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