In order to decarbonize the industry sector, it will be necessary for industry to transiton to energy sources that do not emit greenhouse gases (GHGs). The majority of industrial processes can be electrified, but this is difficult for other processes, such as the creation of new steel from iron ore, which requires both high heat and a chemical reducing agent. Hydrogen offers a way to meet industrial energy needs that are not amenable to electrification.
Policies promoting fuel conversion can be mandatory (e.g., banning the use of coal or natural gas in certain industrial facilities), or market-based (e.g., taxing the use of coal or natural gas, or offering tax credits or incentives to use zero-carbon fuels). Policies that price carbon emissions also create an incentive for facilities to switch away from combusting fossil fuels.
Though industrial facilities would generally need new equipment to burn hydrogen, it is possible to transform hydrogen into other high-energy molecules that are compatible with existing industrial equipment (such as ammonia or methane) with modest energy losses. This could allow for a gradual transition to hydrogen, avoiding early equipment retirements or write-offs. Working in harmony with industry's equipment replacement cycles and minimizing factory downtime will be important for facilitating roll-out of this new technology.
For a more detailed discussion, see the applicable chapter of Designing Climate Solutions, our book on smart energy and climate policy design.