00% to 5.25%, five times higher than it was in March 2022.
• Investors expect the central bank to raise rates next month.

Why it’s important: The Fed’s 10 consecutive interest-rate raises over the past 15 months have not had a large impact on the broader economy.

• “‘We have been seeing the effects of our policy tightening on demand in the most interest-rate-sensitive sectors of the economy,’” Powell said, citing housing as one example.
• “‘It will take time, however, for the full effects of monetary restraint to be realized, especially on inflation,’” he continued.

The Environmental Protection Agency has received tens of thousands of comments—including some from the NAM—on two proposed tailpipe rules for vehicles, setting up what could be “months of heated debate over the future of U.S. transportation,” E&E News’ CLIMATEWIRE (subscription) reports.

What’s going on: In April, the agency set forth two draft regulations—one for cars and another for trucks—which would “set strict enough limits on tailpipe pollution that manufacturers would be compelled to more quickly shift their production away from vehicles that run on fossil fuels and toward those that are powered by batteries, fuel cells and other … systems.”

• The regulations would apply to cars and trucks manufactured starting in model year 2027.

Why it’s important: The proposed mandates depend on a steep, imminent spike in the construction and availability of electric-vehicle charging stations, the NAM told the EPA this month in response to the truck proposal.

• The national electric transmission infrastructure would have to grow some 57% by 2035 to reach the EPA’s goals regarding light-, medium- and heavy-duty trucks, according to the Department of Energy’s draft National Transmission Needs Study from February 2023, NAM Vice President of Energy and Resources Policy Brandon Farris said.
• “[A]t the historical pace of approximately 1% annual growth for these projects, the transmission system would require more than half a century to achieve the goals the administration hopes to achieve in little more than a decade,” he continued.

What should be done: The draft rules should be revised so that they are technology-neutral, Farris added, “allowing market forces to determine which technologies work best for specific sectors.”

• The rules should also “recognize the realities and limitations of current infrastructure, even as manufacturers urge administration officials and congressional leaders to prioritize policies that would strengthen transmission systems and infrastructure, including critical permitting reforms,” Farris concluded.

What’s next: The EPA expects to receive upward of 100,000 comments on the proposed laws and said that processing them all will likely “take weeks.”

• The public comment period for the draft cars rule ends July 5.

New residential construction in the U.S. soared to their highest levels in more than a year in May, according to data from the U.S. Census Bureau.

What’s going on: Construction starts rose 21.7% from April to May, to 1,631,000 units at the annual rate from 1,340,000 units, the largest increase in these numbers in more than a year.  

• Single-family homebuilding jumped 18.5% to 997,000 in May from 841,000 in April. It’s a level last seen in June 2022.
• Multifamily housing starts increased 27.1%, to a 14-month high. 

Permits: New housing permits, which are a proxy for future residential building, increased 5.2% from April to May.

• Single-family permits rose 4.8%, up for the fourth consecutive month, to a 10-month high
• Multifamily permits increased 5.9% in May.

Overall: Housing starts have risen 5.7% overall since May 2022, but starts of single-family homes have dipped 6.6% year-over-year, even in the face of solid gains in the most recent data.

• On a year-over-year basis, housing permits have declined 12.7% from May 2022, with permits for single-family homes falling even more, by 13.2%.

The NAM’s take: “Issues of affordability have impacted the new housing starts negatively over the past year, but Americans have become accustomed to the ‘new normal’ in mortgage rates,” said NAM Chief Economist Chad Moutray.

• “Would-be homebuyers are coming back into the market. With little inventory, the strong growth in housing starts [was] encouraging.”

The Protecting the Right to Organize Act would “devastate workplaces” if enacted, the NAM told the Senate this week.

• Today the legislation heads to the Senate Committee on Health, Education, Labor and Pensions for a markup session.

What’s going on: The PRO Act—introduced in February by Rep. Robert C. Scott (D-VA) purportedly to expand labor protections—would do significant harm to manufacturers, NAM Director of Labor and Employment Policy Brian Walsh told Committee Chairman Bernie Sanders (I-VT) and Ranking Member Bill Cassidy (R-LA) Tuesday.

