The industrial sector has historically been energy intensive, dirty, and slow to decarbonize, accounting for 30 percent of the country’s overall greenhouse gas (GHG) emissions (when including end-use electricity). Since 2005, the sector’s emissions have only decreased 5.5 percent, compared to 35.5 percent from the power sector. This has resulted in a narrative that industrial emissions are notoriously “hard to abate,” which may unnecessarily limit our ability to do so.

The sector isn’t inherently harder to decarbonize, but rather, it is in the early stages of policy development. It’s similar to where the buildings, power, and transportation sectors were in the past few decades — sectors where we now have significant policy development, newer technologies on the horizon, and clearer paths forward. Reducing industrial emissions comes with unique challenges, but if we utilize learnings from the other sectors, we won’t be starting from square one.

Broadly speaking, the industrial sector governs the “materials economy,” or the ways in which materials are used. This includes extracting raw materials like ore, wood, and fossil fuels; processing materials and chemicals; manufacturing; and managing the waste from both these processes and consumption. The industrial sector encompasses numerous subsectors, resulting in decarbonization solutions that are equally diverse. However, the majority of the current focus is on decarbonizing steel, cement, and chemical manufacturing because they have the highest energy requirements and produce the most emissions.

In this article for our Dashboard Digest policy series, we’ll examine both the significant barriers to industrial decarbonization and how states can address emissions from this high-polluting sector.

Barriers to Industrial Decarbonization

In order to address the massive amount of GHG emissions from the industrial sector, it’s essential to identify the barriers that have made it challenging in the past. While many decarbonization solutions have the potential to be adapted from other sectors, these barriers make the industrial sector uniquely challenging.

The sector is complex

The industrial sector spans numerous subsectors, including manufacturing, resource extraction, and waste management — each with different energy and heat requirements, production processes, and material use. Since the sector is so varied, a one-size-fits-all approach is extremely difficult. Not only do solutions need to be tailored to each subsector of industry, but they often need to be tailored to individual facilities.

For example, while a cement plant and a bread factory are both included in the industrial sector, they have different energy requirements, raw materials, and production processes — all with different associated emissions. It’s important that emissions reduction strategies address all of these components, but it’s challenging to create policies that address everything at once. Solutions often need to be tailored to specific facilities or processes, which can be a massive undertaking and require specialized technology and resources.

Industry is energy-intensive

Emissions from the industrial sector can be categorized into either (1) energy-related: released from on-site fossil fuel combustion and emissions from purchased electricity, or (2) process-related: released from chemical reactions and non-CO2 gasses, including refrigerants and methane.

Three-quarters of emissions from the sector are energy-related, primarily due to the high heat and energy requirements necessary for production processes.

For example, in order to manufacture cement, raw materials must be heated to extremely high temperatures. No matter what type of fuel is used, reaching the necessary level of heat requires significant amounts of energy. This means even if manufacturers are able to use renewable forms of energy to achieve the temperatures, the process is still energy-intensive.

Energy is also used to power the electricity in industrial facilities (which are often very large) and transport finished goods to their destination. Manufacturing often receives the most policy attention because it accounts for the largest portion of the industrial sector’s energy consumption (76 percent).

There are political and economic hurdles

Bolstering the manufacturing industry is a commonly shared goal across party lines, which can complicate efforts to reduce emissions if they’re also perceived to have a negative economic effect on the industry. This is largely dependent on the role manufacturing plays in a given state’s economy, but the perception can have real results on climate policy.

For example, Maryland’s landmark Climate Solutions Now Act of 2022 requires the state’s Department of the Environment to develop a statewide greenhouse gas reduction plan, but specifically excludes any requirement for emissions reductions in the manufacturing sector. It should be noted that the state’s Commission on Climate Change has since recommended relaxing this restriction, but the law still prevents any manufacturing emissions reduction requirements below 2023 levels and excludes cement manufacturing from these requirements.

A significant difference between manufacturing and other climate sectors is the potential for “economic leakage,” or companies choosing to leave a state for another with more favorable economic conditions. States with large manufacturing industries must balance the need for strong emissions reduction policies with the risk of companies moving out of the state — which could mean they lose the economic benefits of the manufacturer and displace emissions instead of reducing them.

