Indiana at risk of losing its industrial dominance if it doesn’t decarbonize, report says

Indiana is the most manufacturing intensive state in the country, a declaration state leaders often tout as a point of pride. But the future of that key sector could be at stake, according to a new report released Thursday.

The state’s steel and aluminum industries need to jump on the clean energy transition, the research claims. There is tremendous economic potential for the state if they do, the report says, but there's also a risk of Indiana losing its competitive edge if the industries don’t retool.

The report from the American Council for Energy-Efficiency Economy and Citizens Action Coalition says there is an increasing demand for more sustainably-produced materials. If companies can’t get them from Indiana, the report warns they will take their business elsewhere.

“This is not an issue of climate change, it’s an issue of if Indiana wants to be competitive in the future,” said Ben Inskeep, program director of the Citizens Action Coalition. “We are ground-zero of this manufacturing transition and right now we are seriously behind the ball.”

The new report, shared exclusively with IndyStar, recommends strategies for Indiana to capture what it calls the low-carbon metals market and solidify its industrial standing.

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The main suggestion: Take advantage of the tremendous influx of federal money becoming available for these types of decarbonizing projects. In this case, decarbonization means using renewable energy sources such as hydrogen, wind or solar to power the manufacturing processes.

“There has never been a better time for us to look at industrial decarbonization,” Inskeep said. “We have a once-in-a-lifetime opportunity with the funding being released.”

There arguably is no place more relevant for this conversation than Indiana with its heavy-industry presence, Anna Johnson with ACEEE said.

Indiana is home to more than a quarter of the U.S. steelmaking capacity with the U.S. Steel and Cleveland Cliffs facilities in northwest Indiana. Steelmaking employs nearly 28,000 workers and contributes as much as $12 billion to Indiana’s economy. The state also has one of only five remaining aluminum smelters in the country located on the state’s southern border at the Alcoa facility.

Auto manufacturers, battery producers, solar panel builders and more are expanding their presence across the country, and are looking for the right spot for new plants and facilities. Indiana might seem an obvious fit, given its central location and proximity to the precise metals needed in their productions. However, many of these companies are looking for more sustainably-produced materials in their products — something Indiana doesn’t have, and some other states do.

“Many of our members understand the need to alter their processes and focus on sustainable solutions to continue to grow their business and remain a relevant part of the supply chain,” said Andrianna Moehle at the Indiana Manufacturers Association. “However, there are many hard-to-abate industries in the state” that are working towards solutions.

Indiana’s major steelmakers use blast furnaces powered by coal to manufacture the metal, an emissions-intensive method that has been in use since the 1400s. In fact, the U.S. Steel facility is the single-largest climate polluter in the state, according to data from the U.S. Environmental Protection Agency. This plant emits more greenhouse gas emissions each year than any of Indiana’s coal-fired power plants. The Cleveland Cliffs’ facilities are the fourth and fifth largest emitters in the state.

Alcoa’s aluminum smelter runs on electricity generated by its very own coal-powered electric plant.

Most of Indiana’s major industrial facilities are powered by fossil fuels, particularly coal. Even more, the metals sector uses dated and emissions-intensive processes, according to the report. For scale, the emissions from Indiana’s metals sector in 2019 was equivalent to the annual emissions from energy used by nearly 1.4 million homes.

But newer technologies and lower-carbon alternatives are available, and are beginning to be used in other states.

To be clear, according to the report authors, decarbonization in this sense does not mean carbon capture, or pulling carbon out of the air and the tops of smoke stacks and sequestering it in the ground. Rather, low-carbon metals means updating the equipment to produce the metals using “abundant renewable energy.”

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While many sustainable technologies are still in development or being scaled up, there's a clear technological roadmap to produce steel and aluminum “with minimal carbon emissions and pollution,” the report said.

“We have the technologies today that would allow us to largely decarbonize those industries,” said Johnson, a senior researcher at ACEEE and author on the report. “But we’re locked into archaic structures and need to change out the technologies.”

With steelmaking, for example, there is a lower carbon alternative that uses natural gas to produce the necessary heat. Though gas is still a fossil fuel, the process can later be fully decarbonized by replacing it with hydrogen that’s made using renewable energy. For aluminum, which already runs on electricity, the power needs to come from renewable sources such as wind or solar.

