The race to compete in the energy transition is on. As new energy technologies rapidly decrease in cost and improve in quality, regions across the world are scrambling to develop projects that can deliver high-quality jobs and sustained economic development. In 2022, for the first time, global clean energy transition investment surpassed the trillion-dollar mark and was equal to total investment in fossil fuels. Remarkably, global investment in solar energy is expected to surpass oil in 2023. In the United States, energy transition investment reached $140 billion in 2022 and is expected to more than triple by 2030.

The Great Lakes region^[i] is no exception. Since the start of 2021, the region has seen more than $40 billion in new energy transition investments, particularly in the electric vehicles (EVs) and batteries sector. Four-fifths of all new and planned electricity generation capacity in the region is in solar photovoltaic or onshore wind. Investments in new electrolyzer, thin-film solar, and lithium-ion battery manufacturing capacity are putting the region at the forefront of an American industrial renaissance. Manufacturing construction spending is at record highs, reaching $3.3 billion for the region in June 2023, a 150% increase over the pre-COVID average.

These manufacturing announcements are just the most visible pieces of what is, so far, a historic economic recovery. Since COVID, the US economy has returned to pre-crisis levels of employment and growth faster than in any post-recessionary period of the past half-century. The labor market is the tightest in a generation, which is pushing up real wages, particularly among lower-income and marginalized communities. Measures of economic dynamism, like startup business formation and new firm job creation, are up to rates not seen since long before the Great Recession. These macro factors, despite a hiking interest rate environment, are powerful motivators of risk-taking and creative destruction, creating positive conditions for developers and investors to take chances on new opportunities.

It is in this context that the federal government has further injected hundreds of billions of dollars into incentives for energy transition industries, left-behind places, and blue-collar workers. Between the 2022 Inflation Reduction Act (IRA), the 2021 Infrastructure Investment and Jobs Act (IIJA), and the 2022 CHIPS and Science Act, the federal government has rediscovered its capacity for coordinated industrial strategy. This approach has the potential to reshape the US economy in a way that leaves it cleaner, fairer, and more dynamic — but only if private investors, state legislatures, community organizations, and economic developers step up to the plate. Learning from past mistakes, these federal initiatives are designed not to pick winners, but rather to boost competitiveness, overcome constraints, and incentivize cooperation.

Strategies regarding these Three C’s — competitiveness, constraints, and cooperation — should be at the heart of any region’s plan for energy transition investment. When analyzing the Great Lakes through this framework, several major themes and priorities become clear for the region.

[i] In this report, we define the Great Lakes as the region extending from Minnesota through Wisconsin, Illinois, Indiana, Michigan, Ohio, and Pennsylvania.

Competitiveness

1. Great Lakes states are likely to be more competitive in energy transition industries where they have related existing capabilities. The feasibility of transitioning into these sectors can be measured using the tools of economic complexity, as shown in our Great Lakes Development Tool.
2. Most states lack coherent or cohesive industrial strategies for priority energy transition industries. In the three priority industries where RMI has conducted deep-dive analyses — EV batteries, near-zero-emissions steel, and sustainable aviation fuels — no Great Lakes state has a strong policy mix in every major domain of a coordinated industrial strategy.
3. The use of incentives to attract strategic projects can bolster competitiveness and economic development in a region if targeted appropriately and when conducted with best-practice program design. States and economic development organizations (EDOs) should look to incorporate more quantitative evidence in their incentive decisions, while reforming key programs to include best-practice features like clawback provisions and transparency requirements.
4. Great Lakes states, cities, companies, and universities are already mobilizing to take advantage of a historic set of federal programs designed to encourage new clusters of innovative energy transition industries throughout the United States. Policymakers should be thinking about how to how to help successful funding recipients to develop these hubs of economic development opportunity and even consider whether coalitions that miss out on federal funding could develop with state-level resources.

Constraints

5. The Great Lakes region has suffered acutely from slow aggregate demand growth, with some of the weakest economic and population growth in the country. The robust post-COVID economic recovery, particularly in the labor market, is an opportunity for the region to encourage economic dynamism and investment in high-productivity sectors that can turn these factors around.
6. Despite the region’s historic strengths in manufacturing, the South has continued to see faster job growth and more projects in the sector. With the energy transition providing one of the largest opportunities for the reshoring of manufacturing jobs in decades, the Great Lakes’ ability to take advantage of relevant federal provisions will be critical to reestablishing the region’s manufacturing competitiveness.
7. Great Lakes states have made uneven progress on clean electricity, potentially inhibiting their abilities to attract new investments and meet ambitious emissions targets. Some states, like Illinois and Minnesota, have passed important state legislation to accelerate these transitions, while others, like Indiana and Ohio, remain well behind.
8. Worker shortages are a critical challenge in all states but have been especially acute in the Great Lakes, where labor markets are tight and both domestic and international migration flows are low. Some states are being more proactive than others in identifying these workforce needs and preparing to fill them over time. Illinois, for example, is a national leader in this space, commissioning a clean energy jobs and training program inventory that other states, or indeed the region as a whole, would greatly benefit from imitating.
9. The Great Lakes has a mixed record on issues of equity and justice, particularly in the context of the energy transition. Again, Illinois and Minnesota are national leaders in this space, and other states would benefit from implementing similar approaches across the major themes of best-practice energy justice policy.
10. The Great Lakes region also has a rich history as a center of American innovation, and this remains true in emerging sectors of the energy transition like EV batteries, sustainable fuels, and low-carbon metals. State policymakers should provide further support for these ecosystems of invention, entrepreneurship, and cluster development.

Coordination

11. In emerging legislative priorities, Great Lakes states should be coordinating to share best practices and imitate novel solutions where they have common challenges and opportunities. In particular, Great Lakes states share similar regulatory and tax barriers to clean electricity deployment, can develop similar green banks, and implement similar competitiveness funds to access federal funding.
12. Another example of a relatively low-cost form of cooperative economic development could be a regional investment attraction strategy. By promoting the common sources of investment attractiveness in the region — such as workforce skills, industrial capacity, infrastructure, and natural resources — while providing educational material on subregional specializations, all Great Lakes states and metros would stand to gain as foreign-domiciled companies and investors narrow their site search to the region.

Competitiveness

Economic development is a function of competitiveness — of the specialized knowledge and networks it takes to create world-class products. Each region has unique capabilities it can translate into new sources of competitiveness and economic development. What you created yesterday will limit or expand what you can create tomorrow.

States, cities, and EDOs can strategically enhance their competitiveness by focusing on four areas:

1. Prioritizing high-potential industries with quantitative measures
2. Developing sector-specific and coordinated industrial strategies
3. Aligning economic development incentives with proven best practices
4. Taking advantage of federal place-based economic programs

Industry Prioritization

State policymakers and EDOs can compete in the energy transition by prioritizing industries where they already have the related workforce skills, physical infrastructure, knowledge networks, and natural resources to compete. RMI has worked with the Workforce of the Future Initiative at the Brookings Institution to create feasibility metrics for every metro in the Great Lakes region, helping local actors identify what energy transition industries they are most likely to be able to compete in based on existing implicit capabilities.

The online Clean Growth Tool gives metros in the region an opportunity to identify strategic energy transition industries for them to move into. This tool can help stakeholders to better understand the unique opportunities in their region and develop more effective strategies for nurturing these high-priority industries. For example, based on this approach, Columbus, Ohio, should prioritize manufacturing EVs, energy transmission equipment, and, to a lesser extent, low-carbon iron and steel.

The table below identifies the five most feasible energy transition industries for select Great Lakes cities. These are examples of industries each city can develop using current competitive strengths. Policymakers and EDOs can use this data and local knowledge to prioritize the energy transition industries that are most likely to deliver sustained, inclusive economic development in their local communities.

Sector-Specific and Coordinated Industrial Policies

Globally, industrial policy is continuing to gain traction as countries work to accelerate their own energy transition and compete in new markets for clean energy technologies. The term “industrial policy” simply refers to any goal-oriented state action whose “purpose is to shape the composition of economic activity.” Industrial policy is different from economic development because it exclusively refers to actions directed at changing the structure of the economy and does not include investment attraction or efforts to retain existing industries.

Nor is industrial policy the same as climate policy. Traditionally, climate policy has focused on demand-side solutions, while where the supply of clean energy technologies comes from has been of little consequence. Instead, energy transition industrial policy focuses on building out domestic supply through sector-specific strategies that incentivize production, create new markets, and coordinate across key enabling inputs like electricity, labor, land, and capital. This approach helps not only mitigate carbon emissions but also improve supply chain resilience, drive down the cost of these technologies, empower political coalitions, and create sustained economic development opportunities.

Working from a framework developed by the Organization for Economic Co-operation and Development, RMI has conducted a unique industrial policy gap assessment of every Great Lakes state and the federal government with respect to three potential high-priority industries — the EV battery supply chain, near-zero-emissions steel, and sustainable aviation fuels — and conducted a deep-dive analysis into their techno-economic potential in the region. This analysis can help states identify gaps in their industrial policy approach in these sectors and chart legislative priorities to boost competitiveness going forward.

In EV battery manufacturing, for example, the figure below shows the four domains of industrial policy and illustrates which states RMI analysis rates as weak, moderate, and strong in these areas. Only Michigan has strong strategic coordination of its policies and economic development mechanisms, while only Minnesota has implemented relevant demand-side mechanisms. When it comes to enabling inputs to the industry, no state has a set of policies to encourage end-of-life and recycling of EV batteries, and the state of encouraging clean electricity throughout the region is mixed.

Best-Practice Economic Development Incentives

The Great Lakes is an established leader in economic development policy and implementation, with some of the most robust EDOs in the country and generous programs of investment attraction and retention. Yet in program design and industry targeting, opportunities remain for the region to improve its effectiveness and capitalize on the growing energy transition sector.

