The real economy is not a side event in the global decarbonization effort

One of the adages of the environmental movement used to be “think global, act local”. There’s a lot to be said for encouraging individuals and organizations to take action close to home. But when it comes to addressing the climate impact of carbon-intensive industries, fragmented local action alone just won’t cut it. We must operate across borders to create systemic change across entire industrial sectors.

Heavy industry and long-distance transport, which account for 30% of global greenhouse gas (GHG) emissions are often referred to as “harder-to-abate” sectors because, in contrast to many other economic activities, they cannot simply be electrified and decarbonized by a switch to renewable power.

Yet these sectors hold the key to avoiding the worst impacts of climate change. Show that we can decarbonize these, and we can decarbonize the whole global economy.

Climate action in a global economy

The unavoidable truth is that we live in a global economy. Capital is mobile, as are the giant multinationals who can switch production between continents in response to demand, competition and regulatory changes. Climate change, too, is a global problem that requires a global solution.

But the attempt to create a top-down global system of governance, through the Kyoto Protocol, did not work. Instead, it was superseded by the Paris Agreement, which is built on a bottom-up system where governments propose voluntary national emissions targets. This architecture has fostered a ramp-up in national climate commitments, including a recent multiplication of net-zero country targets.

However, a drawback of the Paris Agreement is that it ties climate obligations to national borders. Yet climate change is borderless, and economies are not hermetically sealed by those borders. When we scratch the surface of the national economy, we find industry sectors that transcend borders and face international competition. They share global supply chains and markets, are financed by international investors, and navigate a patchwork of national regulations.

To decarbonize those sectors, governments face a dilemma: move too aggressively with national decarbonization plans, and risk seeing carbon-intensive firms flee to jurisdictions which are ducking their responsibilities; move too slowly, and risk locking-in whole sectors in high-carbon infrastructure and dangerously destabilizing the climate.

The answer lies in value chain collaboration

The answer, as we see it, lies in creating net-zero initiatives at the industry sector-level that bring together the most climate-ambitious companies from around the world to draw up global net-zero sectoral transition strategies and de-risk low-carbon investment through value chain collaboration.

These initiatives – the net-zero industry platforms that the Mission Possible Partnership is building in seven harder-to-abate sectors – bring together industry leaders, their suppliers, their customers and their financiers from across the world to define pathways to net-zero emissions by mid-century; to identify precisely which actions – technological developments, investments, demand signals, government interventions – are required by when to get us there; and to collectively commit to those actions.

They unite ambitious players within each sector that recognize both the urgent need to address their emissions, the medium-term competitive advantage offered by moving rapidly towards a net-zero economy, and the importance of value chain collaboration to shape up a more favourable environment for low-carbon investment.

These platforms aim to accelerate progress within sectors by sharing (including with governments) the up-front costs of bringing breakthrough technologies to market, and by de-risking the first wave of commercial-scale investments. This entails creating demand for zero-carbon products and services at a premium price, providing carbon-intensive industries with access to lower-cost low-carbon energy, de-risking financing through blended finance models, and creating a level playing field through regulation.

For example, the Clean Skies for Tomorrow Coalition is working to address the chicken-and-egg issue whereby airlines cannot absorb the current price premium of sustainable aviation fuels (SAF) in the absence of a level playing field (especially in a context of low margins accentuated by the COVID-19 crisis), whereas the cost of producing SAF will only come down if production scales.

The coalition is working across the value chain to simultaneously create voluntary mechanisms for driving demand for SAF through cost-sharing with corporate air travel customers, encourage governments to put in place regional blending mandates to grow demand further, while pursuing an agreement at the level of the International Civil Aviation Organization (ICAO) to ensure a global level playing field and a just transition, and make investment into SAF plants more attractive through a mix of public support and innovative financing mechanisms.

Bringing together airlines, airports, fuel providers and manufacturers, the coalition is uniquely positioned to develop tools – like the SAF standard or a SAF policy toolkit – that can be adopted by the whole industry, and to orchestrate a dialogue with financial institutions and governments on the actions they can and should take.

When industry drives ambition

Such sectoral initiatives offer a critical complement to the national approach pursued by the Paris Agreement. Indeed, ambitious industry and finance commitments can unlock ambitious national and multilateral commitments. United, the most ambitious industry leaders can provide a clear and loud message to policymakers on the specific needs in terms of regulations, public finance and international cooperation to enable net-zero industries, and stand ready to exchange with individual governments and coalitions of governments to discuss how those policy frameworks can best be implemented.

These companies will also, in parallel, demonstrate what is possible – and realistic – in terms of pump priming the value chain transformations required to initiate and accelerate emissions reductions in their sectors, by developing collaborative pilot, demonstration and eventually commercial-scale projects. Governments will be able to point to real-world evidence of economically viable green supply chains. This will undermine the ability of those less ambitious players in their sector to argue for less ambitious targets, and will create a race to the top as the technological and market advantage of first movers becomes clear.

To be clear, industry platforms and sector decarbonization pathways are not a substitute for the national-level approach of the Paris Agreement. It is a necessary complement to that approach, which can help unlock higher climate ambition at the national level – captured in nationally determined commitments (NDCs) and mid-century strategies under the Paris Agreement – and initiate intergovernmental agreements when relevant to address carbon leakage risks – at the International Maritime Organization for shipping and ICAO for aviation, and in settings yet to be invented in sectors like steel or chemicals which are not currently governed by an international organization.

Meeting the goals of the Paris Agreement will be extremely difficult – perhaps impossible – without recognizing the globalized nature of the modern economy and without using systems-level thinking to work through innovative and science-based public-private partnerships at a sectoral level to enable industrial decarbonization at the pace and scale needed to limit global warming to 1.5 degrees Celsius. The real economy needs to be at the centre of climate action.

For more on how we pump prime such systems change, see the joint video with COP26 High Level Champion for Climate Action Nigel Topping: These are the breakthroughs we need to achieve a net-zero world.