Industrial companies worldwide face the dual imperatives of achieving carbon neutrality and reducing costs. In our view, these imperatives need to be understood as one. Well-designed initiatives can simultaneously accomplish both objectives in a mutually reinforcing manner.
It is time to accelerate efforts. The industrial sector is directly responsible for almost 37% of global Scope 1 and 2 greenhouse gas emissions.
Many companies regard cost as an obstacle to curbing emissions, but ambitious decarbonization initiatives do not need to break the bank. Indeed, even companies that face the steepest obstacles to reaching net zero economically can find a lower-cost pathway to getting there. By pinpointing and fast-tracking levers that concurrently reduce carbon and costs, and combining emission reduction with operational efficiency initiatives, companies can generate savings to reinvest in less economical decarbonization initiatives. Some can even reach net zero emissions at net zero costs.
Almost all companies can apply a number of levers to abate emissions while reducing costs. The most relevant examples include:
Exhibit 1 shows the abatement curve of a chemical plant, highlighting that even hard-to-abate industries can implement decarbonization levers that also reduce costs. (For two case studies of how chemical companies can reduce their carbon footprint while enhancing their economic performance, see “A Middle Eastern Petrochemical Player” and “An Asia-Pacific Chemical Player.”)
Although opportunities vary, the same principle applies across all major materials and process industries. (See Exhibit 2.)
When implementing ambitious emission reduction programs, companies typically need to overcome three challenges.
The Technological Challenge. Many companies do not fully understand the lowest-cost combination of technologies required for net zero emissions. They have limited experience with designing and operating nonfossil heat generation and storage solutions with the lowest levelized cost of heat. In certain sectors, some technologies required for full decarbonization are not yet mature. Moreover, the availability and future costs of nonfossil energy carriers remain uncertain. Navigating these uncertainties requires strong technical expertise and broader knowledge of energy systems.
The Economic Challenge. When accelerating their efforts, many companies overemphasize the importance of decarbonizing their largest emission sources, usually heat generation. Although this approach might get them closer to, or even achieve, net zero, it usually will not do so at the lowest possible cost. Instead, companies should first maximize the yield from levers that are typically much smaller but more economically viable, especially those that can help fund the journey. At the same time, they should also maximize operational efficiency.
The Organizational Challenge. Achieving ambitious emission reduction targets economically is also an organizational challenge, especially for companies with multiple production locations. Companies need to gain transparency into asset performance and replacement cycles across a large plant network. They need to ensure that each plant identifies and implements the lowest-cost emission reduction pathway under its local conditions. And they need to create full transparency into capex requirements to enable optimal capital allocation throughout a network that may comprise dozens of individual facilities dispersed across many different countries.
By taking a structured approach to decarbonization programs, companies can deploy resources cost effectively and minimize the timeline for improvements. To lead the program, they should establish a dedicated decarbonization task force with technical expertise that can support individual plants in developing their net zero pathways. Moreover, teams need tools to support their efforts, such as an industry-specific database of abatement levers, including their cost and typical impact.
To adopt a structured approach, we recommend a three-step process:
Companies should also establish stronger decarbonization governance. This entails integrating decarbonization into plant performance reviews (including the KPI system, tracking, and reporting), establishing clear targets and responsibilities, and gaining top-management commitment. Incentives and clear communication are also essential to maintain the organization’s pace.
Regardless of their current stage in the decarbonization journey, company leaders should know, or be able to develop, the answer to each of the following questions:
For too many of these questions, a substantial number of companies cannot answer “yes.” By adopting a more systematic approach, they can raise their confidence in reaching their emissions targets and ensure that they do so more economically.