Policy Solutions

Low-Carbon Fuels

US Federal
Manufacturing

Research and Development

Federal investment in research and development (R&D) supports economic growth, drives down costs for key technologies that can be used domestically and exported abroad, and promotes U.S. leadership on clean energy and climate. Investment in R&D for low-GHG industrial fuels is driven primarily by the U.S. Department of Energy’s (DOE’s) Office of Energy Efficiency and Renewable Energy (EERE). Further R&D for low-carbon fuels comes from DOE’s National Labs and Advanced Research Projects Agency-Energy (ARPA-E), as well as from the U.S. Department of Agriculture (USDA) and Environmental Protection Agency (EPA).

Federal policymakers should increase investment and enact programmatic reforms to ensure federal agencies focus on advancing R&D for:

  • Low-GHG hydrogen and ammonia for industrial fuels;
  • Nuclear process heat;
  • Advanced biofuels; and
  • Low-carbon methanol production.

Validation and Early Deployment

Demonstration

Before we can deploy promising clean energy technologies at scale, we must demonstrate and validate their cost and performance in real-world conditions. Since demonstration projects reduce the economic and institutional risks of new technologies, DOE should develop a robust portfolio of such projects for low-carbon fuels, including production of nuclear process heat, low-GHG hydrogen, advanced biofuels, and low-carbon methanol production.

Fiscal Incentives

Absent targeted policies to promote early-stage deployment, producers are often not sufficiently incentivized to develop new technologies and consumers tend to shy away from using emerging products. Tax credits, loan guarantees, and other fiscal incentives targeted at the next generation of low-carbon fuels can reduce the green premium and drive private sector demand. Well-designed tax incentives must be technology neutral, predictable, flexible, and accessible to all.

Buy Clean

Buy Clean procurement aims to reduce carbon emissions by focusing on incentives and requirements for lower-carbon infrastructure and building materials. This policy approach uses the carbon intensity of materials, or the lifecycle GHG emissions involved in their production or use, as a key criterion for procurement decisions for publicly funded projects. Buy Clean sets allowable carbon-intensity performance thresholds that decrease over time. This encourages the disclosure of emissions data via environmental product declarations (EPDs), creates a market for low-GHG materials, often lowers financing costs, and reduces harmful emissions from manufacturing.

Rapid, Large Scale Deployment

Carbon Pricing

Carbon pricing, whether through a carbon tax or a cap-and-trade system, can drive the use of low-GHG fuels by reflecting the true economic and environmental costs of coal, oil and natural gas. Carbon pricing policies must include equity considerations to ensure that historically disadvantaged communities see direct benefits such as reduced pollution or rebates on energy bills. Design elements requiring on-site GHG reductions and reductions in air pollution should be included in any carbon pricing measures. Such measures should also include competitiveness protections such as border-adjustment tariffs and carbon price exemptions for exported goods. Carbon pricing can also be coupled with other deployment policies such as a clean product or clean fuel standard to potentially achieve deeper levels of decarbonization.

Clean Product Standard

A clean product standard (CPS) is a technology-neutral approach to reducing emissions from the manufacturing of industrial products. In this approach, the government sets a target for the GHG intensity of a set of basic manufactured products and allows flexibility in how to meet that target—including the potential to trade with other producers. A CPS will facilitate cost-effective, market-based systems that can drive down the average GHG intensity of key manufactured goods like steel or cement.

A CPS offers an alternative or complementary approach to a carbon price for the industrial sector. 

Clean Fuel Standard

Replacing natural gas and diesel fuels with low-carbon substitutes, such as biofuels, hydrogen, and synthetic fuels, can help reduce manufacturing emissions. A steadily increasing clean fuel standard can reduce the green premium of these low-GHG-fuels. By providing regulatory certainty to producers making near-term capital investments in advanced fuels, it can also expedite their rapid adoption.

Technology-Neutral Deployment Tax Credit

Tax credits have already successfully enabled the deployment of clean energy technologies—especially wind and solar power. A technology-neutral refundable tax credit for industrial fuels can spur open-ended innovation across a suite of technologies.

Technology-neutral deployment tax credits offer an alternative to a CPS or carbon pricing. This mechanism is less economically efficient than a carbon price or a CPS and would be more effective if paired with regulatory carbon pollution standards to ensure emissions reductions.

Additional Manufacturing Policies