Sustaining investment in innovation and manufacturing is pivotal to continued industrial growth. Thus far, the federal government’s use of clean energy incentives to reshore industries and spur private investment has been successful. States have much to gain from federal incentives as they drive economic development in growth industries, especially in hydrogen production and battery manufacturing, two industrial activities that provide critical support for most emerging technologies. Our analysis shows how much investment has happened to date across states and technologies, and how continued federal support can build bigger and cleaner industry.

Federal tax credits have created jobs and economic growth

American industry has historically been an engine of economic growth and innovation. Today, the clean energy transition is driving a resurgence of the industrial sector, spurring private investment and increasing domestic jobs.

Federal clean energy incentives enacted in August 2022 are catalyzing the clean growth of hard-to-abate industries, including chemicals, cement, iron, and steel. Right now, much of heavy industry relies on raw materials and high-temperature processes that only fossil fuels can deliver affordably at scale. But tax credits are making cleaner technologies and fuels widely available and cost-competitive, and, in turn, creating better reliability and price stability.

And the credits are already making waves. Two years since passage, billions of dollars have been invested in facilities that produce clean fuels, clean energy components, or carbon management technologies. These investments have delivered more than 100,000 new manufacturing jobs since 2022.

To-date, congressional districts across the political spectrum have benefitted from public and private investments spurred by federal tax credits. South Carolina, North Carolina, Georgia, and Michigan are among the states benefitting the most from a clean energy manufacturing boom.

How are energy tax cuts transforming US industry?

The federal government’s support for energy solutions in industry today is investment, rather than regulation. Qualifying innovative technologies and feedstocks receive investments, and it is up to businesses to make projects happen. States, consumers, and communities also play critical roles in preparing the necessary infrastructure and workforce.

Between January 2023 and October 2024, the private sector invested approximately $75 billion into announced, operating, and under construction projects spanning 10 sectors. This investment, spurred by tax credits, is reducing the costs of mature and emerging technologies powering clean energy development.

For example, the 45V Clean Hydrogen Production Credit shrinks the green premium of clean hydrogen, which derisks the investment and enables the technology to scale. Clean hydrogen can be used as a fuel  for cement and chemical manufacturing or as a feedstock for  trucking and aviation. And unlike fossil fuels, hydrogen is an abundant resource that does not yield any greenhouse gas emissions when burned.

Another key credit is the 45X Advanced Manufacturing Production Credit, which makes it cheaper to domestically manufacture clean energy components, such as thermal batteries. For heavy industry, the advantages of thermal batteries extend past the storage of high-temperature heat for industrial processes. Thermal batteries are improved systems with long lifetimes and low maintenance costs. In several regions of the country, thermal battery systems can reduce fuel costs with access to wholesale rates.

Buildout of the battery supply chain, spurred by 45X, can also reduce dependence on foreign imports and bolster US global competitiveness.

Where can future benefits be realized?

Last year, we evaluated potential federal investment from federal clean energy incentives by state and sector. Now, we’ve assessed potential federal funding specifically for industrial activities in each state.

If businesses adopt clean technologies at a rapid pace and scale (which we call a “High Potential Scenario”), states can secure an accumulated average of $4.91 billion in federal investments by 2030. In the High Potential Scenario, Texas will receive the largest federal investment in industry of $24.6 billion, followed by Georgia, California, and North Carolina. Of these states, Georgia and North Carolina have capitalized the most on their potential to date. They are among the top ten states for new clean energy manufacturing investments and new expected clean manufacturing jobs.

By 2030, the High Potential Scenario results in federal investments that, on average, account for 1.08% of a state’s total GDP. Louisiana receives the largest investment in industry relative to GDP, followed by Nevada, Kentucky, and Indiana. The geographic diversity of these states demonstrates that 45X, 45V, 45Q Tax Credit for Carbon Sequestration, and 45Z Clean Fuel Production Credit deliver comprehensive benefits.

Just as energy resources are not evenly distributed, certain regions of the country will see more buildout. States in the south, Great Plains, and the Great Lakes, which have strong renewable energy potential and an industrial base, have the most to gain in overall investment.

Across the continental United States, the “High Potential Scenario” will drive the most investment in four industrial activities: aviation fuel production, battery manufacturing, hydrogen production, and clean power manufacturing.

Tax credits can create a robust sustainable aviation fuel market in Midwestern states, which lead in the production of corn-based ethanol. The Southeastern “Battery Belt,” with its skilled labor and critical transportation infrastructure, can secure the most investment from 45X. Elsewhere, to-date private sector investment suggests that production of clean hydrogen and renewable energy components have the most potential to scale.

Which sectors have the most potential?

This analysis assessed the economic potential of the Tax Credit for Carbon Sequestration (45Q), Hydrogen Production Credit (45V), Advanced Manufacturing Production Credit (45X) and Clean Fuel Production Credit (45Z) for 10 industrial activities:

• Aviation fuel production
• Battery manufacturing
• Cement manufacturing
• Chemicals manufacturing
• Direct air capture (a method of carbon dioxide removal)
• Hydrogen production
• Iron and steel manufacturing
• Pulp and paper manufacturing
• Clean power manufacturing (solar and wind components)
• Trucking fuel production

Under the High Potential Scenario, these 10 industries collectively receive $235 billion through 2030. Under the Joint Committee on Taxation (JCT) Estimates Scenario, in which federal funding aligns with 2023 estimates from the US JCT, the 10 industries collectively receive $163 billion. In both cases, investments are largest in battery manufacturing and hydrogen production projects.

Each state has a unique endowment of natural resources, labor, education, and other factors. This creates conditions that are favorable to different industries, and therefore the level of potential federal investment for each industry varies by state.

Working together to accelerate a clean industrial sector

Energy tax credits lay critical groundwork for building bigger, cleaner, and more competitive industries across the United States. Federal incentives for low-carbon technologies and feedstocks provide support for businesses that choose to innovate in this competitive space.

But continued investment is not guaranteed. To achieve the High Potential Scenario, federal tax policy requires state-level engagement to turn economic potential into actual investment.  States can also publish guidance clarifying the economic opportunity and toolkits explaining how to access funding, as well as establish their own industrial investment incentives to garner private investment and support job growth.

Federal clean energy incentives provide a window of opportunity for accelerating industrial development while transitioning to a cleaner energy system. Working together, state policymakers and industry stakeholders can maximize investment in their state to realize the largest benefit.

Methodology

This analysis includes the lower 48 states and does not include Alaska, Hawaii, or US territories.

JCT Estimates:

The JCT Estimates Scenario calculates the amount of federal funding per state that industry can anticipate from relevant IRA tax credits by 2030. The scenario is based on US Joint Committee on Taxation 2023 estimates of federal spending on certain provisions in the IRA. These estimates were downscaled to the state using data from the Clean Investment Monitor (CIM) on clean investments by state between January 2023 and October 2024. The CIM tracks investments in emissions-reducing technologies by state, technology, and corresponding tax incentive under the IRA.

High Potential Scenario Estimates:

The high potential scenario calculates the amount of federal funding required from relevant IRA tax credits to deploy clean industrial strategies at a pace and scale consistent with national climate targets. For the 45Q, 45V, and 45Z credits, this was done by downscaling national values from the Net Zero America study’s “E+RE+” scenario and using the dollar value of the respective credit to calculate the total investment possible. For 45X, we assumed that a "high potential” level of funding will be 1.2 time higher than the JCT estimate of the tax credit.