States and cities should concentrate their development incentives on retaining and building on existing clusters and industrial capacities, rather than trying to create new specializations out of whole cloth. One proxy of whether this is taking place is industry feasibility, as described above, which measures the relatedness of capabilities between industries. To date, however, there is little indication of such targeting taking place. Of the announced energy transition projects nationwide since early 2021 with available subsidies data, for example, most subsidies have gone to projects with lower feasibility scores relative to the national average in that industry. This suggests these projects are more likely to have to bring in workers from outside the metro area, are less likely to see clusters develop around these anchor projects, and will have fewer productivity spillovers in related industries.

Another means of improving the impact of economic development incentives is in the design of the programs themselves. Incorporating best-practice design features — including transparency, quantitative targeting, institutional guardrails, and clawback provisions — can improve program effectiveness. Among the largest discretionary programs in the Great Lakes region, adoption of these best practices is uneven at best, as shown in the gap analysis figure below. As the Great Lakes looks to take advantage of investment opportunities in the energy transition and deliver sustained development impacts in local communities, states would be well advised to revisit their economic development programs with these best practices in mind.

Federal Place-Based Policy Opportunities

The federal government is engaging in an ambitious place-based economic program to encourage regional innovation clusters, creating new opportunities for the Great Lakes region to develop world-beating hubs of exports and innovation. These programs include the $1 billion Build Back Better Regional Challenge under the American Rescue Plan Act (2021); the $8 billion Regional Clean Hydrogen Hubs and $3.5 billion Regional Direct Air Capture Hubs under the IIJA; and the $6.5 billion Regional Innovation Engines and $10 billion Regional Technology and Innovation Hubs under the CHIPS and Science Act. Additionally, several federal programs explicitly target disadvantaged and at-risk communities through quantitative screening tools.

Constraints

For all the recent policy momentum and signs of an economic recovery, major constraints still stand in the way of a robust, competitive energy transition sector in the Great Lakes. The lost decade of the post–Great Recession period has left deep scars across the country, and the Great Lakes has been no exception. Meanwhile, automation and globalization have hollowed out hundreds of manufacturing communities across the region, even as the digital revolution concentrated new sources of economic opportunity in a few metropolises.

In the 2010s, these forces led to a broad slowdown in investment, dynamism, and innovation in the US economy as entrepreneurs stopped starting new businesses, workers stopped moving for new opportunities, and companies prioritized shareholder returns over new product lines. These are powerful constraints that cannot be overcome overnight, and while there are early signs of a positive turnaround, new technologies and policy tools will play a critical role in sustaining these developments into the future.

The Constraints section of this report identifies some of the constraints holding back the Great Lakes’ competitiveness in emerging energy transition sectors and connects these to new policy and technology opportunities. These include lackluster economic growth, the southern migration of manufacturing capacity, stilted clean electricity deployment, labor shortages, inequality, and failure to capitalize on regional innovation ecosystems.

These constraints span the macro and micro, the structural and political. The Great Lakes region has suffered from particularly poor aggregate demand and population growth, for example, forces over which state and local actors have only limited control. On the other hand, policy decisions can have a significant impact on the region’s lower attractiveness for new manufacturing projects or slower growth in clean electricity deployment.

There are also large differences among states within the region, of course. Some, like Wisconsin and Pennsylvania, are proving to be national leaders in workforce development. Others, like Illinois and Minnesota, have demonstrated global leadership in their approaches to environmental justice and energy equity. Further, there are emerging hubs of clean energy innovation within the region, like Detroit in EVs and batteries; Columbus, Indiana, in sustainable fuels; and Cincinnati in low-carbon metals.

Between large fiscal stimulus, programs to onshore clean energy supply chains, generous incentives for clean electricity, and increased funding for R&D throughout the energy transition, federal policy levers can play a major role in addressing these constraints. But so can state and local initiatives, particularly in workforce development, permitting and siting, and equity and justice.

Coordination

Finally, the very notion of multistate regions is underexplored in economic development and energy transition strategies. The Great Lakes states share a variety of political, economic, and social characteristics that could allow them to scale best-practice solutions through coordination and imitation. Meanwhile, the region’s states and cities could maintain a healthy competition with one another, encouraging improvement in each new iteration of these strategies. Further, this interstate approach could be a significant driver of competitiveness in the context of industry clusters that operate across state lines, such as the emerging “Battery Belt” that stretches from Michigan to Alabama. By harmonizing regulation and addressing common constraints, the Great Lakes region can situate itself as the premier destination for new investment, lifting up hundreds of communities in a strategy of specialized interconnection.

Sharing Legislative Best Practices

The Great Lakes is a hotbed of democratic experimentation with new policy ideas being tried and tested with every new legislative session. The legislative response to the accelerating energy transition and recent federal legislation has been no different. Three emerging themes within this legislation are (1) a desire to remove local regulatory barriers to clean energy deployment; (2) the establishment of green banks to access new federal funding; and (3) the creation of competitiveness funds to accelerate uptake of IRA, IIJA, and CHIPS incentives.

Removing Local Regulatory Barriers to Clean Energy Development

One shared approach to accelerating clean energy deployment in the region appears to be a desire to simplify tax requirements and encourage communities to adopt best practices in zoning and other areas. Many township and rural zoning ordinances make it difficult, risky, and/or costly for solar and wind projects to be developed. In response, Michigan has passed a series of bills and budgetary programs designed to complement the IRA’s incentives for clean electricity development. The state’s Solar Energy Facilities Taxation Act (2023) reduces the tax burden of solar farms by allowing cities, townships, and villages to establish solar energy districts where they will not levy value-based taxes but rather apply a fixed tax rate based on the output of the solar farm, similar to Ohio’s Payment in Lieu of Taxes program.

Considerable attention has been paid to permitting and siting reform at the federal level in recent months; however, state and local solutions are likely to be just as — if not more — important. When these efforts show promise, neighboring states and cities should cooperate to learn what has worked and what needs to change for their specific context. Streamlining and, where appropriate, removing local regulations and taxes that impede clean electricity deployment could provide a competitive edge for the region as it seeks to deliver the clean, cheap, and reliable energy its growing manufacturing and industrial sectors need.

Establishing New or Expanded Green Banks

Another common priority among state legislatures is an attempt to take advantage of the federal government’s $27 billion Greenhouse Gas Reduction Fund (GGRF) and create state or city green banks. The GGRF is the largest IRA program explicitly for disadvantaged communities, and funds have to support these communities. Green banks can be an important source of low-cost capital for emerging cleantech sectors in a state or community. In 2022, active green banks in the United States facilitated $4.64 billion in clean energy projects at a two-to-one leverage ratio with private capital. Since 2011, these lenders have helped create more than $14.8 billion in cumulative public–private investment.

The Great Lakes region has a number of existing green banks that are well positioned to take advantage of additional capital allocations thanks to the GGRF, and several states are establishing new institutions modeled off these banks. In Minnesota, the state legislature recently established the Minnesota Climate Innovation Finance Authority with an initial $45 million capitalization. In April 2023, Governor Tony Evers of Wisconsin signed an executive order to begin the process of creating a Green Innovation Fund in the state. Reportedly, Pennsylvania lawmakers are also considering establishing a green bank to leverage GGRF funding.

Authorizing Competitiveness Funds to Provide Broader Access to Federal Programs

Between the IRA, CHIPS, and IIJA, there are more than 500 programs and potentially over $1 trillion worth of federal energy transition funding available for states, cities, community organizations, and economic developers to access and leverage. This creates significant complexity for states and local actors, many of whom lack adequate resources to develop federal grant proposals, set up coalitions, or overcome the technical hurdles to new project development. As such, several states are setting up competitiveness funds to provide monetary and, in some cases, technical resources so a broad suite of organizations can make the most of this federal funding opportunity.

Minnesota and Michigan have already created such funds in their legislature and budget, respectively. Minnesota’s $190 million State Competitiveness Fund provides matching grants for IRA programs that require nonfederal matching, while also providing grant development assistance for nongovernmental organizations and other local entities. Michigan’s $350 million Make it in Michigan Competitiveness Fund is designed to leverage funding opportunities in formula- or competitive-based grants, cooperative agreements, and contracts. With historic federal funding on the table, the remaining Great Lakes states would be well advised to consider similar competitiveness funds of their own.

This report — alongside three priority industry deep-dive briefs, an overview of the energy transition economy from the Brookings Workforce of the Future Initiative, a regional investment attraction strategy from OCO Global, and an online industry prioritization and workforce development data tool — represents the first stage of a collaborative energy transition investment strategy for the Great Lakes region. By no means an exhaustive analysis of the Three C’s of an investment strategy, we hope it can be a resource for policymakers, economic developers, and communities looking to take advantage of this historic moment.

The United States is at a turning point. Unprecedented improvements in energy technologies, the passage of historic federal legislation, a resurgence in industrial policy, and a renewed interest in reshoring supply chains all point toward an industrial renaissance, powered by clean energy.

The Great Lakes stands to benefit more from this renaissance than any other region. Thanks to its historic strengths in manufacturing, the region has the workforce, infrastructure, networks, culture, and institutions to be globally competitive in this next wave of industrialization. With the right strategy regarding competitiveness, constraints, and cooperation, Great Lakes states can diversify their economies into emerging energy transition industries while generating broad-based prosperity in the process.

The region cannot rest on its laurels. A tight labor market, declining population growth, falling productivity, and a policy environment lacking in industrial strategy are very real constraints. Despite the Great Lakes’ structural advantages, major clean energy investments are going to other parts of the country with shovel-ready sites, generous incentives, long-term strategies, and flexible workforce organizations.

The Great Lakes states will not be competitive in every technology or every component of their supply chain, nor should they be. Part of the challenge of this industrial policy moment is understanding how best to prioritize particular sectors and most efficiently direct resources and institutional capacity toward them.

As one study has put it: “To compete, a region must specialize; to grow, a region must diversify.”

In other words, the clean energy transition is increasingly an issue of industrial competitiveness and technological development. We know the demand for these technologies is coming, and America’s states and regions are now part of a global scramble to develop the necessary capabilities to be competitive in their supply. What is more, the core technologies in this transition have demonstrated clear first-mover advantages that call for accelerated action and heightened ambition in this bid for competitiveness.

