The chemical and the pulp/paper industries combined provide 55% of CHP generation in the  US industry. Yet, significant potential for new CHP capacities exists in both industries. From the  present steam consumption data, we estimate about 50 GW of additional technical potential for CHP in  both industries. The reduced carbon emissions will be equivalent to 44% of the present carbon  emissions in these industries. We find that most of the carbon emission reductions can be achieved at  negative costs.  Depending on the assumptions used in calculations, the economic potential of CHP in these  industries can be significantly lower, and carbon emissions mitigation costs can be much higher. Using  sensitivity analyses, we determine that the largest effect on the CHP estimate have the assumptions in  the costs of CHP technology, in the assumed discount rates, in improvements in efficiency of CHP  technologies, and in the CHP equipment depreciation periods. Changes in fuel and electricity prices and  the growth in the industries’ steam demand have less of an effect. We conclude that the lowest carbon  mitigation costs are achieved when the CHP facility is operated by the utility and when industrial  company that owns the CHP unit can sell extra electricity and steam to the open wholesale market.  Based on the results of our analyses we discuss policy implications.