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Renewable thermal technologies are emerging as crucial tools in the industrial sector's quest for decarbonization. Thermal energy in industry results in emissions of about 8 GTCO2 per year globally, making the transition to renewable sources a crucial step in reducing greenhouse gas emissions from the sector. Achieving widespread adoption of these technologies requires robust policy support to overcome current barriers such as high capital costs, limited accessibility, and technological immaturity.
While encouraging strides in climate policy have been made at the federal level in the US with the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA), gaps persist, particularly for renewable thermal technologies. Indeed, many of the policy levers needed to support these technologies are state-specific, making these policies pivotal in filling gaps and complementing federal policies with measures tailored to specific regional needs.
The Renewable Thermal Collaborative (RTC), a global consortium of industrial and institutional energy users, is working to drive the adoption of renewable heating and cooling solutions at scale. In partnership with ENGIE Impact, they have analyzed state-level policy opportunities to advance renewable thermal technologies. The details that follow delve deeper into the crucial role of state-level policies for renewable thermal technologies.
Thermal energy, used for both industrial processes and heating and cooling buildings, is a major contributor to global energy demand and greenhouse gas (GHG) emissions. Industrial thermal energy alone accounts for about 9% of total U.S. emissions, underscoring the urgency of addressing this sector’s emissions footprint, especially in light of the country’s goal to reach Net Zero emissions by no later than 2050.
Companies, alongside nations, must also address thermal emissions to meet their GHG reduction targets. ENGIE Impact’s analysis of companies with corporate science-based targets highlights that while two-thirds of companies made significant progress in procuring renewable electricity, less than a third had done the same for thermal energy.
By utilizing renewable or waste-derived sources of energy, renewable thermal technologies unlock reductions in thermal emissions. This wide array of technologies encompasses green hydrogen, electrification powered by renewables, thermal energy storage, solar thermal, biogas, renewable natural gas, geothermal, and sustainable biomass derived from waste. Illustrations of these technologies in action abound across various sectors, as exemplified by the following case studies.
In 2023, California Dairies, Inc. (CDI) collaborated with Skyven Technologies, an RTC Solutions Provider, to launch six decarbonization projects at its two major facilities. These projects, which utilized solar thermal systems, smart steam traps, and boiler heat recovery systems, were part of CDI’s commitment to reduce greenhouse gases by 30% by 2030 and achieve carbon neutrality by 2050. The implementation of these technologies required no capital expenditure, thanks to Skyven’s Energy as a Service financing model. This model combined four funding sources: Skyven’s direct investment, third-party financing from Kyotherm, grants from the California Energy Commission’s Food Production Investment Program, and incentives from Pacific Gas & Electric and Southern California Gas Company. Kyotherm and Southern California Gas Company are also RTC Sponsors.
Similarly, AstraZeneca, another RTC Member, plans to leverage renewable natural gas produced by Vanguard Renewables, an RTC Sponsor, over the next 15 years. This new commitment aims to reduce AstraZeneca’s Scope 1 emissions, fulfilling nearly all of its gas demand at its US sites by 2026. This procurement agreement supports AstraZeneca’s transition to renewable energy, a key part of their Ambition Zero Carbon strategy which includes reducing Scope 1 emissions by 98% by 2026.
While certain renewable thermal technologies may offer cost-saving or net-cost opportunities today, the transition at scale to renewable thermal technologies will require substantial capital investments, including new and modified infrastructure. Effective policies and incentives can help mitigate these barriers, facilitating progress toward achieving ambitious emissions reduction targets at both company and national levels.
In the US, the Inflation Reduction Act (IRA) and the Infrastructure Investment and Jobs Act (IIJA) stand as pivotal policies towards a more sustainable future. Both pieces of legislation direct federal funding toward industrial decarbonization, including significant investments in green hydrogen. Notably, the 45V Clean Hydrogen Tax Credit provides up to $3 per kg of hydrogen produced, contingent upon its carbon intensity and ability to meet prevailing wage and apprenticeship requirements. This incentive has the potential to substantially reduce hydrogen production costs, potentially making clean hydrogen more cost-competitive than fossil-fuel-based hydrogen in the US and even natural gas in some states (source: RTC Vision Report).
In addition, the US Department of Energy provides financial support for decarbonization projects through grant programs and tax incentives. In March, $4 billion in tax credits was announced for the first round of funding from the Qualifying Advanced Energy Project Tax Credit (48C), including $500 million for industrial decarbonization. The portal for the second round of funding will open by May 28th, 2024 with concept paper submissions due 30 days after the portal opens. Additionally, as part of the Industrial Demonstration Program, the Office of Clean Energy Demonstrations recently awarded $6 billion in federal funding to support 33 industrial projects in 20 states. ENGIE Impact collaborated with Kraft Heinz to create techno-economic decarbonization roadmaps, helping the food and beverage company be selected for award negotiation to receive up to $170 million from the grant program to support the implementation of clean energy projects at 10 of the company’s US plants. Kraft Heinz is also an RTC Member, leveraging insights from industry experts and peers to accelerate its decarbonization efforts.