Globally, there is an accelerating shift toward this industrial competitiveness mindset in the clean energy transition, but especially from the current US administration. The United States is now anticipated to spend in excess of $500 billion on policies that encourage clean energy investment, the largest amount of any country tracked by the International Energy Agency. Even for a country of its economic and population size, the United States is now among the highest spenders on the energy transition globally.

The question Is therefore not what to prioritize, but who should do so and how they can maximize the economic and social benefits in the process. States, cities, and economic development organizations (EDOs) across the country will play a critical role in this strategy, one that can be summarized in Three C’s: competitiveness, constraints, and coordination. These subnational actors are ideally positioned to identify and build on their competitive strengths, address their structural and policy constraints, and cooperate across state and local boundaries to do so at scale and speed.

This Great Lakes Regional Investment Strategy is designed to help EDOs and policymakers begin to answer some of these questions and accelerate parts of this process. RMI and its partners at the Brookings Institution, OCO Global, and George Mason University have conducted novel research into these questions of competitiveness, constraints, and coordination and have created brand-new data tools, foreign direct investment strategies, and sectoral deep dives to help guide policymakers and economic developers through this moment.

Economies are inherently path dependent. What makes a city, state, region, or nation competitive tomorrow is a function of what they already produce and how they produce it. Although areas may be able to expand into new products or specializations, this process is incremental, conditional, and constrained by today’s capabilities. A strategy of regional competitiveness in tomorrow’s energy transition industries has to be grounded in the strengths and weaknesses of today’s industrial capacity.

This is why EDOs — public, private, and public–private — have the potential to be such powerful actors in the energy transition. EDOs are uniquely incentivized within their regions to understand existing competitive strengths and have the relationships to translate those strengths into investment opportunities. They have played a marginal role until now because the energy transition has been relatively nascent across most sectors. However, as annual investment figures skyrocket in the coming years, no EDO will want to be left out, and most industries would benefit from their expertise and experience.

States, cities, and EDOs can strategically enhance their competitiveness by focusing on four areas: (1) prioritizing feasible industries through the use of empirical metrics; (2) developing sector-specific and coordinated industrial strategies; (3) aligning economic development incentives with evidence-based best practices; and (4) taking advantage of federal place-based economic programs. Although by no means an exhaustive list, these should be short-term priorities in a landscape of accelerating action and global competitiveness.

State policymakers and EDOs can compete in the energy transition by prioritizing industries where they already have strengths in related workforce skills, physical infrastructure, knowledge networks, and natural resources. RMI has worked with the Workforce of the Future Initiative at the Brookings Institution to create feasibility metrics for every metro in the Great Lakes region, helping local actors identify which energy transition industries they are most likely to be able to compete in based on existing implicit capabilities. This data can be accessed through our online portal.

This approach is grounded in the concept of economic complexity. This concept is based on the intuitive notion that the competitive production of goods and services is dependent on existing knowledge. Whereas other inputs are relatively easy to trade, this tacit knowledge is difficult to transfer and often rooted in specific places and within unique networks — see auto manufacturing in Detroit or software development in Northern California. Significantly, many indicators of broad-based economic development, such as income per capita, are strongly correlated with higher levels of complexity, which is to say with the diversity and implied know-how of its industrial base.

Economic complexity is a powerful idea in the context of accelerating a just and inclusive energy transition, and one gaining more attention. It can explain where critical clean energy technologies will cluster and why. Complexity also helps explain why some energy transition industries will create better economic opportunities than others.

The Clean Growth Tool utilizes this methodology and gives metros across the region an opportunity to identify strategic industries for them to transition into. Industries can be prioritized based on related capabilities (feasibility), economic complexity, and the share of good jobs they will create in their communities. Applying these concepts and measures to the Great Lakes can help states and EDOs better understand the unique opportunities in their region and develop more effective strategies to nurture clean energy transition entrepreneurial opportunities and economic development.

This approach can help economic development stakeholders at various geographic scopes, including at the metro or state level. The figure below, for example, shows the complexity and feasibility of transition industries in Columbus, Ohio. Based on our approach, Columbus should prioritize manufacturing electric vehicles (EVs), energy transmission equipment, and, to a lesser extent, near-zero-emissions iron and steel. Energy transition sectors like green consumer products and EVs are feasible for Columbus, given its existing industrial makeup, and are relatively sophisticated or complex and therefore correlated with sustained economic development benefits over time.

The table below identifies the five most feasible energy transition industries for select Great Lakes cities. These are examples of industries each city can develop using current competitive strengths. These industries make intuitive sense. It is unsurprising, for example, that Detroit and Columbus, Ohio, are well positioned to compete in EV industries, or Indianapolis in component manufacturing. Similarly, Milwaukee’s proven strengths in equipment manufacturing or Pittsburgh’s in steel manufacturing will give these cities an advantage in the emerging low-carbon industrial equipment and low-carbon metals industries.

Armed with this data, and paired with deep local expertise, policymakers and EDOs can better prioritize those energy transition industries that deliver sustained, inclusive economic development in their communities. This prioritization can happen through dedicated industrial strategies, targeted economic development incentives, and federal place-based economic programs.

Industrial policy is having a moment. As countries work to accelerate their own energy transitions and compete for new markets in clean energy technologies, governments are increasingly adopting a more interventionist posture when it comes to restructuring their economies through strategic industrial growth.

The term “industrial policy” refers to any goal-oriented state action whose “purpose is to shape the composition of economic activity.” Industrial policy is different from economic development because it exclusively refers to actions directed at changing the structure of the economy and does not include investment attraction and retention efforts aimed at existing industries. Its distinguishing feature is not any individual instrument or objective, but rather the strategic coordination of multiple instruments and institutions to alter the distribution of income and activity between industries.

Nor is industrial policy the same as climate policy. Traditionally, climate policy has focused on demand-side solutions, while where the supply of clean energy technologies comes from has been of little consequence. Instead, energy transition industrial policy focuses on building out domestic supply through sector-specific strategies that incentivize production, create new markets, and coordinate across key enabling inputs like electricity, labor, land, and capital. This approach helps not only mitigate carbon emissions but also improve supply chain resilience, drive down the cost of these technologies, empower political coalitions, and create sustained economic development opportunities.

The Biden administration is leading this charge globally by harking back to some of the foundational ideas of US economic policy. American history since its earliest days has been shaped by Alexander Hamilton’s idea that when powerful social goals are at stake, “the public purse must supply the deficiency of private resource.” Nowhere was this more apparent than in the Midwest, particularly during the post–Civil War period, when the region transformed into the “American Manufacturing Belt” through public investments in transportation infrastructure, the regulation of freight charges, and the channeling of credit into strategic industries.

State governments today can adopt modern variations of these same approaches to accelerate the development of energy transition sectors. Although there is a vast range of policy instruments that can be used to improve strategic or economically important sectors, these policies can be grouped into four primary domains: strategic coordination, production instruments, demand-pull mechanisms, and cross-sectoral integration. Within each domain, the policy instruments are grouped based on their similarities:

• Strategic coordination: Any effort of policy governance such as coalitions and sectoral competitiveness assessments. Often, policymakers choose to commission industry strategy or technology road maps to guide and complement the other categories of industrial policy intervention. These would usually be accompanied by a vision statement and a set of objectives and targets.
• Production instruments: These affect the economics of firm-level production and investment decisions for individual firms within the target sector. This can include a range of financial incentives — such as subsidies, grants, or tax credits — to promote research, development, and demonstration activities or otherwise facilitate additional investment, particularly in novel technologies. Production instruments can also affect firm performance through the provision of key inputs, such as skilled labor, or through addressing supply chain gaps.
• Demand-pull mechanisms: These apply to the consumption of the product(s) produced by the industry. These can include tax breaks and rebates, mandates, public procurement, and certain product standards and definitions.
• Cross-sectoral integration: This affects the whole industry through regulations governing the allocation of enabling inputs into the production process, such as land, capital, labor, and physical infrastructure. Cross-sectoral interventions can also include policies that are focused on other goals but affect the target industry, such as competition or trade policy. These policies typically aren’t thought of as industrial policies, but when integrated into a coordinated strategy, can be powerful tools nurturing industrial competitiveness.

Through strategic coordination, production incentives, demand-pull mechanisms, and cross-sectoral integration, Great Lakes states can put themselves in a position to compete at home and abroad for energy transition factories, power plants, and infrastructure projects.

Yet in industries where the Great Lakes has the highest potential to compete globally — including the EV battery supply chain, near-zero-emissions steel, and sustainable aviation fuels — states in the region are missing a coordinated industrial policy approach. Even in states with highly ambitious climate targets and plans, there is little strategic planning for how to accelerate investment, attract projects, break down barriers, and form regional clusters.

Working from a framework developed by the Organisation for Economic Co-operation and Development, RMI has conducted a unique industrial policy gap analysis assessment of every Great Lakes state and the federal government with respect to these three potential high-priority industries and conducted a deep-dive analysis into their techno-economic potential in the region.

In EV battery manufacturing, for example, only Michigan has strong strategic coordination of its policies and economic development mechanisms, while only Minnesota has implemented relevant demand-side mechanisms. When it comes to enabling inputs to the industry, no state has a set of policies to encourage end-of-life options for and recycling of EV batteries, and, of course, the state of encouraging clean electricity throughout the region is mixed.

The situation is similar in near-zero-emissions steel. Like motor vehicle manufacturing, the Great Lakes region is the heartland of US steelmaking, with all nine of the country’s remaining integrated steel mills and fully two-thirds of the nation’s 80,000 steelworkers. With low-emissions steel growing rapidly — potentially reaching 200 million tons globally by 2030 — there is a significant opportunity for the region to not only retain these workers but also reinvigorate the industry’s productivity and dynamism with its greatest technological shift in half a century. Yet no Great Lakes state appears to have given the industry much thought, and certainly no state has implemented a coordinated industrial strategy for its development.

