On Monday, September 18, 2023, the U.S. Department of Energy (“DOE”) published three new reports as part of its “Pathways to Commercial Liftoff” initiative, focused on the state of industrial decarbonization. The goal of these new reports is to provide a guide to a private sector-led, industry-wide decarbonization effort that is deeper and faster than it would otherwise be, and that directly benefits communities by emphasizing environmental justice and the creation of good jobs.
This latest series includes three separate topical reports: (1) Industrial Decarbonization; (2) Decarbonizing Chemicals & Refining; and (3) Low-Carbon Cement. The new reports provide an overview on the pathways to decarbonization across eight industrial sectors of focus: chemicals, refining, iron & steel, food & beverage processing, pulp and paper, cement, aluminum, and glass, which are the eight industrial sectors of focus in the Inflation Reduction Act.
Below we provide a high-level overview on the key takeaways from each report.
The Industrial Decarbonization report discusses the current opportunity to transform industrial systems across the eight carbon emitting sectors of focus in the Inflation Reduction Act—chemicals, refining, iron & steel, food & beverage processing, pulp and paper, cement, aluminum, and glass—with the cement and chemicals & refining each have their own dedicated Liftoff reports for a deeper dive on those sectors. The report states that carbon-intensive industrial sectors in the U.S. are at a critical inflection point in the energy transition, and society is focused on accelerating deep decarbonization; this is a unique moment that neither American industry nor DOE can allow to pass. The industrial sector is a historically difficult sector to abate, as we have previously discussed here, here and here.
Key highlights in the Industrial Decarbonization report include the following:
- U.S. industrial players are at risk of lagging behind net-zero targets. The industrial sector is a significant contributor to emissions, accounting for 23% of U.S. CO2 emissions in 2021, as well as other health-harming emissions, including nitrogen oxides, sulfur oxides, and carbon monoxide.
- Reasons often cited for slow progress on the decarbonization of industrial emissions include: the immaturity and high cost of many decarbonization levers; unidentified or uncertain customer demand for low-carbon products; and, in some but not all sectors, reluctance among companies to be a first mover.
- The Bipartisan Infrastructure Law and Inflation Reduction Act have created unprecedented tools to support industrial decarbonization, customers are demanding low-carbon products (e.g., steel for auto), and early private sector movers are emerging.
- Achieving meaningful reductions could require up to $1,100 billion in capital expenditure and a bold shift in leadership and technology adoption across various sectors.
- Other solutions to ensure the industrial sector keeps pace with national decarbonization goals include using demonstration projects to de-risk public and private investment, close the “persistent cost gap” between existing technologies and decarbonized solutions, and expediting permitting bottlenecks for new transmission and clean generation.
Notably, nuclear energy is referenced in the report as an already-existing source of clean, firm power, and of which is especially important for operations that require 24/7 reliability. For example, in the industrial sectors of focus, many onsite systems are used for combined heat and power (“CHP”). Advanced nuclear designs, such as high temperature gas reactors, can fully replace CHP systems to provide electricity and high-quality steam, but will require demonstration in an industrial environment to prove their ability to meet cost and schedule requirements.
An example of a project that is currently underway that we have previously discussed (here and here) is the Dow/X-energy project, where Dow intends to site an advanced X-energy reactor at Dow chemical plant in Texas to provide carbon free power and process heat. Other fission and fusion developers are in continued discussions with the industrial sector to explore pairing innovative new energy technologies at industrial facilities.
Decarbonizing Chemicals & Refining
The Decarbonizing Chemicals & Refining report focuses on decarbonizing the downstream production of chemicals and refining – which together represent 38% of total energy-related industrial emissions for the U.S. According to the report, absent swift and widespread measures to decarbonize production emissions, the chemicals and refining sectors will continue to be major contributors to U.S. emissions over the coming decades. Currently, these sectors produce primary fuels for transportation, power, and heat; provide essential inputs to widely used downstream products, including plastics, fertilizer, and pharmaceuticals; and represent major U.S. export commodities.
