Ways to decarbonise industry

Gbemi Oluleye, Research Fellow at Imperial College London, discusses the potential decarbonisation of industry.

Gbemi Oluleye

Associate Professor in Sustainable Market Mechanisms

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Gbemi Oluleye

Associate Professor in Sustainable Market Mechanisms

22 Jan 2022

Key Points

The industrial sector globally is responsible for 40% of anthropogenic or manmade greenhouse gas emissions. If we can eliminate carbon from the industrial sector worldwide, we’re taking care of 40% of CO2 emissions.
Material and energy efficiency, fuel and material switching, and carbon capture, utilisation and storage (CCUS) are the three main strategies to decarbonise industry.
Policies are a great way to increase adoption of technology, to decarbonise industry and to enable us to achieve these net-zero targets by 2050. But we also need new business models such as the circular economy or decarbonisation as a service.

What are carbon dioxide emissions?

Photo by Bas Meelker

Carbon dioxide emissions are produced from industrial processes and sometimes from industrial energy systems via the combustion of fossil fuels. Carbon dioxide emissions are greenhouse gases that are responsible for global warming. We need to get rid of carbon dioxide emissions and other greenhouse gases from industry.

That’s what we call decarbonisation: getting rid of carbon, getting rid of all greenhouse gases, so that we have no pollution from the industrial sector. Now, this is important to keep the rise in temperature at less than 1.5°C and to align with the Paris agreement. The industrial sector is considered a hard-to-update or a hard-to-decarbonise sector. And that’s because every industrial facility, every industrial plant, is different. There is no one-size-fits-all solution to decarbonise an industry.

Decarbonisation of the industrial sector is difficult, but it can be achieved. In fact, the industrial sector is on its way to becoming a zero polluter, getting to net-zero carbon. The question is when.

Three ways to decarbonise industry

There are a number of ways to decarbonise the industrial sector, which we can group into three major categories. The first, which is the least costly, and which has already started but we need to see more of it happening, is material and energy efficiency. Let’s use materials more efficiently so that we reduce demand for raw materials, reduce demand for energy and improve efficiency in the systems that process materials or supply energy. Material and energy efficiency can enable reductions in industrial CO₂ emissions by at least 30%. We can have a 30% reduction in CO₂ at a cheaper price.

The next strategy to decarbonise industry is switching to less carbon-intensive fuels – so switching away from fossil fuels and switching away from raw materials that have a high carbon content. Now, I call this “fuel and material switching”. It’s not as cheap as energy efficiency, but it’s something that we need to do if we want to have more aggressive or radical reduction in CO₂ emissions. So, moving away from natural gas, for example, to hydrogen or to biomass or to synthetic methane. It’s also moving to electricity that is produced from renewable energy sources.

The third thing to do to decarbonise industry is carbon capture, utilisation and storage (CCUS). This is necessary because some industrial processes can produce carbon as a by-product. Therefore, an increase in energy efficiency or switching fuels may not lead to a reduction in CO₂ from these types of processes, especially in the iron and steel sectors. In these cases, carbon capture, utilisation and storage is something that can be done.

A system of strategies and technologies

I’ve mentioned three broad categories. The question is: How do you combine these strategies to result in net-zero carbon for an industrial site? Usually people want to know which technology is the winner – there is no single winning technology. Decarbonising an industry will involve combining different strategies and technologies into a system.

If I take the example of an iron or steel plant, and you want to decarbonise the entire production, you probably need a combination of material and energy efficiency, fuel and material switching and CCUS to form a system. So, that shows how complicated it is to decarbonise industry because it will involve a number of technologies and strategies, and this will lead to increased cost.

Who pays for decarbonisation?

There are several challenges in decarbonising industries, besides the complexity of the solution. There is the cost of decarbonisation, the technologies that support fuel switching. For example, if you’re switching from internal combustion engines to fuel cells, you’re going to increase costs by at least 10 orders of magnitude. So, the first challenge to implementing this complex system is cost, and cost has a way of increasing the price of goods produced from industry.

For certain industries that sell their products directly to consumers, there could be a demand for clean products, and this could help them offset the cost. But think about the energy-intensive sector, like the production of basic chemicals and petrochemicals that we do not see, that we cannot buy in the supermarket. To whom do they pass on their costs? If they pass them on to smaller industries that buy these basic chemicals, we are going to see an increase in the cost of goods all around the system: in the price of metals, the price of basic chemicals, even the price of toothpaste. So, the question of cost still needs to be addressed. Cost has a way of seeping into industrial competitiveness. If the cost of goods increases, it’s likely that the competitiveness of a particular industry will be affected.

Why decarbonisation requires global effort

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Let me give you an example. The UK, where I’m based, has set a net-zero target by 2050. Not all countries in the world have set such aggressive targets. So, if I take a particular chemical manufacturer in the UK who is hard-pressed with this target and who needs to decarbonise by 2050, the cost of its chemicals for the rest of the world is going to go up. If you take a chemical manufacturer in another country, where there is no ambitious target to get to net-zero carbon, they will continue to produce as before with high CO₂, but the cost of their products will be cheaper. The chemical manufacturer based in the UK will lose some form of competitiveness, and there is a fear that such manufacturers might move to countries with less ambitious targets. So even if the UK reduces CO₂ emissions, globally, CO₂ emissions will remain the same or increase because industry will just move to another country.

