The U.S. industrial sector produces essential materials that make up the buildings in which we live and work, the cars we drive, and other materials that are needed for products we use every day, from medicines to cleaning supplies. This energy-intensive sector produces 24% of total U.S. greenhouse gas (GHG) emissions. And when we factor in electricity use in the industrial sector, the proportion rises to 30% of U.S. GHG emissions.
This presents a challenge. The U.S. can’t meet its national climate goals without removing or significantly reducing the emissions associated with industrial production. But, compared to sectors like transportation or power, it is much more difficult to reduce emissions from the production of cement, steel and other industrial products.
This article takes stock of new investments, initiatives and policies that show initial momentum around industrial decarbonization, while also noting what else is needed.
Why are industrial emissions so hard to reduce?
Reducing emissions is more complicated in the industrial sector than it is in other high-emitting sectors like transportation and power. A large portion of transportation emissions come from cars and trucks, and can be reduced by electrifying vehicles. Emissions from electricity use can be slashed by switching from fossil sources like coal and natural gas to renewable sources like wind and solar. These transitions are wellunderway.
But industrial products – and the processes used to create them – are incredibly varied, with diverse emission sources, ranging from blast furnaces in steelmaking to petrochemical plants, from oil refineries to pulp and paper mills. And while technologies and processes are being developed for specific sub-sectors and materials, the diversity of the sector defies one-size-fits-all solutions.
Aside from the need to develop and scale decarbonization technologies, several other factors make industrial decarbonization challenging. The producers of many materials such as cement and steel operate with small profit margins. And because their output trades on international markets, they are exposed to international competition. As a result, it can be difficult to justify and reap returns on large investments in decarbonization.
In addition, industrial infrastructure and facilities are long-lived assets (the typical lifetime for a cement kiln is 40 years and around 20 for a steel plant’s blast furnace), which means they are replaced infrequently. At the same time, industry standards for materials like cement and steel can be slow to change—which reduces demand for low-carbon alternatives.
Since the 1990s, U.S. industrial emissions have remained relatively stable. This can be attributed in large part to efficiency improvements, which have allowed for increasing production with the same level of total emissions. Industrial energy efficiency improvements have historically been an important means to reduce emissions intensity because they typically lower operational costs while cutting emissions. Looking ahead, modeling done based on the recently passed Inflation Reduction Act shows the industrial sector contributing to around 9% of the roughly billion metric tons of greenhouse gas reduction expected by 2030.
Where are the signs of progress in reducing emissions from U.S. industry?
The U.S. Long-term Strategy, which lays out pathways to meet the nation’s net-zero by 2050 commitment, indicates that industrial emissions will likely need to decrease by roughly 50-90% by 2050. Recent action is beginning to move us toward a future where these objectives are feasible, but much greater effort will be needed.
Three areas where this growing momentum can be seen are increased federal investment, the expansion of state and subnational policies, and a growing number of innovative projects on the ground or in development:
1) Increasing federal action
In 2020 and 2021, as the United States began investing billions of dollars in COVID-19 recovery, calls for a “green” recovery created an opening to elevate industrial decarbonization policies to Congress. The Bipartisan Infrastructure Law, passed in late 2021, provides an unprecedented influx of federal funding to support a range of industrial decarbonization technologies and strategies over the coming five years – around $20 billion for key industrial provisions (see table below).
Details and Significance
Supports development of at least 4 regional hydrogen hubs. Low and zero-carbon hydrogen can be used in various industrial applications to reduce emissions.
Carbon capture and storage (CCS) demonstration projects
Supports CCS on at least 6 facilities, including 2 industrial facilities (along with 2 on natural gas power generation and 2 on coal power generation).
Carbon storage validation and testing
Supports development of new or expanded large-scale carbon sequestration projects, which can be used to sequester CO2 captured via CCS at industrial facilities.
CO2 transport infrastructure finance and innovation program
Supports build-out of carbon dioxide transportation infrastructure (e.g., CO2 pipelines or other transport methods) to move CO2 from the site of capture to the site of sequestration or use.
Clean hydrogen electrolysis
Producing hydrogen via electrolysis has among the most significant climate benefit compared to other hydrogen production routes. Clean hydrogen, particularly when produced with zero-carbon electricity, can be used in various industrial applications (e.g., steel production) to reduce emissions.
