How States Can Lead the Charge on Industrial Decarbonization

Lessons from the State of Washington.

The industrial sector is a key component of the American economy, and as global demand for clean technologies and products increases, American industry must shift to stay competitive. Accounting for nearly a quarter of US greenhouse gas emissions in 2022, this sector faces some of the most complex decarbonization challenges. Unlike other sectors, its emissions are often process-based, high-temperature, and deeply embedded in legacy infrastructure.

States play a pivotal role in whether industries stay competitive, controlling key aspects of permitting, utility regulation, economic development incentives, and much of the infrastructure planning that will determine whether industrial decarbonization succeeds. With the right mix of policy, investment, and planning, states can help enable a cleaner, more competitive industrial future while attracting new investment, creating high-quality jobs, and positioning themselves as hubs for clean manufacturing.

A recent RMI analysis of industrial decarbonization pathways in Washington offers a compelling case study. While the report focuses on Washington’s unique industrial landscape — wherein the industrial sector accounts for approximately 15 percent of the state’s energy-related carbon emissions — its findings and recommendations offer valuable lessons for states across the country.

The scale of the challenge — and the opportunity

Decarbonizing industry is not a one-size-fits-all endeavor. Each industry sector — whether cement, steel, food processing, or chemicals — has distinct emissions profiles, technology readiness levels, and economic constraints. But across the board, the transition will require significant investment, regulatory modernization, and a reliable supply of clean electricity.

RMI’s Washington analysis focused on a subset of industries dubbed “emissions-intensive, trade-exposed” (EITE) under the state’s Cap-and-Invest carbon market program. EITEs encompass about 40 facilities with high energy use, large emissions levels, and significant out-of-state competition for their products. The majority — about 68 percent — of EITE emissions come from refineries in the state.

RMI’s modeling found that existing and near-term technologies could reduce emissions from eight of the major EITE sectors (refineries, pulp and paper, cement, glass production, food processing, chemicals and hydrogen, iron and steel, and electronics) by 39 percent by 2035 and up to 91 percent by 2050. These reductions are achievable through a combination of energy and material efficiency and electrification in the early years, and low-carbon fuels, like green hydrogen, and carbon capture for the most difficult-to-abate emissions in the coming decades.

There are many ways to consider how much it will cost to invest in modernizing technologies, and who should pay those costs. Washington already benefits from a robust Cap-and-Invest program, in which its EITEs already benefit from $5.4 billion in value through 2035 (far greater than the $2.9 billion needed to reduce emissions in that period) and may also benefit further from the program’s future investments.

Furthermore, the marginal abatement cost for implementing these technologies ranges from -$150 to $500 per ton of CO₂e reduced, with efficiency improvements in particular offering the lowest — and often negative — abatement costs.

Decarbonization will drive electricity demand

One of the most striking findings from RMI’s Washington report is the projected increase in electricity demand. Full implementation of the analysis’s industrial decarbonization pathways would require an estimated additional 13,975 GWh of electricity annually by 2050 — a 65 percent increase in industrial electricity demand roughly equivalent to the current electricity consumption of over a million US homes. Washington’s net generation was 102,960 GWh in 2023.

This modeled increase reflects investments in electrifying process heat where feasible, integrating hydrogen for high‑temperature applications, and pairing residual fossil fuel use with point‑source carbon capture and storage to drive deep decarbonization across industry.

This underscores the need for states to proactively plan for and support grid upgrades and additional clean generation to meet the kinds of large-load electricity needs that come from some industrial decarbonization technologies. In particular, many industries follow investment and equipment upgrade cycles, meaning states risk missing a significant investment opportunity if grid availability is limited when those cycles turn over.

Policy levers states can pull

While federal incentives like those from the Inflation Reduction Act provide critical support, states have unique tools to accelerate industrial decarbonization that will be key as incentives face uncertainty at the federal level. Based on RMI’s analysis, there are several high-impact policy levers states can use to support industries’ investments to lower costs, increase product value, and otherwise enable and accelerate investment in modernizing technologies.

These policies fall into two categories — updated standards and regulations and state support –— with efforts around grid access, permitting, electricity rates, and direct financial supports like a green bank being most useful in aiding industrial decarbonization.

Looking ahead

Industrial decarbonization is not just a means to achieve state climate goals — it’s an economic opportunity. States that lead on this transition can establish an early-mover advantage that keeps them competitive, attracts investment, and creates high-quality jobs.

But leadership requires action. The next decade is critical for American industry to remain globally competitive while on a long-term path to full decarbonization. With smart policy, strategic investment, and a commitment to collaboration, states can help build an industrial sector that is not only cleaner, but stronger and more resilient.

Special thanks to Joe Fallurin, Allie Jobe, Mia Reback, Kayleigh Rubin, Jane Sadler for their contributions to this work.