Preparing US industry for a more competitive world
Bottom lines up front
- The drivers behind industrial decarbonization on a global scale represent the “new normal.”
- A durable and competitive industry will be unable to avoid sustainability as a key, if not paramount, criterion. US industry must retain the mindset of building for tomorrow regardless of the politics of today.
Table of contents
I. Introduction
In 2024, the Atlantic Council commenced a research series centered on the future of US industry in a decarbonizing world. This project considered if and how US policy might support a more sustainable, efficient and effective industrial base. Its goal was to assess how the United States could remain competitive in a global market where friends and competitors are increasingly motivated to invest in decarbonization and incentivizing domestic companies to produce lower carbon products. This project particularly focused on how the US industrial base might respond to these developments without the expectation of new major budget expenditures. In other words, what constitutes durable competitiveness?
The project involved multiple workshops including the perspectives of dozens of stakeholders throughout the public and private sectors, and ultimately produced two major research reports: Reducing US industrial emissions under budgetary uncertainty (published November 2024) and Building for tomorrow: Preparing US industry to compete in a lower-carbon global economy (published June 2025).
Though we published these pieces in disparate political contexts, each analysis offered perspectives on the unique challenges to enhancing sustainable competitiveness in each of the sectoral pillars of US industry. The second paper prioritized what actions might be taken to address them. Fundamentally, we argued that the United States should maintain, and ideally expand, its industrial decarbonization toolkit as a matter of both economic competitiveness and geostrategic interest given the resurgent importance of industrial policy throughout the world.
Since the publication of the second report, however, the wider context around US industrial and energy policy has shifted further. The second Trump administration has, at the executive level alone, introduced policies intended to bolster the role of fossil fuels, including coal, while also initiating efforts to reverse climate analyses foundational to US policy on the subject since the Obama administration (notably the Endangerment Finding), and thus reshape how the US government crafts related regulations and policy decisions. At the legislative level, meanwhile, the recent passage of the administration-endorsed budget reconciliation law (One Big Beautiful Bill Act) saw substantive curtailments of several federal incentives for clean energy, clean fuels, and emerging technologies—programs previously identified in our research as significant to ongoing sustainability developments in major industries like iron, steel, chemicals, aviation and more.
Amid such a seismic shift, it is tempting to question if furthering US industrial decarbonization remains a plausible or even a valuable objective—or, if a reversion to business as usual prior to the emergence of a (now lost) political consensus on the importance of this issue is the only realistic option left.
We approach this question from a different perspective: rather than call for the return of business as usual, we argue that the drivers behind industrial decarbonization on a global scale represent the “new normal,” and US companies must stay the course to ensure both the durability and long-term competitiveness of the country’s industrial sector. Regardless of endlessly shifting events in Washington, DC, the challenge of durable competitiveness always was—and remains—a global issue. The present moment represents a turning point in which the United States can still assert leadership in a rapidly changing industrial space, or risk being left behind as others take the proverbial wheel and craft the future of industry without us. Because industrial sustainability will matter in 2030, 2040, and 2050, it matters all the more in 2025. Put simply, we are still building for tomorrow.
II. Durable competitiveness goes global
Why is durable competitiveness, enabled by industrial decarbonization, still important despite a changed political and geopolitical context? We contend that four major trends affirm that these issues are only increasing in importance when understood within a wider lens.
A. Competitors are moving ahead of the United States—and setting future terms of engagement
A key point that emerged from our prior analysis was the degree to which industrial decarbonization efforts, coupled with the adoption of low-emission and emerging fuel sources, have become part of strategic goals in multiple major economies. These include those of US partners, such as the European Union (EU), but also (perhaps especially) competitors like China. This has not necessarily occurred for altruistic or environmental reasons, but rather as a response to wider conditions. Since the mid-2010s, surging economic protectionism, resource nationalism, and efforts to de-link and deglobalize the major economies have forced policymakers the world over to redefine economic and energy security in the modern age. The apparent acceptance of 15 percent broad tariffs in the Trump administration’s most recent trade agreements (apart from separate, punishing sectoral tariffs) is only the latest example affirming that such protectionism is now understood as a normal facet of international economic relations.
