Transforming American Industry: Two Years of the Inflation Reduction Act’s Impact
Two years since the Biden administration passed the Inflation Reduction Act (IRA), the transformative impact of this legislation is becoming increasingly evident across the United States. With historic investments in clean energy and manufacturing, the IRA has sparked an industrial revolution that is quietly reshaping the country. From the rise of the “battery belt” in the Southeast to the revival of manufacturing plants in the Midwest, American industry is undergoing a seismic shift toward a cleaner, more sustainable future.
The Inflation Reduction Act marked a monumental shift in U.S. climate policy by making significant investments in the country’s most emissions-intensive sectors. While the focus on clean electricity and electric vehicles has gained considerable attention, the IRA’s impact on the industrial sector is equally profound. The industrial sector, responsible for nearly a third of U.S. greenhouse gas emissions, has long been a significant contributor to climate change. However, with the IRA’s targeted investments, this sector is poised for a transformation that could reshape the U.S. economy for decades to come.
One of the most notable components of the IRA is the Advanced Industrial Facilities Deployment Program, which allocated over $5.8 billion to commercialize technologies capable of drastically reducing carbon emissions in the industrial sector. The U.S. Department of Energy (DOE) has also established the Industrial Demonstrations Program, leveraging this funding to scale up new technologies. In March, the program announced $6 billion in funding for 33 projects across various industrial subsectors. Private investors have further bolstered these efforts, pledging an additional $14 billion to support these projects.
Among the beneficiaries of this funding is American steel manufacturer Cleveland-Cliffs, which received up to $500 million to retrofit its Middletown, Ohio, steel plant. The company plans to replace its fossil-fuel-fired furnaces with a direct reduced iron furnace that can operate on hydrogen, as well as two electric arc furnaces. This shift could nearly eliminate the plant’s emissions, setting a precedent for the industry.
Another innovative project receiving IRA funding is Brimstone Energy, a cement startup awarded up to $189 million to pilot a novel manufacturing process. Traditional cement manufacturing is highly carbon-intensive, with over half of its emissions coming from the breakdown of limestone. Brimstone Energy aims to replace limestone with naturally abundant, carbon-free rocks, potentially revolutionizing the industry.
The IRA also established the Federal Buy Clean Initiative, a series of programs leveraging the U.S. government’s purchasing power to create demand for low-carbon industrial products. The initiative provides over $4 billion for federal agencies to purchase low-carbon steel, cement, asphalt, and flat glass for infrastructure projects. Additionally, the Environmental Protection Agency (EPA) received $350 million to measure and validate the emissions impact of these materials, ensuring that they meet stringent environmental standards.
In addition to sector-specific programs, the IRA created and expanded initiatives that benefit multiple sectors, including industry. Notably, the 48C Advanced Energy Project Credit and the 45X Advanced Manufacturing Production Credit stand out for their potential impact on industrial decarbonization. The 48C credit covers 30% of the upfront costs of projects that retrofit industrial facilities with emissions-reducing equipment. The 45X credit, on the other hand, incentivizes the domestic manufacturing of critical clean energy components, such as solar panels, wind turbines, and battery systems.
The 45X credit also supports the production of thermal batteries, a technology that could significantly reduce the costs of electrified industrial heating. Given that industrial heating accounts for 84% of the sector’s energy-related emissions, this innovation could be a game-changer for the industry.
The IRA also includes cross-sector initiatives that benefit the industrial sector, such as the 45V production tax credit for clean hydrogen and the 45Q tax credit for carbon capture, utilization, and storage (CCUS). These programs are particularly relevant to subsectors like steel manufacturing and oil refining, which will increasingly rely on clean hydrogen and CCUS as they transition to a low-carbon future.
Moreover, the IRA has significantly expanded the DOE’s Loan Programs Office, adding $40 billion in new loan authority that could apply to the industrial sector. This financing mechanism is crucial for the early deployment of proven green technologies, helping to mitigate the perceived financial risks for private investors and accelerating the transition to a net-zero economy.
While the IRA’s investments in industrial decarbonization are unprecedented, they represent only a fraction of the funding needed to achieve a zero-carbon industry. Energy Innovation’s modeling report suggests that the IRA’s impact on industry will be limited in the near term, with the electricity sector accounting for the majority of emissions reductions by 2030. However, the long-term prospects are more promising, with the IRA’s industrial programs likely to pay significant dividends by 2050 and beyond.
The success of these initiatives will depend on continued investment, technological innovation, and policy support. Industrial projects are inherently complex and expensive, and the agencies administering IRA funding must navigate various legal, political, and bureaucratic challenges. However, if these challenges are met, the IRA could usher in a new era of clean manufacturing, creating jobs, protecting public health, and positioning the U.S. as a global leader in the green economy.
The Inflation Reduction Act has laid the foundation for a cleaner, more sustainable American industry. As we look ahead, the transformative potential of this legislation is clear. By investing in innovative technologies and supporting the early deployment of clean energy solutions, the IRA is driving an industrial revolution that will benefit both the economy and the environment for generations to come.