To overcome these challenges, we will probably need a global effort or global policies to drive us towards net-zero carbon and alignment with the Paris agreement. The complexity of technical challenges can be overcome by thinking in terms of a system. A combination of technologies is going to be required. A combination of strategies is going to be required. The advantage of combining technologies and strategies is that this will result in design innovations that can help a particular industrial plant or industries located together in a cluster to benefit from economies of scale.

Overcoming the challenges of decarbonisation

We need more advanced design strategies to tackle the technical challenge. Another challenge is that some of these technologies have a low readiness level. Some of them are still in the research and design phase. Some of them have yet to be demonstrated on a large scale. And there is no time. 2050 is only 30 years away. The lifetime of a technology going from research and design to demonstration to commercialisation can take 30 years, but we do not have 30 years. One way to overcome that technical challenge of the low readiness levels of technologies is through some form of policy support, for example research grants to support research and development, demonstration grants to support demonstration of these technologies and some form of policy intervention to support commercialisation of these technologies.

Another challenge is cost. It’s expensive to decarbonise, but we need to decarbonise. One way to overcome the cost challenge is to have new business models that evolve with time. For example, one business model is that of the circular economy, which will reduce the cost of decarbonisation. Another business model is to offer decarbonisation as a service; this is possible if you have several industrial plants located in a cluster or a park, which is very common in industrialised nations. Most of the heavy industries are located together, making it possible to offer decarbonisation as a service. This means that there will be shared risk, shared costs and the benefits will be greater. So that’s one way to overcome the cost challenge: innovations in business models..

Why we need new business models

Photo by Chokniti Khongchum

Surprisingly, the fashion, telecommunications and electric vehicles industries have evolved their business models over time, but the energy-intensive industry has been using the same business models for years. It’s time for us to think about new business models that can support industrialisation. We’ve done research to show that changing the business model can reduce the cost of decarbonisation.

For example, it’s usual practice in industry to pay for technologies upfront. Imagine that you need to buy a fuel cell that generates heat and electricity in a more efficient way, in a cleaner way, because fuel cells can use hydrogen. The technology will have a lifetime of 15 or 20 years, but the normal practice is to pay for it today. All the expenses come in the first year. This is a traditional business model, where the mitigation costs of a fuel cell are very high.

A new business model would be to look at this technology and the benefits of fuel cell integration. If the fuel cell is more efficient than the business-as-usual technology, which is a combustion engine, your operational costs will be lower. So, the new business model would be to not pay upfront for this technology. Let’s see if the savings in operating costs can pay for the technology over its lifetime. That way, a huge cost does not need to be paid in the first year. It is spread throughout the lifetime of the technology and this spread can easily be offset by the reduction in operating costs that the technology gives. By implementing this business model for fuel cells in Europe, we discover that adoption of this technology today can increase to 20%, so 20% of a particular industrial sector can adopt this technology by just changing the business model.

Policy interventions to achieve net-zero targets

Policy interventions are great to support costs and to support the commercialisation of technologies, as well as business model innovation. Policies are a great way to increase adoption of technology, to decarbonise industry and to enable us to achieve these net-zero targets by 2050. The question is: how can we effectively implement a policy to support industrial decarbonisation? One way is to have policy interventions on technologies. I’ll use the fuel cell example again: you could have a tariff for the electricity generated from fuel cells.

But we know that to decarbonise industry, you need three broad categories of strategies: energy and material efficiency, fuel and material switching and CCUS. Each of these categories has a number of technologies that can be used. So, having policy interventions for technology might not work for industry. We might say, OK, let’s have policy interventions for a strategy such as fuel switching. We could also have policy interventions for a combination of strategies that any plan needs to get to net-zero carbon.

Another way is to have policy interventions on business models. This is something that would be novel, that is yet to be done. I strongly believe that policy interventions on business models – those that encourage or coerce a particular industrial sector or industrial cluster to develop a new business model – will go a long way into accelerating the transition to net-zero carbon in industry, because a business model is tied to a system, a strategy and technology. If you have policy interventions on a business model, you encourage the company to evolve. You also encourage them to integrate new technologies and you are directly accelerating that transition to net-zero carbon.

Why we need to achieve net-zero carbon

The industrial sector globally is responsible for 40% of anthropogenic or manmade greenhouse gas emissions. If we can eliminate carbon from the industrial sector worldwide, we’re taking care of 40% of CO2 emissions. Industries produce goods and services for all sectors, such as the power sector, the transport sector or the fashion industry. So, that means by taking care of this 40%, you’re also taking care of emissions from all the sectors that depend on the industrial sector. You ensure that these sectors that depend on the industrial sector are producing clean products because the industrial sector has been decarbonised.

In many countries, especially in carbonised nations, industry is responsible for a bulk of the employment – 50,000 jobs in the UK, for example. So, by decarbonising industry, there is potential to create new jobs and to secure the old jobs. If a country thinks, for example, that industry doesn’t contribute much and we’re just going to be strict about the ambitious targets and then industry moves, there will be a loss of jobs and it will affect the economy.

I firmly believe that it is possible to accelerate the transition to net-zero carbon in industry. And I believe that this can be done in a cost-effective way through innovative business models, with policy interventions in business models, thinking in terms of a system to do these things. We can do it by 2050. It’s not going to be easy. It’s going to be challenging because industry is very diverse. But it is something that can be done.