Industrial clusters can slash emissions while creating jobs. Here’s how

This article is brought to you thanks to the collaboration of The European Sting with the World Economic Forum.

Author: Sean Bushart, Project Fellow, Net Zero Industrial Clusters, World Economic Forum

• Industrial clusters have been embraced by the World Economic Forum to ignite decarbonization technology and deploy it at scale.
• One advantage of utilizing industrial clusters for decarbonization is that significant incentives are available in the United States to set up new decarbonization infrastructure, technologies and jobs.
• Further financing can be leveraged throughout the lifecycle of decarbonization projects and it is worth monitoring the policy landscape that enables the full spectrum of potential support.

Industrial clusters – regional concentrations of related industries – represent a novel mechanism to decarbonize through collaborative regional infrastructure while promoting jobs and economic growth.

While the concept of industrial clusters is not new, the idea to deploy decarbonization technology enablers such as clean hydrogen, CCUS (carbon capture, utilization and storage), electrification and circularity at scale within clusters or hubs is gaining traction globally as an important means to meet climate commitments in a timely and cost-effective way.

The Forum’s Transitioning Industrial Clusters initiative, a collaborative with Accenture and EPRI, aims to catalyze decarbonization deployment by convening a growing global community of clusters to focus on key technology, financial, partnering and policy challenges. Globally, 20 clusters have signed on to this initiative.

Global signatory clusters of the transitioning industrial clusters initiative. Image: World Economic Forum

The global impact of industrial cluster decarbonization is significant. Focusing on the initiative’s five industrial clusters in the United States (see Figure 1), we estimate that these entities could reduce emissions by more than 725 metric tonnes while preserving existing or new jobs of more than 225,000 and $156 billion in gross domestic product.

Two key learnings show how industrial clusters can tackle emissions and green job creation.

1. Incentives are key

Since these clusters are in the early stages of formation, government funding and incentives are critical catalysts for the foundational decarbonization projects laying the groundwork for projected regional growth while reducing emissions.

These government funds draw matching initial private sector funds and lower the risk of longer-term private sector investment. As such, the recent boost given through the US Infrastructure Investment and Jobs Act (IIJA) and Inflation Reduction Act (IRA) provides billions in direct funding and incentives to support the deployment of new decarbonization infrastructure and resulting technologies and jobs.

In August, the US Department of Energy announced $1.2 billion in federal funding award selections to two direct air capture (DAC) hubs, the South Texas DAC Hub and Project Cypress DAC Hub, as primary front-end engineering and design hubs. Similarly, in October, the Department announced $7 billion in funding award selections to seven diversified clean hydrogen hubs across different regions of the United States:

• Mid-Atlantic Hydrogen Hub; Pennsylvania, Delaware, New Jersey.
• Appalachian Hydrogen Hub; West Virginia, Ohio, Pennsylvania.
• California Hydrogen Hub; California. Gulf Coast Hydrogen Hub; Texas.
• Heartland Hydrogen Hub; Minnesota, North Dakota, South Dakota.
• Midwest Hydrogen Hub; Illinois, Indiana, Michigan.
• Pacific Northwest Hydrogen Hub; Washington, Oregon, Montana.

The Department estimates these hubs will collectively reduce 25 million metric tonnes of carbon dioxide (CO2) emissions annually and create tens of thousands of jobs.

For example, the Project Cypress DAC hub in Calcasieu Parish, LA, aims to sequester more than 1 million tonnes of CO2 captured from the air permanently underground. Project Cypress is located within the Louisiana Future Energy Cluster, part of the Forum’s Signatory Cluster Community and is bringing diverse decarbonization technologies to the region, including CCUS, clean hydrogen and wind power. The project promises to bring new green jobs in the construction and operation of the hub.

The Ohio Clean Hydrogen Hub Alliance (OH2) is another signatory cluster in the Forum’s Transitioning Industrial Clusters initiative and a participant in the Appalachian Hub, focused on utilizing the region’s natural gas and geological resources for cost-effective production, storage and distribution of clean hydrogen. The Appalachian Hub intends to reduce CO2 emissions by 9 million metric tonnes annually and anticipates creating more than 3,000 permanent jobs in the region.

OH2 Alliance leader Kirt Conrad, CEO of the Stark Area Regional Transit Authority, notes:

“We are excited to announce that the Department of Energy has selected our region to receive up to $925 million to spur the development of a clean hydrogen hub. Our goal is to actively and aggressively pursue clean hydrogen technology and to reap the economic and environmental benefits that flow from this commitment.”

The Gulf Coast Hydrogen (HyVelocity) Hub in Texas has been selected for up to $1.2 billion in Hydrogen hub funding from the Department of Energy. The hub plans to use its abundant natural gas and renewable energy resources to produce clean hydrogen for use in heavy transportation, industrial processes, ammonia, petrochemicals and marine fuel. It is estimated to reduce CO2 emissions by 7 million metric tonnes per year while creating approximately 10,000 permanent jobs.

Brett Perlman, CEO of the Centre for Houston’s Future and lead for the H2Houston hub (a signatory cluster) notes:

“We are excited to get to work making HyVelocity come to life. We look forward to spurring economic growth and development, creating jobs, and reducing emissions in ways that will benefit local communities and the Gulf Coast region as a whole. HyVelocity will be a model for creating a clean hydrogen ecosystem in an inclusive and equitable manner.”

2. Maximizing funding options

Although these DAC and H2Hub award selections are significant, they are not the end of the financial incentives available to US clusters to accelerate the infrastructure deployment needed to meet their emissions reduction, jobs creation and economic growth goals. For example, the IRA authorized the Department of Energy loan programme office with multiple loan pathways for clean energy infrastructure support. The IRA also approved clean energy production tax credits for clean hydrogen, CCUS, and energy storage technologies. These credits are stackable and can thus significantly enhance project viability.

Members of our US cluster community and their partners actively evaluate and utilize these financial incentives and tools to accelerate and de-risk key infrastructure projects. While the hub funding will directly enable key DAC and hydrogen production projects, many IRA-based incentives can reduce costs for aspects of the decarbonization supply chain. Figure 2 provides a matrix of incentives available mapped to decarbonization technology strategies.

Planning will be critical in anticipation of deploying these US funds and incentives. For example, those looking to maximize the value of incentives should consider the strategic cluster critical project opportunities for which they can be the most impactful to catalyze necessary activities and de-risk private infrastructure investment to follow. Various global perspectives on maximizing infrastructure funding can be explored, from unlocking private investment to scaling offshore wind.

The global community is closely watching advances in US decarbonization policy and finance options as other countries adopt similar strategies. Going forward, building upon the momentum created by these incentives in the United States will be critical to ensure that progress in deploying cluster decarbonization infrastructure is sustainable. Challenges remain, for example, in ensuring that reliable, low-cost clean energy supplies are matched and available to end users and that demand is also well incentivized. Addressing these challenges will drive economic progress and job growth while meeting decarbonization goals and will be the focus of upcoming workshops and dialogues sponsored by the Transitioning Industrial Clusters initiative.