Site selection decisions for manufacturers have historically been guided by traditional factors such as access to skilled labor, logistics infrastructure, and competitively priced utilities. Today at SDG, we see a shift among our heavy industrial clients taking a broader view of energy inputs and prioritizing sites and regions that provide pathways for industrial decarbonization. This shift toward more environmentally conscious operations by our clients requires an evolution in the way we evaluate site priorities for manufacturers.
Site Selection/Economic Development Considerations
The industrial sector is responsible for an annual 1,410 million metric tons of energy-related carbon dioxide emissions or approximately 30% of total U.S. carbon dioxide emissions. This is not lost on our manufacturing clientele (or their investors in the case of publicly traded companies). We are seeing first-hand how a site’s ability to provide decarbonization optionality is becoming a key must-factor in many capital-intensive manufacturing location decisions.
Pathways to industrial decarbonization vary by geographic region. Whether it is the presence of commercial-scale low-carbon intensity hydrogen, the availability of grid-level renewable electricity, or opportunities for carbon capture and underground storage (CCUS), here are a few of the high-level site selection trends we’re seeing today:
- Prevalence of projects seeking end-of-life material as feedstock in lieu of virgin material.
Projects utilizing end-of-life materials as inputs in lieu of virgin feedstock create fewer emissions by reducing waste materials and, often, utilize a less energy-intensive process. Whether it’s projects led by the SDG or others, we expect this trend will continue as new technologies supporting the reuse of end-of-life materials continue to reach commercial scale.
- Near and long-term availability of low carbon fuels and feedstock (AKA the Hydrogen “rainbow”)
It’s still early days for commercial scale low-carbon hydrogen (primarily blue and green). As a result, we see an imbalance of supply compared to demand as industry rapidly seeks low-carbon hydrogen (both as a fuel source and feedstock) and producers race to bring new green and blue hydrogen projects online. Sites and regions near to proposed commercial-scale blue and green hydrogen projects (or with pipeline access to those projects) will be prized.
- When it comes to the potential for CCUS, not all regions of the country are equal.
The decarbonization dreams for many manufactures are based upon the potential for permanent underground CO2 storage. However, there are both geologic and regulatory hurdles to overcome. In terms of geology, there are certain criteria that must be met in order to support a viable underground injection well for the permanent storage of CO2. Assuming the geology checks out, there is still the matter of regulatory approvals. Today only two federally permitted Class VI injection wells exist, both operated by Archer Daniels Midland Company in Illinois. The EPA has a backlog of permit applications, and it is uncertain when they will begin granting new permits. States pursuing Class VI primacy (state-level jurisdiction to permit new Class VI injection wells) or those that have already been granted primacy (like North Dakota and Wyoming) appear to be most well-positioned to implement CCUS projects in the near-term.
- Taking advantage of pathways for renewable (and carbon-neutral) electricity.
Perhaps the most prevalent trend among manufacturing projects we have observed over the last 5 years is a need for 100% renewable (or carbon-neutral) energy. There are varying perspectives on preferred pathways to renewable power. Whether that be in front of or behind-the-meter solutions, renewable energy credits, or renewable additionality through power purchase agreements.
The bottom line is that manufacturing projects today are more reliant than ever on electrification and are simultaneously moving away from combustible energy sources. Couple this with decarbonization goals, and the availability of competitively priced renewable power becomes a critical criterion.
We see sites that can provide multiple pathways to 100% competitively priced, renewable power as very well positioned to attract manufacturing projects in the years ahead.
To be sure, site selectors are on the frontlines of a broader industrial energy transition. Sites and communities that recognize this change and position themselves to best support industrial decarbonization will be well-positioned to compete for and win meaningful capital investment and job creation projects into the future.
 U.S. Energy Information Administration’s 2022 Annual Energy Outlook report, https://www.eia.gov/outlooks/aeo/