For energy importers—like the EU, China, Japan, South Korea, and India—dependence on conventionally traded fossil fuels sourced from foreign suppliers enhances the appeal of homegrown energy. Each of these countries place high economic and political importance on domestic production in one or more of the traditional industrial sectors, such as steelmaking; in turn, these sectors have historically relied on a mixture of domestic and/or imported fossil fuels. This context makes fuel diversification and improving efficiency in the industrial sectors more appealing. Examples of such policies, still being pursued in other major economies, include the EU’s Net-Zero Industry Act, the United Kingdom’s Invest 2035 plan, Japan’s Green Growth Strategy, and South Korea’s Framework Act on Carbon Neutrality and Green Growth among dozens of regional, sectoral, and fuel-specific (e.g., hydrogen and ammonia) programs.
For countries that enjoy domestic energy abundance, like the United States, this consideration may seem less urgent—but these industrial decarbonization technologies are themselves a growing source of industrial production growth, export revenue, and employment. China already dominates the global solar and wind sectors and has a growing edge in electric vehicles—clean technology exports together worth $177 billion for China’s economy in 2024. Much the same pattern is underway with heat pumps (40 percent sold globally in 2023 were manufactured in China), electrolyzers (China boasts two-thirds of global manufacturing share) and low-emission steel and aluminum (China controls 32 percent and 62 percent of manufacturing capacity respectively). The Chinese government bet—correctly—that improving and reducing costs for now-mature low-carbon technologies would facilitate their adoption in markets where they were previously unaffordable. Once a degree of cost parity with traditional fuels was achieved, their other advantages (namely, offering a fast-track homegrown energy supply) would enable rapid scaling of demand. With an estimated $2.2 trillion in investment this year alone targeted at low-emissions fuels and infrastructure (double that of coal, oil, and gas combined), there remains a clear direction of travel, and the next generation of decarbonization technologies stands to benefit. Now, China is preparing to once again build and sell the future toolkit to the world even as the United States walks back its own incentives and credits for similar products. Those skeptical of a push for US industrial decarbonization may see little near-term gain for US economic interests—but on the longer horizon, there may be a great deal to lose indeed.
Another factor is the proliferation of emissions trading systems (ETSs) and border carbon adjustment (BCA) measures. These measures are already shaping the future of international trade. Our prior analysis noted the profound galvanizing impact that the arrival of the EU’s Carbon Border Adjustment Mechanism (CBAM) has had for other economies to adopt similar measures in order to retain that market access without penalties. Crucially, the EU system will begin with regulating high-emissions intensity, heavy industrial products. An updated report from the International Emissions Trading Association (IETA) assesses that the global forward march of such programs continues even in 2025: thirty-eight ETSs are in force, covering 58 percent of global emissions. Seventeen members of the Group of Twenty (G20) have an existing or planned ETS system, while carbon pricing is being installed or expanded in major economies including Brazil, India, and Turkey in response to the incoming European penalties for suppliers in countries that lack such mechanisms. Brazil, host to the United Nations Climate Change Conference, COP30, later this year, is reportedly preparing an “international climate coalition” proposal for that convening, which would inaugurate a climate club of countries that charge foreign imports an emissions fee.
All of this has occurred amid significant changes in the global trading system, driven in part by the Trump administration’s stated goal of rebalancing trade. However, the Trump administration has not yet achieved significant changes to the European Union’s policies such as border adjustment, carbon pricing, or its emissions trading scheme. The EU, for its part, has pursued internal simplification and rationalization measures upon its CBAM’s entry into force, but such sharpening of parameters was perhaps inevitable in the inaugural program. For now, the EU’s border adjustment plan and related efforts, such as its methane requirements for imported fuels and products, are fast becoming a reality of doing business.
The United States retains the ability to engage on these fronts, but others appear to be setting rules of engagement. In the realm of border adjustment, there remains an intriguing opportunity to unify interests in industrial decarbonization and efficiency improvement within the Trump administration’s stated trade agenda—both encouraging positive emissions outcomes and producing new revenues. We recommended previously that Congress might adopt its own version of a US carbon border adjustment aligned with both aims; indeed, given US industry’s existing emissions intensity advantages in key sectors like steel-making, such an approach could benefit domestic producers while incentivizing improvements in other countries. The PROVE IT Act and Foreign Pollution Fee remain excellent starting points. But the future of industrial sustainability is being written in real time while the United States is all but absent from the conversation. Should the United States wait years to re-enter this dialogue, it may find itself on the outside looking in—and US industry less agile and competitive as a direct result.
