It takes massively high temperatures to make things like steel, chemicals, and paper. Just how hot? Like >1,000 degrees Celsius or higher, which is as hot as lava from a volcano. Thinking through how to decarbonize lava, well, that’s enough to cause me to break into a sweat.

Today, the industrial sector accounts for nearly a third of all natural gas use in the U.S. Enter the Inflation Reduction Act (IRA), the decarbonization adrenaline shot, which on top of everything else you’ve read also presents an immense opportunity to take CO2 out of industrial heat. There are at least three viable options for decarbonizing heat that the IRA should accelerate - hydrogen, electrification via thermal energy storage (TES), and carbon capture and storage (CCS).

Perhaps the biggest winner in the IRA is hydrogen; it received a truly massive tax credit that could reduce costs by 50% to 90%. Electrification also gets a boost from a suite of manufacturing tax credits, though their ultimate applicability to TES will come down to IRS guidance. The agency is now asking for comments by Nov. 4. The IRA also grows the often debated tax credit for CCS, but carbon capture is a complicated story that deserves its own Gist.

The Winners - Thermal Energy Storage and Hydrogen: 

1. Thermal energy storage takes cheap renewable energy and stores it in cost-effective, abundant materials that retain high temperatures until that heat is transferred as needed for industrial processes. It’s like a giant toaster powered by clean energy, but instead of warming up a pop tart, it’s used to create steam and separate chemicals. Neat, right?

• Thermal energy storage startups: Rondo Energy’s Heat Battery (an AHG client), Electrified Thermal Solutions, RedoxBlox, and Antora Energy are a few that stand out.

1. Hydrogen creates no CO2 emissions when burned, but not all hydrogen is created equal. There are three primary types - Gray, Blue, and Green. Gray hydrogen is made using steam methane reformation from fossil fuels, and accounts for all of the hydrogen being used today. Blue hydrogen is just like gray, but adds carbon capture and storage. Green hydrogen is made with renewable energy and water, and is what the IRA goes the furthest to unlock.

• Hydrogen startups: Electric Hydrogen and H2Pro are developing new green hydrogen production technologies; startups like ReMo are developing processes to generate and convert green hydrogen into products like ammonia fertilizer.

The IRA is a Giant First Step, But It’s Not Enough. 

While the IRA provides immense opportunity for industrial heat decarbonization, a few steps remain to get from here to net zero.

For starters, how the IRA is interpreted will influence which technologies can compete and to what extent in the market. The rules for hydrogen appear to be clear, although some uncertainties remain, like how the greenhouse gas (GHG) intensity of hydrogen production will actually be calculated. It’s also uncertain how the various manufacturing tax credits will apply to TES and hydrogen, and on what timeline.

The deployability of both TES and green hydrogen will rely on regional power markets to play nice. Both of these approaches require accessible and affordable clean power and a lack of appropriate market structures in some markets may pour cold water on these otherwise promising pathways.