Paving the way to industrial decarbonization

According to the US Department of Energy (DOE) Pathways to commercial growth: industrial decarbonization reportthe industrial sector will need between $700 billion and $1.1 trillion in combined private and public sector investment to bring the sector in line with net zero targets by 2050. After analyzing 13 key groups of BIL and IRA financing, we calculated that the current BIL and IRA industrial sector investments amount to just $105-143 billion, of which $53-54 billion is public investment. Even though heavy industry accounts for about a quarter of U.S. greenhouse gas emissions, public sector investment in industrial decarbonization is likely to be less than 10 percent of estimated clean energy and climate-related federal spending from BIL and IRA.* This issue briefly describes which the programs we implement have looked at and taken into account our methodology and calculations.

Funding your BIL and IRA is just the beginning

BIL and IRA have provided unprecedented public sector financing and unlocked historic levels of private sector investment to develop and deploy critical emissions reduction technologies to decarbonize heavy industries. This funding accelerated industrial decarbonization efforts and provided a catalyst for investment in the research, development, demonstration and deployment of clean industrial technologies.

With some public sector incentives, there is a greater opportunity for funds to flow towards industrial decarbonization. For example, only 13 percent of the first round of 48C tax credits – which finance advanced energy projects, including modernization of industrial or manufacturing facilities – went to industrial decarbonization projects.

To close the $557 billion to $995 billion financing gap and meet the administration’s climate goals, the industrial sector will need continued financing from both public and private sources. AND private sector initiatives. While federal and state funding has gotten us off to a good start, private sector commitments and investments to decarbonize industrial production processes will be necessary. Our analysis shows that approx half funds for industrial decarbonization will have to be covered by private investment. The industry must use public funding as a starting point and leverage it to increase private investment. Office of Clean Energy Demonstration (OCED) Industrial demonstration program is a great example where DOE leveraged $6 billion in federal funds to reach a total of $20 billion across 33 industrial decarbonization projects designed to demonstrate transformative technologies at scale.

The development of first-of-its-kind technologies to enable deep decarbonization is a particularly key piece of the industrial decarbonization puzzle because DOE estimates that “more than 60 percent of the heavy industry emissions reductions needed to achieve net zero by 2050 will come from technologies that are still in the innovation phase and not currently ready for market.” This highlights the need to implement current industrial decarbonization programs, as well as to stimulate private and public financing to demonstrate and deploy pre-commercial technologies.

What’s next for the industrial sector?

If done right, decarbonizing heavy industry can unlock benefits ranging from improved air quality and public health for frontline communities to increasing high-quality U.S. jobs in key manufacturing sectors. Industrial decarbonization also lays the foundation for investing in U.S. leadership in innovation and technology, thereby creating opportunities for domestic economic growth. BIL and IRA have accelerated essential investments in industrial decarbonization through a sophisticated set of incentives and policies that are critical to creating stable markets for key industrial decarbonization pathways. However, to achieve our net zero industrial goals by 2050, we must close the financing gap identified in ‘Paving the way to industrial decarbonisation’ by package of political solutions that promote:

• Additional funding from both the public and private sectors to help drive the research, development, demonstration and implementation needed to prove industrial decarbonization technology pathways.
• Solutions that drive demand for clean materials and create predictable markets into which these low-carbon materials can be sold, such as state and federal implementation of the Federal Buy Clean Initiative and exploring advanced market commitments for low-carbon products.
• Programs to drive demonstration and implementation to ensure these transformative technologies move from concept to reality, such as the OCED Industrial Demonstration Program and the Industrial Efficiency and Decarbonization Office (IEDO) funding opportunity announcements to help demonstrate and test pre-commercial technology.
• Climate-adapted trade policy that link goods’ market access to the greenhouse gas intensity of products. Such a policy would safeguard U.S. investments in industrial decarbonization while spurring a race to the top in international climate action.

* Federal clean energy and climate-related BIL and IRA spending is estimated to be approximately $265.6 billion AND $369 billion respectively, bringing the total to approximately $635 billion in public spending on climate and clean energy initiatives. Total public spending on climate and clean energy programs in the BIL and IRA will depend on the use of tax credits and other programs in the coming decade. Estimates from the Joint Committee on Taxation and other White House materials suggest that these totals could ultimately be much larger than the estimates used here.