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Government Pressure Mounts for Industrial Decarbonization

Governments worldwide are pushing companies to alter their practices to decarbonise operations in line with green transition aims. In the U.S., the Biden administration is offering significant financial incentives for using carbon-cutting techniques, green energy sources and clean technologies through favourable climate policies. Other regions of the world, including the EU, are expected to provide companies with similar benefits for decarbonising. However, certain hard-to-abate industries are finding it extremely challenging to meet these expectations due to high costs and the need for greater innovation in carbon-cutting technologies. 

Stricter clean air standards are expected to be introduced by the U.S. Environmental Protection Agency (EPA), which would require many factories across the country to spend on cleaning up operations. The U.S. Clean Air Act of 1967 is re-evaluated every five years, based on scientific updates, to understand the current situation of harmful pollutants. Fine particulate matter is dangerous for people's health, and the Clean Air Act ensures that restrictions are placed on the quantity and type of pollutants that industries can produce. 

When many steel factories and other heavy industries began operations decades ago, the knowledge about fine particulate matter and its impact on health was limited, but over the years, as science has improved, regulations have become stricter. Companies across the country have had to repeatedly spend on cleaning up their operations by investing in more efficient equipment and incorporating new technologies into their practices. However, as energy prices soared over the last year and supply chain constraints increased the price of a wide range of raw materials companies in heavy industries have found it increasingly difficult to keep operations running. The introduction of stricter clean air regulations may just break some of these companies. 

On the one hand, the rules from the Clean Energy Act have led to a decrease in production, employment, and productivity in several pollution-intensive industries. On the other, they have saved countless lives by making the air in industry-intensive regions of the U.S. much cleaner to breathe. Health experts believe that the deaths and illnesses prevented because of these rules far outweigh the productivity costs of enacting them. The EPA forecasts that the benefits of the Clean Air Act could equate to as much as $55 billion by 2032 if it drops the limit to nine micrograms per cubic metre. 

However, steel and aluminium producers are objecting to tighter standards as they cannot afford to make further improvements while battling rising operational costs. One firm expects new standards to "greatly diminish the possibility" that it could restart a smelter in Kentucky that it paused in 2022 due to high energy prices. Several newer factories do not have this problem, as they were developed using new equipment and innovative technologies, but companies with ageing facilities will struggle more. 

It's not just fine particulate matter that industries are concerned about, with governments also pushing for decarbonisation. In industries that still rely heavily on fossil fuels to power operations, many are opting to install carbon capture and storage (CCS) technologies to help reduce their CO2 output. But once again, this does not come cheap. CCS technologies are capable of capturing carbon dioxide produced from fossil fuel or industrial operations to transport and store them deep underground in geological formations, to avoid this CO2being released into the atmosphere and contributing to climate change. Many oil and gas companies have introduced CCS technologies into operations to produce "low-carbon" fossil fuels, and now companies across many heavy industries are looking to do the same. 

While the U.S. government is encouraging the uptake of CCS technologies through the provision of financial incentives, such as tax breaks and grants, under the Inflation Reduction Act, many companies are concerned with the high price of the technology. In addition, most other governments around the globe are not offering companies these types of incentives for adopting CCS tech. A recent report from the International Institute for Sustainable Development suggested that the price of CCS technologies will remain high for several years. Laura Cameron from the think tank stated, "Carbon capture and storage is expensive, and the costs are not likely to come down in the timeframe needed to meet our climate targets." 

The International Renewable Energy Agency (IRENA) published a recent article stating the need for greater technological innovation to support the decarbonisation of hard-to-abate industries. The article stated, "New innovative solutions should be brought into markets to decarbonise industries. We can identify two main routes when it comes to decarbonising industries; one is the direct electrification of processes, the other, the indirect electrification of these processes by using green hydrogen, produced from wind and solar, as energy vector that can be used in replacement of natural gas. According to IRENA's 1.5°C Scenario, by 2050, direct electrification could provide 27 percent of the industrial energy needs and hydrogen (indirect electrification) 22 percent, from today's 23 percent both sources combined." Further, "Three main industrial sectors - chemical, cement and steel - are the most challenging to electrify, and promising solutions are being developed for their processes." While companies are concerned about the cost of introducing new technologies into operations, greater innovation in clean tech could help drive down prices and improve efficiency to support the effective decarbonisation of hard-to-abate industries. 

By Felicity Bradstock for Oilprice.com 

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Felicity Bradstock

Felicity Bradstock is a freelance writer specialising in Energy and Finance. She has a Master’s in International Development from the University of Birmingham, UK. More