This isn’t much of a problem for the other major economic sectors — the buildings, electricity, and transportation sectors don’t have the same potential to entirely vacate the state, whereas manufacturers seek to operate in the most financially advantageous jurisdictions. Incentive-based policies, like tax credits or financing, can help make cleaner manufacturing more appealing but will have to exist in a suite of other policy mechanisms. This also underscores the need for strong industrial policy by a large number of states, which would make it less likely for manufacturers to leave a given state in search of a more relaxed regulatory environment.

There is a technology gap

Some early technologies (such as carbon capture and storage, low carbon fuels, thermal batteries, and geothermal) have shown potential in helping decarbonize industry, but their economic viability is uncertain, and it remains to be seen whether they’ll be able to compete with conventional technologies at a large scale. This means that it can be hard to make long-term predictions or emissions estimates in the industrial sector because it depends heavily on which technologies win out.

However, it’s important to note that some technology approaches to decarbonization are well established and can result in immediate emissions reductions. For example, the Department of Energy estimates that 30 to 40 percent of emissions can be abated from the cement industry by using technology that’s ready today. Additionally, factories are large buildings that can be made more efficient using some of the same policy instruments used in the building sector.

What states can do

To date, state industrial climate policy has lagged far behind the other sectors — much farther than is needed to reach our climate goals. In RMI’s State Climate Scorecards, none of the 20 included states’ 2030 policy outcomes are projected to reach their NDC-aligned targets in the industrial sector. In fact, several of the states analyzed are projected to have higher industrial emissions by 2030 (Texas, Minnesota, and Louisiana).

Comprehensive Policy Approach

So far, states have mostly been tackling industrial emissions with incremental efficiency policies rather than ground-up comprehensive approaches to solving emissions from the sector as a whole. This is one reason why the industry sector has lagged, but states can learn from past approaches to other sectors.

For example, in the early 2000’s, renewable energy technologies were available and had been utilized for decades, but hadn’t yet seen significant deployment. Then state policies, like net metering and renewable portfolio standards, made renewables more economically competitive, spurring development and reducing emissions.

States would benefit from adjusting their approach to mimic how they’ve addressed emissions in other sectors by zooming out for a clearer picture. States should create councils and task forces, establish sector-specific emissions targets, draft plans, and then implement a full suite of mandates, incentives, penalties, and other policies to achieve those targets.

Two State Leaders: Colorado and New York

Some states have begun to address industrial emissions in this comprehensive approach, including Colorado and New York. Colorado passed the Colorado Environmental Justice Act in 2021, which was one of the first state-led efforts to regulate emissions directly from the industrial sector. The act required the state’s Air Quality Control Commission to adopt rules to reduce industrial emissions by 20 percent of 2015 levels by 2030, and late last year, they adopted the Greenhouse Gas Emissions and Energy Management for Manufacturing Phase 2 (GEMM 2) policy.

GEMM 2, the second version of the state’s rules, requires 18 of the state’s highest-emitting manufacturers to reduce their GHG emissions by 20 percent by 2030 collectively. The rules require facilities to reduce GHG emissions like carbon dioxide and methane, cut emissions of co-pollutants that directly harm human health, prioritize the protection of local communities from onsite air pollution, and submit GHG reduction plans to the state’s regulatory body. These regulations cover facilities from mining companies to large food and beverage facilities. The state’s August 2023 economic analysis found that air pollution reductions from GEMM 2 could result in over $1.1 billion in economic benefits from 2015 to 2050 by avoiding costs associated with climate change and health benefits from avoiding exposure to harmful pollutants.

In 2019, New York passed the Climate Leadership and Community Protection Act, the state’s most comprehensive climate law in history. The law required the state to adopt a scoping plan to achieve its numerous climate targets, and the final plan includes a chapter on the state’s strategy to decarbonize the industrial sector. It covers financial incentives, technical assistance, workforce development, research and development, and other strategies. The plan also cautions against any policies that could cause emissions leakage and economic leakage that result from manufacturers leaving the state, signaling that New York is taking a thoughtful approach by acknowledging the fine line that industrial policies must balance upon.

Policies we track

In this section of the Dashboard Digest, we’ll dive deeper into how states can reduce emissions from the industrial sector. Our articles in the coming weeks will dive into how each policy works, why it’s important, and key actions states can take.

The policies we’ll be covering are:

• Food Waste Bans and Targets
• Buy Clean Requirements
• HFC Regulations
• SF6 Regulations
• Methane Regulations
• Fracking Bans