B. Private sector companies face evolving risks and incentives to pursue lower-emissions intensity and greater efficiency
An oft-repeated assurance from the Trump administration has been that its deregulatory actions will ultimately produce immense benefits for US industry and manufacturing. The argument is two-fold: First, undoing burdensome regulations (for example, weakened EPA oversight of methane emissions in the upstream oil and gas sector) will enable expanded production of domestic energy and thus reduce costs for industrial consumers. Likewise, industry will enjoy a lightened regulatory framework in areas like air emissions and water pollution controls as well as easier, faster permitting with limited litigation, sharpened environmental review, and reduced enforcement. Over time, these changes will lower costs and improve profit margins.
These arguments may prove true—in the United States. Most major US industrial companies, however, are not solely operating within or supplying a US customer base; they supply the world, including the United States’ major trading partners. As a result, US companies with a multinational footprint are subject to overlapping foreign regulations and jurisdictions, complete with requirements that the US government has no direct control over.
That wider environment, and its risks and pressures, is evolving as the world develops a vastly greater understanding of various types and sources of emissions associated with a given unit of a product. The EU’s CBAM, highlighted above, is one example, but the bloc’s Methane Strategy is another that scrutinizes the full life-cycle methane emissions associated with certain imports, including those of liquefied natural gas (LNG). These regulations are made possible through a rapidly improving data acquisition and verification framework for greenhouse gases, enabling a sprawling new analytical industry in the realm of emissions accounting. The advent of artificial intelligence (AI) will only expedite information acquisition and interpretation capabilities, especially through previously complex, opaque supply chains.
Governments alone are not driving these trends: Private sector associations—such as the aviation industry’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) and the maritime industry’s International Maritime Organization (IMO)—are taking steps to formalize emissions accounting within their sectors as a prelude to management and reduction efforts. A similar example within the steel industry is the recent announcement of a new consortium of producers and value chain stakeholders in Asia. Among other efforts, this private coalition will conduct a pre-feasibility study to assess carbon capture, utilization and storage (CCUS) opportunities and barriers in Asia ahead of establishing scalable “hubs” among the consortium members. The aspiration is to mitigate the emissions intensity of Asian steel operations—likely influenced by evolving trade dynamics around these issues. The financial sector is likewise taking notice: IBM asserts the importance of “finance-grade GHG [greenhouse gas] emissions data” for private businesses, adding: “Investors are increasingly scrutinizing sustainability performance alongside financial performance to inform investment decisions.”
US businesses must contend with these pressures throughout global markets, and among their own investors and shareholders, which persist despite the Trump administration’s wholesale turn against environmental, social, and governance (ESG) criteria for financial sector decision-making. This tension is one driver of the “greenhushing” trend, wherein large corporations quietly maintain (but publicly minimize) their sustainability actions, investments, and internal initiatives. Recent data affirms that, regardless of the unsupportive US government perspective, major banks throughout the world (even those that have left umbrella groups like the Net-Zero Banking Alliance) are still steadily decarbonizing their portfolios. Even if scrutiny does not come from home, it may come from somewhere else.
Moreover, public and consumer scrutiny over the societal impacts of major industries is hardly abating. The anxiety surrounding the AI buildup occurring throughout the country illustrates a warning for US industry: Intensifying opposition to new data centers and adjacent energy infrastructure is influenced by the emissions and water impactsfrom these new builds. Reasonable efforts to pursue sustainability remain a key aspect of attaining, and maintaining, social license to run a business. If anything, these considerations are set to intensify over the multi-year and multi-decadal outlook for most major operation and investment decisions. Private multinational companies must therefore contend with sustainability and decarbonization as an issue of global competitiveness right now, and for many years to come.
