IEA (2022), Achieving Net Zero Heavy Industry Sectors in G7 Members, IEA, Paris https://www.iea.org/reports/achieving-net-zero-heavy-industry-sectors-in-g7-members, License: CC BY 4.0
The G7’s economic heft, its leadership at the innovation frontier, and the international alliances the Group can kindle, mean that it can have a major impact on the rest of the world, as it has in the past. Efforts to accelerate the transition for the industry sector are no exception.
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 developed the 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.
By no later than the mid-2020s, G7 members should develop or update national industry sector roadmaps and plans in collaboration with industry stakeholders, providing a robust signal on the direction and pace of travel by developing clear targets and milestones. Plans should be backed by clear policies that align incentives and create a business case for innovative technologies and material efficiency strategies. There are many policies available in the toolbox proposed in this report that governments may use, including carbon pricing, regulations and finance. Plans and policies should account for the nature of industry investment cycles, such as through retrofit-ready policies that require any unabated capacity added or refurbished in the next few years to have the technical capacity and space requirements to integrate near zero emission technologies when they become available.
Within the next one to two years, G7 members should take decisions on funding for innovation and mitigating investment risks of demonstrating critical technologies. The objective is to collectively enable at least two or three full scale projects in different regions and configurations for each technology at demonstration or large prototype stage today, with a range of representative input material qualities. This should include at least two or three different near zero emission methods to produce both steel and cement. International collaboration in this area is important to speed up innovation cycles, and can increase the likelihood that near zero emission industrial production technologies will be ready for market deployment by the mid‐2020s. Once technologies are ready for deployment, continued international cooperation on technology co-development for first-of-a-kind projects will also be important.
Over the next three years, G7 members should formulate finance strategies for the deployment of near zero emission technologies at new and existing domestic industrial plants, as well as for supporting infrastructure (including for CO2 transport and storage, low emission hydrogen and electricity production and distribution, and improved end-of-life material collection, sorting and recycling). Various finance mechanisms could be used, such as direct grants, low-interest and concessional loans and blended finance instruments. In the case of shared supporting infrastructure, governments should consider an active role in planning and coordinating build out. Clear and widely accepted definitions (see below) should be used as a guide for access to finance, including for technology-neutral transition finance mechanisms, and such that by 2030 only production that is already near zero emission or has clearly demonstrated a pathway to soon become near zero emission is eligible for government finance. G7 members may also collectively contribute to international finance mechanisms and work to support the industry transition in emerging and developing economies through capacity building and technology co-development.
G7 members should develop policies ideally within the next three to four years that create demand for near zero emission materials production, designed taking into consideration each country’s own circumstances and the timeline for technological innovation. G7 members should consider the advantages of policies that guarantee long-term support for industry players establishing the first handful of commercial plants for each technology type; opportunities include, as examples, carbon contracts for difference, long-term public procurement contracts and advance market commitments. Policies should also be developed to support subsequent plants, such as sustainable or “green” public procurement policies or regulations requiring a growing minimum market share of near zero emission materials production. Clear and widely accepted definitions should be used to differentiate eligible material production under such policies, with higher and longer-term support for near zero emission production, and time-limited support for interim measures that deliver substantial improvements in emissions intensity.
G7 members should consider forming an international industry decarbonisation alliance in 2022. The alliance could build from the G7 International Decarbonisation Agenda, and three key transformations could mark the founding of the alliance: 1) a shift to include a comprehensive suite of concrete commitments, 2) opening the doors to members beyond the G7, and 3) housing the alliance within a permanent secretariat. An institutionalised alliance would help ensure continuity of efforts between changing G7 Presidencies in a way that prioritises the long-term decarbonisation goal. The alliance’s primary mission would be to raise ambition on the industry transition, through coordinating the implementation of comprehensive accelerating mechanisms and seeking for voluntary collective and national commitments. This would include helping coordinate member efforts within existing initiatives and ensuring its work plan is complementary. By working to increase ambition on the industry transition globally, such an alliance could be helpful in moving towards an increasingly level playing field for low and near zero emission industrial production.
Recognising the positive influence the Glasgow Breakthrough Agenda has had in establishing a sectoral focus on the steel industry in international climate dialogues – and specifically with respect to work defining near zero emission steel production – the IEA recommends that a similar approach be adopted for cement. This should be done using existing frameworks and secretariats, avoiding the potential for duplication and the need for additional layers of co-ordination.
International standards and accounting frameworks already exist or are under development for evaluating the emissions intensity of certain materials, both for production (e.g., ISO 14404, ISO DIS19694-3, ResponsibleSteel, Cement CO2 and Energy Protocol) and products (e.g. ISO 20915, Environmental Product Declarations). G7 members should agree on a common set of measurement standards and reporting frameworks to use for evaluating the emissions intensity of production for each material, addressing any gaps in these standards’ coverage or completeness. The fitness for purpose of these standards must be appraised with a view both to existing methods of production and to the innovative processes we hope to deploy at scale in the future. The creation of new measurement standards should be avoided unless none already exists for a particular material. Product standards for finished materials (e.g., steel rebar) and multi-material products (e.g., reinforced concrete) should use these harmonised material production standards as inputs. Ideally, all bulk materials under consideration should be covered by a single, consistent set of measurement protocols.
The thresholds for near zero emission production outlined in the report target levels of emissions intensity that are compatible with IEA scenarios that achieve net zero emissions from the global energy system, notably the IEA’s Net Zero Emissions by 2050 Scenario. Inherent features of the sectors that influence the emissions intensity of production in a given plant, portfolio or country are fundamental to the thresholds proposed. The threshold ranges for steel production are 50-400 kg of CO2 equivalent per tonne (kgCO2e/t) and 40-125 kgCO2e/t for cement production, with the precise threshold value depending on the amount of scrap use and the clinker-to-cement ratio respectively. The thresholds we propose are technology neutral and are not intended to imply a specific production pathway or exclude a specific strategy, denote a specific carbon content (e.g. “low carbon steel”) or entirely rule out any residual emissions (e.g. “net zero” or “zero” emission steel). The G7 should recognise the definitions proposed herein as a starting point this year, and establish processes to develop and extend them as needed.
There are several efforts underway to achieve substantial reductions in the emissions intensity of steel and cement production, but they do not currently reach a level that is compatible with an energy system at net zero emissions. Some of these measures will provide a stepping-stone to near zero, whereas some will form only a temporary solution. These interim measures deserve quantitative recognition, alongside – but distinct from – the recognition of near zero emission production, given they are ready, or closer to be ready, for market deployment, and the need to meaningfully cut CO2 emissions by 2030. The IEA therefore proposes a continuous scale of evaluation of "low emission production", with the quantity being proportional to the reduction in emissions intensity achieved. G7 members should recognise the key principles of the approach we propose this year, with the details of implementation being subject to international agreement and the consideration of individual country circumstances.
More work is needed to ensure continuity between definitions of near zero emission production – the focus of this report – and near zero emission products and projects. By the end of 2022, G7 countries should consolidate all work on the interoperability of thresholds, building on the work carried out in this report. We also recommend that the principles established in this work be applied to other bulk materials, taking account of their sectoral specificities. The IEA considers choice candidates for addressing next to be ammonia, methanol and aluminium.