Industry

Notable country and regional progress in decarbonising industry includes the following developments: 

• China’s industrial emissions are estimated to have decreased by around 3% (around 150 Mt CO₂) in 2022, largely due to a decrease in emissions from its cement (10%) and steel (3%) sectors. While some rebound is predicted, the delayed expansion of its emissions trading system (ETS) to industry is expected to begin in 2023 or 2024, and China’s industrial emissions could peak and plateau soon. 
• The European Union released its Green Deal Industrial Plan in February 2023, and the Carbon Border Adjustment Mechanism will begin its transitional phase in October 2023. 
• The United States’ landmark Inflation Reduction Act of 2022 has significantly boosted clean technology manufacturing and industrial decarbonisation, and includes USD 6 billion for demonstration and deployment of low-carbon industrial production technologies.
  

Industrial emissions have risen by around 70% since 2000, mainly as a result of increasing global demand for industrial goods. Emissions stopped growing during the Covid-19 pandemic, but rebounded in 2021. In 2022, global emissions are estimated to have declined by about 2%, driven largely by decreased activity in China’s industrial sector due to pandemic restrictions, and the global energy crisis. While China’s industrial emissions could peak and plateau over the next few years, continued growth elsewhere means global industrial emissions are likely to continue to grow in a baseline scenario. 

To get on track with the NZE Scenario, industry’s total direct emissions must decline by nearly a quarter to 2030, or about 3% per year on average, requiring accelerated policy action.

The industrial sector accounted for 37% (166 EJ) of global energy use in 2022, compared to 34% in 2002. Growth in energy consumption over the past decade has been driven largely by continued rising production in energy-intensive industry subsectors. 

Meanwhile, industrial energy productivity (industrial value added per unit of energy input) has risen in most regions since 2000, mainly thanks to the deployment of state-of-the-art technologies, use of more efficient equipment, and structural shifts that result in a larger role for high value-added light industry (e.g. electronics).  

In the NZE Scenario, growth in the sector’s total energy use grows by less than 0.5% per year to 2030, while industrial energy productivity increases by about 3% per year to 2030. The industrial sector’s energy mix has remained relatively unchanged since 2010, with the share of fossil fuel decreasing from 74% in 2010 to around 65% in 2022. Electricity was responsible for much of that decline, rising from a share of 19% to 23%, largely owing to higher activity in light industries. In the NZE Scenario, electricity climbs to nearly 30% of industrial energy use by 2030.

Industrial activity has grown at an astonishing pace during the past two decades, driven by increases in demand for industrial goods from a growing global population and economy. Historically, this trend has been common but not uniform, suggesting that growth and industrial production are not unavoidably linked, particularly as economies reach economic maturity. Material demand in China is expected to level off by the mid-2020s, however, this is likely to be offset by growth in demand from other emerging markets. 

Decoupling material demand from economic growth can help curb CO₂ emissions, and steps should be taken to pursue this through material efficiency. In the NZE Scenario, demand for steel, cement and aluminium in 2030 are around 5% lower relative to a baseline scenario. This decrease comes from changes across supply chains: use phase reductions (such as extending building lifetimes through refurbishment); better product design and fabrication; recycling and reuse. 

The NZE Scenario necessitates that progress be across the spectrum of production technologies, including production methods incorporating hydrogen, CCUS, direct electrification (including through high temperature heat pumps), and other innovative methods unique to certain products (such as inert anodes for aluminium). The result is strong initial deployment of all of these technologies by 2030. 

In the NZE Scenario, electricity increases from 23% of the sector’s energy consumption to nearly 30% by 2030, with a greater proportion of that electricity coming from low carbon sources over time, as the power sector heads towards net zero globally by 2040. Industrial hydrogen demand increases substantially from 55 Mt in 2022 to about 70 Mt in 2030. CO₂ captured through CCUS sees an enormous increase from 4 Mt in 2022 to about 250-300 Mt in 2030. Implementation of these innovative production methods varies by industry – the pages on industry subsectors elaborate on deployment (see: steel, cement, chemicals, aluminium, paper, light industries). 

Many industrial processes involve chemical reactions and high-temperature heat that cannot be fully decarbonised with current commercially available technology. More than half of heavy industry emission reductions by 2050 in the NZE Scenario come from technologies that have been proven but are not currently market-ready at scale. Numerous industrial innovation efforts are underway around the world, with major highlights from 2022 including the first operation of an electric boiler in alumina refining and a final investment decision on a large-scale demonstration of direct separation of process CO₂ emissions in cement, after the successful completion of the LEILAC-1 project.