C. The rise of AI could represent a new industrial revolution and accelerate decarbaonization—if US industry can take advantage
Undoubtedly, the AI revolution represents a tremendous growth opportunity for the major industrial sectors—particularly in the face of the changing geopolitical, trade, regulatory and social environment discussed above. IBM refers to “Industry 4.0” which enables “digital transformation of the field, delivering real-time decision making, enhanced productivity, flexibility and agility.” Key AI and AI-adjacent developments already being adopted into the industrial sector include machine learning, advanced language processing, human-robot collaboration and cobots, digital twins and predictive maintenance. Given that the world is at the tip of the AI iceberg, and with quantum computing advances likewise gathering pace, there is vast potential for these transformative changes to put heavy industry on a different trajectory than its past development.
These technological adoptions could improve the ability of presently hard-to-abate sectors to decarbonize, as well as identify and implement efficiencies more quickly and affordably than has been possible before. A 2025 World Economic Forum white paper, considering the impact of AI in industrial and manufacturing operations, argues that “[s]ociety is entering the Intelligent Age…In this new era, industrial operations are being redefined as frontier technologies deliver advancements facilitating collaborative intelligence and amplifying human ingenuity.” This perspective can certainly be true with respect to industrial decarbonization. The paper notes, as one example, that autonomous industrial systems can optimize energy consumption and lower waste of resources while allowing efficient, real-time monitoring of previously complex environmental impact metrics. Moreover, the ability of major industrial stakeholders to understand and interpret data gathered throughout their supply chains is set to dramatically expand—as well as their ability to understand differing scopes of emissions involved with their production processes and the full life cycle of a given item or service.
The AI revolution is also relevant to another key issue: infrastructure buildout. We have argued previously that the decarbonization challenge is fundamentally an infrastructure challenge—both in terms of resiliency to unavoidable climate change, adaptation of our existing infrastructure, and building the “new” pieces of the puzzle—new pipelines, transformers, cables, reinforcing steel (rebar) and much more. The addition of acres worth of data center infrastructure (and presumably a wholesale upgrade of the US power system to accommodate it) is just another layer of creation that will be foundational to a resilient and growing US economy in the years to come. Historically, such a moment would have mandated a swelling of the manufacturing workforce and enormous expenditure, as well as an ironic, immediate-term acceleration of emissions associated with an uptick in heavy industrial processes.
The technological transformations now upon us, however, can change that 20th-century narrative for the better and break this established pattern. The World Economic Forum refers to these problems, which have made “large structure production” expensive, and energy- and emissions-intensive. However, “the urgency of decarbonization has created a window of opportunity to leapfrog outdated methods.” AI in this context acts as a force multiplier for other innovations like automation and digitalization, allowing optimization of all energy resources and inputs to a given process as well as faster, more granular repetition and replication of a facility or product design. Adapting these innovations into the heavy industrial sector can reduce the impact of this incoming generational infrastructure surge, making it possible to enhance sustainability on both sides of this proverbial equation.
To be sure, other benefits (particularly in overall cost, waste, and workforce preparation) will make this new era of technological integration appeal to private businesses and other stakeholders. That integration, and accessing its full potential, will not occur in a vacuum or by accident; conscious preparation and motivation to access all these positive implications will be necessary. Sustainability may not be the foremost driver of AI integration and adoption in the industrial sector, but it is already part of the conversation with clear, tangible outcomes.
D. Political volatility—in the United States and elsewhere—is ever present, ensuring that incentives and opportunities will change again
Much of the present discourse around industrial decarbonization was first ignited during the Biden administration when the US government pulled many levers of its policy, regulatory, and fiscal power to encourage broad decarbonization throughout the US economy. Likewise, that same discourse has appeared to diminish as federal climate policy and decarbonization considerations have shifted under the Trump administration.
We noted in our prior analysis that political time scales and those of major project developers and investors are rarely aligned. This misalignment perpetuates unclarity and uncertainty, especially around major decisions that could involve projects spanning years and with returns on investment planned past a decade of operation or longer. Of course, some degree of uncertainty is hardly new for US industry. After all, a new factory or plant in this sector regularly costs multiple millions of dollars to build and operationalize, but such facilities are expected to be operating for decades into the future amid a variety of economic and political changes.
