Industries generate more than 30% of anthropogenic emissions¹²⁴ – no net-zero economy is possible without them. Yet, industries face considerable challenges to decarbonize, such as the lack of competitive low-emission technology, the limited development of enabling infrastructure or the scarce availability of capital to transform. Going forward, “clean demand” signals could be a turning point to accelerate “clean supply”.

Industries are the backbone of the global economy, providing the energy and materials needed to sustain and grow modern society. Emissions
from fuel combustion and processes in industries contribute to more than 30% of global GHG emissions¹²⁵ (out of a global total of 51 GT of CO2 equivalent¹²⁶); hence, the transformation of industries is critical to a net-zero world.

While encouraging progress has been made in the past decade to decarbonize power generation (the renewables share in global electricity generation rose from 20% to 29% between 2010 and 2020¹²⁷), many industries are still defining their pathways to a low-carbon future. Particularly, five heavy industries – cement and concrete, iron and steel, oil and gas, chemicals, and coal mining – which together represent 80% of all industrial emissions (Figure 10), need to make a major shift by 2030 to keep the net-zero 2050 objective within reach.¹²⁸

Figure 10: Emissions by sector vs global emissions (51 GTCO2e)

Population and economic growth will likely continue to fuel demand for industrial products beyond 2050, and so will the energy transition itself. For instance, aluminium, steel and many minerals129 are key elements in the making of solar panels, wind turbines, power grids and electric vehicles. Steel demand is projected to rise by 30%,130 cement and ammonia by 40%^131,132 and aluminium by 80%¹³³ in the coming three decades (Figure 11). In addition, all but the most aggressive decarbonization scenarios forecast that oil and gas could continue to play a significant, though diminished, role in the energy mix through 2050 and beyond.¹³⁴

Figure 11: Global demand projections by industry, 2050

Moreover, viable alternatives to today’s heavy industry products remain limited. New cement chemistries could be less carbon-intensive but are likely to substitute only a small share of the global market due to scarcities of resource supply (e.g. fly ashes, calcinated clays) and the differences in the resulting cement properties. While other materials provide alternatives to steel, “its high strength, recyclability and durability, the ease with which it can be used to manufacture goods, and its relatively low cost make its wholesale substitution unlikely” even by 2050.¹³⁵ In the absence of scalable substitutes, the only potential way forward would be aggressive decarbonization.

Heavy industries, particularly steel, cement, chemicals and aluminium, are often referred to as “hard-to-abate” sectors, i.e. hard to decarbonize, due to a number of intrinsic characteristics:

- These sectors have energy-intensive complex value chains that sometimes also generate process emissions (e.g. 60% of cement emissions come from the calcination of limestone;¹³⁶ 42% of oil and gas emissions come from vented and fugitive methane¹³⁷).

- They are capital-intensive sectors with long investment cycles and low margins, all of which present challenges for the industry to change course; opportunities to significantly cut emissions, such as for major overhaul, relining or plant rebuilding, only appear every 2-3 decades.¹³⁸

- They operate production facilities that are historically located close to natural resources (e.g. a coal mine, quarry) and/or demand centres; these locations can be quite distant from abundant clean energy sources (e.g. solar, hydropower).

- They are critical to domestic economies while supplying into global markets, making emission reduction measures complex to introduce if requirements might lead to a weakened competitive position.

- They often employ a large workforce of specialists and sustain extensive networks of local suppliers and customers. Pacing a just transition for these sectors is a priority for public authorities.¹³

G20 countries, which produce 85% of global industrial output¹⁴⁰ and are responsible for 75% of global GHG emissions,¹⁴¹ can provide a useful lens to examine the nexus between energy transition and industrial activities.

Despite similar historic development trajectories, the level of present-day industrial activity across G20 economies varies greatly. The industrial sector’s contribution to the total economy ranges from 19% to 47% of the total value add of goods and services produced (gross value added, GVA), according to United Nations Conference on Trade and Development (UNCTAD).¹⁴² A country’s economic activity is commonly categorized into three sectors: the agriculture sector (consisting of agriculture, livestock, forestry and fishing), the industry sector (made up of manufacturing, mining, construction and utilities providing electricity, gas, water) and the services sector (including a diverse range of services, as distinct from goods). The relative shares of these sectors in total economic activity evolves over time as countries develop and industrialize. Typically, as countries industrialized, the share of the industry sector in output and employment rose, while that of the agricultural sector fell. After industrialization, at an advanced stage of economic development, the share of the industry sector in both output and employment diminished, while that of the services sector rose.¹⁴³

An assessment of energy transition progress in G20 countries, as observed through the ETI (2021), indicates a slower pace of transition in industry-heavy economies, suggesting the greater complexity for countries to decarbonize energy systems tied to industrial performance. Specifically, G20 countries with a larger share of industrial activity (including manufacturing, mining, construction and energy-producing activities) score lower than their G20 counterparts with a lower share of industry (Figure 12).

