The long-term trajectory of industrial decarbonization is clear — toward net-zero greenhouse gas emissions — and the deadline is fairly clear — 2050-ish, depending on where you sit — but the path from here to there is filled with tough choices. In hard-to-abate industries like steel, cement, and chemicals, a degree of transformational technology change will be required; fuel substitution and facility retrofits won’t produce the drastic emissions reductions needed to approach net-zero.
The good news is that the technical risk is decreasing for key manufacturing technologies like e-crackers, electrowinning of iron, and electrochemical production of cement. Startups and innovative corporations are running pilot plants to validate the techno-economics of these novel systems. Yet, the performance and payoff of scaled-up transformational technologies are uncertain, and many industrial companies, even those involved in pilot projects, have been reluctant to commit to major investments. Last year, Rio Tinto passed up the chance to install inert anodes — a novel technology that its joint venture Elysis is commercializing — in its expansion of an aluminum smelter, instead choosing a more mature system.
As industrial leaders consider their factories with service life spans ending in the late 2020s, they face unenviable choices; there are good reasons to follow Rio Tinto’s lead and put off making big technology shifts. The most promising decarbonization approaches are not yet mature enough for full-scale plants — in many cases, pilot plants are just being built today, like Sublime Systems’ electrochemical low-carbon cement facility. The next stage of decarbonization may also require new skills and expertise that firms don’t have today — if your strategy for low-carbon cement is biological production, e.g., Biomason’s process, then you’ll need to turn to the pharmaceutical or food and beverage industry for biomanufacturing expertise. Decarbonization investments may result in net layoffs, which are politically challenging, as Tata Steel discovered in the U.K. Finally, there’s a real question of demand for low-carbon products and market willingness to pay a “green premium.” Government procurement incentives will help, but private sector signals are mostly limited to voluntary pledges like the First Movers Coalition. CEOs will renege on reputational commitments if they threaten profits.
Still, despite all these reasons to hesitate on transformational tech, it can be even riskier to double down on incumbent approaches and potentially be left with stranded assets. Do you want to build a conventional blast furnace with a 50-year life span in 2028? In countries with strong sustainability policies, that’s a losing bet. Companies must manage business and policy risks during this transitional period or else find themselves dangerously exposed. Fortunately, industrial retooling for decarbonization is on the agenda for the Lux Forum in Brussels on April 4, and we will address this strategic challenge in the depth it deserves. Register here to join us. Hope to see you there!