How industries and industrial products can become greener while companies and countries maintain, and even increase, competitiveness
The ninth Sustainable Development Goal advises countries to ‘build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation.’ Industry has historically been one of the most important pillars of economic and social development, but traditional resource-intensive and heavily polluting production is no longer sustainable in the face of the devastating impacts of climate change.
The unprecedented scale of global decarbonisation required to meet the 2 degree scenario outlined in Paris presents challenges, but also enormous opportunities for industries as they seek a greener path to production while remaining globally competitive.
And the good news is that recent practices in industrial innovation are able to demonstrate how industry could play a significant role in addressing climate change and supporting inclusive, sustainable development.
The Carbon Trust, working with CLASP, as part of a project funded by IFC, carried out research to examine effective policy and technology interventions that improve industrial operations. The research also explores ways that industrial products can become greener through public standards while companies and countries maintain, and even increase, competitiveness. The analysis and final conclusions have been published in a report with the objective of raising awareness among government leaders, policy makers, and multilateral institutions in the fields of energy, climate mitigation, and sustainable development.
The report - titled A Greener Path to Competitiveness - explores a number of key areas:
Level playing field - While new technologies can be important parts of industry’s efforts to address climate change, not all options are currently conducive to price competitiveness. Some technological interventions face numerous barriers to adoption, both in jurisdictions under environmental regulation and in those that are not. Given their potential to limit energy costs, implementing energy-efficient technologies and undertaking cost-effective process improvements across industrial manufacturing operations are in industries’ own interests. Various technological decarbonization interventions are already available to industrial managers. Complementary policies will encourage the scaling up of such initiatives and enhancing the outcomes.
Reducing energy costs - Basic energy efficiency interventions can reduce greenhouse gas emissions without damaging a company’s competitiveness. Best practice solutions already exist. For the most part they involve relatively easy retrofits and have quick paybacks. Overall, such interventions are conducive to price competitiveness and can be implemented without the need for stringent policy mechanisms such as a carbon tax or emission trading scheme.
Retrofitting existing equipment is essential to decarbonizing the industrial sector, as is integrating best available technologies when building new industrial facilities. However, installing new technologies alone does not automatically guarantee the largest emission reduction potential- operations and maintenance are crucial to realizing energy efficiencies.
Creating the business case - Complex interventions need additional policy actions if they are going to provide a net benefit to business. The implementation rates of low-carbon technology vary across sectors and regions. There has been good uptake in many Western production facilities, where companies seek to counteract high energy prices and adapt to carbon reduction policies. There is also good implementation across new builds in emerging economies, where companies seek to minimize operational costs from the outset. High energy and feedstock prices provide an incentive for at least partial adoption of low-carbon technologies, substitutes, and process improvements. However, with the low costs of traditional fossil fuels and commodities, the business case for low-carbon technology investment is sometimes difficult to make. In the absence of robust low carbon policy frameworks, such investment is unlikely to be prioritized as a means to improve competiveness unless these costs start to rise.
From a technology and operations perspective, the path to decreasing greenhouse gas (GHG) emissions while maintaining competitiveness is straightforward:
- Industry should focus on cost-effective energy efficiency options that can be deployed today with short payback periods, low transaction costs, and easy-to-access finance.
Key enablers include:
- Management/board buy-in on the need to decarbonize is critical. Improved valuation of non-economic benefits can assist in building the business case.
- Implementation support and awareness programs, for example, energy surveys, management systems and communication campaigns can be crucial.
- Industry, governments, and consumers should focus on enabling those technologies and interventions that are on the cusp of cost-effectiveness through regulation or procurement policies to signal the direction of demand for a low-carbon products. Making consumer demand visible can encourage solutions currently at the margin of viability.
Key enablers include:
- Specific economic incentives to see through the more complex energy efficiency interventions, for example, concessional energy efficiency finance to reduce payback periods
- Strong labeling schemes and building and construction codes, practices, and standards that support the implementation of novel solutions
- Additional light touch R&D demonstration support may be required to prove survivability and reliability to the market
- Strengthening collaboration and interaction between producers and consumers-there is the need to share visions and pathways for technology development and deployment
- An improved framework for fuel switching and increased recycling
- Governments should pursue framework policies such as removing distorting production subsidies or trade tariffs and putting a comprehensive price on carbon. They should also develop technology incentive programs for solutions that currently have a weak business case-for example, in the adoption of large-scale and capital-intensive carbon abatement technologies.
- Policies need to be designed to be conducive with private sector growth.
- Phase out country level energy subsidies as these impact competiveness and are especially detrimental to the implementation of low carbon interventions.
- Develop sector specific carbon reduction strategies. Without this, achieving carbon reduction targets will be expensive and potentially unattainable.
- Financial support for R&D investment in early stage products and process innovation can help companies overcome market barriers and increase manufacturers’ and consumers’ confidence in the technologies or resulting products.
Download the report: A Greener Path to Competitiveness (PDF)