These two industries could also form a positive feedback loop as the automotive sector in the region hastens to meet its ambitious zero-emissions supply chain goals, creating additional demand for sustainable steel and thus giving the industry a significant leg up over global competitors. Of course, as these gap analyses also demonstrate, the federal government is leading the way in both sectors, providing a further boost to the global competitiveness of these industries that cannot be squandered over ideological fights and political intransigence.

While governors’ offices and state legislatures have been slow to develop comprehensive industrial strategies in emerging energy transition sectors, economic developers have been busy throughout the region putting together sites, workforce development strategies, and incentive packages to attract and retain these industries. The Great Lakes is an established leader in economic development policy and implementation, with some of the most robust EDOs in the country and generous programs of investment attraction and retention.

Yet in program design and industry targeting, there remain opportunities for the region to improve its effectiveness and capitalize on growing energy transition opportunities. As described above, industrial clusters of economic opportunity arise out of existing competitive strengths. However, incentive programs often fail to include the necessary targeting or design features to ensure spending is not wasted on projects with little hope of developing into such hubs.

Investment incentives can be a powerful tool of economic development and a coordinated energy transition industrial strategy if appropriately targeted and designed. Over the past 10 years, Michigan has provided around $8.9 billion in economic development incentives to new projects, followed closely by Wisconsin at $6.5 billion and Ohio at $5.8 billion. As states see the value of major energy transition and semiconductor investments, the use of these incentives has surged: a record of nearly $8 billion in incentives was invested across the region in 2022 and nearly $35 billion since 2011.

The strongest economic case for these firm-level subsidies is the potential spillover effects to other firms and industries, potentially creating lasting clusters that can sustain broad-based regional growth and development. The best available evidence suggests that while, on average, local employment multiplier and productivity spillover effects are positive, they usually do not last very long, and most of the firm openings attracted by development incentives would have happened anyway. Nor is job growth necessarily a purely positive effect from an economic development standpoint. For example, over the medium term, an average of just 20% of new jobs in highly incentivized projects go to local residents.

A 2022 study found that large manufacturing plant openings do have a positive spillover effect on the productivity of nearby firms, but that these effects are not large enough to shift a county into a new economic development pathway. Importantly, the study found that productivity spillovers increase when there are more “economically close” plants nearby, which is to say plants in related industries. This is further evidence that states and cities should concentrate their development incentives on retaining and building on existing clusters and industrial capacities, rather than trying to create new specializations out of whole cloth.

It is likely that the long-term development impacts of subsidized investments will increase when those investments are targeted at industries of higher feasibility in a region, yet there is little indication of such targeting taking place. Of the announced energy transition projects since early 2021 with available subsidies data, for example, most subsidies have gone to projects with lower feasibility scores relative to the national average in that industry. This suggests these projects are more likely to have to bring in workers from outside the metro area, are less likely to see clusters develop around these anchor projects, and will have fewer productivity spillovers in related industries. However, more research into this area is needed.

Another means of improving the efficacy of economic development incentives is in the design of the programs themselves. Decades of scholarship have narrowed in on several ways in which policymakers and economic developers can improve program effectiveness, yet examples of major reforms to long-standing investment attraction programs are few and far between. A recent study on the California Competes Tax Credit program, for example, shows that incorporating best-practice design features — including transparency, quantitative targeting, institutional guardrails, and clawback provisions — can improve program effectiveness, as measured by its local employment multiplier. Among the largest discretionary programs in the Great Lakes region, adoption of these best practices is uneven at best.

Going through the underlying legislation for these programs, program guidelines, annual reports, and financial statements, it is possible to make a gap assessment of where these programs align with these best-practice criteria and where they fall short. In general, these programs are designed to be highly discretionary, with strong institutional guardrails within the relevant EDOs — usually a board approval process. However, none of the evaluated programs had clear quantitative metrics, and while many use cost-benefit measures in their selection criteria, it is unclear what weighting is assigned to them within the approval process or how these measures are quantified.

Most programs have some degree of transparency, typically through annual reports, though in many cases these were difficult to access or were irregularly updated. Only Indiana’s Economic Development for a Growing Economy program had an online portal with easy access to individual project agreements, and JobsOhio has a useful monthly metrics system. Unfortunately, no programs provided in-depth cost-benefit evaluations.

Presumably due to their discretionary design, none of the evaluated programs had robust targeting of strategic industries or distressed areas. Many of the programs included a short list of industries to be considered in the selection process; however, once again, it is unclear how significantly these were weighted or why these industries were targeted. None of the programs included clear and robust community engagement processes, and while most programs include options to claw back funds from projects that do not meet their stated objectives, these mechanisms are rarely automatic and often seem to go unused.

As the Great Lakes looks to take advantage of investment opportunities in the energy transition and deliver sustained development impacts in local communities, states would be well advised to revisit their economic development programs with these best practices in mind.

Helping states and cities improve their competitiveness are over $80 billion in new place-based economic policies from the federal government across the 2022 Inflation Reduction Act (IRA), the 2021 Infrastructure Investment and Jobs Act (IIJA), and the 2022 CHIPS and Science Act. These policies are designed to address the wide inequities between different places within the United States where, broadly speaking, during the transition to digital technologies and global supply chains, “superstar cities” on the coasts grew much faster than the American heartland. Some Great Lakes states and cities are already the recipients of federal funding as part of these programs, while others are in the middle of application processes to spur innovation, job creation, and cluster development in their areas.

Through a series of distinct programs and competitions, the administration is focused on building out regionally distinct clusters, hubs, and growth centers. These terms all refer to geographic concentrations of related industries that have been empirically shown to improve productivity and generate higher employment spillovers and are generally considered the most effective means of generating large and sustained place-based economic growth. These programs include the $1 billion Build Back Better Regional Challenge (BBBRC) under the American Rescue Plan; the $8 billion Regional Clean Hydrogen Hubs and the $3.5 billion Regional Direct Air Capture Hubs under the IIJA; and the $6.5 billion Regional Innovation Engines and $10 billion Regional Technology and Innovation Hubs under the CHIPS and Science Act. Additionally, several federal programs explicitly target disadvantaged and at-risk communities through quantitative screening tools.

States and EDOs have an important role in participating in these programs and ensuring they have the greatest possible development impact over time. As one recent study into such place-based policies notes, their success depends on how well they account for existing capabilities and whether stakeholders maintain their commitment to the cluster over time. Relevant public and public–private organizations in the region can therefore play a complementary role by providing local expertise into relevant capabilities while providing ongoing incentives and support to maintain the cluster’s momentum.

American Rescue Plan

The BBBRC provided five-year grants of $25 million to $65 million for 21 industry clusters across the country, each run by unique coalitions of businesses, governments, universities, and community-based organizations. Led by the Economic Development Administration (EDA), the federal government is also investing in the success of all 60 finalists in the initiative through a community of practice. According to a Brookings Institution analysis, 22 of these finalists focused on low-maturity clusters, 21 on established industries in their region, and 17 on clusters that were in decline or under significant competitive threat. The Great Lakes region was the recipient of two BBBRC awards, and an additional five coalitions were finalists.

Awardees include the Global Epicenter of Mobility, which is led by the Detroit Regional Partnership Foundation. It has been using the $52 million award to transform the Detroit area’s legacy automotive industry into a highly competitive advanced mobility cluster. The cluster unites 136 coalition members, including automakers, United Auto Workers, universities, and community leadership. Among its six initiatives is a new Supply Chain Transformation Center, housed at the Economic Growth Institute at the University of Michigan, which will help small to medium-sized manufacturers transition from internal-combustion engine supply chain manufacturing to new, dynamic industries. Other initiatives within the coalition include a talent workforce project run by the Southeast Michigan Community Alliance, support for startups from entrepreneurship hub TechTown Detroit, testing and demonstration from the state of Michigan’s Office of Future Mobility and Electrification, and efforts to improve industrial site readiness from the Detroit Regional Partnership.

Infrastructure Investment and Jobs Act

The IIJA established an important new clean energy innovation organization, the Office of Clean Energy Demonstrations (OCED), within the Department of Energy (DOE) to focus on demonstration projects, which help provide technical and financial information that builds investor confidence in emerging technologies. OCED is infusing the DOE with greater expertise about commercialization processes and end-use markets, supplementing the extensive technical expertise already available to the department. The office is responsible for some of the largest place-based programs in the DOE’s history, all of which will significantly impact the future geographic concentration of these emerging industries’ development.

Most notably, the office is responsible for the $8 billion Regional Clean Hydrogen Hubs program. Four hydrogen hub proposals in the Great Lakes region were among the 33 hubs encouraged by the DOE to submit a full application in early 2023. These include the Midwest Alliance for Clean Hydrogen, which is a multistate coalition of producers, developers, utilities, manufacturers, national labs, universities, and others, with the state of Illinois being the lead partner. The Great Lakes Clean Hydrogen hub is a smaller proposal focusing on decarbonizing steel and glass-manufacturing facilities, and its lead partners include Energy Harbor, the University of Toledo, Linde, Cleveland-Cliffs, and GE Aerospace. Additionally, the Heartland Hydrogen Hub, which includes parts of Minnesota and Wisconsin, as well as the Appalachian Regional Clean Hydrogen Hub, which includes parts of Pennsylvania and Ohio, have also been encouraged to make full applications.

CHIPS and Science Act

The CHIPS and Science Act also established new regional innovation programs, such as the Regional Technology and Innovation Hubs program at the EDA, the Regional Innovation Engines program at the National Science Foundation (NSF), and the Regional Clean Energy Innovation program at the DOE.

Under the $10 billion Tech Hubs program, the EDA will designate at least 20 hubs across the country to strengthen US supply chains, create good-paying jobs, and expand US innovation capacity. Congress has so far allocated $500 million to the program, which is expected to fund the first five hubs. A competition to identify contenders to receive $15 million in strategy development grants is under way, and final grants can be as much as $150 million. The program has 10 initial key technology focus areas, drawn from CHIPS, which includes “advanced energy and industrial efficiency technologies.” The program is relatively unique in the 10-year time horizon for hub development, its focus on geographic concentration in areas at only nascent stages of competitiveness, and its aim to scale up its focus technology areas.