Still, while the technology exists, there are obstacles that stand in the way.

The transition will require massive capital expenditures, adding up to billions of dollars, but the federal government is making more than $80 billion available over the next decade for industrial decarbonization alone. That includes funding for facilities that reduce their emissions by certain amounts and those that produce low-carbon materials used in federally-funded transportation projects.

Investing now “provides the opportunity to capture early-adopter incentives,” according to the report. That includes not only the federal dollars, but fixed contracts with downstream manufacturers such as automakers for high-value, low-carbon goods that are still in relatively short supply.

Beyond funding, a transition will require massive amounts of clean energy to fuel these industries. These hurdles seemingly are a bit larger.

The first is that Indiana companies are much more limited in their ability to enter into third-party power purchase agreements, or PPAs. These agreements would enable a company like Alcoa to contract with a solar or wind company, for example, to acquire renewable energy.

Many other states allow such agreements, but Indiana’s utilities have lobbied against these agreements and the legislature has not helped in expanding these opportunities, according to Inskeep.

The Indiana Energy Association, the trade association for Indiana’s utilities, did not directly answer questions regarding PPAs. Executive director Danielle McGrath did say that the state’s utilities are “seeing requests for renewables from existing and potential businesses, and we work with them on renewable energy solutions” through individual programs or PPAs through the utility.

Another significant challenge is public perception. More than one-third of counties across Indiana have passed local ordinances that restrict if not out-right prohibit wind and solar developments in their borders. Much of this opposition has come from a concern over losing agricultural land.

Attempts to create state standards for renewable projects have been met with vehement resistance in previous legislative sessions and have resulted in an only voluntary program.

But the industrial transition can’t happen without expanding renewable energy in the state, ACEEE’s Johnson said. She and Inskeep hope the report will show renewable growth is key to maintaining Indiana’s industrial dominance.

“That was a really strong motivator for this report,” Johnson said, “to show that for Indiana to go from where it is now to where it wants to be, a lot of people need to come together.”

A critical part of that process will be to include the communities located around the manufacturing and power plants, Inskeep said. They have borne the brunt of the pollution from these facilities throughout the decades.

The communities — which are primarily low-income and minority — will benefit from the cleaner air, Inskeep said. But they also should be considered for potential job opportunities or other improvements as part of the transition. Much of the federal funding requires companies to consider community-benefits plan to be eligible.

The state legislature and other leaders also need to get on board, Johnson said.

Gov. Eric Holcomb visited COP27, the annual United Nations Climate Change Conference attended by world leaders, in Egypt last year — he was one of less than a handful of U.S. governors to do so. Neal Elliott, director emeritus of ACEEE, said he believes this shows Holcomb recognizes green manufacturing as “the battle for the future — this is really about the future of industry and Indiana’s position in it.”

Holcomb’s office did not respond to IndyStar’s request for comment.

Chance is coming regardless of the actions of Indiana lawmakers, utilities and manufacturers. Companies including General Motors, Toyota, Honda, Stellantis and Subaru — all of which have plants in the state — have pledged to achieve carbon neutrality in their supply chains in the coming decades. If Indiana doesn’t decarbonize its steel and aluminum, both major car components, then automakers will be forced to purchase materials made elsewhere.

Competing facilities in other states already are beginning to produce metals that could capture market share in Indiana. One such steel mill in Arkansas, for example, produces low-carbon steel with newer technologies. The plant is poised to expand its production for the auto sector, the report said.

“The core of this report is the idea that a successful transition is really in everyone’s best interest,” Johnson said. “Now is the time to bring out the ideas on what needs to happen today to make sure Indiana is ready.”

Call IndyStar reporter Sarah Bowman at 317-444-6129 or email at sarah.bowman@indystar.com. Follow her on Twitter and Facebook: @IndyStarSarah. Connect with IndyStar’s environmental reporters: Join The Scrub on Facebook.

IndyStar's environmental reporting project is made possible through the generous support of the nonprofit Nina Mason Pulliam Charitable Trust.

This article originally appeared on Indianapolis Star: Indiana must clean up or lose its industrial dominance, report says