How to raise the $30 trillion investment needed for 'hard-to-abate' sectors to reach net zero

Hard-to-abate sectors, such as steel, aluminium, cement, chemicals, oil and gas, aviation, shipping and trucking, have made progress towards achieving net-zero emissions, with a 0.9% reduction in absolute emissions recorded between 2022 and 2023. This is in contrast to the 1.3% increase in global energy-related emissions. These sectors combined represent around 40% of global greenhouse gas emissions and a similar share of the global economy.

We have a long way to go, however, to reach net-zero emissions. The Net Zero Industry Tracker 2024 estimates that $30 trillion in additional capital will be required across these eight hard-to-abate sectors to achieve the net zero transition. This represents around 45% of the total incremental net-zero investment required by 2050, based on World Economic Forum and Accenture analysis derived from the IEA. This investment is split into 57% ($17 trillion) allocated for enabling infrastructure by the ecosystem and 43% ($13 trillion) to be directly invested by these sectors. This represents an 80% increase compared to projected investment in these sectors with business as usual.

The 57% investment from the wider energy ecosystem will be mainly required for expanding clean power, hydrogen and derivatives and carbon capture usage and storage (CCUS) infrastructure. Clean power is expected to be an average of 32% of the final energy mix across hard-to-abate sectors by 2050. While investments in clean energy have reached $2 trillion globally in 2024, progress remains uneven across regions, with emerging economies lagging behind due to the high financing costs of new projects. Meanwhile, net zero investments required for the development of clean hydrogen and CCUS infrastructure far exceed current spending levels. This is particularly concerning since only 1% of the infrastructure required by these solutions for these hard-to-abate sectors is currently in place.

To raise the necessary capital, companies can employ various strategies, such as the issuance of green debt, the utilization of special funds, like the Climate Investment Fund, and the formation of public-private partnerships (PPPs). Currently, only around 50% of the technologies required for the net zero transition of hard-to-abate sectors are commercially available, while the remaining 50% are in the R&D stage. To support the development of new technologies, companies are typically using equity investments since they are more suitable for high-risk and high-return investments. For scaling the commercially available technologies, companies are using debt investments, which are more suitable for low-risk and low-return investments. Given the magnitude of the required net zero investments, particularly in emerging and developing economies, most of the funding is likely to be sourced from the private sector.

Unlocking the necessary investments from the private sector will require a strong business case with a sufficient return on investment. Currently, most hard-to-abate sectors operate with low-profit margins (typically between 3% and 10%), except for the oil and gas sector, which has a higher margin of about 15%. Moreover, interest rates have seen a rise in the last few years, making the task of raising capital more challenging.

Companies can reap financial benefits and reduce emissions by collaborating with their value chain, customers and policymakers. Strategies include offering new, green products; entering new markets; improving energy efficiency; and, securing energy transition financing. Additionally, companies can enhance branding, risk management and customer trust.

Effective policies will play a key role in creating an enabling environment to achieve the net zero ambition, in particular, to encourage the required investments. Lack of consistency in policy signals from governments, frequent regulatory changes or the absence of long-term targets creates volatility, making investors reluctant to commit resources to new technologies and infrastructure. To reach the scale needed for the transformation of these sectors, policy frameworks need to enable low-emission technology investments to make them profitable. Policies like the US Inflation Reduction Act (IRA), Japan’s Green Transformation Policy and The European Green Deal are some examples that are successfully promoting investments in the development of clean technologies and the production of clean power.

Accelerating emissions reductions in the hard-to-abate sectors while fostering economic growth and job creation requires a systemic approach that exceeds current efforts in most countries. Achieving the system change needed demands enabling policies and targeted incentives from policymakers, innovative financing mechanisms from the financial sector and collaboration and innovation across the value chain by industrial players.

To find out more about the investment required for the net zero transition of hard-to-abate sectors, read the Net Zero Industry Tracker 2024 report.