AIQ: Cleaning up capitalism

The going gets tough

Can heavy industry decarbonise?

Heavy industry and heavy transport are hard to decarbonise, but this must be done to reach net-zero emissions by 2050. Can companies, policymakers and investors join forces to make it happen? The race is on…

Heavy industry and heavy-duty transport are responsible for nearly a third of global carbon dioxide (CO2) emissions, a share that will double by mid-century without action.1 But these industries are 'hard to abate', with solutions to reduce emissions in their infancy or expensive.

While most sectors can decarbonise by switching their power source to electricity, in heavy transport and heavy industry it is either too hard or meaningless.

Another difficulty is that the lifespan of assets is extremely long - anything built today is likely to still be in operation in 2050. “2050 is one investment cycle away, and new technologies would have to reach a commercial threshold by the end of the decade to make a meaningful impact,” says Sora Utzinger, senior ESG analyst at Aviva Investors.

Technical solutions exist

The good news is it is technically possible to decarbonise hard-to-abate sectors by mid-century at an estimated cost of under 0.5 per cent of global GDP.2

Materials efficiency, energy efficiency and a more circular economy are essential to reduce costs and achieve full decarbonisation

Research shows that in addition to technologies such as hydrogen and carbon capture, materials efficiency, energy efficiency and a more circular economy are essential to reduce costs and achieve full decarbonisation.3

Maria Mendiluce, chief executive officer of the We Mean Business Coalition and founding partner of the Mission Possible Partnership, says this needs innovation in six areas.

“The first is materials efficiency and circularity,” she explains. “This is about improving product and equipment design, and materials, processes, systems. Sorting out traceability and recycling is also important.”

Electrification and hydrogen are the second and third, which are going in the right direction. The fourth is biochemistry and synthetic chemistry, where interesting things are beginning to happen, although more progress is needed. New materials are the fifth; last, but not least, is carbon capture, utilisation and storage.

Positively, while cost increases are considerable in areas like aviation, most price increases should be negligible. “The cost increase does not have to be high, in the order of one per cent,” says Anders Åhlén, associate partner at Material Economics, a consultancy advising businesses on how to reduce their environmental footprint.

On the production side, decarbonisation costs will vary by sector

“But the cost increase in the B2B part of the value chain is very high, so that's the big challenge,” he adds. On the production side, decarbonisation costs will vary by sector. Research commissioned by the Energy Transitions Commission found abatement costs will be more moderate in heavy industry and decline in the longer term as technologies come to maturity and scale.

They may range from $25 to $60 per tonne of steel, and from $120 to $160 per tonne of cement. The cost would remain higher for plastics – over $200 per tonne. For long-distance shipping and aviation, abatement costs will remain significant even in the long term, up to $180 per tonne of CO2 for aviation and $300 for shipping.4


Building a zero-carbon economy by 2050 requires a dramatic acceleration in the pace of investment, requiring countries to set clear targets, design policies to support key technology developments, price carbon, drive energy efficiency and ensure key infrastructure developments.

Coordinating value chains is at the heart of initiatives to decarbonise hard-to-abate sector

Some investments will be made at government level, but much will depend on companies. This is why demand is crucial: the greater customers’ commitments to buy net-zero products, the easier it becomes for producers to justify the necessary investments.

Coordinating value chains is at the heart of initiatives to decarbonise hard-to-abate sectors, such as the Mission Possible Partnership, the UN’s LeadIT and the We Mean Business Coalition.

Mendiluce adds that industries need to agree on a roadmap to net zero, developed jointly by all stakeholders, including investors. “The investor community plays an important role: by pushing companies to go faster, we can drive real change,” she says.

Investment implications

The investment case is beginning to shift. For instance, a group of international banks including Société Générale, Citi and Goldman Sachs created the Steel Climate-Aligned Finance Working Group to align portfolios with climate targets in the sector to unlock investment and innovation.5

This is not happening in petrochemicals because technological alternatives are unclear, many oil-producing countries are still investing to secure a higher value for production, and global demand continues to grow.

Opportunities are likely in companies that provide infrastructure for net-zero technologies

Subsidies, such as those that supported renewable energy, could create a stronger investment case. Opportunities are also likely in companies that provide infrastructure for net-zero technologies, from hydrogen transport and storage to CCUS plants. Parts of steel might benefit as well; in electric arc furnaces capable of incorporating scrap, for example.

There could be other beneficiaries, from substitution solutions such as rail to replace aviation or new materials to replace carbon-intensive steel or cement, to leaders in new technologies like sustainable biofuels.

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