There’s rising need for global co-operation to decarbonise industries

As the world witnesses the transition towards a low-carbon economy, resources and demand hubs have found new addresses. Hence, the need for international cooperation is becoming inevitable. 

There isn’t a single region or country that has adequate resources to achieve accelerated decarbonisation, which is the need of the hour. Whatever pathbreaking green or low-carbon initiatives are happening on the ground across the globe, they are the outcome of some form of collaboration or cooperation across the value chain. 

All sectors are parties to this growing need, but the industry sector, especially the hard-to-abate sectors, which are major greenhouse gas contributors and still have a large scope of emission reduction, especially needs decarbonisation and international cooperation can play a significant role in accelerating this. 

Major initiatives at COP28

At the 28th Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change  (UNFCCC) in Dubai, United Arab Emirates (UAE), several initiatives, alliances, partnerships and pledges have been forged and formed around industrial decarbonisation and international cooperation. 

The summit began on November 30, 2023 and on the very next day, December 1, 2023, a climate club was launched as an initiative aimed at building cooperation between countries in decarbonising the industrial sector. Germany and Chile were co-chairs of this launch and the club has already garnered membership from 36 countries. 

On December 5, two global initiatives — Partnership for Net Zero Industry and The Global Matchmaking Platform — were announced at COP28 as part of the new Climate Club.  Both initiatives aim to support developing countries in decarbonising their heavy-emitting sectors like steel and cement. Germany has committed to providing 23 million euros in seed funding for the two initiatives. 

On December 2, a series of initiatives were launched, which included the Global Decarbonization Accelerator (GDA). Under the GDA, the Industrial Transition Accelerator (ITA) was launched under the leadership of the COP28 Presidency, UNFCCC and Bloomberg Philanthropies. 

The purpose of this alliance was to increase global cooperation to rapidly scale the implementation and delivery of emission reduction projects in the industrial sector. The ITA is backed by $30 million in funding from Bloomberg Philanthropies.

Apart from the large global initiatives at COP, there are certain bilateral initiatives that were also announced. On December 1, 2023, Prime Minister Narendra Modi, in collaboration with his Swedish counterpart Ulf Kirstersson, launched the India-Sweden Industry Transition Partnership during the COP28 World Climate Action Summit. 

The initiative was introduced under the broader framework of Leadership Group for Industry Transition 2.0, taking a stride towards a sustainable and green industrial revolution. The inception of LeadIT happened  in 2019 and has grown into a collaboration of 18 countries and 20 industry-leading companies since then.

On the demand side, the Green Public Procurement Pledge was also announced at COP28 on December 5, 2023. This is part of the Industrial Deep Decarbonization Initiative by United Nations Industrial Development Organization focusing on creating demand for low and near zero steel, cement and concrete especially in the construction sector. 

Canada, Germany, the United States and the United Kingdom are signatories to this pledge and UAE has shown interest. 

This spree of global initiatives and partnerships at COP28 is a clear signal towards the rising focus on industrial decarbonisation to fight climate change and the significant role international cooperation has to play in this. 

Key areas requiring international co-operation

It is clear that all countries and regions would have their own demands, emission reduction trajectories and development pathways and it would be difficult to rally everyone around a rigid set of ideas or pathways. 

Although the various discussions happening at COP28 around these declarations on industrial decarbonisation and international cooperation have been highlighting certain areas in the sector that are key for international cooperation and have that window to facilitate an agreement amongst various countries. 

These key areas are:

Standards and methodologies: Steel, cement, aluminium, etc. are internationally tradable commodities. However, many other products across their value chain are traded across the globe. The problem arising in this area is the varying standards and methodologies used for measuring their carbon footprint and the quality of the product in different parts of the world. 

Therefore, there is a need to set globally acceptable standards and methodologies for carbon footprint and product quality. The launch of the Steel Standards Principles at COP28 is an effort towards this, but a lot more needs to be done. The emission reduction trajectories of different countries can have different timelines, but it’s important that the methodologies and standards used are under the same umbrella. 

