The International Energy Agency (IEA) has published a report titled “Achieving Net Zero Heavy Industry Sectors in G7 Members” that focuses on the implementation of policies aimed at drastically lowering CO2 emissions from heavy industries in the G7 and beyond. This work, requested by Germany’s 2022 G7 Presidency, builds on analysis from the IEA’s Net Zero by 2050: A Roadmap for the Global Energy Sector. It follows Achieving Net Zero Electricity Sectors in G7 Members, produced as an input to the UK’s G7 Presidency in 2021. REGlobal presents an extract from the executive summary of the report and the recommendations for G7.

The G7 has an opportunity to accelerate the global transformation of heavy industry sectors. G7 members – Canada, France, Germany, Italy, Japan, the United Kingdom, the United States plus the European Union – in 2020 accounted for around 40% of the world’s economy, 30% of its energy demand and 25% of energy system CO2 emissions. The G7’s economic heft, its leadership at the innovation frontier, and the international alliances it can mobilise, mean the Group has outsized power to inspire successful energy transitions around the world. Efforts to accelerate the transition for heavy industry sectors are no exception.

Heavy industry is responsible more than 15% of coal use and about 10% of oil and gas use in G7 members. This makes the net zero transition in heavy industry an important pillar for reducing the reliance on fossil fuels in the G7 in the wake of Russia’s invasion of Ukraine. The war has caused turbulence in global energy and commodity markets, posing risks for the industry sector transition, but also reinforcing the impetus for it. However, Russia’s war in Ukraine bolsters the case for heavy industries to reduce their dependence on fossil fuels, with energy security concerns echoing the thrust of climate-oriented motivations.

Emissions from heavy industry sectors are hard to abate

Industry’s direct CO2 emissions are currently around 9 Gt of CO2 per year, or about one quarter of total energy system CO2 emissions. Heavy industry sectors – steel, cement and chemicals – account for around 6 Gt (or around 70% of industrial emissions), meaning that reaching net zero emissions is impossible without dramatic reductions in emissions from heavy industries. Yet, demand for these products is set to grow in the context of a sustainable future for the energy system, given their extensive use in the construction of wind farms, nuclear power plants, transmission lines, electric vehicles and other clean energy infrastructure.

Heavy industries face unique challenges when it comes to substantially reducing emissions. Four key obstacles need to be overcome for heavy industry sectors to be able to reduce emissions at a scale that is compatible with achieving a net zero emissions energy system. First, many technologies required for the industry sector’s transition are still at prototype or demonstration stage and not yet ready for deployment at scale. Second, new production processes with substantially lower emissions intensities will – at least initially – have higher costs. Third, many products of heavy industries such as steel are traded internationally in competitive markets, with margins that are too slim to absorb elevated production costs and encourage first movers to adopt new technologies. Finally, heavy industry facilities are long-lived and capital intensive, locking in emissions inertia. Existing efforts to overcome these challenges are not yet sufficient to deliver substantial emissions reductions on a time scale commensurate with reaching net zero emissions by 2050. A multi-faceted technology and policy response is required, spanning innovation, infrastructure and supply chains.

The G7 can lead the way to achieving net zero heavy industries

G7 members alone cannot deliver net zero heavy industries globally, but they can make a pivotal contribution. The IEA’s Net Zero by 2050 roadmap lays out a pathway to net zero emissions by 2050 – but not necessarily the pathway – in which global industrial CO2 emissions decline by nearly 95% by 2050. The G7 produces 17% of the world’s steel, 8% of cement and 28% of primary chemicals: China is the only single country with larger heavy industry sectors than the G7 members combined. The G7 members must therefore make a significant contribution to global industrial decarbonisation. In the Net Zero Emissions by 2050 Scenario, industrial CO2 emissions from G7 heavy industry sectors decline by 27% by 2030 relative to today, compared to 18% for the rest of the world.

Commercially available technologies and strategies for reducing emissions can only take us part of the way to net zero. Material efficiency and energy efficiency make important contributions to reducing industrial emissions, accounting for around 25% of emissions reductions by 2050 in the Net Zero Emissions by 2050 Scenario, relative to today’s levels. Technologies which are not yet available on the market at the scale needed – hydrogen, direct electrification technologies, and carbon capture utilisation and storage (CCUS) – take the world most of the rest of the way to net zero. Technologies at the prototype and demonstration phase today account for about 60% of emissions reductions by 2050 in the Net Zero Emissions by 2050 Scenario.

Near zero emission material production is a key area for G7 leadership. In the Net Zero Emissions by 2050 Scenario, by 2030, innovative technologies for producing materials account for around 10-20% of primary steel, cement and primary chemicals production in the G7, depending on the sector, on average about two-thirds higher than the level in the rest of the world. In the G7,
hydrogen-based direct reduction is the leading near zero emission primary steel production route in 2050, followed by CCUS-equipped routes, although there are important differences by country reflecting each G7 member’s own circumstances. In the cement sector, CCUS-equipped production does the heavy lifting across the world, but the G7 moves faster: 12% of production is CCUS-equipped by 2030, compared with 9% for the rest of the world. By 2050, uptake of innovative technologies has largely converged across regions, but the first movers in G7 economies have the opportunity to establish early lead markets: around 25 Mt
per year each of near zero emission primary steel production and clinker used in cement production by 2030 in the Net Zero Emissions by 2050 Scenario, or 10-15% of current production levels of G7 members combined.

Recommendations for the G7

Policies developed within the next five years will be critical to put the industry sector on a path compatible with achieving net zero emissions for the energy system by mid-century. The G7’s leadership in this domain can raise ambition and provide learnings to accelerate the global transition. As such, the IEA has developed ten recommendations for consideration by G7 members. The focus is on steel and cement production, but many of the principles are applicable to other energy-intensive commodities.

  1. Develop ambitious long-term sustainable transition plans for industry, backed by policy
  2. Finance a portfolio of demonstration projects for near zero emission industrial production technologies.
  3. Develop finance mechanisms to support deployment of near zero emission for industrial technologies and associated infrastructure.
  4. Create differentiated markets for near zero emission material production.
  5. Explore a non-binding intergovernmental international industry decarbonisation alliance in support of the industry transition.
  6. Establish a cement sectoral Breakthrough at COP27.
  7. Consolidate existing work on measurement standards, ensure their fitness for purpose, and avoid the development of duplicate standards and protocols.
  8. Adopt stable, absolute and ambitious thresholds for near zero emission material production that take account of sector-specific nuances.
  9. Value interim steps taken to substantially lower emissions intensity, without compromising the stringency of the thresholds for near zero emission production.
  10. Extend the reach of work on definitions down existing supply chains, and into new ones.

The complete report can be accessed here