Regionally based hubs of value chain participants can help reduce greenhouse gas emissions for so-called “harder-to-abate” industries.
As the push for decarbonization to combat climate change gains momentum, the adoption of readily available low-carbon solutions is accelerating. However, for sectors where efficiency and green electrification are unable to address the majority of emissions, commercially available solutions remain frustratingly out of reach.
For these sectors, often referred to as “harder to abate,” technical and business model gaps compound the challenge of finding cost-effective solutions to address what amounts to be 30 percent of total global greenhouse gas (GHG) emissions.i This share is projected to grow as other sectors decarbonize, increasing the urgency for the harder-to-abate industries of iron and steel, road freight, aviation, chemicals, cement, and shipping to find ways to bring innovations to market in time to mitigate climate impacts.ii
The good news is that there are known technological solutions under development today with the potential to reduce emissions from harder-to-abate sources. Among the most promising are clean hydrogen and carbon capture, utilization, and storage (CCUS).
Combined, these have the potential to abate over 50% of industrial emissions by 2070.iii
However, the current costs of both of these technologies have yet to reach a point low enough to be deployed at scale. Currently, the production cost of clean hydrogen ranges between $1.60 and $12.00 per kilogramiv (depending on the production method) and the cost of carbon capture varies from $25.00 to $120.00v per ton based on stream purity and emission source (Figure 1).
Although they’ve been around for decades, hydrogen and CCUS technologies have faced investment headwinds arising from a persistent chicken or egg problem: companies are reticent to invest in production or capture technology without being confident that there is a market for their product, while downstream customers have not invested in the market infrastructure or technology to utilize captured carbon or clean hydrogen due to the lack of supply. However, for harder-to-abate sectors to decarbonize at the speed needed to keep the planet to less than 1.5-degrees or even 2-degrees of warming, these low-carbon technologies must reach commercial scale in the mid-term as part of the overall solution to achieve net-zero emissions globally by 2050. With investment time horizons of five years or longer, companies need to act now in order to see emissions reduction benefits by 2030 at the latest.
Introducing the Hub Concept
One key pathway to achieving commercially viable low-carbon technologies is by funneling investment to scale up supply in regions with matching, growing demand. By co-locating supply and demand, hubs can bring down infrastructure costs and drive economies of scale. Bound by a specific region, representing a significant level of aggregated point-source emissions, and bringing together actors from across value chains and sectors, hubs sit at the intersection of customers, geography, and collaborators that enable organizations to maximize value. As our analysis will later illustrate, collective action in a hub drives significant cost reduction for collaborators when compared to the costs associated with individual investments.
Through ecosystem collaboration, hubs can accelerate technological development, encourage downstream adoption of clean hydrogen and/or carbon capture for multiple end-uses, and drive long-term decarbonization transformation across industrial value chains. “Co-opetition” amongst hub members creates conditions which may accelerate hub success by both lowering the perceived risk of investment—as participants see others in their industry investing—as well as by creating more tangible competition. For ecosystems to work well, companies will have to give up old notions of competitive advantages in which most moves are exclusively zero-sum and instead think about the value of collaborative advantage and adaptive advantage which comes from working with others—even erstwhile competitors.
Typically centered around geographies with regional advantages (e.g., endemic natural geological storage formations, existing infrastructure, a skilled workforce, favorable regulatory conditions, tax incentives, etc.), successful hubs benefit from solution integration and scale, and reap the rewards of increased innovation, access to human capital, investment flows, and more. Based on these criteria, several low-carbon hub locations have already been identified across the United States, many involving multiple planned or announced projects (Figure 3).
Due to its cost advantages of natural gas, endemic geological storage resources, wind and solar potential, industrial manufacturing capabilities, and existing export and pipeline infrastructure, North America, and in particular the United States, is one of a few regions in the world identified by the International Energy Agency (IEA) as being primed for low-carbon hub development and clean hydrogen export.vi However, with national low-carbon strategies, supportive funding and regulatory regimes, and several announced projects underway, other industrial regions like Australia, Europe, and China have so far led the world in hub development. Though the United States lags behind, recent policy support has signaled that this may not be the case for long.
There are a multitude of hub projects under development globally, each with its own complexities and operating model considerations. At their core, however, we see hubs as being either supply-led or demand-led.
