Industrial decarbonization is good for business

BOSTON — It is not easy to be optimistic about climate change nowadays. In the United States, President Donald Trump’s administration has eliminated incentives for clean-energy investment, slashed funding for numerous private-sector projects, and rescinded long-standing rules limiting greenhouse-gas (GHG) emissions from vehicles and power plants. Even in Europe, a longtime climate-policy leader, deadlines are being pushed back and compliance obligations reduced as other challenges, like the war in Ukraine, take priority.

Fortunately, these developments do not tell the whole story. The global industrial sector, which generates about one-third of GHG emissions, is quietly making significant progress. Over the past year, our team at MIT has looked closely at multinational companies that are pursuing industrial decarbonization strategies despite global headwinds. What we frequently found were firms that are increasing productivity, boosting revenue growth, and reducing emissions all at once.

For example, in Fort Worth, Texas, Siemens has harnessed the boom in demand for data-center components to scale up operations, leading to productivity improvements and lower unit costs. And that, in turn, has made increased decarbonization expenditures acceptable to senior leadership and plant directors. Despite the serious environmental concerns about data centers, they do appear to come with a silver lining. Though hyperscalers would prefer not to pay a “green premium,” they also recognize the value of lower-emissions manufacturing processes that reduce energy demand and costs.

Similarly, near Montreal, Saint-Gobain’s construction materials facility received public subsidies for investments in electrification and digital-technology upgrades that led to a plant with zero Scope 1 and Scope 2 emissions (meaning direct emissions and indirect ones tied to a firm’s suppliers). In this case, incentives to promote clean energy led not only to a reduction in emissions but also to competitively priced, higher-quality green products for customers who, all things being equal, will choose the cleaner option.

Two more examples are Outokumpu of Finland, which has a steel facility in Alabama, and the National Cement Company, a subsidiary of the French company Vicat. A combination of factors, including lower environmental and labor standards, makes it difficult for these firms to compete directly with dominant global producers. But under the rules of the European Union’s Carbon Border Adjustment Mechanism and regulations in California designed to support local cement production, both are innovating and developing clean production technologies to maintain long-term competitiveness. Their respective strategies recognize that climate change is a generational issue that governments and companies will have to address sooner or later.

These case studies all show how industrial enterprises are clearing a higher bar than “green for green’s sake.” Such strategies are exactly what we need, because green initiatives can no longer be pursued independently of concerns about growth, security, and competitiveness.

Our research shows that firms often assess their investments at the project level. Individual facilities measure progress holistically, assessing how the cost of inputs (materials, labor, and machinery) stacks up against their target return on investment. It is this approach that allows them to invest in higher-cost technologies when economies of scale, supportive public policies, or both make it possible to pursue decarbonization.

Broader trends support these findings. Global investment in clean energy has increased by approximately 80% in the past decade, outpacing investment in fossil fuels by nearly two to one in the past year. In the US, recent estimates suggest that three-quarters of the clean-energy capacity that was in the works before Trump’s return to the White House will still get built. Two-thirds of the expected emissions reduction from electricity generation will still be achieved.

A green-product premium does help where it exists. But even without one, companies see benefits to pursuing clean energy. Concerns about energy security and costs, and the public backlash over data-center energy use, all provide tailwinds for companies moving toward a greener footprint. Companies also report that a commitment to lower emissions helps attract and retain talent.

Of course, many industries remain resistant—oil and gas most obviously—and the up-front costs of the transition are real. But so, too, is the momentum behind industrial decarbonization. As temperatures keep rising, catastrophic weather events will grow more frequent and severe. Forward-looking companies understand that innovation in advanced manufacturing and clean energy, aided by AI and robotics, creates opportunities for more productive, resilient, and sustainable operations. They also know that interest in clean energy among their customers, communities, and employees is only increasing.

If all this is happening despite the federal government’s open hostility to decarbonization within the world’s most dynamic economy, just think about what we could see under a well-crafted clean-energy strategy. No one knows what the next turn in US politics will bring, but sooner or later, there will be an opportunity for a renewed federal commitment to industrial decarbonization. Then we can build on all the strategies that are already bearing fruit, aligning public- and private-sector interests around the shared goals of growth, competitiveness, and security.

The transition to clean energy may have started as a virtuous exercise. But it is succeeding because it is a winning business strategy.

Elisabeth Reynolds, former Special Assistant to the President for Manufacturing and Economic Development at the National Economic Council (2021–22), is professor of practice at MIT’s Department of Urban Studies and Planning. Nathan Collett is a former Canadian public servant on issues of economic security and a graduate of MIT’s Technology and Policy Program. This article was distributed by Project Syndicate.