To Green the Industrial Sector, Countries Must Break Down Silos

The world's population is growing and urbanizing at a rate that will challenge our ability to reach net-zero emissions. As many countries pursue their development goals, demand for the industrial materials used to build infrastructure such as roads, buildings and bridges will increase as well. This demand for industrial products, like cement and steel, will also drive up the greenhouse gas emissions generated from production and transport.

The industrial sector currently accounts for more than a quarter of total global greenhouse gas emissions, with cement and steel production alone responsible for most of them. We must examine our options for reducing these emissions as we build new facilities, or we risk locking in emissions-intensive, highly polluting processes to satisfy the rising global demand for industrial products. We also need to consider pathways for existing facilities to replace or retrofit aging equipment or change their processes to deliver lower carbon products.

India's Ministry of Steel has projected that the country's steel production will almost double from 179 million tons (MT) in 2024 to 300 MT in 2030. Cement demand in countries across Africa is slated to experience a similarly dramatic increase of 77% by 2030. Meanwhile, in the United States, a delay in industrial decarbonization efforts means industry will overtake transportation and buildings as the country's largest emitting sector by next decade.

Some promising steps are starting to emerge. In the United States, the federal government announced a $6.3 billion investment in low-emission industrial demonstrations projects, selecting them from across industrial subsectors including decarbonizing cement and steel plants. The European Council has also signed off on new regulations to reduce emissions and boost efficiencies in industry.

However, like other forms of climate finance, the current level of global investments in industrial decarbonization is insufficient and needs to increase by a factor of three to five by 2030. While promising, these policy efforts do not address a critical issue when it comes to greening the industrial sector in a globalized world: Countries and companies cannot operate in silos. Without cross-border product standards alignment and international cooperation to help deliver new technologies, reaching net-zero targets could be delayed by decades. This would not only does this harms the climate, it also slows the ability for workers and businesses - especially those in lesser developed countries - to participate in a clean energy economy.

Why International Cooperation on Industrial Decarbonization Is Important

International collaboration is key to achieving climate goals within heavy industries because industrial products are often traded across borders to serve global value chains. Shared innovation and learning are also crucial for accelerating the deployment of decarbonization technologies as they become available. Collaboration can also bolster and revitalize domestic industries. Coordination on research and development could help deliver additional investments that upgrade manufacturing and deliver better products and services to industry.

Technologies like hydrogen electrolyzers, thermal heat batteries and efficient motors and heat pumps are maturing and becoming ready for mass adoption and widespread commercialization. As with past industrial innovation, at this stage of commercialization, businesses are interested in licensing technology to other countries, benefiting both the technology provider and the businesses in the new market.

In recent years, multiple international agencies have stressed the importance of cross-border collaboration and suggested avenues to improve coordination within industrial sectors.

The International Renewable Energy Agency's (IRENA) 2023 Breakthrough Agenda Report put forth specific recommendations for international coordination in heavy industrial sectors. They include:

• Harmonizing emissions standards and reporting and improving transparency on accounting methodologies for what counts as "green" or low emissions.
• Fostering dialogues at the intersection of trade and climate and encouraging green procurement policies to create demand for low-emissions industrial goods.
• Encouraging knowledge and technology transfer by coordinating research and development investments, creating public-private partnerships, sharing best practices and by learning from pilot and demonstration projects for scaling technologies.
• Creating matchmaking opportunities between countries and stakeholders on climate finance and technical assistance to derisk investment and reduce costs.
• Increasing representation of Asian, African and Latin American countries, which tend to be underrepresented in current international initiatives yet will see a rapid increase in demand for industrial materials as they continue to industrialize.

International Cooperation Is Starting to Take Shape

Fortunately, countries have started to recognize the need to cultivate more effective international cooperation for industrial decarbonization, And we have seen some encouraging signs.

