How the Trump tax bill could help China win at A.I.

Yahoo

20 hours ago

Republicans in Congress produced a surprise winner this week when they axed hundreds of billions of dollars in federal clean-energy subsidies: China's artificial intelligence industry.
China is pouring money into energy production to support its bid to dominate AI. America's tech industry, meanwhile, has been scrounging for more energy to run power-hungry AI data centers and strongly urged Congress not to wipe out solar and wind tax credits.
Subscribe to The Post Most newsletter for the most important and interesting stories from The Washington Post.
Solar panels and windmills are the fastest-growing sources of power in the United States, accounting for 80 percent of new energy being added to the grid. Yet Republican lawmakers and Trump administration officials remain intent on stifling clean energy progress in America, calling it Biden-era folly.
Now the consequences of the massive cuts in the GOP tax and budget bill are coming into focus. Modeling of the package by energy economists shows they will substantially reduce the amount of electricity added to the U.S. power grid in the coming years, even as China races ahead.
Wind and solar power 'is critical in the near term,' said Ben King, director of the U.S. energy program at the Rhodium Group, a research firm that has developed projections of the bill's impact. 'This creates a risk that energy projects just won't get built. At the same time, China is adding staggering electricity capacity.'
The wind and solar electricity that China added to its power grid in just the first five months of this year is more than quadruple all the new electricity the U.S. added to its grid from all sources in 2024. China is simultaneously rapidly expanding its fleet of fossil fuel and nuclear plants.
The Trump administration plans to accelerate new electricity generation from natural gas and nuclear power, but those efforts will take years, experts warn. There are no major new nuclear plants under construction, and they can take a decade or more to build. A global backlog of gas turbines means it can take five years just to build a single gas-powered plant.
'We need a huge amount of electricity after 20 years in which we did not have to deal with rising demand,' said Jason Bordoff, director of the Center on Global Energy Policy at Columbia University. 'Other countries are moving fast and being quite innovative. If we are not adding new power to the grid, companies are going to have to get it from other places.'
According to the think tank Energy Innovation, the cuts in the Senate's version of the bill, which survived the House vote intact Thursday, would reduce the amount of new electricity the U.S. is able to bring online over the next decade by 344 gigawatts - enough to power nearly half the homes in the country. The loss of such generation would create an immense challenge for not just AI companies, but other industries needing to power factories as well as residential customers struggling with rising utility costs.
The models are built on the premise that the loss of tax credits will boost development costs, which would require solar and wind operators to force up rates, rattling investors and risking the viability of projects. The 344 gigawatts in new power that Energy Innovation estimates would be lost is based on an assumption that solar and wind development drops 50 percent by 2035.
The Trump administration waves away such warnings as overblown. The president says the tax credits that have propelled the growth of renewable energy in the U.S. are a 'scam,' arguing that wind and solar installations are a blight on the landscape. The administration contends intermittent energy produced by wind and solar, despite advances in battery technology, don't meet the needs of industry, especially the enormous, 24/7 demands of AI data centers.
Energy Secretary Chris Wright calls renewable energy a 'parasite' on the power grid, undermining its stability and consuming transmission-line capacity that could be delivering more stable gas or nuclear energy.
"Winning the AI race will require a significantly larger supply of around-the-clock, reliable, and uninterrupted power – unfortunately, this was not a priority of the last administration,' he said in a statement Wednesday night.
Tech firms and their industry groups say eliminating the tax incentives for clean power hamstrings their ability to compete with Chinese AI development. They also say it could lead to soaring electricity prices in the United States.
Both the Data Center Coalition and the Clean Energy Buyers Association, industry groups led by tech firms, warned lawmakers that the imperiled tax credits are needed for domestic AI growth. The key tax credits for large wind and solar installations will be phased out for projects not under construction by the end of June 2026 under the bill, which Trump hoped to sign Friday following expected House passage. The Biden-era incentives would have extended into the 2030s.
There are thousands of eligible projects that have been announced but not yet started, amounting to a half-trillion dollars in planned investment, according to Energy Innovation. Now the question is how many of those projects can start construction before the deadline.
Depending on how many projects can get shovels in the ground quickly, said Aaron Zubaty, chief executive of Eolian, a large clean energy developer, 'the U.S. has a fighting chance to keep major data center developments domestic and not lose them to the Middle East.'
But, he said, China's advantage is nonetheless cemented by the budget bill.
'I've had multiple people I work with in Europe say to me that it is pretty clear who is going to be the dominant superpower in a decade, and that it will not be the U.S.,' he said. 'Dominance now depends on who has the most electricity. And by only building new gas, coal, and nuclear power plants you are not going to be able to grow U.S. supply quickly enough.'
Industry officials say countries like Saudi Arabia, Qatar and the United Arab Emirates are aggressively courting American AI projects, offering plentiful, cheap power from renewables and gas. But locating major U.S. AI infrastructure in a region where alliances are constantly shifting and enemy combatants are an arm's length away 'is not good for America's national security interests or its economy,' Bordoff said.
To keep up with the demands of AI and other industries, federal regulators say the United States needs to add to its grid by 2035 the amount of power used by all of California, Texas and New York combined.
Many companies are feeling burned by the abrupt reversal of clean energy incentives, said Jason Grumet, chief executive of the American Clean Power Association, which represents several large companies heavily invested in both gas and renewables. As the Trump administration encourages investment in gas plants, companies are left to wonder if the federal support will still be there after a new president is in office.
'Every part of the energy economy is worried that they will make investments that in four years will be disfavored by the next administration,' Grumet said. 'We need durable energy policy.'
Related Content
Arthur Ashe's knack for reinvention led him to history at Wimbledon
Newlywed detained by ICE freed after 141 days and two deportation attempts
The Met opens a dazzling wing of non-European art