The NSF Regional Innovation Engines program complements the Tech Hubs by focusing on the earlier stages of technology development. Each NSF Engine could receive up to $160 million over 10 years, with initial two-year awards of about $15 million expected this fall. NSF announced 16 finalists in August, including four in the Great Lakes. These include the Great Lakes Sustainability Hub for an Alternative Packaging Ecosystem based out of the Michigan State University Research Foundation, Great Lakes ReNEW focused on the blue economy, Quantum Crossroads led by the University of Chicago, and the Midwest Sustainable Plastics Innovation Regional Engine led by the University of Minnesota–Twin Cities.

Disadvantaged and Energy Communities

Throughout both existing and new programs, the federal government has also incorporated notions of place-based policymaking through its Justice40 initiative and the delineation of so-called energy communities.

Justice40 is a government pledge to ensure that 40% of the overall benefits of certain federal investments flow to disadvantaged communities that have been marginalized and overburdened by pollution and underinvestment. The White House has developed a screening tool to determine which communities are considered disadvantaged and therefore eligible for certain federal programs.

According to the tool, which uses a wide range of data on localized burdens, 31% of census tracts in the Great Lakes region are disadvantaged, which, though high, is well below the Gulf and South regions, where over 50% of tracts are disadvantaged. Ohio, Indiana, Michigan, and Illinois all have more than a third of their census tracts identified as disadvantaged communities, while Minnesota has the least at just 15%. There are 21 covered programs under Justice40 to date, including the Weatherization Assistance Program, the National Community Solar Partnership, the Brownfields Program, the Superfund Remedial Program, and the Rural Energy for America Program.

A related notion of equity pertaining to federal government eligibility is energy communities, which are coal, oil, gas, and power plant communities. These areas are at particular economic risk due to the energy transition. They stand to benefit from 22 IRA tax credits and more than $670 billion in competitive and formula funding.

The DOE also has developed a similar screening tool for identifying energy communities, including specifically for coal communities eligible for $4 billion of the $10 billion in 48C manufacturing tax credits. Approximately 10% of all census tracts in the Great Lakes region are designated as “coal closure energy communities” — 1,702 in total — which is the second highest in the nation, after the South at 16% of all tracts. Entities can receive an extra 10% for the investment tax credit (48, 48E) and the production tax credit (45, 45Y) if the project is located in an energy community.

Home to roughly 65 million people, the Great Lakes region possesses a dynamic political and economic history that sits at the heart of America’s growth story. Importantly, the region is no homogeneous monolith, and, despite lingering misconceptions, it has steadily transformed itself away from the unfair “Rust Belt” moniker. Many communities across the Great Lakes, both large and small, have successfully transitioned from their industrial and agricultural past to become competitive, globally oriented centers of knowledge-based economic activity.

The region includes some of the country’s most dynamic major metros — from the Twin Cities in the west to Chicago, Milwaukee, Detroit, and Indianapolis at its center and Cleveland and Pittsburgh on its eastern front. Beyond its role as the manufacturing heartland of the country, the Great Lakes is also home to many of the country’s top-tier universities, emerging technology clusters, and thriving startup communities.

As other researchers have noted, however, “[t]oday there are two Midwests.” Boasting some of the most dynamic and disadvantaged parts of the country, the Great Lakes faces a steep uphill climb in its bid to be at the center of global cleantech manufacturing and economic growth. State and local leaders looking to foster new economic opportunities must articulate and implement an affirmative, forward-looking economic vision for the region — an agenda that builds on its many economic strengths, addresses its specific constraints, and takes advantage of emerging opportunities in the clean energy transition.

These constraints include but are not limited to (1) slow economic growth and local demand, (2) accelerating manufacturing momentum outside of the region, (3) uneven progress in clean electricity deployment, (4) worker shortages, (5) patchy frameworks for addressing issues of equity and environmental justice, and (6) the challenges of leveraging the region’s innovation resources for economic gain.

Economic Growth and Lackluster Local Demand

A significant constraint on the region’s investment attractiveness and competitiveness potential is the lackluster pace of demand growth, driven by a declining population and economic dynamism. Since 2017, no Great Lakes state is among the top 20 fastest-growing states in the union, and Michigan, Illinois, and Pennsylvania are all among the 10 slowest.

This has been driven in large part by falling population growth. Between 2017 and 2022, the Great Lakes’ population fell by 160,000 people, the second-largest decrease in the country after the Northeast. Of the 591 counties in the region, 321 saw their populations fall over the past five years, creating growing challenges for public service provision, workforce development, and local demand growth.

The region has also experienced middling productivity growth and some of the weakest economic dynamism in the country. Slower productivity and growth can be explained, in part, by the region’s low specialization in highly productive and dynamic industries. The Great Lakes region had the lowest share of employment in the 25 most productive industries from 2014 to 2019 and indeed saw total employment in these sectors fall by nearly 10%. Like much of the rest of the country, the Great Lakes region has also seen slowing dynamism across all major sectors, as measured by startup rates, net job creation, and firm destruction.

The post-COVID economy has seen a significant surge in all measures of economic dynamism, including in the Great Lakes. Indiana has had the greatest uptick in new business applications, up 72% in June 2023 over June 2019, and Ohio, Michigan, and Wisconsin are all seeing applications up by more than 50% over the same period. According to new Census Bureau experimental data, some of the most dynamic metros in high-tech sectors are in the Great Lakes. Metros like Midland, Michigan; Lafayette, Indiana; and Flint, Michigan, have all had faster job creation in high-tech sectors than many of the large coastal cities.

This surging dynamism is to be expected, perhaps, in the tightest US labor market in a generation. Many of the ills ascribed to the economy of the past decade or so — both within the Great Lakes and more broadly — have been attributed by economists to the persistent slack in the US labor market. Today’s labor market is an opportunity for policymakers and economic developers to reinject economic growth and dynamism into their local economies, particularly in the energy transition sector. Where federal funding and new investment opportunities may have fallen on deaf ears in harder economic times, a full-employment economy is more likely to encourage entrepreneurial risk-taking, labor mobility, and business innovations that can reinvigorate a community and entrench regional industrial cluster development in emerging sectors.

One area where the Great Lakes region has been a primary beneficiary of this dynamic, post-COVID economy is in its manufacturing construction boom. Manufacturing construction spending was up 70% year over year from July 2022 to July 2023 and accounted for a fifth of all new construction spending. Much of this new activity has been spurred by CHIPS and the IRA, largely in new semiconductor “fabs” and battery manufacturing. What the Census Bureau calls the East North Central Division, which includes all the Great Lakes states except Pennsylvania and Minnesota, saw $3.3 billion of new private manufacturing construction put in place in July 2023, a 157% increase over the year before and more than triple month-to-month construction prior to the pandemic.

The Great Lakes has a rich regional heritage in production and manufacturing, as well as communal pride in designing and fabricating world-class technologies. Manufacturers and economic developers alike have a strong willingness to adapt and evolve to meet market demands and have a wealth of natural resources, workforce skills, and knowledge networks that continue to make the region globally competitive in these industries. Although the region has diversified its economy considerably in recent decades, many of its states and metros continue to be globally competitive in core manufacturing sectors and can use the energy transition to build on this legacy.

Indiana has the fastest-growing manufacturing sector in the region, with the contribution to state gross domestic product (GDP) increasing by 25% over the last five years and 41% over the last decade. Indiana and Michigan specialize mostly in durable goods manufacturing, where many of the core capacities for production of clean energy technologies lie. However, only Indiana manufacturing has been growing faster than the country as a whole, with Michigan and Ohio seeing particularly slow growth over the past five years. This reflects an ongoing shift in manufacturing activity toward the South and West of the United States. Since the Great Recession in 2007–2009, the Southwest has seen by far the fastest manufacturing job growth in the country, with over 20% more total jobs in the sector than it had prior to the crisis, while cumulative growth is less than 5% in the Great Lakes.

For the Great Lakes, rejuvenating the region’s manufacturing sector is not just a matter of economic strategy, but also community restoration. The region continues to grapple with the legacy of small and medium-sized cities that were highly specialized in manufacturing industries prior to the 1980s and subsequently suffered disproportionately from the forces of technological change and offshoring that gutted the US manufacturing sector.

Two-thirds of all such legacy cities are found in the Great Lakes, and nearly half of all cities in the Great Lakes are in this category.[ii] On average, these cities have been more prone to population loss, stagnant economic growth, and falling household incomes, often decades after deindustrialization first took root. The 91 legacy cities in the Great Lakes have experienced an average of 2% population loss over the past 10 years, while the rest of the Great Lakes has been growing; they have a poverty rate 0.6% higher than the rest of the region and a 9% lower median household income.

New federal programs can help turn this around. The IRA includes two major tax credits for advanced energy component and supply chain manufacturing, Sections 45X and 48C, which can be a boon to the region’s manufacturing sector. Section 45X is known as the Advanced Manufacturing Production Tax Credit and provides production-based incentives for domestic manufacturers of wind, solar, and battery components. Section 48C is the Advanced Energy Project Credit and allocates $10 billion for strategic energy manufacturing projects. Both 48C and 45X are eligible for direct pay and transferability; however, the two cannot be stacked, or claimed simultaneously.

Section 45X is an uncapped credit and therefore has no upper limit to the level of federal expenditure. The Congressional Budget Office officially estimated the credit could inject $36.8 billion into the US manufacturing sector over the next 10 years. Credit Suisse estimates this figure could reach as high as $250 billion. With roughly a quarter of existing total manufacturing capacity in the region, a crude estimate could put upward of $62 billion worth of 45X incentives into Great Lakes states if clean energy manufacturing were to develop with similar regional shares.

