Forecasts project that industry will be the highest emitting sector in the United States by 2030. While recent legislation and programs have boosted efforts to decarbonize and bolster the competitiveness of the U.S. industrial sector, the programs must continue and additional action is needed. This note provides an overview of many industrial policy tools federal and state policymakers can use to secure the future of U.S. industries, ranging from continuation and expansion of existing tax credits, procurement policies, and grant programs to new policies, including demand-side and market-based policies.

Summary

The industrial sector forms the backbone of our economy, producing products essential to everyday life—from construction materials to fertilizers and textiles. Industry is responsible for 23% of U.S. greenhouse gas (GHG) emissions, or 30% including electricity use. Decarbonizing this sector is critical for the United States to achieve net zero emissions.

Direct industrial emissions result from fossil fuel combustion and chemical reactions in the production process. Decarbonization will require switching to zero-carbon fuels and feedstocks, improving energy and materials efficiency, increasing zero-emissions energy supply, adopting novel production processes, and deploying carbon capture and utilization or sequestration (CCUS).

The Inflation Reduction Act (IRA) of 2022, Bipartisan Infrastructure Law (BIL) of 2021, and CHIPS and Science Act (CHIPS) of 2022 have given an unprecedented boost to industry, with billions of dollars of federal investment that will catalyze additional funding from the private sector, bring significant economic benefits through job creation, help revitalize low-income and traditional manufacturing communities, and ensure American products are competitive in global markets, while reducing emissions.

Despite this momentum, the industrial sector is set to become the highest-emitting sector by 2030. The U.S. Department of Energy estimates that $700 billion to $1.1 trillion of investments will be needed to decarbonize the sector by 2050, with 60% of the needed technologies still being developed or not yet developed. Estimates show that the investment needed is 5 to 10 times more than what was included in the BIL and IRA.

The United States needs to usher in the next generation of innovative industrial policies. Each of these policies alone can achieve emissions reductions, but combining incentives and grants with demand-side levers and market-based measures can unlock synergies, speed decarbonization, and secure the future of U.S. industries. In this expert note, we outline three policy categories that can be implemented at the federal or state level:

  1. Tax credits, subsidies, and grants incentivize reducing the emissions intensity of products.
  2. Demand-side levers create a market for those products.
  3. Market-based mechanisms disincentivize use of conventional, emissions-intensive processes.

Cover image by Cavan Images / Alamy Stock Photo