Presently industrial sectors globally, are responsible for more than 30% of greenhouse gas emissions and almost 40% of the world’s energy consumption.
About 80% of these emissions are produced by just five industries — steel, cement, aluminium, ammonia, oil and gas. By 2050, it is anticipated that demand for energy and industrial goods will have increased between 30% to 80%.
Industrial emissions will only increase with demand if the decarbonisation of industries does not accelerate dramatically as this would further distance the globe from its goal of achieving net zero.
This was a stark reminder laid out by Muqsit Ashraf, senior managing director and Global Energy Industry Lead at Accenture and Roberto Bocca, the head of Shaping the Future of Energy and Materials and Member of the Executive Committee at the World Economic Forum (WEF).
They explained that, “There will be no net zero future if industries don’t decarbonise. It is imperative to understand the scope of the challenge, the variety of opportunities for industry sectors and to comprehensively and consistently track the progress on industrial decarbonisation.”
The WEF recently launched the Net Zero Industry Tracker in order to raise transparency and accelerate industrial transformation. The Tracker offers a comprehensive framework that can be used to monitor industries’ progress towards net zero.
It also provides insights, which inform industry leaders, policymakers and consumers about actions that are the most critical and most effective.
Based on insights from the Tracker’s inaugural report, here are five recommendations for stakeholders of the five industries that produce the most industrial emissions:
1. Define “low-emission” production thresholds to direct decarbonisation trajectories
Although net-zero targets are necessary to set long-term ambitions, they are not sufficient enough to drive yearly progress. For basic resources such as oil and gas, international sustainability standards need to establish emission intensity thresholds that anchor what “low-emission” production in a net-zero world looks like.
The report suggests that these thresholds be technologically agnostic and account for varying product specifications, such as clinker ratio in cement or scrap content in aluminium or steel.
Industry standards such as the Aluminium Stewardship Initiative or Responsible Steel alongside multi-stakeholder collaboration (such as the IEA’s recommendations for achieving net zero heavy industry sectors in G7 members), will be essential to define thresholds within each sector.
2. Set a public-private investment agenda to decrease the cost of clean technology
The report found that several low-emission technologies have been demonstrated at a significant scale and that they can drastically reduce emissions. For example, the utilisation of these technologies at scale can lead to a reduction in natural gas emissions of up to 80%, 95% for cement and steel and a massive 100% for ammonia.
Moving forward, economies of scale, efficiency gains and further innovations are likely to drive costs down. But this can only happen if more full-scale projects are developed. Public and private sectors should come together to rapidly multiply such projects around the globe.
3. Promote low-carbon demand and establish transparency and visibility among producers
Decarbonising industries have an estimated capital requirement of over $2 trillion in capital expenditure by 2050. Such investments can only materialise if demand and green premiums for low-emission products exist to grant producers and investors the returns they require. As of now, the willingness and ability of consumers to pay premiums have not been demonstrated. It is critical for industry stakeholders to strengthen and scale-up demand signals for low-emission products.
Commitment from both public and private consumers is essential to provide visibility on green products’ offtake volume and price. Carbon footprint product labelling standards can also help differentiate materials and incentivise consumers to pay premiums.
4. Strengthen net zero policies and regulations to level the playing field for low-carbon producers
“Maintaining global competitiveness is a top priority for industry leaders and governments,” the report admitted. Stable and ambitious policy frameworks are necessary to level the playing field and incentivise firms to venture into low-carbon markets while governments need to play a more commanding role in facilitating the emergence of economically viable ones.
Carbon pricing combined with a border-adjustment mechanism is one potential approach that limits the risk of carbon leakage. Others include carbon contracts, preferential public procurement (like the California Buy Clean Act), material mandates or quotas.
5. Develop risk-sharing mechanisms, green taxonomies, and public funding to de-risk investments and attract capital
The former governor of the Bank of England and UN Special Envoy on Climate Action and Finance, Mark Carney, declared at Davos this year that the world needs “an energy transformation on the scale of the industrial revolution at the speed of the digital transformation. And therefore, we need a revolution in finance.”
The need for funding to decarbonise these industries is massive. For example, the additional capital expenditure required is equivalent to recapitalising 40% of the global steel industry. To reduce companies’ risk exposure and accelerate capital inflow, innovative risk-sharing and financing mechanisms will be critical.
Multilateral public-private partnerships, joint ventures across industries and value chains, sustainable finance taxonomies, and public funding in the form of grants, low-interest and concessional loans and so on are a must to attract capital for the first commercial-scale assets.
In a nutshell, without radical change, industrial emissions will rise alongside the demand for industrial products. If the world is to go all out in the battle to tackle industrial decarbonisation, it will mean going all in on transparency and collaboration. “It is only with collective effort that industries can reach net zero.”
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