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The challenge of reaching zero emissions in heavy industry

Heavy industries both facilitate and complicate the transition to a net-zero emissions energy system

Materials produced by three heavy industries – chemicals, steel and cement – play a critical role in our daily lives. Think of the steel used in the vehicles that move us around, petrochemicals for gloves and masks used in hospitals, the cement and concrete for the buildings we live and work in, among many other examples. An increasingly numerous and prosperous population has led to a multiplying of demand for these materials. Since the millennium, global demand for cement and steel has more than doubled, and the production of plastics – a key group of chemical sector products – has increased by more than 90%. As economies around the world continue to develop, so will the production and use of these materials.

Besides their critical role today, heavy industry sectors will provide many of the key inputs required for a sustainable transition of the energy sector. For example, in our Sustainable Development Scenario, steel demand for renewable power generation technologies such as wind turbines is nearly three times higher in 2070 than in our baseline projection. Plastics and cement are used for a variety of clean energy technologies and infrastructure, including electric vehicles, wind turbines and solar panels.

Producing these materials requires vast quantities of energy, around 2 300 Mtoe in 2019, roughly equivalent to the total primary energy demand of the United States. A wide range of fuels are used to generate heat, provide raw material inputs (so-called “feedstock” for petrochemicals), sustain chemical reactions (e.g. reduction agents in the iron and steel sector) and drive mechanical equipment. The range includes fossil fuels (1 900 Mtoe), electricity (250 Mtoe), and comparatively smaller amounts of bioenergy (30 Mtoe) and imported heat (85 Mtoe).

Direct CO2 emissions from selected heavy industry sectors, 2019

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Final energy demand of selected heavy industry sectors by fuel, 2019

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This fuel mix has serious implications for emissions. The steel and cement sectors each generate around 7% of total energy system CO2 emissions (including industrial process emissions), and the chemical sector a further 4%. Combined, these heavy industries are directly responsible for a similar quantity of emissions as that produced from all road transport, including trucks, cars and two/three wheelers. If these industries are to contribute to a sustainable future pathway for the energy system, their emissions must fall precipitously, despite an increase in demand for their outputs. In this article we explore the core challenges and opportunities for these sectors, based on our recently released detailed analysis of heavy industries in Energy Technology Perspectives 2020.

No sector can escape the need to dramatically reduce emissions in a pathway towards net-zero emissions for the energy system. The heavy industry sectors and long-distance transport modes are areas where emissions are particularly “hard to abate”. This is in large part because the technologies that will be relied upon to deliver deep reductions in emissions in these sectors are at comparatively early stages of development (large prototype and demonstration level today). This underscores the need for accelerating clean technology innovation in critical areas, an area which is explored in our ETP Special Report on Clean Energy Innovation  and accompanying Clean Energy Technology Guide.

Beyond this common factor, heavy industry faces several additional unique challenges when it comes to reaching zero emissions:

  1. Long-lived capital assets: Industrial plants tend to have long lifetimes: typically, 30-40 years for plants in heavy industries. Retiring them early to switch to alternative technologies would incur very large costs. As such, emissions from recently built plants can be considered “locked-in” unless options are available to retrofit or adapt them to reduce their emissions intensity.
  2. High-temperature heat requirements: Heavy industry requires high temperature heat for many of its processes, which today is almost exclusively provided by burning fossil fuels. For example, a steam cracker producing high-value chemicals requires temperatures close to 1 000°C or blast furnaces producing iron operate at temperatures even above 1 500°C. Generating high-temperature heat from electricity, especially on a large scale and for electrically non-conductive applications, is impractical and costly with today’s technologies; moreover, the availability of sustainable biomass puts a limit on its use as a substitute. Carbon capture utilisation and storage (CCUS) and hydrogen technologies offer means to provide high-temperature heat while eliminating most emissions, but, in most cases, industrial applications of these technologies are still at early stages of development.
  3. Process emissions: Several industrial processes result in emissions from chemical reactions that are inherent to today’s production processes. A key example is the CO2 that results from the calcination reaction that is necessary to produce clinker, the active ingredient in cement, and that constitutes around two-thirds of the direct emissions in the sector. Preventing these and several other sources of process emissions requires CCUS or fundamental shifts away from conventional production processes. In the latter case, this means moving to methods involving different raw materials with either limited availability (e.g. bioenergy) or involving processes that have limited market applicability or whose feasibility has not been proven (e.g. alternative binding agents to Portland cement clinker).
  4. Trade considerations: Many industrial products are traded in highly competitive global markets (e.g. steel, aluminium, primary chemicals). This makes it challenging for an individual producer or country to turn to the currently more expensive low-carbon production pathways in order to reduce emissions without being undercut on price. Thin profit margins also make it challenging to fund the large upfront investments that are likely to be required for near-zero emission technologies.

