Tackling Industrial Emissions Through Climate Alignment

To make fundamental breakthroughs in addressing the causes of climate change, we need to dramatically shift the way we think and act on climate. To date, the world has primarily—and understandably—tackled the issue as a project of nations, leaving countries to formulate their action plans in silos, sometimes even in secrecy. But business doesn’t stop at the border, and neither do emissions.

India, China, and the United States may appear as individual entities in the climate dialogue, but their steel, chemicals, and cement industries have a lot in common. To go far enough fast enough, we need the Paris Agreement’s nationally determined contributions, but we also need an equally strong focus on cross-cutting industrial transformation. The bottom line is that we won’t solve the climate crisis without solving industry, but our current approach is not enough.

The Decisive Decade

It’s clear that if we are to have a future that avoids the worst-case climate scenarios while also being just and environmentally sustainable, and providing equitable access to opportunities for global citizens, we need to target net-zero emissions by 2050. But while 2050 sounds like it’s far away, we need to be on track for our 2050 goals by 2030. That means we only ten years (or nine and a half at this point) to drive past economic tipping points and cut emissions by half. Therefore, the 2020s have been referred to as “the decisive decade.”

For the last 30 years, the climate action community has worked tirelessly to develop solutions and advance action on climate change, and over that 30 years, it’s been very difficult to get the highest- emitting sectors in the world to join the fight. As a result, we have been operating from a base of misaligned ambition for emissions reductions in which there is little incentive for high-performing sectoral leaders to step into the fray and lead bottoms-up support for higher ambition. As a result, the tactics we are deploying today to address emissions remain top-down in nature and are often misaligned with the market-driven interests and incentives that steer day-to-day decision making within the emitting sectors.

There are a number of factors that make it difficult for high-emitting industrial sectors to change: strong intrinsic market forces encourage the status quo to de-risk investments in long-life assets; globalization of trade has enabled global competition and reduced the cost of consumption, but it has overwhelmed any market incentives for sustainable activities. And siloing capital in asset classes isolates the processes in dire need of investments in low-carbon technology.

The Importance of Climate Alignment

Dramatic change in these sectors is possible, but it requires engaging the real economy and working directly with the leaders in the most carbon-intensive sectors in a way that hasn’t been done before. In that spirit, the emerging concept of climate alignment is critical. Climate alignment focuses attention on the disciplined stewardship of the limited carbon budget we need to work within if we want to limit global warming to 1.5 degrees C.

A climate-aligned sector or company has specified a science-based transformation pathway to net zero emissions, the metrics needed to measure progress, and the range of stakeholder commitments from industry, finance, customers, suppliers, and governments needed to move down that pathway. It is a term that’s gained traction in the financial community where banks and investors are seeking to align near-term activities with technical and economic pathways that are needed to stay under the 1.5-degree target.

The Paris Agreement aimed to limit temperature increase to well below 2 degrees C and to pursue efforts to limit it to 1.5 degrees C. Yet today, five years after that agreement, 1.5 degrees is increasingly accepted in both policy and financial markets as the maximum warming allowable if we are to avoid the worst-case climate scenarios and the associated risks to global economies and development for billions of people. However, climate alignment is more than just a higher ambition approach—it is a different way of thinking about both the challenges and solutions to global GHG emissions reduction.

Climate alignment moves beyond abstract, top-down national targets that have little relevance to actors in the real economy. Instead, it focuses on the commitments and mechanisms for accountability across companies and stakeholders, with forward-looking 1.5-degree compatible emissions pathways characterized by both the magnitude of and timeline for emissions reduction to limit global warming to 1.5 degrees.

Climate alignment allows for better harmony between global emissions reduction targets and the people who control the actions and investment needed to achieve those reductions. Under a climate-aligned theory of change, a critical mass of leading stakeholders in a carbon-intensive industry aligns on an acceptable 1.5 degree compatible trajectory for sectoral emissions. That “climate-aligned” pathway and the associated emissions reduction milestones for 2030, 2040, and 2050 serve as a common guide for stakeholders in the real economy, including: corporate actors up and down sectoral value chains; investment and financial institutions with business and risk exposure in the sector; and national and local policymakers for whom the sectoral economy is significant.

This mutually agreed upon pathway serves to align the interests of the critical actors needed to drive emissions reduction, deepening commitment to progress, attracting investment capital into the transition, and developing strategic policy support to de-risk leadership in innovation and drive public-private stimulus for the transition. With this degree of alignment, we can accelerate action and bring better informed strategic solutions.

Going Further, Faster

To achieve climate alignment within high-emitting sectors, we must achieve consensus. That means building trust and starting to pull the rope in the same direction. Each sector must work together to identify a transformation pathway whereby technology and business model innovation can credibly drive to net-zero emissions in the next thirty years. But aligning with these pathways requires not only investing in new green technologies, it also requires a proactive plan for transitioning away from high-polluting, legacy assets while supporting the communities that depend on them.

This change won’t be easy, but it is, in fact, very possible. By working collaboratively with industry, finance, policy, and other key stakeholders, we can make sure we are moving forward in the same direction. By working together, change is possible, and we can do it in a way that benefits people, companies, and our environment.