Most key near zero-emission technologies are currently expected to see commercial market penetration between the mid-2020s and the early 2030s. However, for some technologies, this may not be fast enough to ensure that near zero-emissions production methods are implemented in the next investment cycle for industrial sites to limit stranded assets. Hastening the development and deployment of key low emission technologies through funding RD&D efforts will be critical to put the industrial sector on a NZE Scenario trajectory.

The NZE Scenario implies early deployment and rapid scale-up of technologies like hydrogen and carbon capture and storage in heavy industrial plants between now and 2030, such that about 10% of total global production employs near zero emission technologies by 2030. Meanwhile, light industries undergo rapid increases in electrification. After 2030, deployment rates accelerate even more quickly. 

Near zero-emission technologies are contingent upon the planning and deployment of supporting infrastructure. Transmission grids and generation capacity for near zero-emissions electricity will require substantial expansion and modernisation to enable direct and indirect electricification of industrial production. For novel technologies like hydrogen and carbon capture and storage, essential supporting infrastructure is altogether lacking in many places. Such infrastructure can have very long lead times, meaning it could become the main bottleneck to meeting 2030 targets. Efforts to plan and develop supporting infrastructure should begin immediately to ensure readiness for large-scale technology deployment from 2030 onwards, with industrial clusters being obvious starting points.

•  Many jurisdictions have national mechanisms in place to price industrial emissions, including Canada and Korea. China has announced that its ETS – launched in 2021 to initially only cover power – will begin covering emissions from heavy industry in 2023 or 2024, and the European Union announced in 2022 that its ETS will be moving to raise prices on industrial emissions more quickly. 
• The transition phase of the European Union’s landmark carbon border adjustment mechanism for emissions-intensive goods such as steel, cement and aluminium comes into force in October 2023.  
• The EU Innovation Fund will provide at least EUR 10 billion to fund large-scale demonstrations of low-carbon technologies, with Germany also looking to provide EUR 50 billion for industrial decarbonisation over 15 years through a carbon contracts for difference scheme.  
• The United States’ 2022 Inflation Reduction Act (IRA) provides support for decarbonising industry and developing manufacturing of low carbon technologies, with nearly USD 6 billion in funding.
• Major economies are acting to combine their climate, energy security and industrial policies into broader industrial strategies. As well as the IRA in the United States, examples include the Green Deal Industrial Plan and Net Zero Industry Act (2023) in the European Union, Japan’s Green Transformation programme (2022), the UK Net Zero Growth plan (2023), and the Production Linked Incentive scheme in India (2020) that encourages manufacturing of solar PV and batteries – and China is working to meet and even exceed the goals of its latest Five-Year Plan. 
• Many jurisdictions are centring incentives around industrial clusters, such as the United Kingdom, China and the Netherlands, enabling industrial sites to collaborate on decarbonisation plans and build-out of supporting infrastructure. 
• Several countries have announced initiatives for creating a market for low-emission industrial goods, including embodied carbon targets for new buildings in France, the US Buy Clean Executive Order and Taskforce, and Japan’s GX League. 
  

• At the 2022 G7 Summit, leaders signed an initiative to develop a climate club – with industrial decarbonisation as one of its three central pillars. A more detailed workplan will be announced at COP28. 
• Mission Innovation published its roadmap for net zero industry in May 2022, with the official launch of its net zero industries mission action plan in March 2023.  
• In 2022 the Industrial Deep Decarbonisation Initiative launched the Green Public Procurement Pledge to encourage the public procurement of low-emission steel and concrete.  
• The Breakthrough Agenda, launched at COP26, has 45 signatories committed to collaborate internationally on faster development and deployment of low-carbon technologies, making these solutions globally affordable and accessible. Two of the Agenda's current four initiatives are particularly relevant for industry: hydrogen and steel. 
• The G7 Industrial Decarbonisation Agenda continues to enhance collaboration, and multiple references were made to industrial decarbonisation in the 2023 G7 communiqué from Climate, Energy and Environment Ministers. The IEA’s new Working Party on Industrial Decarbonisation plans to focus initially on definitions and measurement methodologies for heavy industry, building on contributions to the G7 Presidencies of Germany (2022) and Japan (2023).
  

• The First Movers Coalition aims to create a market for near zero-emission industrial goods, with members pledging to obtain a proportion of their industrial materials from suppliers using near zero-emission production technologies. Concrete and cement were added as a sector in 2023, and new members also joined the coalition. 
• Private and non-governmental organisations have brought forward clean finance initiatives to facilitate a faster transition. These include the Financial Stability Board’s Task Force on Climate-related Financial Disclosures, the OECD’s Framework for SDG Aligned Finance and the UN’s Principles for Responsible Investment, among many others.  
• Mission Possible Partnership is promoting decarbonisation across the industrial value chain, with the Science-Based Targets initiative attempting similar goals for the private sector more generally.