Biden’s Clean Industry Policies Could Be Among Most Consequential U.S. Climate Actions

President Biden’s State of the Union speech highlighted actions he has taken to address climate change and strengthen the United States economy. This includes a range of ambitious policies to reduce U.S. greenhouse gas (GHG) emissions, but one subset of the administration’s work stands out from the rest.

Last month, the White House announced new policies and initiatives to decarbonize the U.S. industry sector, which could be among the most consequential policies the U.S. has ever enacted for reducing emissions and building a cutting-edge economy.

The new industrial sector decarbonization policies are important to U.S. industry’s future growth for three reasons. First, they target a huge emissions source: Industries directly emit around a quarter of U.S. GHGs, or around a third when including emissions from electricity purchased by industry. Second, industrial GHG emissions have been largely ignored by past policymakers, so many opportunities exist to secure cost-effective GHG reductions and technology innovation. Third, any cost declines for clean manufacturing technologies will benefit industrial producers globally (i.e., when foreign firms purchase American industrial equipment or license American technology), facilitating decarbonization of industry abroad. These spill-over effects of technological progress are crucial since the U.S. represents only 7% of the world’s industrial emissions.

Clean Industry Could Cut Emissions, Boost U.S. Manufacturing

President Biden’s clean industry policies cover nearly every aspect of American manufacturing and would leverage the Bipartisan Infrastructure Law, federal purchasing power, and trade policy to help climate action strengthen the economy.

Buy Clean

One program with particularly high potential is a new federal “Buy Clean” initiative, which aims to steer government purchases toward clean products and materials (i.e., those produced with low or zero GHG emissions). The federal government makes $650 billion in purchases annually, representing a vast and lucrative market for suppliers. Clean production of basic materials like steel, cement, and chemicals is particularly important for industrial decarbonization, as those three industries compose over 40% of U.S. industrial carbon dioxide (CO2) emissions.

The federal government funds construction materials for roads, bridges, and buildings, and it also procures significant quantities of materials for military equipment. By providing a market for materials produced via low-emissions processes, clean production technologies can scale up. This can help lower technology costs, as manufacturers achieve efficiencies from producing more copies of the same machines (returns-to-scale) and discover new ways to optimize their designs and processes (learning-by-doing). Lower costs then help them to break into the wider market.

Clean Hydrogen

One of the new clean production technologies the administration will help scale is “green hydrogen.” Hydrogen (H2) is a useful industrial gas. Hydrogen can serve as a chemical feedstock (a material that contributes to the physical composition of a product, such as fertilizers), or it can be combusted for high-temperature heat. Heat is important for manufacturing numerous materials including metals, cement, glass, brick, and bulk chemicals, where it melts materials and drives necessary chemical reactions. When combusted, hydrogen emits no CO2, so it has the potential to be a climate-safe fuel if it is produced without GHG emissions.

Unfortunately, most hydrogen today is made from natural gas via a process that emits CO2. However, hydrogen can also be made by using zero-carbon electricity to split water molecules into hydrogen and oxygen. Such “green” hydrogen could be used to decarbonize chemical feedstocks and high-temperature heat. Technology to produce green hydrogen already exists, but more research can help improve its efficiency and drive down costs.

The White House announced $9.5 billion for clean hydrogen initiatives, including $8 billion for “Clean Hydrogen Hubs” to connect clean hydrogen producers, hydrogen transport, and industrial consumers; $1 billion for a research and development (R&D) program to reduce the costs of splitting water, and $500 million for initiatives to support domestic production of hydrogen-making equipment.

Support for Carbon Capture, Use, and Storage

The best general techniques for decarbonizing industry are energy efficiency; material efficiency, product longevity, and circular economy; direct electrification with zero-carbon electricity; and use of clean fuels, particularly green hydrogen and sustainable bioenergy. However, these techniques may not always be sufficient. For example, about half of the CO2 emissions from cement-making come from the chemical breakdown of limestone to form cement, not from fossil fuels. Also, electrifying all heat needs and producing all feedstocks from green hydrogen is technically possible but would require a large build-out of new renewable electricity generation resources.