Trade: Most of the industrial products are traded globally. To push decarbonisation , almost every country needs some form of import of alternate raw materials and alternate cleaner fuels. Trade partnerships will play a big role in facilitating the journey of decarbonisation across the world. 

One golden rule that should be followed in such partnerships is that none of them should be impartial or exploitative in nature. This is the era of equitable cooperation and not exploitation in any form. 

Demand Creation for Green Products: Another major area for international cooperation is generating demand for green products across the globe. The demand hubs are shifting globally and it is important to bring together the demand generating sectors in different regions and send out a strong collective signal to the markets. 

This will also send a positive signal to possible financiers about the low-carbon transition and increasing the possibility of generating premiums for green products. Global cooperation in this area will make the playfield for green products much bigger.

Knowledge and technology transfer: Almost all the low-carbon pilot projects are coming up in developed countries or with the support of developed countries. Technologies for decarbonisation are out there, but along with finance, a deep need for technology and knowledge transfer is there. 

Technologies without skilling the local workforce will never be sustainable. Also, there is a need for support to develop technology addressing particular regional challenges (especially with small- and medium-scale industries), which are at times a major source of emissions from a country like the huge coal-based direct reduced iron industry in India, which is currently responsible for more than half the emissions from the steel sector.

Finance: We all know that decarbonisation technologies exist; the issue is funding them. Currently, most of the finance flowing into the development of green technologies is public finance, usually in the form of government subsidies that are mostly available in developed countries because they can afford them. 

Hardly any concessional finance is flowing into the hard-to-abate sectors in developing countries. The question is how we can unlock low cost finance for developing countries through international cooperation that could help developing countries develop green technologies in their own regions that address their own regional challenges. 

Through cooperation, a lot needs to be done to reduce any perceived risks, bring down the cost of capital and reinvent the whole approach of financing entities and investors. 

Barriers in Cooperation 

Non-inclusive international trade and taxation systems: With the introduction of carbon taxes such as the Carbon Border Adjustment Mechanism and regulations such as the Inflation Reduction Act, which open up a range of heavy subsidies for industries in developed countries (which developing countries cannot afford), such policies are seen as violating the principles of equity and common but differentiated responsibilities. 

The issue of carbon leakage is important, but it is also essential that any trade and manufacturing policies not be unilateral in nature and be considerate of their impact on the entities attached to the value chain (especially developing countries). Such protectionist measures push back the idea of fair  and equitable multilateral trade; hence, the need to find a solution is there. 

Unclear decarbonisation pathways: To access the financing and support opportunities out there, it is essential that developing countries prepare and put out their decarbonisation plans for different sectors individually. There is no doubt that these plans should keep in mind the developmental needs of the country, but it is essential to prepare concrete plans and put them out to bring clarity to probable funding agencies and countries. 

It will strengthen developing countries’ demands and reduce perceived risks because the countries will know exactly where and when they want the funds to flow. A lot of developing countries are already doing it and more should join in. 

Cost of capital, complex financial systems and debt: As countries prepare to decarbonise their manufacturing industries, it is clear that large sums of money are required to bring in and operationalise green technologies, as well as the entirely new infrastructure required. 

The capital investment required for decarbonising this sector is very high and the cost to generate the capital is also very high, which makes things difficult. The complex financial systems are currently full of conditionalities, making it a nightmare for developing countries to access them. The existing debt in a lot of developing and least-developed countries adds to the burden. 

Lack of policy Support

A lot of developing countries have still not been able to put out the right kind of policy framework that is required to drive industrial decarbonisation domestically as well as to attract and facilitate any form of international finance. There is not much clarity around a lot of decarbonisation technologies in many developing countries, which is preventing investors from investing. 

Carbon capture, utilisation and storage in India is one such example; it’s in the decarbonisation plans of every industrial sector but is unable to attract much investment because of a lack of clarity in terms of the government’s policy around it and the lack of work done on it. 

Countries also need to develop an overarching industrial decarbonisation plan that aligns the various fragmented initiatives by different ministries and departments in a country and also sends out a strong signal across the world.