Figure 12: G20 overall 2021 Energy Transition Index scores vs share of industry

The analysis of countries’ historical ETI sub- indices, dimension and indicators show a few noteworthy trends. Countries with a larger share of industrial activity tend to suffer from poorer air quality and have higher CO2 intensity of GDP as a result. These economies also tend to rely more on fuel subsidies to make their industries more competitive. In addition, G20 countries with a larger share of industrial activity are likely to face transition readiness challenges caused by a possible combination of indirect factors. These factors can include the lack of availability of skilled labour and of an innovative environment to foster economic activities with higher value addition and productivity levels. These results are in line with the view that decarbonizing an economy with a large industry sector is likely to be challenging since one must address emissions not only from heat, power and transport but also from complex, energy-intensive, high-emission industrial processes. In this regard, the decarbonization of industry-heavy economies will require large amounts of transformative capital and access to low-emission technologies along with associated infrastructure, such as low emission power, hydrogen and carbon storage.

Ultimately, the path is still long for all industries, and not only the hard-to-abate sectors, as they look to implement decarbonization strategies. In the IEA Net Zero by 2050 roadmap, while global emissions are expected to drop by 81% between 2020 and 2040, industrial emissions are only expected to decrease by 58%, which would account for half of 2040 emissions.¹⁴⁴ G20 countries, which are likely to have considerably more resources at hand than other nations, are often considered to have a greater opportunity to lead in the emergence and diffusion of zero and low-emission solutions for global industries.¹⁴⁵ This aligns with the priorities set during the 16th G20 summit, held in October 2021 in Rome. The summit resulted in a number of agreements on climate change, such as maintaining the “goal of limiting global warming to 1.5°C compared to pre-industrial levels within reach” and to “accelerate actions towards achieving global net-zero GHG emissions or carbon neutrality by or around mid-century”.¹⁴⁶

Nevertheless, a reflection on the challenges ahead for industrial decarbonization and the significant effects of high-impact events such as the COVID-19 pandemic indicates more than ever that international cooperation must be a key factor to accelerate industrial decarbonization. The reference to G20 countries by no means suggests that other countries outside the G20 are not needed to lead transition initiatives around industry. They are in fact essential to positively impact the progress of the transition, especially as emerging markets and developing economies are expected to see the biggest increase in energy growth through 2050.¹⁴⁷

To enable global industrial decarbonization, international cooperation needs to be strengthened through technological transfers and financing support to economies in need. The G20 countries have focused on the theme, Recover Together, Recover Stronger, recognizing the importance
of collective action and inclusive collaboration between major developed countries and emerging economies around the world, and encouraging
all countries to work together to achieve an accelerated and more sustainable recovery.¹⁴⁸

GUEST PERSPECTIVE | Accelerating the energy transition is the only option by Arifin Tasrif, Minister of Energy and Mineral Resources of Indonesia

Heavy industry companies increasingly face implementation choke points whose solutions are seldom found within a single firm or even industry.

Heavy industries are likely to be the last frontier of decarbonization. In response, an increasing number of heavy industry companies are establishing net-zero targets and strategies. For example, the Global Cement and Concrete Association (GCCA), which represents over 40 leading cement companies, has announced the production of net zero concrete by 2050.¹⁴⁹

The momentum is growing across industrial companies and sectoral players such as business alliances, but also across a larger ecosystem of stakeholders, from governments to international organizations and non-governmental organizations (NGOs). For example, the Mission Possible Partnership (MPP) has outlined roadmaps for four hard-to-abate industrial sectors (concrete, steel, aluminium, chemicals) to reach net zero.¹⁵⁰

While pledges and roadmaps are essential to jump-start the net zero transformation and to provide a long-term vision, tackling the implementation challenges faced by companies is critical to progress at the necessary pace. Ten challenges have been identified as “choke points”, or barriers, that will limit the transition unless solutions are found outside of business-as-usual improvements:

1. Breakthrough technologies: Most technologies to decarbonize heavy industry sectors are either yet to be proven at scale or expensive compared to current alternatives (e.g. +15-40% for low-emission steel,¹⁵¹ +50-85% for low-emission cement,¹⁵² +10-100% for low-emission ammonia¹⁵³). Solutions must be found to accelerate the technology readiness levels (scale and cost) of “clean” production processes.¹⁵⁴

2. Infrastructure access: Many net-zero compatible technologies considered by heavy industries involve low-emission hydrogen (e.g. for direct reduced iron in steelmaking¹⁵⁵), renewable power (e.g. for mechanical vapour recompression in aluminium-making¹⁵⁶) or carbon capture, utilization and storage (e.g. cement plants¹⁵⁷). Solutions must be found to provide the infrastructure required for supplying these energy sources and handling captured CO2.