Through ecosystem collaboration, hubs can accelerate technological development and help drive decarbonization transformation.
Supply-led hubs leverage a differentiated supply base to attract customers by establishing supply in areas primed to support it, in the hopes that such actions can create demand. These hubs can either be asset-led in which hub development is focused on acquiring or leveraging a specific asset such as pipelines or salt caverns, or they can be product-led where the hub is stood up with the intention of producing a specific end product – such as hydrogen or carbon black.
Demand-led hubs organize downstream industrial subsectors to aggregate hydrogen and carbon dioxide demand by creating an attractive market for lower emission solutions at scale and emphasizing collaboration. These hubs can either be off-loader led where hub development is driven by high emitting industries looking to off-load captured CO2 and thereby driving demand for capture, utilization, and sequestration services, or they can be off-taker led in which industries look to utilize clean hydrogen and captured CO2 to decarbonize their operations and products (think carbon cured cement, green methanol, or clean hydrogen as a feedstock).
Catalyzing Development: Federal Funding for Hubs
As the United States looks to achieve the emission reductions goals set by the Biden administration, the Department of Energy (DOE) is stepping up support for hubs as a pathway for industrial decarbonization. The Infrastructure Investment and Jobs Act (IIJA), passed in November 2021, vii sets aside over $21 billion in fiscal years 2022-2026 in support of technologies that will be key parts of low-carbon hub value chains (clean hydrogen and CCUS), as well as $8 billion and $3.5 billion in direct funding for individual hydrogen and direct air capture (DAC) hubs, respectively (Figure 4). Several states have also individually announced their intent to form and support regional hydrogen hubs.
Though significant, the DOE funding is estimated to be only a portion of the investment needed to establish U.S. hubs and drive down the cost of clean hydrogen and CCUS on a global scale. By some estimates, the annual global spend on these technologies that will be required to reach net zero by 2050 must exceed $900B in 2026 – up from $24B in 2021.viii While this remaining gap in investment will have to come largely from the private sector, federal funding can serve to de-risk private investment and catalyze hub development.
The Value Proposition of Hubs
Fortunately, even without government support, hubs present a significant value proposition for participating companies seeking to reduce emissions and meet customer demand for low-carbon products and services.
Deploying clean hydrogen and CCUS in the United States at the scale necessary to reach net zero by 2050 will require that a large amount of the CapEx spent by harder-to-abate industries be directed to retrofitting facilities or constructing new greenfield sites for these new technologies. For CCUS, that means growing the U.S. capacity from 25 million metric tons per annum (Mtpa) in 2020ix to over 1 billion tons per annum by 2050.x Companies will need to equip facilities with carbon capture equipment, expand hydrogen production, and build out the necessary pipeline network to aggregate, compress, and move carbon dioxide and hydrogen to downstream consumers or geological storage. Figure 5 illustrates how these pieces may work together within a low-carbon hub, which coordinates and aggregates the infrastructure investment required to maximize efficiency.
To further explore the business case for hubs, Deloitte modeled the cost savings and emissions reduction resulting from two real U.S. hub locations representing the supply-led and demand-led operating models. The full analysis can be found here.
Despite their sizable price tags, when compared to individual companies deploying CCUS by themselves, all companies, regardless of size and industry, see a reduction of up to 95% depending on their industry, emissions contribution, and size. Outside of a hub, a company’s investment in transport infrastructure is governed by the volume of emissions from their own operations, limiting the pipelines they can deploy to smaller diameters with lower annual capacities and significantly less favorable unit economics. By aggregating emissions from other point sources, companies can drive towards more efficient pipelines and lower the per-ton cost of CO2 transported. Hydrogen producers and consumers in the hub can expect similar transportation and storage cost reductions due to economies of scale.
Strategic Considerations for Hubs
The success of different hubs and hub projects will ultimately be driven less by the amount of public funding secured, or the number of participants involved, but more by how well hub organizers are able to navigate the complexity surrounding hub development. This will include sending the right demand signals to ecosystem collaborators, making near-term investment decisions for bottom-line impact down the road, and reorienting mid- and long-term business goals and capital expenditure to meaningfully advance hubs for lower emissions.
To better understand the decisions that hub developers and hub participants will need to make, a series of strategic tensions have been outlined that will influence the hub’s eventual operating model. These are not binary and are not meant to drive towards a single answer. Rather, hub developers and participants should use them to develop a perspective on what would be the most beneficial for their hub and to identify a final hypothesis on how the hub will operate.
