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Industrial emissions aren’t falling fast enough to meet US climate goals

Rhodium Group’s new report found that heavy industry, including steel mills and chemical plants, could soon be the nation’s number one source of CO2 emissions.
By Maria Gallucci

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A refinery plant is seen with smokestacks
(Mario Tama/Getty Images)

The U.S. industrial sector could claim an especially undesirable title in the coming years: It’s set to become the country’s number one source of planet-warming pollution.

The designation currently belongs to the U.S. transportation sector. Heavy industry overtook electricity as the second-highest emitter in 2023. But whereas battery-powered vehicles and renewable energy projects are proliferating nationwide, and starting to edge out fossil fuels, the nation’s factories are making only plodding progress toward slashing greenhouse gas emissions, a new report says.

On Thursday, the research firm Rhodium Group released its latest decarbonization outlook for industrial activities, including chemical refining, food processing, oil and gas production, steelmaking, and cement manufacturing.

It estimated that, under current policies, industrial emissions could decline by just 5 to 10 percent by 2040, with a reduction of 81 million to 132 million metric tons of net greenhouse gas emissions.

It’s not nothing — but it’s also not putting us on a path toward deep decarbonization of that sector by any stretch of the imagination,” said Ben King, the report’s lead author and an associate director with Rhodium Group’s energy and climate practice.

A lot more focus is required to achieve the decarbonization [in heavy industry] that we’ve begun to aim toward in places like power and transport,” he added.

Even those modest reductions are far from guaranteed. If companies don’t act soon to begin curbing emissions, then the sector’s total footprint could increase by as much as 12 percent from 2022 levels over the next decade, the report said.

Heavy industrial sectors produce the ubiquitous materials that make up our modern world, from buildings, roads, and car parts to medicine and cosmetics — even the device you’re using to read this story. The path to cleaning up an aluminum smelter or a coal-hungry steel furnace is not as straightforward as, say, replacing gas-guzzling cars with ones that run on batteries.

The report arrives at a time when the United States and other countries are slowly embracing the idea that decarbonizing industrial facilities — while undoubtedly complicated and expensive — is nevertheless possible.

Recently, the Biden administration has ramped up federal support for industrial decarbonization, primarily using funding from the Inflation Reduction Act and Bipartisan Infrastructure Law. In March, the U.S. Department of Energy (DOE) announced $6 billion in awards for commercial demonstration projects that can sharply reduce emissions from steel, aluminum, cement, and other areas. Another $135 million in federal awards are geared at boosting energy efficiency and curbing carbon emissions from industrial operations.

With industry, even a few years ago we kind of drew a blank on whether we can decarbonize these hard-to-abate areas, or do we just get stuck with clean power and clean passenger transport, and that’s it?” Claire Curry, the global head of technology, industry, and innovation at research firm BloombergNEF, said in an earlier interview with Canary Media.

But now we know that there are solutions,” she added. So we really need to be moving fast.”

Decarbonizing industry will be a heavy lift 

The new Rhodium Group analysis factored in the recent slew of U.S. investments when estimating the expected emissions reductions from the nation’s factories and facilities. While the new investments are a move in the right direction, it found that additional policy action — along with far more public and private spending — is required to bring heavy industry in line with the nation’s climate goals, King said.

Because the report focuses on policy and technology in place today, analysts took a relatively narrow view of industrial decarbonization. They estimated the potential emissions reductions from the two technologies with direct policy support: carbon capture and clean hydrogen.

Carbon capture systems remove CO2 from an existing facility’s waste gases. For instance, in Indiana, U.S. Steel is installing the technology at its Gary Works blast furnace; the $150 million project is expected to capture less than 1 percent of the facility’s annual CO2 emissions. Companies can earn a federal tax credit worth $85 for every metric ton of carbon they capture and permanently sequester underground.

Hydrogen producers, meanwhile, access the 45V tax credit, which is intended to spur investment in clean hydrogen — ideally made by electrolyzers using renewable energy and water. Nationwide, seven hubs” are set to receive a total $7 billion in federal funding to begin producing clean hydrogen, potentially for use in steelmaking, chemical manufacturing, and other areas.

Analysts estimated the effects of using electrolyzers instead of gas-based steam methane reformers at existing facilities where hydrogen, ammonia, and methanol are made. They also looked at replacing fossil gas with clean hydrogen at direct reduced iron” facilities for steelmaking. In Ohio, the manufacturer Cleveland-Cliffs says it plans to eventually switch from using gas to hydrogen at the new ironmaking facility it’s building with a $500 million award from the DOE.

In a 2022 analysis, Rhodium Group had estimated deeper emissions reductions from carbon-capture retrofits. But in the ensuing years, analysts saw that projects were more expensive than originally anticipated and faced significant hurdles, such as regulatory challenges and public opposition to CO2 pipelines, which carry the captured carbon away from facilities to be sequestered or turned into commodity products.

However, the rollout of hydrogen electrolyzers helped make up for some of that lost ground in expected emissions reductions in the 2024 report, King said.

He added that a big challenge in carrying out the analysis is just how complex and distinct the industrial sectors are from one another — and how different they can be even within the same category. For example, facilities using industrial heat can require temperatures around water’s boiling point, or as hot as molten lava. The solutions needed to decarbonize those operations can vary significantly.

That complexity, and the lack of tax credits or other incentives, is a key reason why Rhodium Group’s model doesn’t currently factor in emissions reductions from process heat, though analysts hope to change that. We need more data and more cost characterization,” King said.

Process heating accounts for about one-third of the sector’s emissions today, which primarily comes from burning fossil gas in enormous boilers and water heaters.

Despite the omission, major opportunities do exist to decarbonize industrial heat, and federal funding is similarly flowing into the space. The DOE is allocating about $500 million to projects aiming to generate heat more cleanly to make everything from industrial chemicals to macaroni and cheese. In many facilities, heat pumps and other electricity-powered equipment can replace fossil fuels for heating.

In fact, about 70 percent of industrial process heating can and should be electrified by 2050, according to the nonprofit American Council for an Energy-Efficient Economy. In a recent policy brief, the organization called on policymakers, utility regulators, and grid planners to ramp up the nation’s renewable energy capacity and fortify grid infrastructure to prepare for the surge of new electrical demand coming specifically from industrial facilities.

But King noted that, without clear economic drivers, industrial manufacturers aren’t likely to take on the time-consuming and costly task of revamping their facilities to use cleaner technologies. That’s especially true for companies competing to deliver the lowest-cost commodities, be it cement, steel rods, or aluminum coils.

You can’t expect an entire industry to clean itself up out of the goodness of its own heart,” he said. There’s a lot more work that needs to be done.”

Maria Gallucci is a senior reporter at Canary Media. She covers emerging clean energy technologies and efforts to electrify transportation and decarbonize heavy industry.