We often take materials for granted. Steel, cement, chemicals, glass, and bricks form the physical reality of our civilization. We use them to build houses, schools, hospitals, offices, roads, and dykes to reduce the impact of natural disasters. But can we continue to rely on them when their production causes 34% of global CO2 emissions and global leaders pledge to reach net-zero emissions by around 2050? The answer is yes. According to a recent IDDRI and IDB report, we can transform the industry and cut costs, strengthen value chains, and reduce harmful pollution in the process. But getting there requires countries to identify the barriers that prevent industry decarbonization, and to lift them one by one.
Lowering emissions from light industry can make it healthier and eventually more competitive
The good news is that the technology to reduce emissions in the industry is basically available. Most “light” industries such as food processing and manufacturing work with moderate temperatures. All it takes to cook, pasteurize food, or create steam, is 150°C or less. Such temperatures can be achieved from electricity, using simple electric resistors, induction, heat pumps, and combined electric and solar technologies – all without emitting heat-trapping greenhouse gases in the atmosphere.
Electrifying light industry can mean reducing costs, especially if the electricity comes from modern renewables such as wind and solar – the cheapest source of energy ever available to humankind. Electrification can also bring local air quality improvements – which would be welcome given that more than 5 million people die early every year globally because of bad air quality. Last but not least, electrification can support the development of a domestic clean industry ecosystem, including clean electricity generation, storage, transmission, and advanced end-uses.
The bad news is that many factors prevent the rapid electrification of industry. In most countries, coal, oil, and fossil gas are sold for less than electricity. Renewable energy is the cheapest source, but electricity generation tends to rely on legacy investments, for which costs are passed on to industries, while fossil fuels are often tax-exempted, if not subsidized. Compounding matters, electrified solutions often require more upfront capital, which can be difficult to finance, especially for informal firms. Finally, information can be an issue. Electric technology still feels new, and many businesses simply do not know of it.
Governments can remove these barriers. Aligning price signals is key: electricity is the future, and fossil fuels are the past, therefore, governments should not tax the former and subsidize the latter. Financial incentives such as tax credits, investment subsidies, or low-interest loans can also incentivize technological upgrades and transformational innovation investments. Government emissions audits and information support programs can help small and medium sized businesses make informed decisions.
The solutions for heavy industry are also in sight
Heavy industry is another problem altogether. To produce iron, steel, cement, concrete, and chemicals, industrial firms currently need to use specific feedstocks that emit GHGs, and they often need to generate temperatures from several hundred to sixteen hundred degrees.
Green hydrogen, produced from electrolysis using clean electricity, is a promising solution. It can be used to produce chemicals such as fertilizers without emitting CO2. Hydrogen can also replace coal for iron ore reduction, while electric arc furnaces—currently used only for recycling—can combine high-quality iron scrap with new low-GHG primary iron produced with electricity. For concrete, technical solutions include changing its composition (to minimize cement use and substitute clinker) and, eventually, carbon capture and storage. For metals, recycling more is key, since recycling uses much less energy than extracting primary materials.
Decarbonizing heavy industry comes with benefits too. Green hydrogen for instance can help integrate renewable power in the grid: electrolysers can be used more when sunshine and wind provide more energy than what the rest of the economy needs, and scale back production if power production capacity struggles to meet demand.
But here too, there are barriers to adoption. Cement and concrete production and mixing are mainly done by small scale, often informal construction teams. Professionally made concrete can optimize aggregate sizing, minimize cement use, and tailor cementitious material substitutes to the application, all already commercial processes today.
Another key barrier is that technology is still new and expensive. This is true of green hydrogen production, direct reduction with hydrogen in metallurgy, and carbon capture for cement. Fortunately, innovation is moving quickly in countries like Chile. Given growing demands for materials, developing countries may be ideal candidates for the early rollout of these technologies.
What can governments do to decarbonize heavy industry? Building the infrastructure to make it easy to recycle is important, as well as for gathering and separating waste metals from electronics. Some countries can also participate in global industrial technology accelerator programs and potential commercial piloting sites, such as for producing fertilizers or iron from green hydrogen or deploying carbon capture and storage for cement.
Creating demand is also important: governments can update building codes to encourage cementitious material substitution, and regulations can be used to enforce professional cement and concrete production and mixing to the largest extent possible. Similarly, public procurement can favor greener materials, and, if possible, they can provide an incentive based on GHG intensity for very-low-emission materials.
All hands-on deck to achieve carbon-free prosperity
Latin America and the Caribbean can transition to a cleaner industry. Many other barriers prevent the uptake of better and cleaner practices in the industry, and similar things can be said about better energy, buildings, agriculture, transport, and waste management. Learn more by reading IDB’s report on 15 transformations toward net-zero prosperity.