Importantly, the Advanced Manufacturing Production Tax Credit is expected to make US manufacturers globally competitive in clean energy technologies. According to a recent study, this 45X tax credit will reduce the cost of solar modules assembled in the United States made from 100% domestically manufactured components — enough to bring production costs 30% below international competition, on average. For domestically produced wafers and cells, costs could fall to one-seventh and one-quarter, respectively, of those seen globally. For onshore wind, blades could be 7% cheaper, nacelles 10%, and towers 16% less expensive than global production.

Section 48C, on the other hand, is capped and allocates its $10 billion of tax credits on a competitive basis, of which $4 billion is to be located in energy communities. The credit is for investment with a 6% base credit and 30% full credit if prevailing wage and apprenticeship requirements are met. Credits will be allocated over two rounds, with concept papers for the first round already submitted in early August. Section 48C was actually established in the American Recovery and Reinvestment Act of 2009 and provided $2.3 billion to nearly 200 manufacturing projects across 43 states between 2009 and 2013. According to the White House, this funding helped support 58,000 jobs and was oversubscribed by 300%, reflecting the demand for such an investment credit at the time.

The Great Lakes region has already demonstrated its capacity in many of these sectors, and industrial clusters are beginning to take shape. Solar manufacturing is booming in northwest Ohio, for example, with First Solar and Toledo Solar both calling the state home. Overall, the Great Lakes region is on track to produce 58% of the country’s polysilicon and two-thirds of its thin-film solar panels, according to BloombergNEF data. Analysis from the BlueGreen Alliance suggests there are over 250 facilities that could qualify for credits in the region, of which only 22 currently sit in designated energy communities and are therefore eligible for more of the 48C tax credits.

[ii] “Legacy cities” are defined as small and midsized cities where more than 20% of jobs in 1970 were in the manufacturing sector and which have experienced slower-than-average job growth.

As the energy transition progresses, new manufacturing projects will increasingly demand access to clean sources of energy. Clean energy supply will be a source of competitiveness in attracting new projects, as well of local demand for transition supply chain investments. However, according to Site Selection magazine’s Sustainability Ranking, only Illinois features among the top 10 US states in an index of investment attractiveness, and only Indianapolis, Indiana, and Columbus, Ohio, are among the top 10 US metro areas.

This reflects the highly uneven state of the energy transition in the Great Lakes. The region is the second-largest producer and consumer of energy in the country, but the third-largest producer of renewable energy. As of 2021, only 10% of all energy produced in the region was renewable, compared to 66% in the West, 44% in the Northeast, and 33% in the Southeast. The Great Lakes has the lowest share of renewable energy consumption in the country, at just 8%, while a quarter of all consumption in the Plains and the West is now renewables.

With more and more companies pledging to meet their own net-zero targets, growing regulatory pressure to decarbonize supply chains, and greater capital availability in environmental, social, and corporate governance financial markets, the availability of cheap, reliable, and clean energy is a growing factor in investment location decisions. This is particularly true in the rapidly growing battery manufacturing industry. According to the president of battery materials producer Anovion Technologies, three of the five most important factors in his company’s factory site selection were “power-related,” including the supply of clean energy. A study into the location decisions of battery manufacturers in Europe found that a plentiful supply of low-cost, clean energy can be sufficient to overcome other location factors, such as the knowledge base of the local workforce.

Things are changing quickly, however. Fully two-thirds of all planned generation in the region is solar photovoltaic (PV), the highest share in the country, and a further 15% of new capacity additions are onshore wind turbines. Importantly, this varies significantly across the region. Illinois and Indiana are planning to build new generation capacity at the fastest rate in the region and are responsible for 30% and 21% of all new projects, respectively, despite accounting for just 21% and 12% of total generation across the region. Illinois is building the majority of new wind turbines, while Indiana and Ohio are adding the most solar PV.

The generous clean electricity tax credits included in the IRA are going to supercharge these shifts. These tax credits for new and existing renewable energy projects offer either a base rate of $0.0055 per kilowatt-hour for the Production Tax Credit (PTC) or a 6% Investment Tax Credit (ITC). As a result, the National Renewable Energy Laboratory forecasts that clean electricity’s share of total generation could increase from 41% in 2022 to as high as 90% by 2030. This translates to an average deployment rate of between 44 and 93 gigawatts per year between 2023 and 2030, some 135% to 160% larger than the maximum rate of deployment over the last decade.

These base rates increase by five times if they meet prevailing wage and apprenticeship requirements. Further, both the PTC and ITC can receive a 10% tax credit adder if the projects meet domestic content requirements and another 10% tax credit adder if it qualifies as an energy community. For utility-scale solar and land-based wind projects qualifying for both the bonus rate and the adders, one study forecast the levelized cost of electricity to be around 90% lower than the baseline estimate. Offshore wind is expected to be approximately 40% cheaper with a fully compliant ITC.

But it is not just a matter of adding new clean electricity capacity when there remain significant fossil fuel and polluting resources that will need to be decommissioned or transitioned over time. Indiana, Wisconsin, Ohio, and Pennsylvania all generate more of their electricity from fossil fuels than the national average. Indiana is one of the most fossil fuel–intensive states in the nation, on a per capita basis, with nearly three times as much of its power supply coming from coal than the nation as a whole.

Included in the IRA is an important resource for states and cities looking to speed up this process. The new Energy Infrastructure Reinvestment (EIR) Program gives authority to the DOE’s Loan Programs Office (LPO) to provide up to $250 billion in low-cost financing to projects that either “retool, repower, repurpose, or replace” energy infrastructure that has ceased operations or projects that enable operating energy infrastructure to reduce emissions. In this case, energy infrastructure is defined as facilities and equipment that are used either for the generation or transmission of electricity or for the production, processing, and delivery of fossil fuels and petrochemicals. Unlike other projects under the LPO’s Title 17 program, EIR projects are not required to be innovative — instead, this program is intended to accelerate deployment of mature technologies that can scale rapidly and to reinvest in places that have traditionally relied on fossil fuel industries.

The opportunities in this program are potentially immense for the Great Lakes region, where there are numerous retired power plants, refineries, existing generation facilities, and heavy industrial facilities. For example, there are 53 power plants that have announced retirement dates before (or extremely close to) the September 2026 cutoff date for the program. In all instances, according to a Sierra Club analysis, it would be much cheaper to run these plants with regional wind or local solar, suggesting a strong economic case for using EIR financing to convert these facilities into renewable electricity. It is important to note, however, that the LPO has indicated it is unlikely to support projects worth less than $100 million.

Another major constraint on industrial competitiveness is workforce challenges. The US labor market is currently the tightest in a generation, with unemployment below 3.6% and as low as 2.5% in states like Wisconsin. While the tight labor market has been a boon for workers, with wages rising at their fastest pace in over 20 years, it has created worker shortages across the country. Nationwide, there are nearly 4 million more jobs in demand than there are available workers in the labor force.

A significant challenge for the Great Lakes region is its slow population growth and, in particular, its low rates of domestic and international migration. Since 2017, no Great Lakes state is among the top 10 states for international migration as a share of population, and only Indiana has seen positive domestic migration over the same period. According to a 2017 Joint Economic Committee report, only Illinois and Minnesota have avoided net brain drain in recent years, which is the gap between highly educated leavers and entrants to the state, exacerbating workforce shortages.

The problem is particularly acute in energy transition and manufacturing industries. According to the US Chamber of Commerce% of the industry's vacant jobs. The Bureau of Labor Statistics estimates there will be 80,000 job openings for electricians every year until 2031.

Workforce demands will differ by metro area based on existing industrial capacity and the related industries and skills present in different parts of the country. Our data tool helps address this complexity by providing estimates of the workforce shortages for critical occupations by energy transition industry. Using this tool, for example, Detroit could see that it is 40% short of the estimated need for electrical, electronic, and electromechanical assemblers in the battery and component manufacturing industry, or Duluth, Minnesota, could see that it is 30% short of the miscellaneous assemblers and fabricators needed to manufacture heating, ventilating, and air-conditioning (HVAC) systems. It is important to note these estimates are as of today and do not account for potentially large increases in demand for these industries as the energy transition progresses.

Overall, the Great Lakes already has an above-average presence in over 700 of the occupations required to grow 186 strategically significant energy transition industries, while there are nearly 800 occupations that still need to be scaled up to meet workforce needs.

Some states are being more proactive than others in identifying these workforce needs and preparing to fill them over time. Illinois, for example, is a national leader in this space, following its 2021 Climate and Equitable Jobs Act (CEJA), which, among other things, commissioned a clean energy jobs and training program inventory for the state, to assess existing clean energy training and skills development programs, evaluate industry employment trends to identify in-demand career opportunities, and identify best practices and programmatic gaps. The inventory in turn informs the state’s Clean Energy Jobs Curriculum.

Pennsylvania is also taking big steps toward addressing its worker shortage constraints. In July 2023, Governor Josh Shapiro signed Executive Order 2023-17, creating the Commonwealth Workforce Transformation Program, which will reserve 3% of all federal funds received through the IRA and IIJA to train as many as 10,000 state residents over the next five years and use up to $400 million in new federal funding. The program was designed in consultation with the federal government, labor unions, and businesses and would cover wages, payroll taxes, and training expenses, including the costs of establishing new training programs or using facilities.

Other states have robust workforce development systems in place that are well prepared to respond to private-sector demands in a tight labor market. Wisconsin, for example, has one of the most effective systems for apprenticeships and training programs in the country, which connects apprentices with high-skill, high-wage employment through business sponsors across the state. Importantly, no apprentices are set up without a job opening, ensuring the program meets business needs.

Closely tied to issues of workforce development are those of equity, justice, and inclusion. Every worker left out of the labor market over issues of structural inequity or local injustices is a worker unavailable to industries competing in global marketplaces. In other words, failure to account for and address inequities of place, race, and class is a failure to live up to the region’s potential.

The Great Lakes has a mixed record on issues of equity and justice. Like much of the rest of the country, the region has seen income inequality widen significantly over the past 15 years. However, this gap has increased less than in regions like the Northeast and West Coast and remains much lower than the South and Southeast.

