Unlocking industrial electrification in California
A new study — from Industrious Labs, Sierra Club, American Council for an Energy-Efficient Economy, and Synapse Energy Economics Inc. — finds the Golden State can achieve cleaner air, lower utility bills, and fewer climate emissions by modernizing the way electricity rates are designed for manufacturers.
Teresa Cheng, California Director
Modernizing industrial rate design can encourage adoption of clean heat for manufacturing
California is home to the largest number of industrial gas-fired boilers in the country that help fuel the state’s robust economy, but also contribute in large part to industrial sector pollution. Industry ranks as California's second-most polluting sector, contributing 20% of its overall climate emissions. While clean technology is available to modernize many heat processes used in manufacturing—think coffee roasting, paper manufacturing, and food processing—high electricity costs remain a major barrier to transitioning to clean energy.
Updating the way electricity rates are designed for industrial customers will allow California manufacturers to cost-effectively adopt zero-emissions heating equipment that cuts air pollution and climate emissions, while containing electricity system costs for all ratepayers. Smart rate design also helps firms turn the state’s 36,000 manufacturing facilities into a resource to support California's transition to a renewable, clean grid. With the right incentive mechanisms, industrial customers can make sure that the state captures all of the value from our solar and wind generation, which in turn can help reduce overall costs for all ratepayers, including residential.
As of March 2025, California's industrial electricity rate is 19.84 cents per kWh, over twice the national average. Current industrial rates are outdated and burden manufacturers who electrify and use clean energy through demand charges that don’t reflect the actual costs of an increasingly renewable grid. The current industrial rate structure needs key changes to make transitioning from gas to electric equipment cost-competitive with staying on gas. Without these changes, we risk industrial customers leaving the state and failing to meet the state’s climate goals.
Electrifying just low-temperature heat applications for only the largest emitting facilities within California could eliminate over 5.5 million metric tons of CO₂, equivalent to the emissions from 1.28 million cars driven for a year. According to a recent report from the American Lung Association, electrifying process heat in key industrial sectors could avoid 3,220 early deaths and nearly 2 million asthma attacks in California by 2050 — delivering an estimated $47.5 billion in public health benefits statewide.
If California regulators implement modernized and smart rate structures that incentivize manufacturers to take advantage of clean, affordable energy that is otherwise being curtailed, it could both help accelerate adoption of clean, efficient technology and mitigate the growing costs of California’s electricity grid.