States Hold the Key to Industrial Innovation 

Introduction: Why Industry Matters and the Role of States  

The United States’ industrial base is a cornerstone of its economy, employing more than 12 million workers and generating hundreds of billions in payroll. However, industry is also a leading source of pollution, responsible for nearly a quarter of the national greenhouse gas emissions and a major driver of local air pollution. Four subsectors in particular – petroleum refining, chemicals manufacturing, iron and steel manufacturing, and cement manufacturing – account for about 40 percent of industrial greenhouse gas emissions. Because each of these sectors has distinct processes and emissions profiles, they require sector-specific technologies and policies for emissions reduction.  

Federal industrial policy in recent years has catalyzed progress toward low-emissions industry, but states’ policies, are also crucial to sustaining momentum. Many states are already advancing policies that meet bipartisan goals of economic development, competitiveness, innovation, and emissions reduction. The diverse examples highlighted in the CATF’s State Industrial Innovation Playbook show the central role of state leadership in modernizing the industrial sector.  

Technology Pathways aren’t one size fits all 

Reducing emissions from heavy industry requires technologies tailored to the specific needs of each sector. The Playbook examines how the following technology pathways can be used to reduce emissions in the four sectors considered: electrification, carbon capture, utilization, and storage (CCUS), alternative production processes, feedstock substitution, alternative fuels, and energy and materials efficiency.  

While some strategies are often economically viable to deploy at existing industrial facilities, such as energy and material efficiency, others like carbon capture and storage deployed at refineries and cement plants face cost gaps that hinder wider deployment. In contrast, technologies, like electric arc furnaces for steel manufacturing, which have rapidly expanded in recent decades and replace capacity from blast furnace-based steel production, can significantly reduce emissions when paired with low-carbon electricity. Emerging innovations, such as clean hydrogen-based steelmaking, electrochemical cement production, and the use of alternative fuels for high-temperature process heat hold great promise for future emissions reductions.  

The Playbook’s section on technology pathways for state policymakers (Section 3) emphasizes that success will depend on sequencing and combining approaches that fit  each sector’s technical, economic, and regional context. 

State Policy Tools and Leadership in Action  

States can accelerate low-emission industry technology adoption by enacting the right mix from a menu of policy tools to drive the conditions for investment and deployment. The State Industrial Innovation Playbook explains each of these tools in more detail (Section 5). 

1. Financial support unlocks industrial innovation by derisking emerging technologies and catalyzing private investment. States can: 

• Use tax incentives (e.g., property, income, production, investment credits and tax equity partnerships) to attract low-emission industries and close the cost gap between clean and traditional industrial products.  

• Supplement federal tax credit programs with state credits to amplify impact.  

• Provide targeted funding for research and development to advance early- and mid-stage technologies to demonstration and commercialization, and offer pilots and demonstrations to support bringing mature technologies to commercial scale. 

• Subsidize costs for low-emissions product labeling including environmental product declarations. 

• Strengthen state agency support to connect facilities with resources (e.g., technical assistance and financial matchmaking) and to communicate state priorities through planning.  

2. Stimulating demand is intended to build markets for low-emissions products and technologies through reducing investment risk and increasing technological learning. States can:  

• Encourage or require environmental product declarations to provide transparent, standardized product life cycle assessments and enable low-emission procurement policies. 

• Catalyze investment in low-emission materials through preferential bidding and material standards that prioritize or require low-emission products.  

• Create long-term procurement commitments through advanced market commitments, clean buyers groups, and multi-state procurement tools.  

• Use contracts for difference to stabilize prices by covering the cost premium for low-emission alternatives.  

3. Enabling action helps remove barriers and clarify standards to deploy new technologies. States can: 

• Reform permitting and siting to reduce delays and uncertainty for low-emission industrial projects through comprehensive state reviews, one-stop state permitting offices, energy corridors, and community engagement.  

• Adopt performance-based standards that define material performance requirements without prescribing production methods.  

• Strengthen state air pollution regulations to ensure conventional pollutants and air toxics are reduced.  

• Hold producers accountable through extended producer responsibility for the life cycle of their products, including end-of-life disposal.  

4. Data, monitoring, compliance, and stakeholder engagement are cross-cutting measures for the design and implementation of all state-level policies. States can: 

• Establish accurate, consistent, and timely data with clear metrics and reporting to build trust and guide decision-making.  

• Embed compliance mechanisms, such as third-party verification, audits, and enforcement, into permitting and financial support to strengthen policy credibility and effectiveness.  

• Engage a broad group of stakeholders in designing and implementing policies to build consensus, surface operational realities, and address community considerations.   

In the report, examples from across the country show these policies in action. For instance, Colorado has established a comprehensive portfolio of emissions reduction policies, including technical assistance, tax credits, and regulatory requirements. Missouri is working to modernize cement production through strategic planning for efficiency and clean heat investments. Louisiana has enacted a series of laws to streamline carbon capture, drawing more than $20 billion in announced investment to the state. These examples demonstrate effective state leadership with insights and lessons that can guide other states in effectively designing and implementing policies tailored to their industrial context.  

Conclusion  

States have a unique opportunity to support the modernization of the industrial sector by deploying financial incentives, market-based mechanisms, and regulatory approaches that reflect the state’s industrial mix, supported by robust monitoring, compliance mechanisms, and meaningful stakeholder engagement. By taking action, states will not only reduce emissions, but also deliver cleaner air, more competitive economies, and healthier communities.