The picture in terms of racial inequality is similarly uneven. According to one study, four of the 10 most segregated cities in the nation are in the Great Lakes, with Detroit ranking at the top of the list. Another study cites Milwaukee as the most segregated city in the country, and yet another judges Columbus, Ohio, to have the highest Black/white dissimilarity index.

On the other hand, some neighborhoods within the Great Lakes are where Black people are thriving the most in this country. According to the Black Progress Index, some of the places where Black Americans see the best economic and social conditions include Warrick County, Indiana; Scott County and Wright County in Minnesota; and Delaware County, Ohio. Overall, the Great Lakes is the fourth most inclusive region in the country, according to this measure, sitting behind the West, Northeast, and Southwest. As the map below shows, there is wide variation across the region, with some cities and counties dramatically outperforming others.

Another important issue in the context of the energy transition is environmental justice, which refers to the “fair treatment and meaningful involvement of all people regardless of race, color, national origin, or income with respect to the development, implementation, and enforcement of environmental laws, regulations, and policies.”

Some Great Lakes states have made inclusive growth and environmental justice a priority, while others have not. In 2019, the governor of Wisconsin signed Executive Order 38, creating the Office of Sustainability and Clean Energy. It was tasked with creating the Clean Energy Plan, which, among other things, included goals to reduce disproportionate energy impacts placed on low-income and Black, Indigenous, and people of color communities, and increase equitable clean energy jobs. Michigan's Healthy Climate plan also prioritizes environmental justice and workforce development, requiring that 40% of state funding for climate-related and water infrastructure initiatives must benefit Michigan’s disadvantaged communities. It also limits energy burdens by requiring that the cost of powering and heating homes does not exceed 6% of annual income for low-income households and by improving buildings to reduce costs for working families and small businesses.

Minnesota and Illinois have been particularly effective at putting together robust frameworks and programs to ensure all their citizens are afforded the opportunity to participate in the emerging clean energy economy. In addition to promoting clean transportation and affordable energy, Illinois’s CEJA outlines a plan to revitalize the economy of former fossil fuel communities after the closure of a plant or mine. More uniquely, the act identifies the people and communities specifically targeted to benefit from such revitalization — Equity Eligible Persons or Communities. CEJA defines its beneficiaries as those who are affected by environmental and climate harms and by the state’s redlining legacy and other government-sanctioned racial discrimination policies. It provides $40 million a year in grants for these communities to aid with any social and economic impacts resulting from the transition to a clean energy project. It also creates a green bank to finance clean energy projects, which will target $80 million per year for workforce and contractor development programs in select communities, and increases energy resilience by expanding Illinois’s Solar for All program, establishing the Illinois Finance Authority Climate Bank, and funding Jobs and Environmental Justice Grants.

A gap analysis (see table below) of the programs that have equity elements in CEJA reveals that, of the DOE’s eight priorities for environmental justice, the legislation prioritizes increased access to low-cost capital, clean energy jobs, and enterprise.

In February 2023, Minnesota’s governor signed SF4 into law, which establishes an ambitious timeline for the state to reach 100% clean energy by 2040 and updates definitions of environmental justice communities and which technologies count toward renewable energy standards. Further, on May 24, 2023, the state legislature passed the Omnibus Environment, Natural Resources, Climate and Energy Finance and Policy bill (HF 2310). Divided into provisions for the environment and natural resources and provisions for climate and energy, the $80 million bill creates new grant and rebate programs aimed at increasing access to clean energy and technology. Some notable funds are $29.3 million for Solar for Schools grants, $5.3 million for electric grid resiliency grants, and $10.2 million for distributed energy upgrade grants.

Through an identical gap analysis (see table below), it is clear that reducing environmental burdens for disadvantaged communities is a top priority for the state.

Illinois and Minnesota are clear environmental justice leaders in the Great Lakes region; moreover, they hold their own when compared with states that are considered national climate leaders. Other states in the region could benefit by following their neighbors’ lead in this area, which will not only help disadvantaged communities but also capitalize on large federal funding opportunities and address workforce constraints in the region.

The Great Lakes region also has a rich history as a center of American innovation. This ecosystem can help drive the energy transition in the region and leverage its competitive strengths in emerging clean energy technologies. Its universities and national hubs help drive entrepreneurship in the region and can anchor innovation clusters that export leading-edge products to the world. Once again, the Great Lakes cannot rest on its laurels but should continue to support these institutions and capabilities with public funding, policy, and strategic direction.

One measure of the region’s innovation ecosystem is simply its wealth of private and public research centers. In fact, there are more than 350 energy-related research centers across the Great Lakes. These institutions are hubs of knowledge, technological innovation, and entrepreneurship and have the potential to anchor future clusters of industrial activity and exports. These research centers are affiliated with universities, national laboratories, and large and small companies.

These research centers are often located in or alongside one of the region’s major public research universities, but national laboratories also play an important role. The DOE maintains a network of 17 national laboratories that tackle particularly difficult problems that fall beyond the capabilities of companies and universities. Two national labs are located in Illinois: Argonne National Laboratory and Fermilab. Another, the National Energy Technology Laboratory, which is affiliated with the DOE’s Office of Fossil Energy and Carbon Management, has a large presence in Pittsburgh.

While Fermilab concentrates on basic research, Argonne is a massive multidisciplinary center of excellence. Its budget exceeds $1 billion annually, and it employs thousands of researchers and hundreds of graduate students and postdoctoral scholars. One of Argonne’s many technical strengths is batteries and energy storage. Its Joint Center for Energy Storage Research seeks to take basic research all the way through to the point of commercialization. It is working on designing and building transformative materials enabling next-generation batteries from the bottom up, potentially positioning the region at the forefront of next-generation energy storage technologies.

The prevalence of energy transition–related research in the Great Lakes can also be measured through federal R&D grants data. For example, grants and cooperative agreements with the keyword “battery” or “batteries” totaled over $87 million in Indiana, and $67 million in Michigan. Drilling down further, New York’s major award of $66 million was led by Binghamton University in Broome County; Oakland County in the Detroit metro area won $47 million; and the Indianapolis area came home with over $75 million in federal grants over the past six years.

Similarly, federal grants for “electric vehicle” R&D totaled over $1 billion in each of the seven states in the Great Lakes region, led by Pennsylvania’s $4.2 billion and Michigan’s $2.8 billion. Nearby in New York, the Rochester area received about $850 million and the Buffalo area over $300 million. Over $1 billion went to the Columbus region in Ohio and the Madison region of Wisconsin. For “steel,” awards totaled nearly $15 million in Pennsylvania, over $8 million in Illinois, and almost $7 million in Michigan. The Philadelphia and Pittsburgh regions are the top two recipients in the Great Lakes at around $37 million each, more than three times the Detroit and Columbus regions.

Inventions, as measured by patent data, are signs of innovation and technological dynamism in a region. Between its universities and research centers, manufacturers, and entrepreneurs, the Great Lakes is a hub for energy transition innovation. Overall, two of the top 10 energy transition–related patents producers are in the region, with the Detroit-Warren-Dearborn area at third nationally, and the Chicago area at 10th. Six of the 10 highest patent producers per capita in relevant technology categories are in the region, including Columbus, Indiana, at the top of the list, Ann Arbor, Michigan, third, and Peoria, Illinois, sixth.

Drilling down a level, the patent analysis reveals specific innovation opportunities. In sustainable fuels, for instance, numerous areas in the Great Lakes region appear to be well positioned to build on their technological strengths as measured by patents in relevant technological fields. Five of the top six metro areas in the country for sustainable fuels patents per capita are in this region or nearby, spanning Columbus, Indiana; Peoria, Illinois; Lafayette, Indiana; Ithaca, New York; and Ann Arbor, Michigan. Looked at through the lens of “revealed advantage,” which compares a metro’s patenting in sustainable fuels with its patenting in other technological areas, we find that 13 of the top 50 metros are in the Great Lakes.

In EVs and energy storage, the Great Lakes region is home to half or more of the most prolific patenting metro areas, whether measured per capita (13 of the top 20) or with revealed advantage (10 of the top 20). In addition to better-known cities and technology hubs, the metros on both of these lists include Erie, Pennsylvania, and Dayton, Ohio. In low-carbon metals, the patent data identifies metros like Cincinnati, Ohio, and Rockford, Illinois, as hubs of invention. Overall, in this field, 10 of the top 20 patent-producing metros per capita and eight of the top 20 metros in revealed advantage can be found in the Great Lakes region.

For all this, Great Lakes states tend to rank relatively low in public policy support of their innovation ecosystems. In one study of North America’s competitiveness in these areas, no Great Lakes state ranks among the top 10 states or provinces throughout the United States, Canada, or Mexico. Overall, Michigan spends the most on R&D in the region, at 5.1% of its economic output, and the eighth most of any state in the union. The next closest state is Minnesota at 2.4% — less than half the relative amount. Minnesota ranks highest among Great Lakes states for its immigration of knowledge workers, yet even so, it only sees about a third the rate of immigration as New Jersey, the highest-performing US state, and just a under one-sixth of Ontario, Canada.

States, cities, and EDOs across the Great Lakes should be thinking proactively about how to capitalize on their innovation assets and leverage these into economic development opportunities. One empirically effective method of boosting entrepreneurial activity in innovative sectors, for example, is through R&D tax credits, which all states in the region have, with the exception of Michigan.

Arguably the most effective approach is to invest in the ecosystem itself, otherwise known as the industrial commons — a robust set of shared assets and resources from which industrial firms can draw when adopting and generating new technologies. Through cluster organizations, workforce development institutions, research universities, pilot plants, physical infrastructure, and social capital networks, states and cities can help build stronger connections among firms, universities, and communities, creating an ecosystem of industrial innovation and economic development.

Many of the region’s research centers are actively participating in the federal government’s place-based economic efforts, such as the Tech Hubs and Regional Innovation Engines programs. Importantly, most of these coalitions will not succeed in accessing federal funding. However, the coalitions built in pursuit of that funding could still benefit from smaller state or local resources that accelerate innovation, entrepreneurship, and cluster development.

