The welder is welding steel plates
Industry Leaders Rally around Pathways for Decarbonization
We are in a race against time to decarbonize the global economy and preserve a stable, livable climate. Avoiding the worst outcomes of global warming will take an all-out effort by all of society—from policymakers to business leaders to civic institutions to the general public.
In the approach to COP26, the United Nations Climate Change Conference in Glasgow, a new set of decarbonization plans for steel, aviation, and shipping shows how these high-emitting industries can cut emissions in the next decade en route to net zero. Critically, the plans are backed by marquee names from the industries themselves, demonstrating that many companies are ready to act. And they are calling on world leaders at COP26 to take bold action that can help make these plans a reality.
The sector-specific announcements follow recent moves from companies within the aviation and shipping industries to step up their decarbonization targets.
“That momentum in the private sector makes me very optimistic,” said Faustine Delasalle, co-executive director of the Mission Possible Partnership (MPP). MPP, of which RMI is a founding partner, is an alliance that aims to unite industrial leaders, customers, financiers, and more behind aggressive decarbonization strategies. “It also constitutes a cry for help, I’d say, for policymakers pre-COP,” Delasalle added.
The Big Seven
Aviation, steel, and shipping are three of the seven “hardest to abate” industries that together account for some 30 percent of global greenhouse gas emissions. And MPP, which developed the decarbonization strategies, is now working on the other four high-emitting, hard-to-abate industries: cement, aluminum, trucking, and chemicals. All these industries tend to rely on high-heat processes or energy-dense fuels for which fossil-free alternatives are either immature or expensive.
But the names behind the new plans indicate a new level of climate ambition and resolve within heavy industries. The sectoral heavyweights endorsing the net-zero approach include ArcelorMittal, the world’s second-largest steel producer; Maersk, the world’s largest container shipping company; and 30 aviation industry leaders, from major carriers (United, Delta, KLM, Virgin Atlantic) to the aircraft manufacturer Airbus.
“The really good news is we can decarbonize steel,” said ArcelorMittal CEO Aditya Mittal, explaining that clean energy technologies already exist that could replace the fossil fuels currently used in steelmaking. “The issue,” he added, “is the cost of that energy.” Mittal noted that industries such as his will need government support as well as a “level playing field” so steelmakers that pursue decarbonization can continue to compete in the market. A global price on carbon or a border adjustment, similar to the proposed EU Carbon Border Adjustment Mechanism, could level the field of play.
Charting the Possibilities
Decarbonizing these industries will be neither easy nor cheap, but the change is both possible and urgently needed, said United Airlines CEO Scott Kirby. “We’ve got to start making investments today,” he said, noting that government support for low-carbon technologies such as sustainable aviation fuel (SAF) can provide certainty for demand and drive investment in those new technologies. Today, SAF accounts for less than 0.1 percent of global aviation fuel, a number that RMI and EDF’s Sustainable Aviation Buyers Alliance is working to increase by driving investment in SAF through a certification system.
Ultimately, ramping up SAF use and getting aviation to net zero by 2050, in line with global climate goals, will require annual investment of about $300 billion, the vast majority of which is needed in the fuel supply chain, according to the new MPP strategy document. Kirby sees government backing of these new technologies as key to accelerating progress, similar to how incentives for wind and solar have driven down the cost of renewables. “20 years ago, wind and solar were uneconomic,” Kirby said. “They couldn’t compete.” Today, they are the cheapest way to generate electricity in many places.
Huge deployments of renewables will be required to decarbonize the steel sector, according to the MPP net-zero strategy. The plans for steel call for a substantial increase in electricity demand for the energy-intensive industry as electric production methods increase and as “green hydrogen,” synthesized with renewable electricity, replaces coal in the steelmaking process. Altogether, the electricity demands for steel could increase 11–13 times beyond today’s levels, although that increase will be accompanied by a drastic reduction in the need for coal.
Commercializing and deploying low-carbon technologies for steel will require an additional $6 billion in investment per year. To date, financial institutions have not been well positioned to support the decarbonization of the steel sector. Recently, however, RMI’s Center for Climate-Aligned Finance brought together six leading lenders to the steel sector to form a united platform for proactively decarbonizing steel.
In shipping, financial institutions have already stepped up to participate in the decarbonization push. In 2019 the Poseidon Principles, with signatories now representing nearly 50 percent of global shipping finance, became the first framework for measuring and disclosing climate progress among financial institutions in a specific sector.
Much like aviation, shipping will also require a transformation of the fuel supply chain to transition the industry from heavy, energy-dense fuel oil to zero-carbon fuels. “We see two fuels as transport fuels of the future: green methanol and green ammonia,” said Rasmus Bach Nielsen, global head of fuel decarbonization for Trafigura. He noted that engine technology for those fuels is already advancing, but there remains a significant cost gap for green fuels, which can cost more than twice as much for an equivalent amount of energy. “Policymakers need to come and regulate so we can get a global price on carbon” and close that price gap, he added.
A Critical COP
Although challenges remain, the new industry-backed plans have brought together competitors in “radical collaboration,” as Delasalle put it, to demonstrate a new level of willingness and readiness from industry. As Bach Nielsen said of shipping, one of the big challenges has been that the industry “has not been able to agree on what it wanted and what it needed.” The new net-zero plans are a call to action for world leaders at COP26. “For the first time we have seen a political mandate for governments to go and act” to neutralize the cost of zero-carbon fuels, Bach Nielsen added.
“The MPP sector transition strategies provide a clear plan of attack to bring down emissions,” Delasalle said. “Now we must turn to implementing this plan. But policymakers need to do their part to drive investment at a bigger scale and faster pace.”