Decarbonizing Hard-to-Abate Sectors: Key Challenges and Pathways Forward

Bring hard-to-abate sectors to the solution

The world cannot achieve net zero without slashing emissions from hard-to-abate sectors. In 2022, emissions from the industry, which includes iron & steel, cement, and chemicals, accounted for 26% of global emissions. But since hydrocarbons are an essential component of these industrial materials, reducing emissions from these sectors is not easy. As participants at New York Climate Week have been advocating, we fully agree that hard-to-abate sectors need to be included in the energy transition ecosystem, where massive investment is needed to nurture low-carbon business models.

 

Global CO2 emissions contribution by sector (2022)

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Several common decarbonisation pathways are available for exploration. The first is raw material recycling. In the steel industry, companies have been making efforts to scrap and recycle steel, though the challenge lies in both an insufficient recycling rate and a lower quality of recycled steel. In the chemicals industry, companies have been developing a more advanced process where chemical molecules can be broken down again to feedstock levels to close the entire plastics supply chain loop.

Second, cement, steel, and chemicals companies can benefit from carbon capture and storage (CCS) technologies. However, CCS is not yet scaled up enough to be cost-competitive with fossil fuel options. What can help with the situation are increased government incentives (such as Section 45Q tax credits under the Inflation Reduction Act in the US), wider adoption of corporate internal prices of carbon, and the development of CCS hubs so that companies can take advantage of shared infrastructure and resources.

Third, hydrogen is becoming a promising technology. In steel production, hydrogen can be used to replace coal or natural gas when iron ore is processed into pure iron. For chemicals, hydrogen can be used as a combustion fuel during steam cracking or as a feedstock for synthetic products. The crucial point here is that the hydrogen needs to be green (produced using electrolyzers and renewable electricity) to have meaningful emissions reduction. Indeed, the emissions intensity of steel produced using electrolysed hydrogen, but coal-fired electricity, can be even higher than that of the traditional process.

Finally, companies can reduce emissions by using renewable electricity to heat furnaces in steel and chemical production. It is worth noting, nevertheless, that these processes can add tremendous electricity demand. This can then add pressure to land usage for renewables deployment, as well as the transmission lines needed to deliver electricity.

Decarbonising hard-to-abate sectors are difficult, but not impossible. And it certainly cannot be ignored, because these sectors provide us with materials key to modern society, including cars, airplanes, bridges, and buildings. A positive trend is that coalitions have been formed in these sectors to accelerate sustainability efforts, and industry-wide standards are being developed and refined to provide a better guidebook for companies