Decarbonizing Process Heat: VC Opportunity Landscape

Executive Summary

Despite being responsible for roughly 25% of global CO₂ emissions, industrial process heat remains among the most difficult sectors to decarbonize due to diverse temperature needs, geographic differences and cost challenges. However, our analysis suggests that selective venture opportunities are emerging—particularly in high-temperature heat pumps and enabling components such as turbocompressors and advanced refrigerants, which meet both economic and technological readiness criteria. Other areas, including thermal energy storage and electrochemical reduction, are showing rapid progress and capital formation, making them relevant for later-stage VC investors. Emerging solutions like plasma heating, inductive systems and next-gen materials also merit attention for their long-term potential to reshape the landscape.

Understanding Process Heat: Market Landscape, Challenges, and Segmentation

Industrial process heat refers to the thermal energy required to drive manufacturing and chemical transformation across a wide range of industries, such as steelmaking, cement production, petrochemicals, food processing and pulp and paper. It accounts for roughly 25% of global CO₂ emissions and 19% of total global energy consumption,^1,2 making it one of the largest single contributors to climate change.

Unlike power or transportation, where decarbonization technologies are well-established, process heat is technically and commercially harder to address. It spans a vast range of temperatures, is often embedded in legacy systems and tends to be capital-intensive with long asset lives.

A foundational way to understand the process heat market is by segmenting it according to temperature range. Different industrial processes require different levels of heat intensity, and these bands often align with sector-specific applications:

• Low temperature (<200°C): Common in food and beverage, textile and building operations. Applications include cleaning, pasteurization, drying and space heating. Steam is often used as a flexible heat transfer medium.
• Medium temperature (200–400°C): Frequently used in the chemical, pharmaceutical and pulp & paper industries. Typical applications involve steam generation, distillation and certain forms of heat treatment.
• High temperature (>400°C): Dominant in heavy industries such as cement, steel, glass and ceramics. Processes in this range often require direct flame, radiant heat or very high thermal loads for melting and transformation.

These temperature bands help define the industrial roles of process heat and the physical form in which heat is delivered (e.g., steam, hot air, direct flame).^1,2

Share of U.S. industrial heat demand by temperature band. Source: NREL via Lux Research (2025).

How to Segment the Market: By Geography

Local energy prices, carbon policies and industrial structure significantly shape decarbonization feasibility, as well as local infrastructure and grid readiness:

• Europe: High natural gas prices, carbon pricing (EU ETS) and public funding drive strong interest in electrification.
• United States: Lower gas prices and uncertain carbon signals make economics more mixed, though IRA incentives are starting to change the landscape.
• Rest of World: Markets like China and India depend on domestic fuel mixes, industrial policy and access to capital. In many regions, coal remains dominant.

The same technology can have vastly different ROI and adoption potential depending on where it's deployed.^1,2 For early-stage innovation, regional targeting is often as important as technical performance.

Decarbonization Pathways by Temperature Band

Before identifying investable opportunities, it is important to understand how different temperature ranges are being targeted by decarbonization strategies. Each band is characterized not only by distinct industrial applications but also by the types of solutions currently being developed or deployed to reduce emissions.

• Low temperature (<200°C): Common decarbonization pathways include electric boilers, industrial heat pumps, resistive heating and waste heat recovery. These solutions are already being applied in food and beverage, textiles and low-intensity chemical processes, particularly in geographies with high electricity-carbon intensity differentials (e.g., Europe).
• Medium temperature (200–400°C): This range supports a mix of electric resistance, advanced high-temperature heat pumps (in development) and thermal energy storage (TES). Applications are often found in pulp and paper, pharmaceutical and mid-range chemical manufacturing. Technologies are in varying stages of maturity, with TES gaining traction for load shifting and peak shaving. TES does not directly reduce emissions but is a critical enabler for electrified systems—helping to manage the intermittency of renewable generation and take advantage of dynamic electricity pricing.
• High temperature (>400°C): Harder-to-abate sectors such as steel, cement and glass dominate this range. Decarbonization strategies include hydrogen combustion, plasma heating, electrified kilns and high-temperature TES. Electrochemical reduction processes are also being explored for steel and aluminum but remain at low TRL. These solutions typically require reengineering core process equipment.

This landscape is important not just for understanding technical fit, but also for clarifying where venture-scale opportunities may or may not exist.