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.