What is relatively new, however, is the degree of uncertainty in the future requirements and expectations for industrial products and services as they relate to emissions and environmental impacts. In other words, politics is increasingly influential on markets and elevating specific concerns and goals (in some instances) over others. Moreover, key policies and incentives can radically change not just within a domestic market but also within overseas markets—and those two sets of approaches may have disparate requirements. All of this poses elevated risks, greater instability, and a need for flexibility to manage varying, perhaps contradictory, mandates.
Even within the domestic context (in this case US federal and state policies impacting industry) stability is far from guaranteed. Instability, whiplash, and volatility are increasingly the order of the day. At the federal government level, the shifts from 2016 to 2017, then 2020 to 2021, then again 2024 to 2025 were exceptional within American political history—especially with respect to energy and climate policy. While it would be tempting to argue that the personal influence of President Trump in these three transitions precipitated such sharp swings each time, it is also notable that the American electorate is far more polarized than at any other moment in recent history. These facts are borne out by the shrinking number of competitive congressional seats as well as the current Congress’s willingness to break with tradition and undercut major private sector incentives previously written into the Inflation Reduction Act (albeit by narrow margins).
Sharp swings in American politics thus should not be laid at the door of one individual or administration but appear increasingly symptomatic of the entire polity. It is entirely conceivable, as a result, that future election cycles (never too far away, as any politician will readily admit) could produce swings in the opposite direction from the current dynamic. In this instance, that swing would push federal policy back in the direction of interest and focus on climate, and perhaps new and creative approaches toward energy system transformation and industrial decarbonization.
Another key element to this conversation is the role of state and local governments, which retain extensive authorities when it comes to energy and decarbonization-adjacent regulations and priorities within their territories. Every federal administration has discovered this to some degree; thus far, the Trump administration’s efforts to limit state-led cap-and-trade systems, fossil-industry targeted laws, and climate-focused permitting requirements have had limited effect. This situation creates an additional layer of gubernatorial, mayoral, and legislative turnover against which businesses must invariably hedge.
Where does this seemingly endless cycle of volatility leave the US industrial sector, particularly as it considers whether to pursue extensive investments and the immediate costs and risks associated with changing how to do business? In the end, the long-term view is what will ultimately matter the most. For major players in the industrial space, the next election cannot be predicted, and no one industry can fully insulate itself against shifting tides. That said, it may be possible to discern the wider trendlines and what considerations will matter over the extended horizon—indeed, the horizon over which most of the projects and process changes in question will actually begin to earn returns on investment. Flexibility, and a forward-looking posture, thus remains the most sensible approach amid the machinations of political machinery within and outside the United States.
III. Still building for tomorrow
The puzzle around drivers, motivations, and factors that will facilitate industrial decarbonization has yet to be fully resolved. To be sure, more churn and change is inevitable going forward. The proposals, ideas, and policy solutions of today may not be those of tomorrow, and variability throughout the world on how to go about this generational project is perhaps the only certainty. With a variety of energy transitions (plural, not singular) taking place in different corners of the globe, developments in global industry are themselves likely to be highly varied and on different timetables.
Even so, the direction of travel seems increasingly clear: If durable and competitive industry will ultimately include sustainability as a key, if not paramount, criterion, then US industry must retain the mindset of building for tomorrow regardless of the politics of today. Ultimately, this mindset is not about a particular vein of politics or moral conviction. Rather, it is intrinsically tied to understanding business growth prospects, seizing opportunities ahead, and applying thoughtful risk management to a changing world. To focus solely on the present-day state of play would be to risk the future of a core part of US economic strength and power projection.
The trajectory for industrial decarbonization and the eventual winners are being decided by choices here and now. A failure of US industry to engage would effectively amount to unilateral disarmament at what could be a lynchpin moment. Such an outcome is avoidable but not by doing nothing at all. As ever, fortune favors the bold. US industry stakeholders should plan accordingly.
about the authors
stay connected
Sign up for PowerPlay, the Atlantic Council’s bimonthly newsletter keeping you up to date on all facets of the energy transition
Explore the program
The Global Energy Center develops and promotes pragmatic and nonpartisan policy solutions designed to advance global energy security, enhance economic opportunity, and accelerate pathways to net-zero emissions.
Image: Photo by Zoshua Colah on Unsplash