3. Demand for low-emission products: Today, low-emission products in heavy industries require a high selling price for producers to maintain economic margin structures. Solutions must be found to generate reliable demand-side signals and provide visibility on offtake to reduce risks for first movers.

4. Policies and regulations enablement: Public incentives, including direct or indirect carbon pricing, subsidies or tax breaks, product use specifications or technology mandates, strongly influence the business case for low-emission investments in heavy industries. Solutions must be found to align public-private objectives while also ensuring efficiency and a just transformation; lessons exist from the growth of wind and solar energies.

5. Scaling capital: Heavy industries’ low-emission pilot projects require significant capital expenditure while offering less certain or immediate returns than other assets. Solutions must be found to attract capital for investments in necessary higher risk, subeconomic projects that could demonstrate commercial scale feasibility – not only in advanced economies but also in emerging and developing economies where capital markets are less developed and the cost of capital is higher.

6. Transition capability building: The transformation requires heavy industry firms to integrate new, often very different, capabilities. Just and sustainable solutions must be found to rapidly upskill or reskill companies’ management and workforces to align expertise with new strategies and activities.

7. Carbon measurement and management: Measuring, monitoring or forecasting emissions different in nature and scope is complex for heavy industry firms with myriad industrial processes. Solutions must be found to help companies establish standardized transparency for effective action.

8. Supply chain circularity: Primary production generates many times the emissions of secondary/recycled production (e.g. 4 times for steel,¹⁵⁸ 30 times for aluminium¹⁵⁹). Solutions must be found to adapt companies’ business models and production processes to circularity.

9. Scope 3 abatement: Scope 3 emissions¹⁶⁰ (e.g. estimated at around 80% of all oil and gas emissions¹⁶¹ and 30% of ammonia emissions¹⁶²) are particularly hard to measure and address. Solutions must be found to create end-to-end transparency and effective abatement solutions with suppliers and customers.

10. Residual emissions offsetting: For heavy industries, reaching the net zero end goal will require substantial investments in GHG avoidance or removal projects to address residual emissions. Solutions must be found to accelerate the provision of quality offset solutions at scale in a transparent and impact-driven manner.

Among these choke points, technology, financing and policies are typically already at the forefront of companies’ and governments’ net zero strategies. However, in addition, it is critical to boost demand-side initiatives such as the First Movers Coalition¹⁶³ and the Clean Energy Ministerial Industrial Deep Decarbonisation Initiative (IDDI)¹⁶⁴ to create a
strong “clean demand” pull (e.g. visibility on offtake volumes, acceptance of green premiums, etc.) for low-emission products. Demand-side initiatives can be a game changer for sectors where low-emission technologies already exist but investments lag, such as steel and ammonia. Today, such initiatives are scarce, and global, synchronized efforts are needed to replicate and scale them and channel much larger investments into low-emission technologies and production assets.

GUEST PERSPECTIVE | First Movers Coalition by John Kerry, US Special Presidential Envoy for Climate

Furthermore, it is worth noting that the transition capability building choke point underpins all other choke points as well as the progress rate of the energy transition across all economic sectors. The transformation of the global economy towards net zero is strongly challenging the boundaries of companies’ capability and expertise. This is particularly evident when decarbonization pathways require companies to shift towards completely new production processes (e.g. from steam methane reforming to electrolysis to make ammonia). A scenario from the International Labour Organization estimates that 25 million new jobs will be created from the energy transition by 2030.¹⁶⁵ Preparing the current workforce and the new generation for these jobs essential to the transition will require “education and training strategies; active labour market measures to provide adequate employment services; retraining and recertification together with social protection to assist workers and communities dependent on fossil fuels”, among other solutions.¹⁶⁶ This reconfiguration of the workforce also provides a unique opportunity for companies to improve inclusion and diversity, creating a more equal and resilient economy.