Emissions from all of today’s existing energy infrastructure – including in power generation, industry, transport and buildings – could reach 750 GtCO2 cumulatively over the next five decades, if operation continues under conditions typically seen today. The power and heavy industry sectors accounted for around 60% of annual emissions from existing infrastructure in 2019, with this proportion rising to nearly 100% in 2050 if nothing is done to address these assets. While coal power plants are the largest single contributor, the long lifetimes and young average age of heavy industry facilities are key factors that explain this rising share.

Steel and cement plants have typical lifetimes of around 40 years, while for primary chemical facilities the figure is around 30 years. Many individual plants are operated for much longer than this over multiple investment cycles. Rapid capacity additions in developing economies over the past two decades mean that the global fleet of heavy industry assets is young – 10 to 15 years on average. China, for example, accounts for nearly 60% of global capacity used to make iron from iron ore – the most energy-intensive step in primary steel production, with around eight-fold growth in its total steel production over the last two decades. It also accounts for just over half the world’s kiln capacity in cement production.

The chemicals sector has a more even distribution of capacity both regionally and in terms of age than the cement and steel industries. Most of the investment in methanol and high-value chemicals (HVC) capacity has taken place in regions with access to low-cost petrochemical feedstocks, particularly North America, the Middle East and China. Methanol and HVC plants are, on average, around ten years old. Ammonia output growth has been slower than that of HVC and methanol, with emerging economies generally adding these facilities early in their development, in step with agricultural development. Ammonia plants are on average 15 years old, and around 16 years old in China.

While typical lifetimes of existing assets in heavy industry sectors are 30-40 years, most plants undergo a refurbishment sooner than this. Twenty-five years is a typical investment cycle for major refurbishments, with a blast furnace re-lining being a good example as this refurbishment requires an investment of the same order of magnitude as building a new unit. The majority of plants in the three asset classes explored in the figures below will reach the end of their next investment cycle in the next 10-15 years. Aligning investment and innovation cycles in heavy industries could help to significantly reduce the residual emissions burden from existing assets in these sectors.

Age profile of global production capacity for the steel sector (blast furnaces and DRI furnaces)

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Age profile of global production capacity for the chemicals sector (ammonia, methanol and HVC production)

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Age profile of global production capacity for the cement sector (kilns)

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There are many technologies and strategies that are commercially available today that can play an important role in reducing emissions from heavy-industry sectors. These include technology performance improvements (including adopting the best available technologies), material efficiency (including a wide range of measures, such as improving designs of final products, reducing waste during manufacturing, extending product lifetimes, and product re-use), fuel switching (including to bioenergy), and the electrification of low- and medium-temperature heat.

But to achieve deep emissions reductions in heavy industry, innovation in current process technology is required. By 2070, technologies currently at the demonstration and prototype stage account for nearly half the annual emissions reductions in 2070 relative to baseline projections. Key examples of these pre-commercial technologies in the cement sector include the application of post-combustion and oxy-fuelling carbon capture to cement kilns (at demonstration and large prototype stages today, respectively), which tackle process emissions and energy-related emissions concurrently. In the chemicals sector, beyond various applications of carbon capture technologies, the use of electrolytic hydrogen as a feedstock for ammonia and methanol production is currently at demonstration stage. In steelmaking, the hydrogen-based direct reduced iron (DRI) (large prototype stage) and innovative smelting reduction processes (demonstration stage), play a critical role, alongside concepts for new-build and retrofit blast furnace carbon capture applications. The transition in the iron and steel sector is explored in more detail in our forthcoming Global Technology Roadmap on that sector.  

CCUS and hydrogen are therefore two critical technology families for achieving deep emissions reductions – whose applications in heavy industry are, in most cases, not yet commercially available. They account for over 50% of annual emissions reductions in heavy industry in 2070 in our modelling of a net-zero emissions energy system. The contribution of each of these technology families to achieve deep emissions reductions in key heavy industry sectors hinges on the particular challenges each of the sectors faces and their relative cost.1 In the chemical sector, both CCUS and electrolytic hydrogen-based routes are possible pathways; and local factors such as natural gas prices, the availability of low-cost electricity, and the public acceptability and technical feasibility of CCUS determine the most advantageous route in each regional context. In the steel sector, among the emerging low emission technologies, the innovative smelting reduction route coupled with CCUS appears to have a lower overall production cost in several regions than other comparable routes in terms of CO2 emission intensity. The economics of the gas-based DRI with CCUS and hydrogen-based DRI processes are particularly sensitive to the cost of gas and electricity, respectively.

