Net Zero Industry Tracker shows how to accelerate decarbonization across heavy industry

In this climate-focused era, industries are at a pivotal juncture. The global push for net zero emissions by 2050 has brought traditionally carbon-intensive sectors into the spotlight. The World Economic Forum’s Net Zero Industry Tracker 2023 tracks progress in industry sectors, including production (steel, cement, aluminium and ammonia), energy (oil and gas) and transportation (aviation, shipping and trucking), which contribute over 40% of global greenhouse gas emissions. The Net Zero Industry Tracker assesses performance and readiness, focusing on improving key aspects within technology, infrastructure, demand, policy and capital.

Decarbonizing sectors means reducing their reliance on unabated fossil fuels by shifting to clean power and clean hydrogen, improving efficiency and capturing any remaining emissions. Analysis from the latest edition of the Net Zero Industry Tracker underscores the wide gaps in the enabling environment, across all sectors. In the absence of a robust enabling environment, industrial decarbonization will not be timely and effective.

Focussing on the role of technology in this transition, the decarbonization of these sectors primarily depends on the development and adoption of clean hydrogen, clean power and carbon capture, usage and storage (CCUS)-based technologies.

The Net Zero Industry Tracker identifies three priorities to improve technology development and adoption within industrial sectors:

Clean power is expected to comprise up to 65% of the final energy mix by 2050 and is the least complex method of driving emissions reductions.

With a lack of viable alternatives for net-zero cement, research and development, investment and additional projects are needed to improve applications for small and remote facilities and to accelerate commercial scaling within this decade.

Access to green and blue hydrogen is an important decarbonization solution for several sectors. Despite positive developments, it is particularly important to significantly reduce costs and increase the supply of green hydrogen to decarbonize and reduce fossil fuel dependence.

Executing these priorities, however, is dependent on addressing the enabling ecosystem factors, to support parallel advancement across readiness dimensions.

Low-emission technologies are growing slowly and need to accelerate their adoption for commercial use by 2030. Both startups and incumbents play a role in this evolving landscape, where business model transformation is needed to ensure longevity and profitability. To speed up progress, advancing Technology Readiness Levels (TRLs) through collaboration and cross-industry partnerships should be prioritized.

Most sectors have low technology readiness and adoption rates, as industries prioritize efficiency measures over low-emission products. However, the budget allocation landscape supports the prioritization of efficiency measures. According to the IEA, in 2022, efficiency measures comprised the largest proportion of the total research, development and deployment (RD&D) budget globally (24%), where renewable energy and hydrogen occupy 13% each. However, the energy transition now requires prioritizing fundamental technological advancements. While short-term efficiency measures are vital for emissions reduction, their potential for improvement is limited, leading to plateaued returns. Organizations should proactively plan to shift their focus towards low-carbon and net zero solutions, prioritizing long-term, high-impact measures. This involves increasing RD&D investments in low-emission technologies.

Technology transformation relies on innovation, coordination and increased RD&D investment in clean power, clean hydrogen and CCUS, where these sectors face challenges in reducing costs. Though public spending on low-carbon energy increased faster than total energy budgets last year, this progress is primarily driven by China. Similar efforts should be replicated in other regions.

BloombergNEF reports a 31% increase in low-emission technology investments in the past year. However, most of the reported funds are channelled into established technology and manufacturing facilities, leaving startups and innovation with negative funding growth (-29%) between 2021-2022.

According to the Net Zero Industry Tracker, public funding alone cannot bridge this financial gap, given the current cost of technology. Additionally, industry profit margins suggest that many sectors cannot absorb extra costs whilst generating satisfactory returns. Therefore, improved access to private financing and public-private partnerships is needed to accommodate the three-fold increase in startup and innovation investment proposed by BloombergNEF by 2050.

RD&D investments increasingly demonstrate signs of movement towards commercial viability, as market conditions become more favourable to realize returns on investments. Embracing incremental investment across technology S-curves represents a promising avenue to maximize returns. However, improved transparency regarding low-emission alternatives and stronger demand signals for new technology applications are also needed.

Fostering a supportive environment for startups encourages investors to identify high-potential companies, while giving innovators access to funding and support networks for scaling. Yet, this needs to be supported by a tangible, auditable and supportive ecosystem. Integrating RD&D accounting into climate finance frameworks, such as the Greenhouse Gas Protocol, where it is currently absent, is crucial. This involves defining RD&D-specific categories, utilizing innovation metrics, offering tax incentives and mandating greenhouse gas reporting, alongside an increase in technology transfer support and investor education.

Startups and incumbents are vital in the shift towards cleaner production, energy and transportation. Startups excel in innovation and agility, but often lack resources. Incumbents, with their established market presence and financial stability, may struggle to adapt quickly. Collaborations between them are crucial to accelerate low-emission technology development, creating a synergistic relationship that overcomes their individual weaknesses.

By establishing collaborative innovation pipelines and ecosystems, industries can bolster the financial appeal, stability and resilience of low-emission technologies amid inflationary pressures. This approach mitigates risks and augments the likelihood of realizing favourable returns on investments. Industries can streamline requirements, relieving supply chain pressure as the technologies approach commercial scale. These partnerships promote greater clarity over the demand for finite resources and reduce resource competition among companies. Moreover, collaboration stimulates consumer demand through established customer bases and enhanced product transparency.

Whilst integrating innovations into established business systems is crucial, business model transformation plays a pivotal role in accelerating low-emission technology development. Businesses should prioritize strategy re-evaluation to align with sustainability goals. This transformation involves shifting from traditional profit-driven models to ones that prioritize innovation, sustainability and collaboration. As companies increasingly invest in RD&D of low-emission technologies, fostering partnerships with startups and participating in open innovation ecosystems becomes imperative. By reimagining their business models, organizations can more effectively leverage their resources and capabilities to create and scale solutions that reduce emissions. This will ultimately drive the rapid development and adoption of technologies, essential for achieving a net zero carbon economy.

Without radical changes and disruption to the existing technology landscape, lagging technology development and adoption will continue to hinder industrial transition towards net zero emissions. More collective effort is needed from companies, policy-makers, investors and innovators to become the driving force of change.