Last month, Samsung CEO Kye Hyun Kyung welcomed Commerce Secretary Gina Raimondo and a bipartisan group of elected officials to celebrate a $6 billion investment in the company’s Austin-area semiconductor plant as part of the CHIPS Act. The event was one in a string of widely publicized, ribbon-cutting ceremonies where President Biden or his top aides locked arms with corporate leaders and politicians from both parties to extol the benefits of direct federal investment in manufacturing.
But if Washington and industry are serious about reshoring, they also need to get real on energy policy. Driven in part by the reshoring policies in the CHIPS Act, the Inflation Reduction Act, Build America, Buy America Act, the U.S. has been on an electricity-consumption binge. Utilities are now predicting that U.S. power consumption in 2028 will be twice as high as they predicted a year ago, according to the consulting firm Grid Strategies.
The spike in electricity demand from federal manufacturing subsidies is already threatening the Biden Administration’s pledge to power American industry from non-greenhouse emitting sources by 2035. Soon after Panasonic broke ground on an Inflation Reduction Act-backed EV battery plant in De Soto, Kansas, last year, the facility was using roughly the amount of electricity as a small city. The current and forecasted demand at that facility alone is so high that the utility serving the factory has chosen to extend the life of a nearby coal plant that was slated for retirement. West Virginia Senator Joe Manchin got it right when he wrote that the Inflation Reduction Act “accounts for the reality that our economy and everyday Americans will rely on fossil fuels for the foreseeable future.”
The same is true of the CHIPS Act. Grid electricity and fossil fuels account for more than 95 percent of the total energy consumed in semiconductor manufacturing. Just the initial phase of the expansion in manufacturing by the four largest chip manufacturers since the passage of the CHIPS Act is expected to more than double the electricity consumption of the city of Seattle, according to the environmental group Stand.earth.
To be sure, not all the forecasted surge in demand for power comes from recent federal policies; much of it is due to good, old-fashioned technological innovation. By 2027, A.I. servers could use as much energy as the entire countries of Argentina, the Netherlands, and Sweden. The need for reliable energy to run data centers has convinced tech companies that now is not the time to wait until around-the-clock renewable energy is a reality. Toby Rice, CEO of natural gas producer EQT, recently said that his company gets the same two questions from tech firms building data centers: “How fast can you guys move? How much gas can we get?”
Likewise, Washington cannot wait longer to adopt an energy policy that supports resilient domestic supply chains and homegrown advanced technologies. A place to start is to return energy policymaking to Congress. The Environmental Protection Agency (EPA)’s new power plant rules exemplify the pitfalls of trying to fashion energy policy without the input that comes from lawmakers from both parties who regularly hear from constituents about the need for reliable, affordable energy to power their homes and businesses. Before the rule was finalized, Ohio Congresswoman Marcy Kaptur and a handful of Congressional Democrats cautioned the EPA against exacerbating “existing problems related to the unaffordability of electricity in our communities.” But the agency plowed ahead with a new rule that demands the elimination of virtually all electricity-generation from coal and new natural gas plants despite the lack of Congressional authorization for retiring coal plants that currently produce about 16 percent of the country’s power. As the Supreme Court held in West Virginia v. EPA, policy shifts of this magnitude need to come from Congress, the same branch that is spurring electricity usage through the hundreds of billions of dollars it has authorized in clean energy and semiconductor manufacturing.
Courts should also avoid setting national energy policy from the bench. The U.S. Supreme Court has a golden opportunity to drive this point home in City and County of Honolulu v. Sunoco, a blockbuster case accusing energy companies of causing a public nuisance by producing oil and gas and misrepresenting the effect of these products on global climate change. Honolulu’s case poses a direct obstacle to the hundreds of billions of dollars that the federal government is pouring into domestic manufacturing. For the facilities that are receiving federal subsidies, non-renewable energy sources are a means to achieve a policy goal, not a public nuisance. Washington can’t have it both ways.
Honolulu’s anti-fossil fuel lawsuit also runs contrary to the Clean Air Act, which prohibits the states from targeting oil and gas production beyond the state’s borders. If Honolulu wins, expect energy companies to leave for less litigious places, taking jobs and tax revenue with them. In a similar case filed in the Netherlands, an environmental group prevailed in its lawsuit against energy supermajor Shell. But in the end, the Netherlands was the loser: Shell continues to produce fossil fuels and invest in renewable energy, but now does so from its new corporate base in the United Kingdom. We should not take for granted that plentiful energy – produced largely in America, by American workers – gives our country an edge in the global manufacturing arms race. The lack of policy consistency from Washington put this core competitive advantage at risk.
Michael Toth is a founding partner of PNT Law, based in Austin, Texas.
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