Five smart policies can turbocharge clean US manufacturing

After decades of stagnation, the U.S. is beginning to see new growth in domestic manufacturing, driven by investments in breakthrough industrial technologies in the Inflation Reduction Act and the Bipartisan Infrastructure Law. These two ambitious pieces of legislation — aiming to help companies cut their pollution, boost their competitiveness, and create jobs — are already paying dividends. But these investments are only a small down payment on the economic, security, and environmental benefits the U.S. could achieve by accelerating the transition to clean and competitive industry.

Industrial firms produce all the products and materials we rely on daily — the vehicles we drive, the concrete and steel that hold up our bridges and buildings, and even the food we eat. In doing so, they emit one out of every four tons of the climate pollution fueling storms, wildfires, and other dangerous effects of climate change. At the same time, global demand for industrial products is increasing, even as we seek to secure domestic supply chains for critical materials and shore up our energy infrastructure. To overcome these interconnected challenges, the U.S needs to pursue five smart policies to drive investments in industrial innovation:

First, Congress should enact a tax credit to reward the production of clean industrial heat. Eighty-five percent of the fossil fuels burned by industry produce heat for processes such as melting metals, molding plastics, and cooking food. A clean heat production tax credit would give a tax break to manufacturers that switch to non-polluting energy sources. This would mirror existing tax credits for clean electricity and clean hydrogen, filling a major gap in federal support for industrial innovation while accelerating the commercialization and scale-up of technologies like high-temperature heat pumps and electric boilers.

Second, the Federal Energy Regulatory Commission and state public utility commissions should reform electricity markets to value highly flexible energy-storage technologies. As industries replace fossil fuels with clean alternatives, they will demand more electricity. Fortunately, much of that electricity can be supplied by making better use of the spare capacity of existing power plants and transmission lines. As the grid adds more renewable energy to meet the U.S.’s clean electricity targets, there will be regular windy and sunny periods with an oversupply of electricity, which can be put to productive use powering the local economy. For instance, a factory with thermal batteries can purchase electricity when it is abundant and inexpensive, convert that electricity to heat, and store the heat until it is needed. Strategic use of low-cost electricity could save money for industry and help electric utilities balance the grid while lowering costs for all customers.

Third, Congress should reauthorize and expand the U.S. Department of Energy’s Industrial Demonstrations Program. This game-changing program awarded $6 billion (plus a matching $14 billion from the private sector) to 33 cutting-edge industrial projects around the country aimed at building first-of-a-kind clean manufacturing facilities and retrofitting existing plants. The Energy Department estimates that the program will create tens of thousands of jobs and reduce climate pollution by 14 million metric tons per year, equivalent to taking 3.3 million gasoline-powered cars off the road.

Fourth, Congress should extend and expand the Qualifying Advanced Energy Project Credit. This cross-cutting incentive supports multiple U.S. goals, including clean manufacturing and critical minerals development. In its first funding round, applicants submitted proposals for more than 10 times the available funding, and only 13 percent of awarded money went to industrial decarbonization projects. In a reauthorization, Congress should increase overall funding and reserve a portion for industrial decarbonization. Additionally, to ensure these investments drive adoption of technologies compatible with U.S. climate goals, Congress should increase the emissions-cut requirement, which is currently just 20 percent.

Fifth, to protect U.S. manufacturers from unfair competition from dirtier producers overseas, Congress should enact a tariff on imported products based on the greenhouse gases emitted when those products were manufactured. The European Union recently implemented its own carbon border adjustment mechanism, and in 2023 no fewer than four U.S. carbon border tariff bills were introduced by lawmakers in both parties. A carbon border fee is a win-win policy that protects domestic manufacturers; raises revenue that can be reinvested in clean, secure, and competitive American industry; and incentivizes foreign firms to cut their climate pollution if they want to sell products in the U.S.

Alone, any of these policies is worth pursuing. Together, they would turbocharge the U.S. manufacturing renaissance already underway, creating many thousands of high-quality jobs, securing domestic supply chains, and cutting the climate pollution that is warming the planet. They would also slash conventional pollution from industry, which kills 8,000 to 14,000 Americans every year. Policymakers of both parties should seize this opportunity to invest in our country’s future and lead the world in the clean industries of the 21^st century.