Energy Matters Breakfast Roundtable: Industrial Decarbonization of Hard-to-Abate Sectors

Hard-to-abate sectors (iron and steel, cement, chemicals, fertilizers, etc.) currently account for 10 GT of the 30 GT of CO2 emissions we emit globally, and, by 2050 that share could increase to over 45% as the rest of the economy decarbonizes. Europe has had some success in reducing the CO2 emissions from these industries by almost 30% since 1990 through energy efficiency projects, technological innovation and public policy. However, abating the bulk of emissions produced by heavy industry - i.e. the outstanding 70% - is a complex multi-phase challenge which will require reorganization of an unprecedented scale.

RRA recently hosted the fifth instalment of the Energy Matters, People & Money Networking Series which focused on the viability of progressing industrial decarbonization in Europe and beyond, with a specific focus on hard-to-abate sectors. Occo Roelofsen simplified the complex topic for us into the following key themes:

We know what needs to be done – but industry is not on track

2022 was a record year in terms of the number industrial decarbonization deals announced in Europe and this is expected to grow in 2023. However, individual projects are being progressed amidst uncertainty and without the necessary policy support and capital flows to realize them. The H-vision project in the Port of Rotterdam or the 800 MW green hydrogen plant being developed in the Iberian Peninsula are two examples of this.

To successfully decarbonize by 2030, up to an additional 1 billion individual projects must be rolled out across the globe, many of which will require a runway of at least 7 years and multiple phases to realize. In Europe, where heavy industry constitutes 15% of global emissions, the uncertain future of the gas network and supply chain shortages such as that of green hydrogen present significant challenges to enabling the transition in hard-to-abate sectors. In the steel industry, Hybrit – which is a joint venture between SSAB, LKAB and Vattenfall – has begun manufacturing the world’s first fossil free steel. The Swedish ‘green steel’ plant technology has the potential to reduce Sweden’s total CO2 emissions by at least 10% but at present the plant operates well below its 600 Mt capacity as European suppliers struggle to meet industry demand for larger volume hydrogen and electrolyser modules calls and cheaper prices.

Scaling Existing Solutions

Policymakers, investors and industrialists have been distracted by arguments around the merits of one technology versus another when we should be planning with, and for, multiple abatement pathways. Taking hydrogen for example, the question of volume remains central to the discussion, particularly as it relates to the supply of green hydrogen. To meet early projected demand and advance decarbonization of heavy industry, several types of hydrogen – such as blue - must be scaled up alongside one another. Blue hydrogen is also especially important in hard-to-abate sectors and carbon removal is key in instances where a reduction of emissions is not directly possible.

Within the shipping sector, green ammonia currently costs more than 2x the price of conventional shipping fuels and there is little doubt that without policy intervention, timely decarbonization will not be possible.  There are, in fact, several decarbonization pathways to reshape the future of green feedstocks and at present, we have had some success with several approaches including biofuels, residual gas and pyrolysis oil.  However, after accounting for emissions from these ‘low-hanging fruit’ solutions, there are still 80% of CO2 emissions left to abate with an estimated an $2 trillion needed over the next three decades to produce zero-emission fuels and vessels.

Towards a Solution: Pathways for Change

Radical Collaboration and Systems Level Transformations

Timely decarbonization of hard-to-abate sectors means accepting that the challenge requires system level transformations. Corporate climate ambitions have been bold but success will be achieved through radical public-private partnerships with incentivizing policy provisions. Doing so will require a radical new approach to align thinking and action in the decarbonization ecosystem on a regional scale - a departure from the incremental, project-by-project approach that has characterized the decarbonization of heavy industry to date.

The Role of Public Policy

Without government support, heavy industry will not be able to decarbonize. Governments, in addition to creating strong incentives and regulatory ‘carrots’, must also play a role in providing long-term assurances for investments, de-risking challenges associated with investing in transition technologies.

Commercial Viability

Of course, the decarbonization of hard-to-abate sectors will not pick up pace, unless private capital investing in the energy transition can see strong commercial returns. Here, governments and the large corporate energy firms must work together to develop a strong investment case, underpinned by strong technology, appropriate policy and impetus.

Authors

Chris Nicholson; a Partner in the firm’s Global Industrial & Natural Resource Practice, covering the Energy markets.

Abigail Skerrett; a member of the firm’s Global Industrial & Natural Resource Practice and co-lead of the Global Energy Transition Practice.

Shola Brown; a member of the firm’s Global Industrial & Natural Resource Practice.

We hope you can join us for the next event in April. Details to follow.