In the cement sector, the use of clinker substitutes to reduce the clinker-to-cement ratio is already common practice, as it is generally less expensive than equipping a kiln with CCUS. However, these substitute constituent materials do not negate the need for clinker entirely, and their use is limited by availability (e.g. natural pozzolanas common in certain regions and not found in others). Near zero emissions cement can only be achieved by finding alternative binding materials, or by deploying CCUS. The use of alternative binding agents in cement is either less technologically advanced or has limitations for market applicability, leaving CCUS as the main practical deep emissions reduction option in the sector. 

Bringing all these technologies at demonstration and prototype stages to markets quickly is critical if the heavy industry sectors are to make their contribution to reaching a net-zero emissions energy system. Our Faster Innovation Case explores the implications of bringing forward the date at which net-zero emissions is reached by two decades, to 2050, through greater technology innovation. The time to market introduction for pre-commercial technologies would be reduced by almost 40% on average in the Faster Innovation Case compared to the Sustainable Development Scenario, on the basis that a single commercial demonstration would be enough to spur rapid market deployment.

Global CO2 emissions reductions in heavy industry by technology maturity level in the Sustainable Development Scenario relative to the Stated Policies Scenario, 2070

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Global CO2 emissions reductions in heavy industry by mitigation strategy in the Sustainable Development Scenario relative to the Stated Policies Scenario, 2070

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It is hard to see how the challenge of achieving deep emissions reductions in heavy industry can be overcome without a multi-faceted policy response and government support. While many components of the policy response that is needed are the same as, or similar to, those required for other sectors, some are unique, reflecting the specific nature of the challenges faced by heavy industries.

Establishing early-on a long-term, predictable policy signal will be particularly important for industry given the long lifetimes of many industry assets. International co-operation to ensure a level playing field is also paramount, in light of the global and competitive marketplaces in which most industries operate. Some examples of measures that can mitigate the impact on competitiveness stemming from regional asymmetries on the rollout of a transition towards zero emissions heavy industries include:

  1. Provisions in regulations (e.g. free allocation of permits in an emissions trading system)
  2. Sectoral agreements (e.g. formal international commitment to reduce emissions in a sector)
  3. CO2-based tariffs (e.g. carbon border adjustments)
  4. Consumption-based regulations (e.g. requirements on the CO2 footprint of materials going into cars and buildings)
  5. Demand support (e.g. carbon contracts for difference)

There may be challenges involved in adopting these types of measures. For example, CO2-based tariffs would need to be carefully designed to comply with international law, notably World Trade Organisation requirements. And policies based on the CO2 footprint of goods, like carbon border adjustments and consumption-based regulations, would require potentially complex systems for carbon tracking and certification. But with clever policy design and a co-operative approach among stakeholders, these challenges can surely be worked through. Complementary measures that enhance international cooperation, such as technology transfer and best practice sharing, could help strengthen the collective momentum for progress and smooth the pathway to a level playing field.

On top of the challenges posed to reducing emissions in heavy industry sectors discussed above, the current Covid-19 crisis has led to a considerable slowdown in industrial activity and threatens to divert attention away from the sustainable transition. But time is of the essence, especially in industry since long investment cycles mean that decisions made in the short-term could risk locking in emissions-intensive production for decades to come, and much innovation is still needed to bring near-zero emission industrial technologies to market. Opportunity can often be found in the midst of difficult situations. Recovery packages could be used to accelerate progress: direct support can help maintain or create jobs while being made contingent upon reducing emissions from production processes. Key targets for sustainable stimulus for industry include: incentives for energy efficiency; improving material recycling systems; and strengthening progress in developing and demonstrating innovative clean technologies.

References
  1. The future costs of CAPEX, OPEX, energy and raw material costs are all highly uncertain for all the emerging innovation technologies under consideration, so ranges are necessary to explore the key sensitivities. See chapter 4 in ETP-2020 for more details on cost-competitiveness analysis of near zero emission technologies in heavy industry.