Revolutionising industrial operations for net zero

Industrial heat is a major source of emissions where fossil fuels supply steam and process heat. Targeted incentives such as investment grants, tax credits, accelerated depreciation, concessional loans and competitive “heat auctions” for electrified heat projects can speed up deployment of electric boilers, induction and resistance heating, high temperature heat pumps and electric furnaces. Decarbonisation measures for heat and processes are broadly similar to those in the power sector and the rest of the energy sector.

Key incentives for heat and process electrification include:

• Prioritised support for suitable temperature ranges and sectors: A first step is to identify processes where electrification is already technically and economically viable – especially low- and medium-temperature heat in sectors such as food, paper, textiles and some chemicals – and target support to first movers.
• Targeted capital and fiscal support for electric heat: CAPEX grants, tax credits or accelerated depreciation, paired with concessional finance and technical assistance, can incentivise the switch from fossil-fuel boilers and furnaces to electric boilers, high efficiency heat pumps, induction and resistance heating and electric arc furnaces.
• Competitive “heat auctions” and results-based support: Part of the support budget can be allocated through competitive tenders or dedicated heat auctions that rank projects by tonnes of CO2 avoided, as was the case in an EU Innovation Fund auction for electrified industrial process heat. This can drive down unit costs, align support with emissions-avoidance, and reveal the most cost-effective projects.
• Linkage to energy audits and transformation plans: Applicants can be required to provide energy audits or decarbonisation plans that identify where electrification of heat is preferable to reinvesting in fossil-based technologies and show how project proposals fit into the wider transformation pathway for a given site.
• Correct relative price signals and coordinate with power system planning: Authorities need to review energy taxes, levies and network charges so that efficient electric heat is not structurally disadvantaged relative to fossil fuels. Electrification programmes must align with renewable energy deployment and grid planning so that new electric heat demand is met with low-carbon electricity.
• Innovation windows for higher-temperature applications: Specific calls or subsidy windows can support demonstrations of higher-temperature electrification and large industrial heat pumps, while subsidy programmes – like Japan’s scheme for renewable and industrial waste heat systems – can support learning and cost reductions across multiple technologies.

Demand response and flexible loads improve overall system flexibility and lower the costs of integrating variable renewables and expanding industrial electrification. Well-designed frameworks allow system operators and regulators to treat load flexibility as a reliable resource, alongside storage and flexible generation, while ensuring transparent compensation, credible verification, and fair participation rules for large sites and industrial parks.

Key design elements include:

• Clear regulations for demand response: Regulations are needed to define eligible resources, set roles for system operators and utilities, and clarify how operations and markets reflect demand response, including responsibilities for dispatch, settlement, and consumer protection.
• Bankable products and procurement pathways: The selected mix of approaches depends on market maturity, taking account of explicit programmes – such as contracted demand response, interruptible load, flexibility tenders – and market-based access to capacity or ancillary services. Standardised products and definitions are needed for response time, duration, availability windows, and performance requirements.
• Robust measurement and verification rules: Baseline and verification methodologies must be transparent, auditable, and suited to industrial load patterns, with clear handling of outages, production shutdowns, exceptional days, and rebound effects, so that delivered flexibility is credible and disputes are minimised.
• Aggregation and scalable participation: Qualified aggregators can be allowed to pool multiple sites and industrial park loads. Metering and telemetry requirements can be specified to match product risk, and coordination can be required between aggregators, distribution companies and system operators to manage network constraints and avoid double counting.
• Alignment of incentives with system needs and equity objectives: Payments can be structured to reward reliable delivery when it matters most, such as during peak hours and congestion periods, while avoiding excessive penalties that deter participation. Where enabling investments are needed, governments can provide targeted support for digitalisation, control systems, and metering, especially for smaller firms.

Hydrogen and ammonia produced from renewable electricity can support decarbonisation where direct electrification is limited, especially when they replace fossil-based feedstocks or act as a reductant. Key industrial uses are renewable ammonia for fertilisers and hydrogen use in iron and steelmaking, particularly hydrogen-based DRI as a route toward green steel.

These are capital-intensive value chains that depend on low-cost renewable electricity and new infrastructure, necessitating policy alignment on definitions, demand creation, investment support, and permitting.

Uptake of green hydrogen and green ammonia requires:

• Clear definitions and certification frameworks: Robust and harmonised definitions of renewable and low-emission hydrogen and ammonia, supported by credible MRV, underpin market integrity. Clear certification enables contract standardisation, public procurement, cross-border trade, and investor confidence.
• Targeted demand creation in priority sectors: Focusing policy support on hard-to-abate applications – such as renewable ammonia for fertilisers or hydrogen use in steelmaking – helps maximise climate impact and avoids inefficient use of limited supply. Standards, mandates, and green public procurement can accelerate early market growth for verified low-emission products, including green steel and chemicals.
• Time-bound support to address cost gaps: Temporary support instruments – such as competitive auctions, CfDs, production incentives, tax credits, or concessional finance – can bridge the initial cost differential between green hydrogen or ammonia and fossil-based alternatives, while clear phase-down pathways preserve long-term market discipline.
• Infrastructure and siting coordination: Aligning hydrogen strategies with renewable power availability, grid access, storage, transport infrastructure, and end-use demand reduces system costs and development risks. Prioritising industrial clusters, ports, and export hubs can improve economies of scale and drive integration into existing value chains.
• Competitiveness and integrity safeguards: Conditioning public support on verified emissions performance discourages greenwashing and helps prevent lock-in with sub-optimal technologies. Predictable policy signals, attention to trade exposure, and interoperable certification systems support international competitiveness while maintaining environmental credibility.

Strategies based on biomass and other renewable fuels can contribute to industrial decarbonisation, but their climate benefit depends on feedstock choice, land use impacts, and full lifecycle emissions. Because sustainable biomass supply is constrained, good policy design starts with clear allocation logic: where biomass adds the most value, when it should be prioritised over electrification, and how sustainability risks are managed. In practice, this means treating sustainable biomass as a scarce resource and reserving support for applications where alternatives are not yet viable or would be disproportionately costly in the near term.

Key policy approaches for decarbonisation based on biomass and other renewable fuels include:

• Defining where and when each fuel is used: Industrial decarbonisation strategies can set priority end uses (e.g. high temperature process heat, selected renewable fuels and feedstocks) and explicitly limit support for biomass where energy efficiency and electrification can deliver comparable outcomes.
• Enforceable sustainability and lifecycle-emissions rules: Sustainability criteria and lifecycle GHG thresholds, accompanied by traceability, certification, and reporting requirements, can help manage land-use change, biodiversity, and long-lived carbon stock impacts from bioenergy development.
• Targeted support for fuel switching in priority industries: Instruments such as carbon pricing, capital grants, CfDs, and green public procurement can enable the switch from coal and oil to sustainable biomass, biogas, or biomethane where the use case is clear.
• Prioritising residues and wastes through a feedstock hierarchy: Direct incentives aligned with waste management and circular-economy policies – focusing first on agricultural residues, forestry by-products, and organic waste – can reduce competition with food and material uses.
• Strengthening supply chains and enabling infrastructure: Aggregation, logistics, storage and, where relevant, biogas upgrading and grid injection standards can support reliable, cost-effective bioenergy integration into industrial clusters and heat networks.
• Monitoring and review built into governance: Tracking of feedstock availability, competing uses, and environmental outcomes enables timely and effective revisions of eligibility and support levels to avoid overuse or lock-in.