Tucked into the Inflation Reduction Act that President Biden signed last week is a major expansion of federal loan programs that could help the fight against climate change by channeling more money to clean energy and converting plants that run on fossil fuels to nuclear or renewable energy.
The law authorizes as much as $350 billion in additional federal loans and loan guarantees for energy and automotive projects and businesses. The money, which will be disbursed by the Energy Department, is in addition to the more well-known provisions of the law that offer incentives for the likes of electric cars, solar panels, batteries and heat pumps.
The aid could breathe life into futuristic technologies that banks might find too risky to lend to or into projects that are just short of the money they need to get going.
“This is a sleeping giant in the law and a real gold mine in deploying these resources,” said Dan Reicher, a former assistant energy secretary in the Clinton administration. “This massive amount being made available is a big deal.”
But like all government efforts to aid industry and advance new technologies, the expansion of the loan authority carries risks for Mr. Biden and the Democrats, who passed the bill without any Republican votes. About a decade ago, conservatives seized on the failure of Solyndra, a solar company that had borrowed about $500 million from the Energy Department, to criticize the Obama administration’s climate and energy policies.
Backers of the program have argued that despite defaults like Solyndra, the program has been sustainable overall. Of the $31 billion the department has disbursed, about 40 percent has been repaid and interest payments in the fiscal year that ended on Sept. 30, 2021, totaled $533 million — more money than the failed Solyndra loan.
The Energy Department’s loan programs began in 2005 under the George W. Bush administration but expanded significantly in the Obama era. The department provided a crucial loan that helped Tesla expand when it only sold expensive two-door electric sports cars; the company is now the world’s most valuable automaker.
Under the Trump administration, which played down the risks of climate change, the department’s loan office was much less active. The Biden team has been working to change that. Last month, the department said it planned to loan $2.5 billion to General Motors and LG Energy Solution to build electric-car battery factories in Michigan, Ohio and Tennessee.
The department’s loan program office is currently reviewing 77 applications for $80 billion in loans sought before the new climate law was approved. The Inflation Reduction Act will add $100 billion to existing loan programs for financing production of electric vehicles, for instance, and for projects on tribal lands. It will also add up to $250 billion in new loan guarantees and $5 billion in grants.
“We have established that the private sector wants to use our resources again,” said Jigar Shah, the director of the Energy Department’s loan programs office who is a former solar energy entrepreneur. “We still have to do a lot of work. We have to identify all the areas that qualify.”