CCS large-scale pilots
Develops transformative CCS technologies for use in industry and power generation; supports technologies that are not as developed as the demonstration projects above.
Advanced energy manufacturing and recycling grants
Provides grants and technical assistance to small and medium manufacturers in former coal communities.
Industrial emissions demonstration projects
Funds demonstration projects that test and validate technologies that reduce industrial emissions.
Clean hydrogen manufacturing and recycling
Advances new clean hydrogen production, processing, delivery, storage and use equipment manufacturing technologies and techniques.
Industrial research and assessment center implementation grants
Funds upgrades for small and medium size manufacturers that have been recommended based on an assessment from an Industrial Assessment Center.
CO2 utilization grants
Establishes a grant program for state and local governments to procure products made with CO2 that could be captured at industrial facilities.
Industrial research and assessment centers
Provides funding to identify opportunities to optimize energy efficiency and environmental performance at manufacturing and other industrial facilities.
Front-end engineering and design studies for CCS
Funds assessments needed to develop carbon capture and storage retrofits.
Based on early documentation for accessing funding, another important aspect of these programs is that developers are required to consider the impacts of their projects on communities. This includes requirements to report on community engagement, consent-based siting equity, environmental justice and workforce development outcomes and outputs. These requirements are aligned with the Biden Administration’s Justice40 Initiative and the Council on Environmental Quality guidance for carbon capture, utilization and storage projects.
Additional funding for industrial decarbonization comes through annual appropriations for federal research, development and demonstration (RD&D) at the Department of Energy. In fiscal year 2021, industrial decarbonization was included as a separate cross-cutting initiative for the first time, receiving $510 million. In June 2022, the House Appropriations Committee recommended providing $815 million for industrial decarbonization in fiscal year 2023 and soon after, the Senate recommended $830 million. Both these actions indicate the increasing prioritization of funding industrial decarbonization RD&D.
Shortly after the Bipartisan Infrastructure Law passed, the Biden Administration released Executive Order 14057, which includes a suite of actions that use federal sustainability goals to catalyze broader action. This announcement created a Buy Clean Taskforce to leverage the power of government purchasing to help create a market for lower carbon alternatives for construction materials like cement and steel. The taskforce, run by the Council on Environmental Quality and the White House Office of Climate Policy, will help move government purchasing to meet the goal of reducing the federal government’s emissions by 65% by 2030.
Buy Clean efforts are already underway at the General Services Administration (GSA), the government’s landlord. In March 2022, the GSA announced new emissions intensity limits for concrete and asphalt. While these limits only apply to GSA projects, they provide a signal and proof of concept to other agencies, as well as to entities outside of the government.
The Inflation Reduction Act, passed in August 2022, provides further unprecedented levels of direct funding along with new and enhanced tax credits for industrial decarbonization, outlined below:
45Q tax credit for sequestration of carbon oxides (e.g., CO2)
-Timeline to claim the credit extended to Jan. 1, 2033
-Direct pay added (for full 12 years of credit duration for non-profits and cooperatives; for 5 years and phasing out the remaining 7 years for others)
-Higher credit values: $60-85/tCO2 for industrial facilities, provided prevailing wage requirements are met (up from $35-50/tCO2)
-Lower capture thresholds: 12,500 tCO2/year for industrial facilities
48C investment tax credit for advanced manufacturing
$10 billion in additional allocations; of which 40% must be spent in communities whose economies were formerly supported by fossil energy
Expanded scope to include industrial applications and installation of equipment that reduces emissions by 20% or more
Hydrogen production tax credit
Credit for hydrogen production; base credit level up to $0.60/ kgH2 based on carbon intensity. If prevailing wage requirements are met the credit can be multiplied by 5 for up to $3/kgH2
Department of Energy’s Office of Clean Energy Demonstrations for industrial decarbonization retrofits and other upgrades that can reduce emissions at energy intensive industrial facilities
Funding to support government procurement of low embodied carbon materials
-$2 billion to the Federal Highway Administration for incentives or reimbursements for low-embodied emissions construction materials
-$2.15 billion to the Federal Buildings Fund for use of low-carbon materials by the General Services Administration
-$975 million to the Federal Building Fund for emerging and sustainable technologies
-$250 million to the Environmental Protection Agency for development and standardization of environmental product declarations
-$100 million to the Environmental Protection Agency for low-embodied carbon construction material labeling
2) U.S. State and Sub-national Action
As the federal government has become more active, several states and cities are also leading the charge on reducing industrial emissions. The climate plans of a few states, including Michigan, prioritize measures to address industrial decarbonization, and Louisiana places carbon management front and center in its plan. Other states like Pennsylvania and California recognize the significant contribution of industrial emissions and include industrial decarbonization approaches. Several states have also enacted policies limiting embodied carbon, or the carbon emissions from production, transportation, installation, maintenance and disposal of building materials like cement and steel.
