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Decarbonizing industry will take time and money—but here’s how to get a head start

Unless industry can lower its emissions, the world will struggle to reach the GHG reduction targets. It won’t be easy, but there is a path forward.

Leads McKinsey’s Sustainability Practice globally, where he helps transform companies' product, service, and asset portfolios to capture the opportunities and mitigate the risks posed by climate change and other sustainability issues

Industry is facing a paradox: A global middle class expected to grow by 3 billion people over the next two decades will place increasing demand on industry to produce more commodities at cheaper prices. But constraints on key resources such as copper and zinc, as well as the realities of environmental degradation will present obstacles for industry to meet these demands.

Although industry produces about one-quarter of global GDP and employment, it also produces 28 percent of the world’s greenhouse gas emissions. This reality is tied up with mounting political pressure to mitigate global environmental degradation. The Paris Agreement of 2015 would require an 80 to 90 percent reduction in global greenhouse gas emissions to limit global warming to two degrees Celsius. These targets cannot be reached without decarbonizing industrial activities.

Decarbonizing industry will not be easy, especially among four sectors that contribute 45 percent of its carbon dioxide emissions: cement, steel, ammonia, and ethylene. The process demands reimagining production processes from scratch and redesigning existing sites with costly rebuilds or retrofits. Furthermore, companies that adopt low-carbon production processes will see a short- to mid-term increase in cost, ultimately placing them at an economic disadvantage in a competitive global commodities market.

That said, none of these reasons is a ground to delay action. We believe that starting now with the decarbonization of industry would lead to better outcomes for individual companies.

Decarbonizing these four major sectors will take a careful mix of strategies and technologies.

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In a recent report, we estimated the cost of decarbonizing these four sectors to be about $21 trillion through 2050, a figure that could be nearly halved in zero-carbon electricity prices continue to drop. In this article, we outline the most effective ways to decarbonize each of the four most environmentally significant industrial sectors.

  • Cement: Replacing fossil fuels with biomass to fire cement kilns is the most promising and cost-effective option for this commodity today, which requires only a modest retrofit of the kiln. In the future, cement may also rely on hydrogen or electricity to fire its kilns instead of biomass fuel—but this would require more extensive retrofits. Cement may also use carbon capture storage technologies to eventually abate any carbon produced from cement feedstock such as limestone. However, this approach can only be used in cement sites located near CCS facilities. More use of extenders, particularly natural pozzolans (pumice) to replace fly-ash or clinker would be possible in many regions.
  • Steel: The most achievable way to decarbonize the production of steel today is using charcoal instead of coal to produce steel using blast furnace-blast oxygen furnaces (BF-BOF), a process used to make more than 95 percent of the world’s virgin steel. Although charcoal is less efficient because it requires smaller furnaces, plants in Brazil have already found this process profitable. Processes using biomass “char” rather than charcoal could further boost the adoption.

Beyond that, some other nascent but promising innovations are being developed. For example, using hydrogen instead of natural gas to make direct reduced iron (DRI) and carbon capture storage to abate any emissions from conventional, coal-based plants will become important parts of steel’s decarbonization portfolio.

  • Ammonia: The 0.5 Gton of carbon dioxide produced by the ammonia sector every year is usually converted into urea, a common fertilizer. The problem is that carbon dioxide is almost immediately released back into the atmosphere when urea is used. To curb these emissions, ammonia producers could replace urea altogether with nitrate-based fertilizers produced from ammonia and no carbon dioxide. Alternately, ammonia companies can change the way they produce hydrogen, the first step in the ammonia production process, by using electrolysis instead of natural gas. Some additional innovative strategies include methane splitting and high-temperature electrolysis, but these methods are still in the research phase.
  • Ethylene: The production of ethylene, a base chemical used to make plastics, emits carbon dioxide when the fuels used to make it are heated during the steam cracking process. Recycling used plastics would not only lower the carbon emissions associated with ethylene production, but would lessen the demand for producing virgin ethylene in the first place. Furthermore, plastics manufacturers could use zero-carbon hydrogen or biomass to heat pyrolysis furnaces, a modification that would require minimal furnace design alterations. Eventually plastics could use electricity to heat furnaces, but this would require much more substantial alterations to furnace design.

The key to doing this right is advance planning coupled with timely action. Governments will play a role by providing decarbonization roadmaps paired with regulations and incentives that support a timely but reasonable decarbonization schedule.

Individual companies will also play a critical role by carefully reviewing their portfolio of assets to understand their access to CCS, biomass, zero-carbon electricity, or hydrogen. This review will allow companies to make careful and cost-sensitive decisions for their existing as well as yet-to-be developed facilities.

Read more in our report “How industry can move toward a low-carbon future.”

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