The following comment was written by Hilary Lewis, Steel Director at Industrious Labs, an advocacy organization focused on transforming heavy industry for climate, workers and communities. See our commenting guidelines for more information.
The domestic steel industry and the jobs that come with it have been in steep decline for decades, disproportionately hurting the Midwest and leaving behind the unpleasant nickname of the “Rust Belt.” But the new federal funding brings renewed hope for renewal and reinvestment in American manufacturing and the many industries up and down the supply chain, including steel. While the main investment in steel is a potential share of the $6.3 billion set aside for industrial demonstration projects, a critical tax credit for clean hydrogen cannot be overlooked as a potential game changer for the steel industry and steel communities.
The Inflation Reduction Act's 45V tax credit could provide hundreds of billions of dollars in federal funding and be used to put the steel industry on a path to cutting climate emissions by more than 90 percent. As a result, this historic tax credit could lead to healthier atmospheric and economic investments, recasting the Midwest as a world leader in cleaner steel production. However, strict safeguards must be implemented to ensure that only eligible projects receive the credit.
Steel is a fundamental part of our modern lives, responsible for the iconic skyscrapers, bridges, cars and machines we use every day. Shifting to a clean economy is also necessary, with recent federal legislation to develop renewable energy, renew transportation and renew domestic production expected to create huge demand for steel. Most of the new steel in the US is made in little more than a dozen coal-fired blast furnaces around the Great Lakes. Hydrogen can replace fossil fuels in modern steelmaking technologies to reduce pollution that harms human health and the environment – without sacrificing quality. Direct reduced iron technology can be engineered or retrofitted to use hydrogen in steelmaking, but the viability of this route relies on clean, accessible and affordable hydrogen. The 45V hydrogen tax credit is essential to realizing this vision.
Earlier this year, the Treasury Department announced proposed rules for the 45V tax credit that would ensure that only hydrogen made with new, renewable energy would qualify. This is a huge win for the climate. Creating hydrogen uses a significant amount of energy, and without rules to require new clean energy supply and accurately calculate that hydrogen production, the process could bring more fossil fuel plants online to meet increased demand on the grid. Since green hydrogen is essential to the leading commercial route for cleaning up primary steelmaking, strict tax credit rules will ensure that modern, clean steel plants that can feed hydrogen are truly clean.
However, legacy energy companies are lining up to reduce the tax credit proposal. Weak rules would jeopardize the green steel boom – and the billions of dollars in investment that come with it. Additionally, regional analysis from the US shows the need to invest in low-carbon steel for conservation Indiana Steel competitive advantage and REVERSAL Final Steel Job Losses in Pennsylvania. With an estimated 6.7 million tons of annual demand for near-zero steel emissions by 2030 in the US alone, investing in modern, clean steel plants today can revitalize the steel industry and earn a price premium for steelworks. Countries worldwide, from Namibia to Sweden, are already building steel plants to cash in on this opportunity. A robust 45V tax credit will enable industries such as steel to market a highly sought-after commodity to a customer-responsive standard expectations.
We need to get 45V tax credit right to pave the way for exemption of steel and other high priority, high polluting industries. The transition to the steel industry alone would require about 1.5 million metric tons of hydrogen—a huge potential source of demand for hydrogen companies benefiting from the credit. Using hydrogen to clean up the steel sector should help lead us to a clean energy future, not at the expense of our health and the climate. Failure to advance strong clean hydrogen rules risks locking in more fossil fuels, harming communities, jeopardizing jobs and sending business opportunities overseas.