Partnerships on Standards, Demand Creation and Knowledge Sharing

Forging partnerships to develop international green standards, share best practices, create demand for green products and create pathways for reducing costs of technology deployment can help spur a shift towards net-zero industries. One example is UNIDO's Industrial Deep Decarbonisation Initiative (IDDI), a coalition of nine countries working to encourage green public procurement for low-carbon industrial goods by setting globally harmonized standards and benchmarks. Similarly, the First Movers Coalition public-private partnership has brought together influential businesses to leverage collective purchasing power to help decarbonize industry, driving billions of dollars in annual commitments to source low-carbon products through advanced market commitments. And Leadership Group for Industry Transition (LeadIT), a partnership led by Sweden and India, has brought several countries and companies together to track decarbonization "roadmaps" in several of its member nations and to guide other countries in developing their own.

By leveraging knowledge exchange, peer learning and the collective influence of governments and businesses, these partnerships can be powerful tools. Harmonized standards with consistent methodologies for emissions reporting and benchmarking within these efforts are critical for ensuring that these partnerships and initiatives are complementary and do not send mixed signals to the market.

Technical and Financial Assistance Initiatives

Both policymakers and business leaders can play a role in technical and financial assistance, and build the capacity needed to successfully set industries up for decarbonization. The Climate Club, an intergovernmental forum launched at COP28, is a promising example of this type of effort. Led by the International Energy Agency (IEA) and the Organization for Economic Co-operation and Development (OECD), the Climate Club's work includes a Global Matchmaking Platform for its 42 country members to better access the technical and financial assistance needed to speed up industrial decarbonization.

Adopting models for financial and technical assistance from other sectors could also prove vital for accelerating industrial decarbonization, especially for countries in Asia and Africa where demand for industrial products is rapidly increasing. However, they should heed lessons from the challenges of arrangements such as Just Energy Transition Partnerships (JETPs). JETPs are finance packages that offer finance and support for technology transition and worker reskilling, but they have been criticized for not including enough concessional and grant funds and moving too slowly due to high administrative burdens.

Climate-Oriented Trade Agreements

International agreements at the intersection of climate and trade that focus on industrial goods have been receiving attention in recent years. One example of this type of agreement is the U.S.-EU Global Arrangement on Sustainable Steel and Aluminium (GASSA), a proposal to increase trade of green steel and aluminum between the two regions that includes a potential joint tariff on imports from regions with higher-emission products or those that contribute to oversupply. However, negotiations on this agreement stalled and are likely to remain dormant until 2025.

Climate-oriented trade agreements have the potential to promote trade of and demand for lower-emissions goods by setting green standards and benchmarks. But they come with many complexities, including concerns over alienating trade partners, protectionism and the risk of leaving uninvolved countries behind. As IRENA's Breakthrough Agenda report outlines, successfully decarbonizing sectors like steel requires more inclusive dialogues on trade and greater cooperation involving all countries that are major producers or importers of industrial products. These agreements should be equitable and inclusive by prioritizing support for trade partners in developing countries in an effort to decarbonize their industries through investments in climate finance, technical assistance and capacity building.

Translating First Steps into Ambitious Action

Recent partnerships and collaborative initiatives are first steps toward international collaboration in industrial decarbonization. Continued cooperation across countries will help foster innovation, boost economies, reduce the cost of decarbonization technologies and slash the green premium of low-carbon products. This kind of global coordination also stands to improve harmonization of green standards, improve transparency on emissions, encourage decarbonization across the supply chain and create demand low-carbon goods traded across international borders. Finally, but critically, it can provide essential support to countries striving to meet development goals and help encourage an equitable transition in the industrial sector.

Several elements are essential for this movement to succeed, however. We must ensure that technological collaboration leaves no country behind. Countries must also develop harmonized trade standards to create a level playing field for all. Finance and investment vehicles that bring significant resources, and appropriate terms for scaling industrial decarbonization, are also critical. International cooperation strategies should tap into the power of collective negotiation, and harness the influence of wealthy countries and business innovators, to make possible - and even speed up - what would be an arduous task for any individual nation, company or industry to do on its own.