As the Biden administration seeks to cut climate-warming emissions from industry, it needs to provide support for an approach that is showing promise in the United States and abroad: Clusters of industrial companies.
These clusters — concentrations of companies providing specialized goods or services — offer a unique and powerful approach to developing and deploying low-carbon infrastructure. They can promote both competition and cooperation that spur companies to operate more productively in sourcing materials, accessing utilities (water, power) and advancing technology. Research Triangle Park, for example, is a cluster in North Carolina where the leveraged learning of co-located companies and three nearby universities has led to rapid advancements in biotech and pharmaceuticals expertise and capabilities.
Clusters of companies are also starting to collaborate on the path to step-change reductions in greenhouse gases (GHGs), which is important because industry accounts for more than one-fourth of U.S. GHGs. To spur the growth of these clusters and capture their full potential, government must play a role.
To that end, ACEEE is proposing (thanks to input from more than 60 organizations across industry, labor and NGOs) a new Department of Energy program to advance industrial clusters and create jobs. In our Innovation and Competitiveness at Industrial Clusters proposal, DOE would use a competitive bidding process to strengthen clusters that have strategic plans to pursue low-carbon technology, improve supply chain agility, increase efficiency and resilience, train workers, and reduce environmental impacts in surrounding communities.
We see industrial clusters as a linchpin for rapidly reducing harmful (GHG and chemical) emissions. Single companies acting alone cannot pull off the swift transformation needed to slash emissions in industry, which is particularly challenging to decarbonize. Companies will need to collaborate.
Clusters: A proven approach
Companies have been clustering in the United States for centuries, often to capitalize on complementary resources, transportation, proximity to customers, and a skilled pool of workers. For example, California’s wine cluster takes advantage of industries that support grape growing and wine making and of local universities’ viticulture programs. In Silicon Valley, a specialized workforce in information technology drives innovation. On the Gulf Coast, petrochemical clusters have ready access to a specialized workforce, relatively low-cost energy and feedstocks, and transportation.
Clusters can be geographically concentrated, but they do not have to be. In Europe, they are considered key actors across specialized industries, and they aim to improve competitiveness and lower emissions across entire value chains.
Clusters can account for a large portion of emissions, waste, and water use in many sectors. For example, in Europe, some 3,000 industrial clusters account for 20 percent of the continent’s GHG emissions, not including transportation. Local communities and those downwind can be affected by these environmental impacts, which disproportionately hurt low-income communities. This pollution raises serious environmental justice and equity concerns. Clusters need to exert leadership to address challenges and opportunities in parallel.
The good news: Clusters’ sizeable energy use can provide a large customer base for low-carbon electric technologies (supplied by renewable electricity). In the United States, for example, the Port of Los Angeles recently debuted hydrogen-powered electric vehicles (trucks, forklifts) as part of its $82.5 million near-zero emissions freight facilities initiative. Similarly, the potential for Houston’s Hydrogen Cluster to serve as a launching pad for a low-carbon hydrogen industry was recently highlighted, along with the need for innovation, market transformation and a targeted policy and funding approach.
Cluster innovation in the U.S. and abroad
Innovation is also occurring abroad. For example, the Suzhou Industrial Park in China targets by-product circularity, a distributed clean energy microgrid, and other approaches to be carbon neutral by 2050. In the Netherlands, the Port of Rotterdam has gathered cluster partners to develop one project to transport industrial carbon dioxide to offshore empty gas fields (Porthos) and another project (HyTransPort) to make the port the backbone of hydrogen infrastructure in northern Europe. And in Germany, the Get H2 consortium aims to transport low-carbon hydrogen to the country’s industrial heartland, starting with a former natural gas pipeline, so it can be used in steel, chemicals and refinery clusters.
Some 3,000 industrial clusters account for 20% of the continent’s GHG emissions, not including transportation.
To address hard-to-abate CO2 sources, Valero has proposed capture, transport, reuse and storage of CO2 from clusters of ethanol and other industrial facilities in the U.S. Midwest. In the United Kingdom, at the Humber cluster, 12 entities are collaborating to generate green hydrogen from offshore wind to power facilities.
Innovation will be necessary to effectively implement such technologies, improve efficiency, and recast multiple supply chains. California highlighted six cluster areas for an Innovation Hub Initiative, and North Carolina (Research Triangle Park mentioned earlier) seeks to strengthen innovation-related activities across business, universities, workforce agencies and government.
Clusters as job creators
Decarbonizing industrial clusters could be a big job creator. New Jersey recognizes in its State Strategic Plan that industrial clusters account for 46 percent of employment and 60 percent of wages in the state. In the European Union, clusters that use hydrogen could create 900,000 jobs. The European Commission established the Cluster Collaboration Platform to aid the transformation to a low-carbon economy as part of the $118.6 billion Horizon fund.
However, to rapidly pursue transformative technology, companies need help to take on enormous investments and risks. For example, a single direct reduction iron plant and a large demonstration CCUS (carbon capture, utilization and storage) facility both cost about $1 billion. A recent case study examining the prospect of a net-zero hub in the Houston area estimated infrastructure costs of $28 billion to reduce 25 million tons of CO2 per year. It concluded that substantial public policy support would be needed to attract private investment.
Companies cannot address this transformation by themselves or even with extensive partnerships because of the upfront costs with no or low near-term economic returns, the exceptionally high technical risks, the accelerated timeframe and innumerable uncertainties.
Federal policymakers need to help with investments that support technology demonstration and speed its commercialization. By stepping up and establishing a dedicated DOE program, they can spur collaboration in industrial clusters. The future depends on it.