In 2017, California passed the first legislation focused on government purchase of lower emissions construction materials. California’s Buy Clean law covers steel, glass and some types of insulation (though not other emissions intensive materials like cement, concrete and aluminum). Since 2019, it has required material suppliers to disclose the emissions intensity of their products. It also stipulated that the state set limits on emissions intensity of covered products, which it did in January 2022.
California also passed legislation in late 2021 to require the cement industry to reach net-zero emissions by 2045 with an interim goal of a 40% reduction by 2035. However, a bill that aimed to add cement and concrete to Buy Clean did not pass in July 2022.
Colorado passed similar Buy Clean legislation in 2021, covering asphalt, steel, cement and concrete, glass, and wood. Colorado is set to establish maximum emissions intensity levels for materials used in building projects by January 1, 2024 (and by January 1, 2025 for roads, highways and bridges) with an interim deadline of July 1, 2022 to disclose emissions intensities of materials. Disclosure of emissions in building products generally occurs through an environmental product declaration (EPD) which includes information about emissions along with other operational and environmental impacts.
At the end of 2021, New York passed the Low Embodied Carbon Concrete Leadership Act (LECCLA), which gives a bid preference to producers with lower emissions intensity of concrete and provides funding for emissions disclosure. And in 2022, Oregon passed legislation that requires the Department of Transportation to create a program that will reduce emissions from concrete, steel and asphalt by 2025.
Similar bills were introduced but did not pass the most recent legislative sessions in which they were introduced in Washington, Minnesota, Connecticut, Maryland, Massachusetts, New Jersey and Hawaii.
Portland-limestone cement, a variation on the most commonly used Portland cement that can provide roughly 10% lower emissions, is now permitted for use by 44 state governments.
Several cities and counties, led by Marin County, California have also introduced embodied carbon policies. Others acting include Honolulu, which requests consideration of CO2-mineralized concrete in city projects; Portland, Oregon, which requires submission of EPDs and will develop emissions intensity limits; and Hastings-on-Hudson, New York, which requires the local government to promote the use of low-carbon concrete.
3) Private Sector Projects on the Ground or in Development
The private sector is actively pursuing industrial decarbonization projects in different areas. The cement producer Holcim, in partnership with three other companies, is working on a CCS retrofit of its cement facility in Florence, Colorado and is assessing the feasibility for CCS on a plant in Missouri as well.
A variety of companies focused on low-carbon alternatives to Portland cement or lower carbon production processes for steel have also been established in recent years and have received growingamounts of public and private investment. If these innovations can be produced at scale and cost-effectively, it will be a key proof point of their ability to contribute meaningfully to reducing industrial emissions.
What else needs to happen to create a low-carbon industrial sector?
This growing momentum toward industrial decarbonization shows the progress that has been made in recent years.
The federal government is investing in the development and demonstration of new technologies, providing significant financial support and creating standards and regulations that encourage the development of a lower-carbon industrial ecosystem. Meanwhile, the private sector – by deploying its own resources, forming buyer coalitions and making advance market commitments – is creating greater demand.
But the transformation to a less emissions intensive, more efficient industrial sector has just begun. Standardization and increased transparency of data will be needed to enable stakeholders to set appropriate benchmarks and measure progress toward them. Looking internationally, it will be critical to develop trade policies that level the playing field for materials flow between countries, which must also be supported by improved data. And ultimately, we’ll need to move beyond incentives and voluntary commitments to require reductions in greenhouse gas emissions and other air pollutants and other emissions from the industrial sector that harm people and the environment.
The increasing activity we’ve seen in recent years is heartening. Across the board, we now need to work on effectively spending the recent influxes of federal funding, continue to build momentum around policy action at the sub-national level and address critical gaps around data and other issues that, if resolved, could enable even more progress.