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[email protected]. One quick note before we dive in, this story is developing rapidly, so we'll be updating our analysis on bnef.com and at bnef Go as things change. But for now, let's dive into my conversation with Derek and Matt. Derek, let's start by going back to Friday in the immediate aftermath of this ruling, what changed for the energy transition. So the Trump administration had opposed a wide variety of tariffs through what's called the International Emergency Economic Powers Act. It had never previously been used to impose tariffs, and this report basically ruled that it can't be used to impose tariffs. And so because that was a very fluid, fast-changing statute without a lot of process requirements attached to it, it allowed the Trump administration to quickly raise and lower tariffs on a variety of goods, impose 20% to each point tariffs on Chinese goods in particular, which raised the tariffs on energy imports from China, particularly batteries, as well as to sort of do a lot of deals with other parties around the world, which involved the US to negotiate more energy exports to those countries, that pretty pretty early oil and gas. So the tariff rates that Trump raised through iEPA are now lower, often by 20 to 15 percentage points, as a result of the court case, and Trump might have a bit less leverage when it comes to energy related deals with other parties. And Matt, what clean tech sector specifically would those iEPA tariffs have impacted? Well, this was an absolute game-changer for two sectors. First one was solar, and the second is battery, specifically the non-EV battery, so there's a battery being used in energy storage projects. And really the reason why is because other products, the electric vehicles or electric vehicle batteries, for example, as well as your wind products, they were all subject to different tariffs imposed under different tariff authorities, which were not struck down by the Supreme Court. So before we delve into that, much more deeply, I want to talk about what happened over the weekend, because news out of this particular administration comes really, really fast. And as soon as the Supreme Court handed down its ruling, Trump said, "Oh, we're going to find a way to reimpose those tariffs anyway." On Saturday, he said he was going to impose 15% blankets across the board. Is that right? That's correct, and that was actually an update of the 10% across the board tariffs that Trump had threatened to impose on Friday. Right now, as of this moment, the 10% has actual documentation out about it, so we can see what it includes and what it exempts. That 10% maintains existing exemptions for things products that are already tariffed, like critical minerals, or stealing aluminum or auto parts. And if it is raised to 15% of Trump maintains that threat that he put on Saturday, then you would see some of the gains to countries like Japan or South Korea, not only minimized, but eliminated, right? There would have been slight rate cuts under a 10% blanket tariff, and no effective rate cuts under the 15% tariff. There are some countries like Indonesia, India, and China that would still see rate cuts, and depending on what's exempted, you might actually see a net rate increase for countries like the United Kingdom, Argentina, and Australia. Although, again, it remains to be seen whether and how Trump does the full 15% piece of title to do for 150 days under section 122. That's how he raised those across the board tariffs this time around. So Matt, starting in January when we knew that this decision was going to be coming down at some point, you actually crunched a bunch of the numbers on not just which technologies, but which countries really stood to benefit if the IEP tariffs were overruled. So again, let's just go back to Friday and say, IEP has now gone. Not worry about that 15% tariff yet. Which are those countries, and specifically which technologies in which countries could really come out as the winners? Yeah, great question. What we did in January is we looked at if those IEP tariffs fell both on solar and batteries. What we saw is that for batteries, for example, there would be significant rate cuts on South Korean and Japanese battery makers. And that really changes the game in terms of you are a energy storage project developer that completely changes your project costs. Batteries tend to account for about 40% 50% of an energy storage projects costs. And so that is a significant cost increase to account for. On the solar side, what we saw is a kind of split in the market of who you could be sourcing from. You're kind of legacy key sources for solar. The people who can produce solar the cheapest Chinese and Southeast Asian producers would still face very high tariff rates because there are tariffs that have been imposed under different tariff authorities that weren't impacted. What this did is this reshuffle the middle of the pack and your producers in India or maybe Turkey both saw significant cost reductions as well in the amount of tariff that they would have to pay if you imported a product from India or Turkey. But what's key here as well is that Turkey was really the sole beneficiary because India, Indonesia and Lao are facing looming duties coming within the next month, whereas Turkey is not. And so this was a kind of golden moment of opportunity for your Turkish exporters to send their product to the US. We're expecting to see anti-dumpling duties and counter-vailing duties. What does that mean? So anti-dumpling duties and counter-vailing duties are tariffs that are put in place because of alleged trade-distortive effects, either from unfair pricing or from oversubsidization of certain firms. So Turkey is essentially the only country that's able to skate out from under the IE Pateriffs and not also face these anti-dumpling tariffs. So it's the one that's really getting the cut in its right. As on Friday. And is Turkey a big solar exporter? Turkey hasn't had that much success of being a solar exporter yet just because its products are more expensive than you can buy from Southeast Asia or China. And there really hasn't been a high enough tariff on other countries to erode the pricing kind of cost increase of using a Turkish made solar panel. But with that cost reduction that we saw from my IEPA, we expected to see a lot more growth in the export market from Turkey. Do we see a similar thing happening in the energy storage space? So I would point out that as of Friday that did seem like there would be some benefits to Japanese and South Korean energy storage makers since there are some of the few that produce batteries similar quantities to Chinese makers and also have some excess production capacity relative to domestic needs. Problem is of course that as the tariffs have been reshuffled, assuming that again the Trump fallacy of the 15% rate from Saturday, that advantage will be eliminated. Ironically, China will be one of the few
