The Inflation Relief Act Two Years Later: Historic Investments in Industry

Nick Sawe and Sonali Despande, Policy analysts for the Industrial Energy Innovation Program authored this piece. This is part of a series exploring the impact of the Inflation Relief Act after two years. The first article sums up its total impact.

States across the country are building factories, creating jobs and participating in a quiet new industrial revolution. From the battery belt of the Southeast to the revitalization of factories in the Midwest, American industry is moving to a new, cleaner world.

Two years ago, the Biden administration passed the Inflation Reduction Act, a historic advance to clean up the highest-emitting sectors of our economy. While incentives for clean electricity and electric vehicles are well-known, the IRA has also made game-changing investments in the US industrial sector, which produces everything from building materials like steel and concrete to consumer products such as appliances and paper.

The industrial sector has a large climate footprint, producing almost a third of the country’s greenhouse emissions. It also releases conventional pollutants into the environment, creating a serious public health impact on nearby communities. These emissions may be difficult to fully address with existing technologies.

Fortunately, the IRA is addressing this problem by establishing several programs that invest tens of billions of dollars in innovative technologies and industrial projects. These investments are poised to transform the sector, protecting our climate and public health while ensuring the technology leadership that will make the US economy competitive in a net zero future.

Significant industrial programs in IRA

The IRA’s largest dedicated investment in industry is the Advanced Industrial Facilities Deployment Program, which provides more than $5.8 billion to commercialize technologies that could decarbonize the industrial sector.

The US Department of Energy recently created an “Industrial Demonstration Program” that will use this funding alongside funding from Biden’s infrastructure law to demonstrate the effectiveness of new technologies at scale. In March, the program announced $6 billion in funding for 33 projects spanning multiple industry subsectors. And private financiers have pledged another $14 billion to supplement that funding.

US steelmaker Cleveland-Cliffs is one of the funding recipients, receiving up to $500 million to reduce carbon emissions from an existing steel mill in Middletown, Ohio. The company plans to replace its fossil fuel furnaces with a direct reduced iron furnace that can run on hydrogen, as well as two electric arc furnaces that will work together to produce virgin steel from mined iron ore.

This system could run on green hydrogen and renewable electricity, nearly eliminating the plant’s emissions and paving a zero-carbon path for the company’s other facilities to follow.

A cement startup, Brimstone Energy, will receive up to $189 million to pilot its new cement manufacturing process. Normally, over half of the carbon emissions from cement manufacturing come from breaking down limestone into lime, rather than burning fuels for energy. Brimstone aims to eliminate these emissions by replacing limestone with naturally abundant, carbon-free rocks.

The IRA has also created a set of programs that make up the collective The Federal Buy Clean Initiative, which leverages the immense purchasing power of the US government to create demand for industrial products made in clean ways. The IRA provides more than $4 billion to federal agencies to buy low-carbon steel, cement, asphalt and flat glass for infrastructure projects. It also provides $350 million to the Environmental Protection Agency to help measure and validate the emissions impact of these low-carbon materials.

In addition to these industry-specific investments, IRA has created and expanded programs that could benefit multiple sectors, including industry. Two of these programs direct a larger portion of their funding to industry than others: the 48C Advanced Energy Projects Credit and the 45X Advanced Manufacturing Credit.

The 48C credit covers 30% of the initial capital costs of any project that retrofits an industrial facility with emission reduction equipment. It also credits projects that upgrade or establish industrial facilities to produce clean energy technologies or essential minerals. This funding is capped at $10 billion, of which $4 billion was awarded in the first application round. The US Treasury and DOE are working together to award the remaining funds.

45X The credit boosts domestic production of solar, wind, inverter and battery components, as well as 50 essential minerals important for power generation. 45X even supports the production of thermal batteries, which could cut the costs of electrified industrial heating in half. Thermal batteries could also reduce emissions from industrial heating, which is currently responsible for 84% of the US industrial sector’s energy-related emissions.

Two other cross-sectoral initiatives in the IRA, the 45V Clean Hydrogen Production Tax Credit and the 45Q Carbon Capture, Use and Storage Tax Credit, also benefit industry. Sub-sectors such as steel production and oil refining will require hydrogen and hydrogen-derived fuels as energy sources and raw materials. Cement manufacturing and natural gas processing will require CCUS while other technological solutions mature. Industrial companies that produce clean hydrogen or capture CO₂ on site they can take advantage of tax credits 45V or 45Q, respectively.

Finally, the IRA also boosted DOE’s Office of Loan Programs, adding $40 billion in new loan authorities that could apply to the industrial sector and authorizing co-investments with subnational financing institutions, such as state green banks. LPO financing mechanisms support early deployment of proven green technologies, mitigating perceived financial risks for private investors.

The impact of IRA’s industrial programs

While the IRA has invested more money in industrial decarbonisation than any other policy in the US, this funding is a small fraction of what is needed to reach a zero-carbon industry. Our energy model confirms that the IRA will have only a minor impact on industry in the short term, with the electricity sector accounting for the vast majority of emissions reductions driven by the IRA in 2030.

This impact, demonstrated in Energy Innovation’s modeling report, reflects the fact that the electricity sector received a much larger share of the IRA’s $369 billion in climate and clean energy spending, and 2030 is too early for much investment in the sector industrial to have fully borne fruit. .

IRA industrial investments are particularly likely to pay dividends over the long term – especially in 2050 and beyond. Most of these initiatives are designed to trigger technological change, either by demonstrating new technologies or by supporting early implementations.

Given that many industrial low-carbon technologies are still in their infancy, programs in the IRA could bring significant improvements in their costs and performance. Such improvements could enable their expansion in the decades to come, especially as high-emitting equipment reaches the end of its useful life. Combined with additional industrial programs in the Bipartisan Infrastructure Act, the IRA could transform and revitalize American industry.

It is important to be patient with what the IRA can achieve. Industrial projects are often expensive and complex, and the agencies administering IRA funding are constrained by various legal, political and bureaucratic priorities. However, the IRA’s success in boosting clean modern manufacturing and jobs in the US offers the first taste of substantial long-term benefits for America if the next administration expands policies to promote clean industry.