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Towards industrial decarbonisation

Danial Norjidi

A new report from the World Economic Forum (WEF) highlighted the need to fully understand the scope and scale of the challenge for key industrial sectors in identifying a significant gap versus the pace of decarbonisation to achieve net-zero goals to limit global warming to 1.5 degrees Celsius by 2050.

According to a press statement, the Net-Zero Industry Tracker 2022 report said high energy prices and energy supply chain disruptions reinforce the urgency for industrial decarbonisation.

Launched by the WEF in collaboration with Accenture, the initiative is described as establishing “a common, fact-based understanding of the industrial sector’s net-zero transformation enabling cross-industry and multistakeholder collaboration”.

The report introduces a holistic framework for a 360-degree perspective and standard metrics needed to measure progress, as well as key recommendations for industrial firms, policymakers, consumers and other stakeholders.

“Progress-tracking and transparency are essential to help industries determine the trajectory of their decarbonisation, maintain steady progress, and inform necessary course corrections along the way,” said the statement.

According to the report, industrial sectors account for nearly 40 per cent of global consumption and over 30 per cent of global greenhouse gas emissions.

The report noted that efforts to improve industries’ net-zero readiness across these dimensions are critical to progress industries’ net-zero performance, acknowledging that there are efforts under way stating that net-zero commitments, decarbonisation strategies, technology partnerships, low-carbon pilot projects, and discussions around green products and premiums have emerged.

“Despite this, no industry is anywhere near where it needs to be by 2050 and complex challenges within and across the industries remain.”

Highlighted in the report are sector-specific accelerators and priorities for six industries (steel, cement, aluminium, oil, natural gas and ammonia), while seven cross-sectoral recommendations for immediate action are outlined.

One of the report’s recommendation is that industries’ net-zero transformations require a new level of ambition in multi-stakeholder collaboration.

“Breakthrough solutions are seldom found within a single firm or even industry. That’s why industrial ecosystems need to join forces beyond traditional partnerships. Three archetypal partnerships, detailed in the recently released Fostering Effective Energy Transition 2022 report, should be built upon and replicated: collaboration between customers and suppliers (such as offtake agreements); collaboration among industry and cross-industry peers (such as CO2 handling infrastructure); and collaboration across the broader ecosystem of industrial stakeholders, including governments, policymakers, financiers, researchers and NGOs,” said the report.

A second recommendation is that common standards for “low-emission” production thresholds need to be established for industrial companies to calibrate the transformation of their key production processes.

“Net-zero targets are necessary but insufficient to drive the year-on-year progress required. Emission intensity trajectories at a product level (for example steel, cement) are essential to guide consistent and timely progress. Industry standards (Aluminium Stewardship Initiative or Responsible Steel), multistakeholder collaboration (for instance, Achieving Net Zero Heavy Industry Sectors in G7 Members report) and product certification systems will be essential to define such trajectories.”

Thirdly, the report recommends that more full-scale demonstration projects need to be developed to accelerate the commercial readiness of low-emission technologies.

“Many low-emission production technologies have already reached large prototype and even demonstration phases, and can drastically reduce emissions (-82 per cent for natural gas, -95 per cent for cement and steel, and -100 per cent for ammonia).

“However, at the current pace, these technologies won’t be commercially ready for industry adoption before the second half of the decade (2025 for steel, and 2030 or beyond for cement and aluminium).

“To accelerate the commercialisation of these solutions and drive costs down, industrial firms need to double down on their efforts to develop full-scale demonstration or early commercial projects.”

Fourth, the report states that broad adoption of low-emission technologies will be at risk if the pace of investments in enabling infrastructures does not pick up drastically.

“Most industry decarbonisation pathways rely on low-carbon power, clean hydrogen (blue and green) and carbon capture. To meet the projected needs of the six focus sectors by 2050, capacities of global CO2 storage and clean hydrogen production infrastructures need to grow 64-fold and eight-fold, respectively, from where they are today.

“Nearly 1,700 gigawatts (GW) of clean power will need to be added, requiring approximately USD4.2 trillion in infrastructure investments over the next 30 years.”

Next, the report highlights that demand signals for low-emission products are emerging but must be strengthened and scaled up.

“Decarbonising the six industries could require over USD2.1 trillion in capital expenditures in production assets. Such investments can only materialise if green premiums exist to grant producers and investors acceptable returns for their risk.

“Understanding end consumer demand and public and private buyers’ commitments would help provide producers visibility on low-emission products’ offtake volume and price (such as First Movers coalition). Establishing adequate carbon footprint product labelling standards would help consumers make more informed decisions and advocate for new types of products.”

A sixth recommendation is that public policy can reinforce all enabling dimensions and support the emergence of differentiated and economically viable low-emission markets for first movers.

“The trade-exposed nature of commodity markets is particularly challenging to decarbonisation. Stable policy frameworks are necessary to level the playing field for first movers that are willing to invest in higher-cost, low-emission production. Potential approaches limiting the risk of carbon leakage include but are not limited to a price on carbon combined with a border-adjustment mechanism, carbon contracts for differences, preferential public procurement (such as California Buy Clean Act), material mandates, or quotas.”

On its seventh point, the report states that adequate risk-sharing mechanisms, supporting taxonomies and public financial support can accelerate the flow of private capital into low-emission industries.

“Companies’ investments in low-emission assets are riskier due to their dependencies on new technologies and infrastructure. Collaboration across industries and value chains can enable risk-sharing while providing direct market routes.

“Favourable taxonomies and public funding in the form of grants, low-interest and concessional loans can also reduce companies’ risk exposure. Multilateral public-private partnerships to finance low-emission projects would help channel the capital into the first commercial-scale assets.”

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