Heavy industry and heavy-duty transport are responsible for nearly a third of global carbon dioxide emissions. While reducing emissions from these sectors will be difficult, the transformation will create opportunities for investors.
Heavy industry (like steelmaking) and heavy-duty transport (like the large trucks that deliver goods to supermarkets) are vital to our economic well-being, but ways must be found to reduce the carbon dioxide (CO2) emissions they generate.
However, the technological solutions needed to reduce their emissions are more expensive than in other industries and require huge investment. In addition, the technologies are at such an early stage that it is difficult for companies to choose the right option. However, some companies are entering into partnerships and exploring various technological options to identify the ones that will eventually emerge as the most efficient.
The lifespan of assets in these industries is extremely long
Another difficulty is that the lifespan of assets, such as steel foundries and aeroplanes, in these industries is extremely long. Anything built today is likely to still be operational in 2050. Many businesses need to decide soon to reinvest in carbon-emitting technologies or in decarbonised processes. Some are already addressing this issue. For example, Arcelor Mittal, the second biggest steel company in the world, and Maersk, the biggest container shipping company, say they will be net zero (in other words, will fully offset any emissions they generate) by 2050.
Decarbonising these sectors cannot happen one foundry or aircraft at a time. The sectors are embedded in a whole network of suppliers and infrastructure, all of which must be transformed. Since governments fund, are responsible for planning and are heavily involved in building much of our current infrastructure, their participation is key to helping with decarbonisation.
The good news is it is technically possible to decarbonise even the most challenging sectors by mid-century at a total estimated cost of well under 0.5 per cent of global GDP, even though some of the technical solutions are still hotly debated and unproven, particularly at commercial scale.1
Greater energy efficiency and a more circular economy are essential to reduce costs and achieve full decarbonisation
Moreover, future technological breakthroughs could be a huge driver of change. Optimists argue that by 2035 electrically-powered aircraft could fly 1,000 kilometres and carry 100 passengers. Existing technologies could also enable certain sectors such as energy, buildings, industry and transport to reach net zero by the mid-century. Greater energy efficiency and a more circular economy, which involves more sparing use and recycling of existing resources, are essential to reduce costs and decarbonise.
Industries need to agree on a roadmap to net zero though. And the direction should developed jointly by all interested parties, so they can establish ambitious, science-based targets and show real progress against the roadmap.
Investment opportunities and risks
Investors could help accelerate decarbonisation and are now aligning their portfolios with climate targets to unlock capital and innovation. There is also growing acceptance that the risk of failing to tackle CO2 emissions is greater than the risk of investing in net zero. Much depends on the pace of regulation. If regulators are slow to crack down on emissions, decarbonisation will probably prove to be slow.
Changes in the use of subsidies could play a role
Changes in the use of subsidies, like those that supported the early development of renewable energy, could also play a role. Steel and fossil fuels, for example, currently receive huge subsidies across the world that could possibly be redirected to develop solutions and decarbonise heavy industry.
Meanwhile, there could be opportunities in the companies that provide infrastructure for net-zero technologies. There is also potential in other areas too, from substitution solutions such as rail to replace aviation, or new materials to replace carbon-intensive steel or cement, to industry leaders in relatively new technologies like sustainable biofuels.
Three points to remember
- It is technically possible to decarbonise even the most challenging sectors of heavy industry and heavy-duty transport by the middle of the century at a relatively low cost
- But success in doing so will depend on cooperation within these industries and the active participation of governments
- The drive to decarbonise these sectors will open up investment opportunities