What it would do: The PRO Act contains “proposals that would constitute the most radical rewrite of our nation’s employment laws in nearly 100 years,” including:

• Removal of the right to a secret ballot in union elections and the institution of “card check”
• Elimination of right-to-work statutes in the 27 states in which they are law;
• Forced payment of union dues even by nonunion-supporting employees; and
• A ban on employers talking to their workers about unions without the involvement of a union representative.

What should be done: Walsh urged committee members “to oppose this misguided attempt to fundamentally restructure American workplaces” and instead put their support behind measures that truly support employees.

• “We look forward to opportunities to continue working with members of the [c]ommittee … on legislation such as the Employee Rights Act (S. 1201) to advance productive solutions that meet the needs of today’s workers,” he said. ​​​​​​​

The Panama Canal—which “handles about one-third of Asia-to-Americas seaborne trade”—is at its lowest level in more than 100 years, a development that could jeopardize global supply chains, according to The Wall Street Journal (subscription).

What’s going on: “The government agency that manages the artificial waterway implemented travel restrictions in May to avoid ships running aground, and since then, some large vessels have had to reduce container loads by roughly one-quarter. Further restrictions could go into effect in late June, authorities say.”

• In the first five months of 2023, rainfall in the canal area was 47% below the historical average.
• The canal, which opened in 1914, depends heavily on rainfall to replenish the tens of millions of gallons of water that flow into the sea each time a ship goes through the canal’s locks.

Why it’s important: “Disruptions in the canal’s operations would hurt Southern Hemisphere exporters and importers in the north. Brazilian meat, Chilean wines and bananas from Ecuador are routinely shipped across the canal, along with copper from Chile and liquefied natural gas from the U.S. Gulf Coast.”

• Panamanian officials are trying to avoid a repeat of the problems that afflicted the Suez Canal in March 2021, when a large containership blocked that waterway for nearly a week, costing billions of trade dollars.

The fallout: “In addition to cutting cargo loads, shipowners are adjusting to Panama Canal restrictions by moving containers to trains to ensure safe passage through locks. In some instances, boxes are unloaded from ships on the Pacific Ocean side of the canal, moved by rail and returned to ships before they continue their voyage through the Atlantic Ocean.”

• The Panama Canal Railway has seen a 20% increase in cargo volume as a result of the drought.
• Shipowners are responding by charging an average of $600 more per box on vessels that cross the canal.
• The daily Asia–U.S. East Coast freight rate was $2,400 per container in May, according to Freightos Baltic Index, but it is expected to rise this month partly due to the drought surcharge.

What’s next: Large container shipping companies “have no plans to divert ships away from Panama”—for now. “[E]xecutives said it could happen if drought conditions persist.”

During meetings this week, the U.S. and China attempted to restore high-level bilateral interactions and reverse the tension growing between the two nations, according to The Wall Street Journal (subscription).

What’s going on: “During two days of meetings in Beijing, [U.S. Secretary of State Antony] Blinken and senior Chinese foreign-policy officials agreed to more high-level talks, continuing a thaw after months of near-frozen contacts.”

• “They also promised to find common ground on increasing flights between the two countries and combating the flow of fentanyl into the U.S.”

The background: In recent months, U.S.–China relations have been on a downward trend, following U.S. detection of what the Biden administration said was a Chinese spy balloon.

• Last year, the U.S. imposed restrictions on the export of certain advanced technology to China and is expected to issue new limits on U.S. investments overseas.
• China has taken issue with these moves, as well as with U.S. support for ally Taiwan.
• Some 67% of Americans say China is a “major threat” to the U.S., according to a Pew Research Center questionnaire. That’s up from 43% in 2015.

Topics discussed: During his visit, Blinken raised a number of issues, including tensions over Taiwan and North Korean aggression. He also discussed China’s trade-distorting practices, human rights violations, imprisonment of U.S. citizens and position on Russia’s war against Ukraine, according to POLITICO.