GUEST PERSPECTIVE | Enabling the energy transition and reaching net zero: The talent imperative by Julie Sweet, Chair and Chief Executive Officer, Accenture

The answers and emerging solutions to industry net-zero transformation choke points are rarely found within a single firm or even industry. To solve these challenges, heavy industry companies will need to explore new forms of collaboration. The MPP net-zero roadmaps clearly show where industries need to be by 2030 (e.g. over 70 commercial-scale low-emission steel plants producing 240 MT by 2030) and also highlight that closing the gap will require an unprecedented level of collaboration.¹⁶⁷ Thankfully, heavy industry companies, suppliers, customers, peers from other industries, other businesses, governments, civil society and many other stakeholders recognize
the need to reduce global emissions, including their own carbon footprint. This shared challenge creates common interests across organizations and establishes a robust platform for multistakeholder collaboration towards net zero.

The following section lays out how a new generation of collaboration models combined with a step change in ambition level can address the net-zero transformation choke points for heavy industries.

The “next generation” of ambitious multistakeholder collaborations between suppliers and customers, between industry and cross-industry peers, and between the wider industrial ecosystem of stakeholders can overcome decarbonization choke points and accelerate the industrial transformation towards net zero. However, action is needed now to keep the net-zero by 2050 goal within reach.

A new generation of multistakeholder collaborations focused on decarbonization and net zero objectives has gained momentum since 2015. These “next generation” collaborations differ from past partnerships due to a step-change in ambition level, greater focus on emission reductions, new types of partners and new areas of emphasis. The sense of urgency combined with the steepness of the net zero pathways have led leaders from both the public and private sectors to view collaborations as a key transition catalyst. Leaders now favour collaboration and transparency over competition, and increasingly consider decarbonization as a win-win solution that does not necessarily entail extra costs.

Three archetypes of collaboration have emerged: collaboration between customers and suppliers, collaboration between industry and cross-industry peers, and collaboration between the wider ecosystem of stakeholders (Figure 13). The following section outlines the rationale, benefits and collaboration models under each archetype, and offers more than 35 examples. Such initiatives are critical to pave the way for similar partnerships in other geographies and industries, and to inspire leaders worldwide to move quickly from pilots to a pipeline of commercial-scale projects by 2030.

Figure 13: Three archetypes of collaboration to accelerate the net-zero transformation of industries

GUEST PERSPECTIVE | Cross-sectoral collaboration is essential for industrial decarbonization by Jan Jenisch, Chief Executive Officer, Holcim

Value chain emissions are increasingly being scrutinized by progressive climate-conscious end consumers, particularly the younger generations. A recent survey¹⁶⁸ found that 73% of Gen Z consumers (21-25-year-olds) are willing to pay more than every other generation for sustainable products. Reducing direct emissions within an industry will impact the indirect emissions of suppliers and customers (Scope 2 or Scope 3 emissions), and vice versa. This common ground strongly encourages new collaborations between heavy industries and value chain stakeholders.

Figure 14: Collaboration model types between customers and suppliers

Collaboration with customers through offtake agreements or pre-commercial public procurement (Figure 14) can provide heavy industry companies with the visibility they need for investments in low-emission solutions (public procurement accounts for 46% of US cement consumption¹⁶⁹). Customers in return can secure the supply of low-emission products, which will initially be scarce.

In addition, heavy industries can reduce their emissions by increasing the proportion of recycled versus primary feedstock and material – what
is now referred to as the “circular economy”. Collaboration with suppliers and customers through the development of circular supply networks or circular product development can support that objective. Suppliers can engage in new value-added activities (e.g. high-resolution waste sorting) and customers can benefit from lower-emission products.

Heavy industries are increasingly engaging to limit their Scope 3 emissions (estimated at 80% of total oil and gas CO2 equivalent emissions,¹⁷⁰ 20% of steel emissions¹⁷¹ and 20% of cement emissions¹⁷²), which are driven by companies’ upstream and downstream value chain activities. Collaboration with suppliers and customers through shared value chain decarbonization initiatives or supplier performance programmes can help tackle these emissions. Suppliers can benefit from visibility on low-emission procurement standards, and customers from the unique engineering and technology expertise of another industry to decarbonize.

Explore Collaboration model examples between customers and suppliers →

Across heavy industries, companies face increasing pressure from governments, investors and society to decarbonize. This common ground strongly encourages new collaboration between peers within and across industries, particularly to address common needs in terms of capability, energy, infrastructure and capital.

Figure 15: Collaboration model types between industry and cross-industry peers

The transition of heavy industries is a new and fast-changing domain in which deep expertise is scarce but critical. Collaboration with peers through knowledge sharing initiatives, either forward-looking (e.g. net zero roadmaps) or focused on existing technologies (e.g. methane management), or through upskilling/reskilling programmes for management and employees, can close a number of knowledge gaps while building the workforce of the future (Figure 15).

