How can we decarbonize the industrial sector? Moving forward, Resources for the Future will explore the tools that are needed to meet the challenge, including innovations to reduce the costs of cleaner fuels and processes, regulations and incentives for decarbonization, and models to identify such opportunities and help design policies.
The complexity of the industrial sector means that we won’t find any cookie-cutter answers and approaches to decarbonizing it. A combination of strategies for reducing emissions is likely necessary—which could include incentivizing low-carbon processes, electrification, capturing carbon, increasing energy efficiency, reducing waste, and developing technological innovations. With these transformations being essential to meeting climate policy goals, policymakers and regulators face the challenges of an evolving set of technologies; changing demand for energy and products; a complex market influenced by a mix of policies from the federal government, Native nations, states, and regional authorities; and a growing concern about tracking and mitigating the negative effects of decarbonization on disadvantaged communities.
The Industry and Fuels Program at Resources for the Future (RFF) engages with policy leaders, experts, and stakeholders to inform the continuing transformation and decarbonization of the US industrial sector—particularly those industries that are most carbon intensive, such as cement, refining, and steel; industries related to fossil fuels, such as the oil and gas sector; and low-carbon fuel producers, distributors, and users. We will expand our interactions with decisionmakers at the federal and state levels, with the aim of helping develop successful hubs for hydrogen and carbon dioxide, design policies for direct air capture, support decisionmaking by Native nations to enable energy sovereignty, and support policies that help decarbonize industry quickly and cost-effectively.
We will focus on three priorities in the foreseeable future: modeling and analyzing key industrial sectors; designing markets and incentives for low-carbon innovation;, and designing and scaling up hubs for hydrogen use, along with carbon capture and storage.
Here’s how we will follow through on these priorities.
We’ll design regulatory policies that cost-effectively reduce carbon emissions from key industrial sectors.
The core of our efforts will be to develop new models and collect data in the industrial sector. Such information can help estimate benchmarks for emissions intensity and abatement costs in key US industries, which in turn can contribute to the design of better domestic policies. These models also can inform policies related to internationally harmonized trade and the reduction of emissions in carbon-intensive, competitive industries.
Few existing models go beyond crude calibrations for calculating emissions; rarely do models take a nuanced look at industrial sectors and the costs of reducing emissions in these sectors. RFF researchers will develop sector-level models of emissions and abatement costs that can consider sector-level policies and can contribute to larger aggregate models. The main focus of these models will be iron and steel; cement; aluminum; and chemicals, including fertilizer.
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Complementing this US focus, scholars at the RFF-CMCC European Institute on Economics and the Environment and RFF together will examine global data and models, so we can inform discussions on trade policies including international tariffs, along with associated “climate clubs” and similar alliances. By combining technology-oriented modeling and data-based simulations with engagement from policymakers and industry leaders, RFF will advance new policies that can encourage low-carbon products and address international competitiveness pressures.
We’ll continue assessing the interactions of industrial-sector tradable performance standards with carbon pricing in Sweden and use these insights to address similar policy options in the United States. With this project, we’ll try to understand how the prices of products influence the incentives that drive innovation and investment in clean processes and fuels. We also will explore how that influence changes over the life cycle of regulation and what happens to these interactions when emissions rates go down.
RFF will provide data, economic analyses, technical expertise, and connections to US policymakers and international actors who seek to design and implement a set of globally harmonized emissions-reduction policies across competing nations in the industrial sector. This coordination can accelerate innovation while reducing concerns about competitiveness in hard-to-abate sectors like steel, aluminum, aviation, shipping, and chemicals.
We’ll design markets for innovative products that offer climate-friendly alternatives to current industrial products.
In addition to focusing on specific industries and actions, we’ll also make recommendations on the best practices for policies and corporate actions that spur innovation. In addition to loan and grant programs, we will consider rarely used demand-pull policies, such as advance market commitments, prizes, green public procurement, and other actions that create new markets or otherwise establish demand for carbon-free products and processes. Demand-pull policies have been highly effective in some markets (e.g., vaccine development spurred by advance market commitments) but have been less common in the energy and climate areas. We aim to understand what drives success for these types of policies in different contexts, so we can identify approaches and design features that can overcome barriers and effectively stimulate advanced technology development in carbon-intensive industrial sectors.
While net-zero emissions ultimately means that most fossil fuel use will be eliminated, reducing emissions from existing fossil fuel production also is important, particularly in the transition to net zero. We plan to measure the potential demand for “green” gas, and we’ll engage with stakeholders over the creation of a market for “green” natural gas and oil, which can minimize methane emissions. If buyers are willing to pay a premium for green gas—and recent sales of certified low-leak natural gas suggest that they are—a market for such green gas could be developed to more fully incentivize the oil and gas sector to produce cleaner fuels.
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We’ll build the regulatory and policy structure that supports greater use of unconventional fuels such as hydrogen along with carbon capture and storage.
Policymakers have developed tax cuts for both decarbonized hydrogen and carbon capture, utilization, and storage; they’ve also implemented funding for hydrogen hubs, which are networks of clean hydrogen producers, consumers, and related infrastructure. RFF is positioned to provide timely analysis that helps policymakers understand how hubs for hydrogen and carbon may impact emissions and communities, given different hub designs and funding decisions. One hub in particular is on our radar: the Western Inter-States Hydrogen Hub, which is a hub formed by four states in the Intermountain West. RFF has studied the policy landscape undergirding this proposed hub extensively, through our participation in the Intermountain West Project, which aims to develop hydrogen, bioenergy, and low-carbon economies in this region. RFF will evaluate the impact of hydrogen-hub policies on emissions reductions, cost competitiveness, and communities to inform the Western Inter-States Hydrogen Hub and other proposed hubs, as well as policies established by the US Department of Energy in developing the hubs program.
We’ll also continue our work on designing and evaluating the success of hydrogen tax credits, such as the new “45V” credit listed in the Inflation Reduction Act. And we will be delveing deeply into the technological and policy landscape for direct air capture and other approaches to “capturing” carbon in the agriculture and forest sectors.
Getting to a Net-Zero Resilient Economy by Decarbonizing the Industrial Sector
RFF researchers are exploring technological and policy solutions that can decarbonize the industrial sector, including regulations, performance standards, policies for public procurement, market-creation approaches, and policies to fund innovation—alongside the equity, financing, and economic considerations that accompany decarbonization.
A version of this article appeared in print in the Fall 2022 issue of Resources magazine.
