Securing the Future of U.S. Industries with Decarbonization

With carbon border adjustments like in European Union taking effect and gaining traction globally, industries around the world will be expected to produce lower carbon products and reduce their emissions or pay import fees to the recipient country based on their emissions. While this trend is in its infancy, it is likely to grow as countries around the world increase efforts to mitigate climate change.  The United States must leverage existing federal provisions and put in place new, innovative policies to reduce emissions from its industrial sector to secure the future of American industries and ensure their continued competitiveness in global markets.

The heavy industries which produce the concrete, steel and chemicals that the U.S. economy depends on also produce 23% of the country’s greenhouse gas (GHG) emissions. And, according to an analysis by the Rhodium Group, the industrial sector is projected to become the highest emitting sector in the U.S. by the early 2030s. While the power sector has reduced emissions by 36% since 2005, emissions from heavy industry have essentially remained stagnant, only decreasing 7% by 2023. According to Rhodium’s modeling, GHG emissions for the industrial sector will remain the same or increase slightly by 2035 before decreasing only 5 to 10% below 2022 levels by 2040, while emissions from the transport and power sectors are expected to decrease consistently through 2040.

Nevertheless, momentum to tackle industrial emissions is gaining speed. In the last few years, the U.S. Congress has passed some of the most ambitious and significant pieces of climate change legislation in the world. Through the Bipartisan Infrastructure Law (BIL), the Inflation Reduction Act (IRA) and the CHIPS and Science Act (CHIPS), around $133 billion of funding is directed to programs related to the industrial sector (as outlined in the table below). This includes funding for programs like the Industrial Demonstrations Program, which are specifically geared toward industrial decarbonization, as well as those like the Hydrogen Hubs program or the 45Q Carbon Oxide Capture and Sequestration tax credit, which are not industrial decarbonization-specific programs, but can help to reduce emissions from the industrial sector.

Of this approximately $133 billion available for industrial-relevant programs through the BIL, IRA and CHIPS, we estimate that around $18 billion of government funding will be dedicated to decarbonizing heavy industry through grants and loans with additional support available through tax incentives.

These policies not only accelerate emissions reductions — they are also creating jobs across the U.S, and revitalizing communities.  Overall, the policies within the BIL, IRA and CHIPS are estimated to create 336,000 manufacturing jobs annually throughout the duration of the programs. The projects catalyzed by these policies can help revitalize low-income and traditional manufacturing communities. The Industrial Demonstrations Program alone, through its $6.3 billion of public grants and approximately $15 billion in stimulated private investments, is expected to create at least 7,000 permanent manufacturing jobs, upskill around 4,000 jobs, and generate over 20,000 temporary construction jobs throughout 31 major manufacturing projects across the country. Much of this investment from the IRA and BIL is being directed to low-income, historical manufacturing communities in states like Indiana, Pennsylvania, Ohio, Louisiana and Texas. Furthermore, these policies will boost American competitiveness in international markets that increasingly prioritize climate considerations. As markets like the EU increasingly favor low-carbon products, these industrial decarbonization policies will position U.S. manufacturing to more effectively compete in the global arena.

More Momentum Is Needed to Decarbonize the Industrial Sector

While this funding for industrial decarbonization is unprecedented, it is still just a fraction of the amount needed to put the sector on track to reach net-zero emissions and remain globally competitive. The U.S. Department of Energy estimates that between $700 billion and $1.1 trillion in public and private investments will be needed to decarbonize U.S. heavy industry by 2050. In addition, the grants, tax credits and green procurement policies featured in the BIL, IRA and CHIPS represent only a few of the diverse suite of policy mechanisms that will be needed to achieve deep and rapid decarbonization of the industrial sector. Other policies that can put the sector on track include more industrial-focused tax credits and subsidies, more market stimulating demand-side policies like advance market commitments and market-based policies like a low-carbon product standard. These policies, among others, can be the basis of the next generation of federal industrial policies to compliment and support those in the BIL, IRA and CHIPS.

Industrial decarbonization policies present real opportunities for bipartisan cooperation in Congress. A few recent examples include the Concrete and Asphalt Innovation Act, IMPACT Act and IMPACT Act 2.0 — all bipartisan bills geared toward decarbonizing the asphalt, cement and concrete sectors through research and development and green procurement. Another bill, the PROVE IT Act, seeks to collect data on various emissions-intensive products and was endorsed by a diverse bipartisan coalition of senators.

There is no time to waste. To keep the U.S. on track for a net-zero economy by 2050, it is essential to continue existing programs, disburse funding and lay the groundwork for policies to accelerate progress. This will help bolster a bright future for U.S. industries by spurring innovation, creating hundreds of thousands of green manufacturing jobs and ensuring American products are competitive in international markets.

Table: Provisions in recent legislation (BIL, IRA and CHIPS) and Department of Energy funding opportunity announcements relevant to the industrial sector.

Footnotes

* Industrial Specific Program
† U.S. EPA
†† 5 out of 48 Active ARPA E Programs relate to industry. (US DOE, n.d.-b) Assuming all programs receive equal shares of funds, this fraction extrapolated to the $1 billion of ARPA E funding suggests $83.3 million will be directed to industry.
¶ First funding announcement had 3 projects, each selected to receive $3 million. 1/3 of the recipients is linked to industry.(Business Wire 2023) Assuming the first funding announcement is representative of the final funding, $3 million out of $9 million is extrapolated to $33 million out of the total $100 million.
§ Kielty 2024
|| DOE’s first round of 3 awards didn’t include industrial sector projects. In DOE’s second round Notice of Intent, 2 of the 3 awards totaling $750M were anticipated to be in the industrial sector. Assuming equal distribution among the awards, $500M of the $1.64B of funding announced in the first and second rounds will go to industry. If the remaining funding is allocated according to the same proportion as these first two rounds, a further $273M will be devoted to industrial projects, totaling $773M.
# Two industrial projects received $1.2 billion of the $34.9 billion in loans given through LPO’s Title XVII program. (US DOE, n.d.-a) Assuming this is representative of the total $40 billions of funds, $1.398 billion will be directed toward industrial sectors.
** Congressional Research Service 2023
***Congressional Research Service 2024