• The meetings also touched on areas of mutual interest, including climate, macroeconomic stability, food security and public health.

What didn’t happen: Blinken’s visit to China—the first by a U.S. cabinet member in more than four years—did not produce substantive advancement on the above issues. However, the meeting served as a starting point for future high-level communications.

• Officials did not address Chinese intelligence movements in Cuba or the establishment of “a military communication channel between the countries to address frequent incidents around Taiwan … a key goal of the Biden administration.”

​​​​​​​Business with China: “Blinken said he also met with members of the U.S. business community on Monday, many of whom expressed a desire to continue to grow their operations in China,” according to POLITICO.

• “He said a full decoupling of the American and Chinese economies would be disastrous, pointing to record trade between the two last year, but said the U.S. would continue to take steps to make American supply chains more resilient and deny China technologies that threaten U.S. national security.”

Unions and their employers at 29 West Coast ports have reached a tentative deal resolving a labor crisis that has lasted almost a year, reports CNBC.

No details yet: While the deal will last six years and cover all 29 ports, no details have been released yet.

• “We are pleased to have reached an agreement that recognizes the heroic efforts and personal sacrifices of the ILWU workforce in keeping our ports operating,” said Pacific Maritime Association President James McKenna and International Longshore and Warehouse Union President Willie Adams in a joint statement.

​​​​​​ Ramping back up: Workers at several ports had engaged in slowdowns or had not shown up for shifts over the course of the past two weeks, leading to delays and congestion.

• “The ports, which are currently running at 70% capacity, will need several days to clear out the containers once a full labor force is back to work.”

​​​​​​​The NAM says: “Manufacturers welcome last night’s announcement of a long-term deal between the #ILWU and #PMA. Certainty at America’s West Coast ports ensures reliability in domestic shipping lanes and keeps manufacturing in America competitive and thriving,” tweeted NAM President and CEO Jay Timmons.

• “@POTUS understands that manufacturing is the backbone of our economy, and @ShopfloorNAM thanks President Biden for his leadership in bringing these parties back together to reach a final agreement that eliminates the threat of additional supply chain disruptions.”

Manufacturing production crept up 0.1% in May, following a gain of 0.9% in April, according to new data from the Federal Reserve.

Durable vs. nondurable: While durable goods production rose 0.3%, the nondurable goods sector declined 0.1%.

Economic context: Since April of last year, when manufacturing posted its highest production numbers since the end of 2018, output in the sector has declined 0.7% due to geopolitical tensions and a shakier economy.

What’s next? Production is forecasted to fall 0.6% in 2023 but expand 1.2% in 2024.

Mixed data: About half of the manufacturing sectors measured saw a decline in production, and half saw an increase. Those on the upswing included:

• Aerospace and miscellaneous transportation equipment (up 2.5%);
• Petroleum and coal products (up 1.7%);
• Electrical equipment, appliances and components (up 1.4%); and
• Nonmetallic mineral products (up 0.9%).

China’s cyber-spying capabilities are “an epoch-defining threat,” the top U.S. cybersecurity official warned this week, according to CNBC.

What’s going on: Aggressive cyber actions by China are “‘the real threat that we need to be prepared for,’ Cybersecurity and Infrastructure Security Agency Director Jen Easterly said at an appearance Monday at the Aspen Institute in Washington, D.C.”

• Easterly was answering a question about the recent discovery of Chinese cyberattacks on the U.S. military and the private sector, by a group dubbed “Volt Typhoon.”

Why it’s important: The U.S. should expect groups like Volt Typhoon to try to target pipelines and railways, Easterly said, adding, “It’s going to be very, very difficult for us to prevent disruptions from happening.”

The backdrop: Tensions have escalated between China and the U.S., leading to greater concern about attacks.

• “Fending off cyber threats from China and Asia has become a top priority for the U.S. government, which has begun to describe in clearer and blunter terms the links between the Chinese government and myriad hacking groups.”