major manufacturers to maintain an advantage in battery storage because they're still getting about a five percentage point rate cut. But that has the counter-revealing issue that US projects increasingly have to divorce their supply chains from China in order to qualify for tax credits at all or so-called prohibited foreign entity or foreign entity of concern rules. You do see some Southeast Asian producers in the storage game that see rate cuts of maybe three to four percentage points, but that's a very small volume of imports going to the US so far. So it's a bit of a mixed bag for the storage sector. So Matt, similarly for solar, if this 15% tariff comes into effect, what impact will that have on this Turkish solar manufacturers advantage you are just talking about? Well, sadly for all those Turkish manufacturers out there, this basically puts them exactly back to where they were before the ruling on Friday. So facing the exact same tariff rate, still having nothing that they can really use to erode that higher pricing margin. I think it's also worth mentioning because of some of the other available sources out there, India, it had 18% tariff before an additional 18% tariff from IEPA. Now it has a 15% tariff, so it's only seeing a 3% tariff drop. That means that there's really nothing there that Indian manufacturers can use to send their goods to the US either. So a big piece of this story is how quickly things are changing. If this 15% tariff does come through, is that just in place forever now or is there a limited window of time when that will be in place? This particular tariff authority section 122 can only be imposed for 150 days. After that, it needs a congressional vote to reauthorize and extend it. We've recently seen some defections in the Republican Party on tariff votes away from Trump's position to a sort of anti-tariff position, at least in the House. And we had previously seen them in the Senate. In short, it's going to be kind of hard to imagine. Both houses getting together and successfully making this vote happen, particularly with the midterms looming and affordability and price increases being top of the political agenda, the top of voter's minds. There have been calls to try and give Trump some of his tariff authority, taking away with the screenquart back, but the legal pathways for that, and again, the vote counting for that remain somewhat challenging. So we're probably going to see the Trump administration in the near term switch to other tariff authorities, which don't have those time limits, nor those percentage limits, but do have their own requirements, lengthy investigations, rationales showing that they're responding to a national security threat or discrimination against US commerce, and that in turn limits the Trump administration will be able to do relative to what it could do before the Supreme Court case. So this 15 percent potentially only lasts for 150 days. There are options out there for more durable tariffs, but they couldn't be imposed as quickly as a liberation day tariffs. Whereas that way you're saying that we take a long time to sort of get them rolled out and have them take effect. Well, that depends on the particular country. The Trump administration already has investigation in the under section 301 ongoing into China and Brazil, and so it might be possible to get a fairly legally firm set of tariffs out through that process. If they're trying to do an accelerated investigation through 301 for other trade partners, that might fall afoul of what's called the administrative procedure act, which allows a regulation to be sued and overturned if they're, quote unquote, "arbitrarian capricious," and one indication of that can be a sort of insufficiently detailed investigation. There's also the question of whether the Trump administration tries to use other authorities, like section 338 from the tariff act of 1930, which don't have as many clear limitations, but are also fairly legally untested, and so could end up like IEBA being subject to some legal pushback. So essentially the takeaway from all of this is a lot of uncertainty on the trade front, a lot of uncertainty on the tariff front. But does this also create broader uncertainty in the energy transition in the US writ large? Project developers have already had to deal with tax guidance coming out about how to access US federal tax credits, which are complicated and require supply chain sourcing to shift around. They've now got these tariff rate changes, and I think what's really key is that this uncertainty is going to continue going forwards as well. So all the trade agreements that were struck last year, those amount much more up in the air, whether they'll be changed altered or whether countries just simply won't use them anymore, is all things the project developers have to be thinking about as the year goes on. And I think it's really worth mentioning as well that this is a situation that's quite unique to the US. What we saw last year is that most other countries have resisted putting high tariffs on clean energy equipment, whether that's solar, whether that's batteries, whether that's electric vehicles. US is really alone in pursuing this so actively. That is a fantastic point to end on. Thank you so much, Matt. Thank you so much, Derek. It was a pleasure to read your react, and it's a pleasure to talk with you here in the studio today. Thank you. Thank you. Today's episode of Switched On was produced by Cam Gray with production assistance from Kamala Shelling. 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