Heavy industry companies also typically require large amounts of capital to deploy their own or third-parties’ promising technology at scale. Collaboration with industry or cross-industry peers through shared commercial projects/ventures or cross-industry funding can bridge capital gaps, reduce risks and overcome financiers’ reluctance to invest in subeconomic or lower-return projects that are important to break new ground on the path to net zero.

Many solutions to decarbonize heavy industries involve the adoption of technologies184 based on electrification, low-emission hydrogen, low-emission power, or carbon capture, utilization and storage, all requiring extensive infrastructure. Collaboration with industry and cross-industry peers through shared infrastructure planning and development can ensure that companies deploying new technologies will not be constrained by the lack of enabling infrastructure.

Explore Collaboration model examples between industry and cross-industry peers →

In addition to suppliers, customers and peers, heavy industry companies also interact with a wider network of stakeholders, such as public authorities (e.g. central governments, regional and local authorities), regulators (e.g. policy-makers, industry regulatory agency), financiers (e.g. public investment funds, private funds, banks), researchers (e.g. academics, public or private labs) and NGOs (e.g. specialist NGOs, business alliances, think- tanks). These organizations, classified in this report as “wider ecosystem stakeholders”, can also play prominent roles in the net zero transformation of industries. Public authorities and regulators can be incentivized by national net zero agendas, financiers by investor pressure to decarbonize portfolios, and researchers and NGOs by mandates to find and support new sustainable solutions. This common ground encourages new collaborations between heavy industry firms and wider ecosystem stakeholders, particularly related to technology, policy and regulation, carbon management and emission offsetting challenges.

Figure 16: Collaboration model types between wider ecosystem stakeholders

In addition to pushing their own R&D effort, heavy industry companies can collaborate with technology start-ups and research labs through private equity investments, incubation, research grants and joint facilities and teams to accelerate the technology readiness ²⁰³ of key solutions.

While not a silver bullet, policies and regulations can drastically improve the transformation business case of an industry and reduce first movers’ risk by supporting technology adoption, creating demand and enabling access to capital. Collaboration with public authorities and regulators through public-private advocacy groups can help companies co-design the pace and shape of their journey to net zero (Figure 16).

Moreover, significant emission reductions could be achieved today on many industrial sites, provided companies are equipped with adequate standards, processes and tools to manage emissions. Collaboration with specialist NGOs and technology service companies can help heavy industry firms achieve state-of-the-art emission measurement and monitoring and identify impactful actions with today’s available technologies.

Some heavy industry companies can reach zero Scope 1 and 2 emissions by fully electrifying their production processes and using renewable power (e.g. aluminium or ammonia industries). However, where structural long-term options are not available, some producers might rely on offsetting residual emissions to achieve net zero by 2050. Collaboration with specialist NGOs and offset providers can help companies secure the required certified offsets in the long run.

Explore Collaboration model examples between wider ecosystem stakeholders →

The changes required for heavy industry sectors to reach net zero are vast and will be transformative for these industries. These changes will require not only new models of collaboration, like the ones presented in this report, but also a whole new level of collaboration across all stakeholder groups – a step change in collaborative activity.

Companies will have to enter into new collaboration with their suppliers and customers, with their industry peers and with their wider ecosystem. Indeed, when truly disruptive technologies are created, the risk-taking and commitment required are too great for a company to bear alone. Industry companies’ innovative power and longstanding expertise will be key to the decarbonization challenge, but they will need their ecosystem to create the enabling environment, to jump-start demand and to create the financial conditions necessary to support private-sector innovation.

In addition, the boundaries of industries do not stop at national borders. International cooperation, including but not limited to groups like the G20, will be essential to pool risks and to create bigger markets for successful innovation and clean. new products. International cooperation will also be needed to remove regulatory barriers, provide credible policy support internationally, and create compatible standards or joint investment declarations. This must not only happen in advanced economies; importantly, emerging and developing economies poised to see the biggest increase in energy demand and GHG emissions are in dire need of investments, technological solutions and infrastructure to transition their energy systems. Collaboration across advanced and developing economies will need to play a key role to achieve this.

These changes cannot and will not happen purely “top-down” through governments’ orchestrated target setting or through industries’ applying
the right solutions independently. Public-private partnerships will be crucial, and the public sector will have an important role to play to provide the foundational capital or financial conditions necessary to encourage private-sector innovation.

In recent years, pioneer companies from the heavy industry sectors and their stakeholders have put great effort into exploring solutions to decarbonization choke points. Thanks to them, many inspiring “next generation” collaboration models already exist today. Other industry players can study, learn from, follow, improve, replicate these models in other geographies or industries, and invent more ambitious cooperation to progress the collective journey to net zero.