While federal policies have supported efforts to address industrial emissions, they currently lag behind policies focused on renewable electricity and transportation and do not adequately incentivize the full range of renewable thermal technologies needed to achieve national decarbonization goals. For example, while the new 48E technology-neutral electricity tax credit is appreciated for replacing and expanding the original section 48 investment tax credit, it primarily incentivizes renewable electricity. Unlike the transportation or electricity sectors, addressing thermal emissions requires tailored solutions that vary by industry and often by site. In addition to these federal gaps, a diversity of sectors and site-specific challenges underscores the necessity for state-specific policies, which can effectively target the unique needs and emissions profiles of industries within each state. For example, companies seeking to electrify their thermal energy usage currently face challenges, including large upfront capital investments, disparities in pricing between natural gas and electricity in certain states, and grid electricity constraints. Through a comprehensive assessment of state-specific and industry-specific issues, states can develop policies targeting these challenges.
States can employ various policy mechanisms to suit their needs and political environments. These policy mechanisms include:
The subsequent section outlines specific examples of policies that have been implemented in various US states. Additional policy examples can be found in the RTC policy finder.
The industrial sector is a significant contributor to emissions in California, accounting for 15% of the state's emissions. To reach its ambitious decarbonization targets – reducing greenhouse gas emissions by 85% below 1990 levels and fossil fuel demand by 86% compared to 2022 by 2045 – the state will need to significantly cut its industrial emissions. In its 2022 Scoping Plan, the California Air Resources Board (CARB) especially emphasizes that “decarbonizing industrial facilities depends upon displacing fossil fuel use with a mix of electrification, solar thermal heat, biomethane, low- or zero-carbon hydrogen, and other low-carbon fuels to provide energy for heat and reduce combustion emissions.” The adoption of a zero-emissions standard for commercial ovens by the South Coast Air Quality Management District marks a significant milestone in limiting air pollution and emissions from the food and beverage industry, a major economic and emitting sector in California that hosts the most food and beverage manufacturing plants nationwide. This regulation will particularly encourage electrification among food and beverage manufacturers operating in the Los Angeles region, underscoring California’s continued leadership in climate initiatives by promoting renewable thermal technologies.
To curb its industrial GHG emissions, Colorado has introduced a new financial incentive in 2023: the Colorado Industrial Tax Credit Offering. With industrial emissions accounting for a substantial 15% of Colorado's GHG emissions across diverse sectors, this policy takes a broad, industry-agnostic approach, providing financial support for all industrial facilities, except landfills, electric utilities, and oil and gas operations. Aligned with Colorado's ambitious decarbonization objectives, intensified in 2023 with a commitment to achieving Net Zero emissions by 2050, the initiative offers refundable tax credits to industrial facilities embarking on GHG reduction studies or projects, such as replacing fossil-fuel-fired water or space heating equipment with electric ones. By incentivizing such endeavors, Colorado aims to catalyze a significant shift towards sustainability within its industrial landscape, contributing substantially to the state's climate goals.
In Iowa, a strategic study on renewable hydrogen has emerged as a crucial first step to sustainable energy planning. Positioned as a potential leader in hydrogen production and consumption, Iowa boasts the second-highest installed wind capacity nationwide and hosts large agricultural and agrichemical industries respectively demanding and producing ammonia-based nitrogen fertilizers. Iowa also serves as a central hub for freight truck transportation, opening the door to more hydrogen consumption. However, despite its potential, hydrogen remains largely unavailable at scale. This study will help the state orchestrate its integration into Iowa's energy infrastructure, enabling a proactive approach toward future energy transitions.
In Illinois, the enactment of the Climate and Equitable Jobs Act (CEJA), robust climate legislation passed in 2021, signifies a concerted effort to address climate change while nurturing economic resilience. Central to this legislation is the emphasis on workforce development programs aimed at aligning the state's labor force with the evolving needs of a sustainable economy. Key measures include creating training for renewable electricity and energy efficiency jobs and expanding labor standards to require project labor agreements and prevailing wages on utility scale projects. The legislation’s definition of clean energy jobs includes sectors relevant to renewable thermal, such as energy storage, solar thermal, and green hydrogen. Championed by the Illinois Clean Jobs Coalition, the inclusion of workforce initiatives reflects Illinois’ commitment to an equitable and sustainable transition, as well as to overcoming workforce needs as a barrier to implementation of clean energy.
Renewable thermal technologies will play a vital role in the industrial sector's journey toward decarbonization. While federal climate policy offers some support for the deployment of these technologies, state-level action is crucial to address gaps and tailor solutions to regional needs. From California's groundbreaking regulations to Colorado's tax credit incentives, various states are taking action. Support is available to companies and states looking to accelerate this progress toward industrial decarbonization; ENGIE Impact's unique expertise in policy, decarbonization strategies, and project implementation positions it as a valuable partner for clients seeking solutions in the renewable thermal space.
The Renewable Thermal Collaborative (RTC) serves as a dynamic forum for collaboration, peer-to-peer learning, market development and policy innovation to support the deployment of renewable thermal technologies. Navigating the transition to a sustainable future will require collaboration; we invite readers to reach out to learn more about how they can leverage renewable thermal technologies to meet their own goals.
This article was written in partnership with the Renewable Thermal Collaborative (RTC).
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