Carbon capture, use, and storage (CCUS) can help to fill those gaps by capturing the CO2 emitted by industrial processes and using it in a product or storing it underground as a high-pressure fluid. Many nuances exist with this technology and when it should be used, as well as considerations around conventional pollutant impacts to local communities (Carbon capture removes only CO2 so additional filtration technology is required to remove particulates, the pollutant most damaging to public health).

The Bipartisan Infrastructure Law passed in November included $12 billion for CCUS, and the newly announced policies will help ensure CCUS projects have transparent environmental reviews, including environmental justice and equity considerations, while providing well-paying, union jobs and training opportunities. These measures are important to help ensure CCUS is targeted at the industrial facilities and communities where it has the greatest benefits while minimizing harms.

Industrial Decarbonization Research

The White House announcement included a new focus R&D for industrial decarbonization technologies, starting with direction-setting with input from industry, community, government, and scientific stakeholders to help the government better target R&D funding and collaborations. The U.S. Department of Energy (DOE) also plans to help train a high-skilled industrial workforce with support from Industrial Assessment Centers, a program that funds engineering students and professors to provide energy assessments for industrial and other businesses.

Carbon Intensity for ENERGY STAR

The Environmental Protection Agency will make a significant update to its ENERGY STAR program that labels the best-performing equipment and appliances, currently measured only in terms of energy consumption. Looking narrowly at energy consumption under-counts the benefits of certain decarbonization strategies, particularly electrification. For example, ENERGY STAR certifies both electric and natural gas-burning clothes dryers if they use energy efficiently, but even an efficient natural gas dryer is highly polluting compared to an electric dryer. By directly accounting for carbon intensity, ENERGY STAR can better highlight the true impacts of fuel and technology choices.

Carbon Intensity of Traded Goods

These policies will go a long way toward cutting U.S. industry emissions, but the Biden administration is also designing trade policies to ensure a fair playing field that does not reward foreign firms for polluting. Countries vary in the policy support they offer to help advance clean manufacturing. If the U.S. imports goods produced with high emissions overseas, this can undermine the U.S.’s climate goals and create unfair competition for American industries.

The U.S. and the European Union are two leading jurisdictions in producing industrial products while emitting fewer GHGs, and Europe has announced a carbon border adjustment mechanism that will tax imports according to their carbon content. The White House has announced they will advance similar “carbon-based trade policies to reward American manufacturers of clean steel and aluminum” in coordination with the EU.

The U.S. and EU have much to gain from these policies, as the cost burden will fall on foreign firms that use dirty production processes (particularly China, India, and Russia), not on U.S. or EU manufacturers. This helps to prevent offshoring of American jobs, boosting domestic manufacturing and GDP.

Success Depends on Implementation Details

While the announced programs are promising, their ultimate success will depend on specific implementation details, many of which will be worked out in the coming months.

For example, the Buy Clean carbon intensity thresholds must be set to exclude the majority of the market and focus on the cleanest products, but at the same time must allow the government to procure sufficient materials to meet its needs. Additionally, the threshold must gradually tighten to provide an incentive for continuous innovation and technological improvement.

Promoting fast and cost-effective R&D will require strategies like public-private partnerships (including joint projects between DOE’s national laboratories and industrial firms); direct government-funded research into specific technologies (particularly ones that will be important to many industries); and mechanisms to ensure industrial firms have access to top science, technology, engineering, and mathematics (STEM) talent, including education and immigration policy.

ENERGY STAR’s success also relies on its specific implementation, and the qualifying threshold must be sufficiently strict to exclude roughly the worst-performing 50 to 70% of the market while being updated frequently to keep up with developing technology.

Clean Industry Builds Economic and Technological Leaders

In the 21st century, dirty production processes are a growing liability for manufacturers, as governments and consumers increasingly demand clean products and require decarbonization on a timeframe compatible with a livable future climate.

Countries and firms that invest in clean industrial technology can get ahead of the curve and become economic and technological leaders. The policies announced by the White House will help the U.S. achieve and maintain leadership in the decades ahead.