Finally, the Great Lakes region could benefit from thinking and acting more like a region. This will be challenging in the context of economic development, because states and cities are more accustomed to competing with one another for projects and investment. There is value in this competitive approach, to be sure, but this needs to be balanced with the benefits of developing interstate industrial clusters through a cohesive investment attraction strategy and common policy environment.

The underlying logic for coordination is relatively straightforward. Industry clusters operate across state lines, and so should EDOs. Although related industries often colocate geographically in order to access shared capabilities, often these clusters bleed across two or more states. Indeed, many of the region’s largest metro areas — like Chicago or Cincinnati — cross state lines. Emerging clusters of energy transition supply chains, such as the Battery Belt, exist across several states and would therefore benefit from simpler, faster, and more effective implementation of public goods and services.

The Great Lakes is a hotbed of democratic experimentation with new policy ideas being tried and tested with every new legislative session. The response to the accelerating energy transition and federal legislation has been no different. Although the section on competitiveness noted that these responses still lack a coherent sense of industrial strategy, it is not to say that there are not useful ideas that could be scaled and coordinated into a more strategic approach.

Great Lakes states share many common economic characteristics, which, in theory, could facilitate a process of scaling innovative policies across the region. However, there remain core philosophical differences among these states on the role of government in economic development, as well as significant political differences over the benefits of accelerating the clean energy transition. Yet there is a common aspiration for economic investment, jobs, reshoring manufacturing capacity, and making high-quality goods here in the United States. These themes can be leveraged in political advocacy campaigns for best-practice policies that effectively walk the line between economic development and the clean energy transition.

Recent legislative successes in clean energy within the region are a good case study. Minnesota, Illinois, and Michigan have all passed significant clean energy policies in recent years, but quite clearly not all aspects of these policy programs are either applicable across multiple Great Lakes states or are likely to have significant economic development implications. Illinois and Minnesota, for example, have both introduced mandatory timetables for decarbonization of the clean electricity sector, an approach that has little chance of success in states like Indiana, Pennsylvania, and Ohio. Three emerging themes within this legislation are (1) a desire to remove local regulatory barriers to clean energy deployment, (2) the establishment of green banks to access new federal funding, and (3) the creation of competitiveness funds to accelerate uptake of IRA, IIJA, and CHIPS incentives.

Local Regulatory Barriers to Clean Energy Development

One shared approach to accelerating clean energy deployment in the region appears to be a desire to simplify tax requirements and encourage communities to adopt best practices in zoning and other areas. Many township and rural zoning ordinances make it difficult, risky, and/or costly for solar and wind projects to be developed. There continues to be significant local opposition to solar and wind development, despite the economic, health, and price benefits. The University of Michigan has a database on whether communities in Illinois, Indiana, Michigan, Minnesota, Ohio, and Wisconsin include clean energy in their zoning ordinances, which could be a powerful resource for community groups, EDOs, and others to use when advocating for clean energy zoning changes.

Michigan, for example, has passed a series of bills and budgetary programs designed to complement the IRA’s incentives for clean electricity development. The Solar Energy Facilities Taxation Act (2023) reduces the tax burden of solar farms by allowing cities, townships, and villages to establish solar energy districts where they will not levy value-based taxes, but rather apply a fixed tax rate based on the output of the solar farm. The tax is less than a third the rate if the project is located in federal opportunity zones in low-income communities or on brownfield sites. This approach is designed to improve the project economics of individual solar projects, prevent legal battles over complex property value assessments, and overcome local zoning ordinances that are holding up solar development in the state. Ohio has also extended its Payment in Lieu of Taxes program for utility-scale solar and other qualifying energy projects, which operates in a similar manner.

In its latest budget, Michigan has also created a $30 million Renewable-Ready Communities program, which will further incentivize communities to host utility-scale renewable energy projects. Seemingly based on its successful Redevelopment Ready Communities program, the initiative will provide grants of up to $3 million for projects in communities that meet eligibility criteria determined by the Michigan Public Service Commission and Michigan Economic Development Corporation. The Redevelopment Ready Communities program, for example, requires that communities meet six best practices around planning and engagement, zoning, development reviews, boards and commissions, economic development, and siting.

Green Banks

Another common priority among state legislatures is an attempt to take advantage of the federal government’s $27 billion Greenhouse Gas Reduction Fund (GGRF) and create state or city green banks. Green banks can be an important source of low-cost capital for emerging cleantech sectors in a state or community. In 2022, active green banks in the United States facilitated $4.64 billion in clean energy projects at a two-to-one leverage ratio with private capital. Since 2011, these lenders have helped create more than $14.8 billion in cumulative public–private investment.

The Great Lakes region has a number of existing green banks that are well positioned to take advantage of additional capital allocations thanks to the GGRF and can serve as a model for the region. These include Michigan Saves and the Illinois Finance Authority Climate Bank. In Minnesota, the state legislature also recently established the Minnesota Climate Innovation Finance Authority with an initial $45 million capitalization. The bill’s authors expect the authority will be “competitive for at least $350 million of Federal funds” through the GGRF. The authority’s goal would be to accelerate renewable energy and energy-efficiency market growth by reducing the up-front costs for consumers and businesses.

In 2022, the Illinois Finance Authority Climate Bank was launched following passage of CEJA in 2021. The act also created the Clean Energy Jobs and Justice Fund, which provides low- and zero-interest loans for renewables projects in low-income areas. In April 2023, Governor Tony Evers of Wisconsin signed an executive order to begin the process of creating a Green Innovation Fund in the state. Reportedly, Pennsylvania lawmakers are also considering establishing a green bank to leverage GGRF funding. The Pennsylvania Energy Development Authority, which is a long-standing public financing authority in the state, is also exploring creating a separate green bank entity.

Competitiveness Funds

Between the IRA, CHIPS, and IIJA, there are more than 500 programs and potentially over $1 trillion worth of federal energy transition funding available for states, cities, community organizations, and economic developers to access and leverage. The IRA alone is spread out across roughly 20 federal agencies, and its clean energy provisions take shape in more than 15 separate policy instruments. This creates significant complexity for states and local actors, many of whom lack adequate resources to develop federal grant proposals, set up coalitions, or overcome the technical hurdles to new project development. As such, several states are setting up competitiveness funds to provide monetary and, in some cases, technical resources so a broad suite of organizations can make the most of this federal funding opportunity.

The Minnesota state legislature, for example, appropriated $190 million for a State Competitiveness Fund, which will provide matching grants for IRA programs that require nonfederal matching, while also providing grant development assistance for nongovernmental organizations and other local entities. A total of $100 million will be available to pay all or a portion of a required state match for projects that seek federal funds; to assist with grant development, $6 million will be available; and the remainder will be used in disadvantaged communities to reduce the cost of projects that are awarded federal loans or by awarding grants for projects eligible for federal tax credits.

In its latest budget, Michigan set aside $350 million to create a Make it in Michigan Competitiveness Fund, which will also help secure federal resources for Michiganders. It is designed to leverage funding opportunities in formula- or competitive-based grants, cooperative agreements, and contracts. Run out of the Michigan Infrastructure Office, an interagency evaluation committee will develop program guidelines and selection criteria for the recommended transfer of funds. This is separate from the $500 million appropriated for the Strategic Outreach and Attraction Reserve Fund, which is targeted at attracting specific projects to the state that may or may not also be eligible for federal funding. That fund has grown to more than $2 billion.

One example of a relatively low-cost form of cooperative economic development could be a regional investment attraction strategy. Investment attraction is a textbook case of a public good in that all states and companies would stand to gain but could not be excluded from benefiting if they did not pay for the service. The Great Lakes region’s shared history, culture, resources, and industrial outlook make it a perfect candidate for developing a common investment attraction strategy, particularly when it comes to foreign direct investment (FDI).

By promoting the common sources of investment attractiveness in the region — such as workforce skills, industrial capacity, infrastructure, and natural resources — while providing educational material on the subregional specializations, all Great Lakes states and metros would stand to gain as foreign-domiciled companies and investors narrow their site searches to the region. Through a coordinated strategy and concerted positioning and branding campaign, the region can take steps to ensure it becomes the destination of choice for energy transition investors — companies and capital — from around the world.

Attracting FDI will be particularly important in the context of the energy transition, where many countries have a head start in key sectors like battery manufacturing, solar panels, and green steel. These companies often have limited information about the regional differences between US states and can be susceptible to short-term thinking when chasing the largest development incentive, easiest greenfield site, or least robust labor protections. By developing and communicating a shared strategy of inclusive, equitable, and sustainable cleantech-led economic development in sectors with demonstrably related capabilities, the Great Lakes region can differentiate itself from potentially incurring an endless race to the bottom of incentives for projects unable to yield expansive follow-on benefits.

RMI, in partnership with OCO Global, a specialist in FDI attraction, has begun this process in earnest. We have also published a Green Investment & Innovation Pipelines report, which features an in-depth supply-and-demand analysis for the region as a first step in developing an investment attraction program. The report provides insights into what drives an investor’s decision-making process across five high-priority sectors and identifies strengths and weaknesses across all seven Great Lakes states and 13 key metro areas.

Collating data on 11 key pillars — five for demand and six for supply — on 268 indicators for 175 international markets and all 50 US states, OCO Global developed a dynamic supply-demand model to reflect high-potential emerging sectors and markets. The table below summarizes these results for the Great Lakes states, finding, among other things, that Ohio is best positioned in low-carbon materials, Michigan in electric transport, and Illinois in energy storage, low-carbon energy, and green hydrogen.

Through in-depth data analysis and qualitative research, OCO Global has provided a high-level, but powerful, first glimpse of a regional investment attraction strategy. Next steps in this process could include target company identification, lead generation, coordinated promotion, shared resource hubs, ongoing interstate data sharing, and regulatory harmonization.

Regulatory harmonization, in particular, is an area where the Great Lakes region could differentiate itself with a coordinated approach of best-practice, equitable economic development policies.