Other key findings include the following:
- The United States is responsible for ~11% of global chemicals production. In 2022, the United States was both the world’s top oil producer and oil refiner, responsible for ~20% of refined products globally. For context, chemicals is the largest export sector for the U.S. at 9% of all exports, with a 12% growth potential by 2030.
- Without significant action, the downstream production of chemicals and refining will continue as a major contributor to U.S. emissions until 2050. If downstream chemicals production and refining are to continue with current practices, emissions from these sectors could increase by approximately 20% by 2050. And due to growing global demand, chemical emissions are expected to grow by around 35% from 2021 to 2050.
- Chemicals and refining production are interconnected, sharing linked production pathways and opportunities for decarbonization. For example, fossil fuels are used as a feedstock across both sectors, with refined oil products used for heating in many chemical processes.
- To achieve national decarbonization goals for 2050, alternative value chains in the demonstration and pilot phases (e.g., new bio-based pathways for low and net-zero carbon fuels and chemicals) and lower Technology Readiness Level technologies (e.g., small nuclear reactors for industrial heat and power) must scale.
- Further, the report discusses a selection of nascent decarbonization measures that could meaningfully change the pathway and be included in future pathway updates as they develop and scale, and specifically, small modular nuclear reactors.
- Modular nuclear used for combined heat and power ("CHP") could replace fossil fuel sources, accounting for around 70% of chemicals and refining emissions. CHP from nuclear could substitute the need for electrification of heat and the carbon capture and storage needed for dilute high-heat sources. One reactor class that adopts the existing nuclear fleet’s heat and steam generation concepts can replace 30–40% of the low- and intermediate-pressure industrial steam duties and heated-oil transport loops.
The Low-Carbon Cement report focuses on decarbonizing cement production, where 30% of emissions could be abated by the early 2030s through scale-up of deployment-ready and economically positive measures. According to the report, the U.S. cement industry must accelerate decarbonization progress dramatically to keep pace with sector-wide net-zero goals.
Other key findings in this report include the following:
- Cement currently represents ~7–8% of global CO2 emissions and ~1–2% of U.S. CO2 emissions. Scaling green cement will be critical for the U.S. to achieve net zero overall and will position the U.S. to lead global efforts to decarbonize the sector, including through deployment of U.S.-developed technologies.
- Many potential cement decarbonization approaches are emerging, but nearly all are in pilot stage today in the U.S. and face challenging paths to scale. Combined investment across these approaches would need to reach ~$5–20B cumulatively by 2030 and ~$60–120B cumulatively by 2050 to achieve liftoff of key technologies and then full decarbonization of the cement industry.
- DOE, together with other federal agencies and state and local governments, is committed to working with communities and the private sector to accelerate the deployment of green cement technologies.
- Companies that move first will be best positioned to capitalize on the potential opportunity to capture demand from low-carbon procurement and position themselves to compete in a decarbonized market.
Separately, but also on September 18, DOE also released a Virtual Power Plants Liftoff report, which covers aggregations of distributed energy resources ("DERs") such as smart appliances, rooftop solar with batteries, EVs and chargers, and commercial and industrial loads that can balance electricity demand and supply and provide grid services like a traditional power plant.
In March 2023, DOE issued the first three Pathways to Commercial Liftoff Reports, including the Pathways to Commercial Liftoff: Advanced Nuclear report (note, the other two reports were on Clean Hydrogen, Long-Duration Energy Storage, and a fourth report was released on April 24, 2023, covering Carbon Management).
We previously wrote about the Advanced Nuclear report here. These reports provide the private sector and other industry partners valuable, engagement-driven resources on how clean energy technologies can reach full scale deployment. As explained in the Advanced Nuclear report, with similar language across all the Liftoff reports: “These Pathways to Commercial Liftoff reports aim to establish a common fact base and ongoing dialogue with the private sector around the path to commercial liftoff for critical clean energy technologies. Their goal is to catalyze more rapid and coordinated action across the full technology value chain.”
Since the first round of Liftoff reports were issued, we have found them to be a strong source of accurate information and useful recommendations that help frame the conversation among the private sector from all fronts—including developers, end users and customers, and investors—and areas for government support and engagement—at the local, state, and national level, which is no small feat for such a broad array of sectors and technologies.