Each of these decisions and tensions may not require consensus, but they do need an open and transparent dialogue between civic and corporate leaders, technical experts, governments (federal, state, local), labor unions, community members, and a number of other interested and invested participants.
As a result, hubs will typically encompass a multitude of partners with inherently mismatched capabilities, motivations, and timelines. Where Deloitte has been invited into hub development, it has been to provide the interstitial matter to fill these gaps; convening like- minded partners and providing a third-party perspective to drive towards shared objectives while rounding out hub capabilities with additional services as hub projects evolve. In our experience, hubs that can accelerate alignment across their interdependent and complex stakeholder network will thrive, while those that cannot are unlikely to make it past the planning phases.
As the pressure to reach net zero mounts from investors, regulators, customers, and other stakeholder groups, and the demand for low-carbon products and solutions grows, harder-to-abate sectors are rightfully seeking pathways to achieve meaningful emissions reduction while preserving value for shareholders. Hubs present a relatively accessible option for industry in the near term to make good on emissions reductions pledges and demonstrate action on climate change.
Our analysis shows that while new federal funding has kickstarted hub formation around the country and sparked fierce competition for grants and incentives, there is a considerable business case for cross-sector collaboration within low-carbon industrial hubs even without government support. How a hub is configured—involving the right partners, securing demand amongst diverse end-uses, engaging the complete value chain, structuring agreements governing shared infrastructure, coordinating amongst various stakeholders, and more—will ultimately be important determinants of success.
Facing technical and business model barriers to reducing emissions, harder-to-abate industries must embrace collective ecosystem approaches like low-carbon industrial hubs to accelerate beyond incremental change and to catalyze tipping points in low-carbon innovation. Strategic participation in hubs is a quick win, attainable in this decade, for sectors that don’t have many options—reducing the cost of abatement, enabling further technological innovation, and unlocking emissions reduction benefits now while enabling deep decarbonization down the road. M
ii IEA, “Net-Zero by 2050: A Roadmap for the Global Energy Sector,” May
iii IEA, “The challenge of reaching zero emissions in heavy industry,” September
v IEA, “Is carbon capture too expensive?,” February
vi IEA, “Global Hydrogen Review 2021,” October
vii GOV, H.R. 3684 – The Infrastructure Investment and Jobs Act, November 2021.
viii Bloomberg NEF, “Energy Transition Investment Trends 2022,” January
ix IEA, “A new era for CCUS,” September
x Princeton University, “Net Zero America,” October
xi ACC, “2021 Guide to the Business of Chemistry,” August 12,
This article contains general information only, does not constitute professional advice or services, and should not be used as a basis for any decision or action that may affect your business. The authors shall not be responsible for any loss sustained by any person who relies on this article.
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About the authors:
Stanley Porter, Vice Chair
Porter serves as Deloitte’s US & Global Energy, Resources & Industrials (ER&I) Industry Leader. He oversees and drives the development and execution of the overall ER&I strategy across all geographies and businesses, including more than 44,000 professionals and serving close to 75% of the Global Fortune 500 clients. The ER&I industry practice represents the Industrial Products & Construction; Oil, Gas & Chemicals; Mining & Metals, and Power, Utilities & Renewables sectors.
Geoff Tuff, Principal
Tuff has more than 30 years of experience consulting to some of the world’s top companies on the subjects of growth, innovation, and adapting business models to deal with change. Currently, he is a principal at Deloitte and holds various positions across the firm’s Sustainability, Innovation and Strategy practices. Those include leadership of the US Hydrogen Practice and all Sustainability, Climate and Equity work for clients in the energy and industrials sectors. Prior to this, he led the innovation firm Doblin and was a senior partner at Monitor Group, serving as a member of its global Board of Directors.
Mark Pighini, Principal
Pighini is a principal with Deloitte’s Transactions and Business Analytics LLP and is the US Oil, Gas & Chemicals Risk & Financial Advisory leader. Mark has spent over 25 years of his career delivering professional services related to organizational deployment of capital through capex investments and mergers and acquisitions (M&A). He has worked across a wide variety of asset-intensive industries but focuses mainly on manufacturing, industrial, and healthcare companies.