$13.5 Trillion Needed To Fast-track Decarbonisation Of Key Sectors, Says WEF

Transitioning to a more sustainable and carbon-neutral future will require $13.5 trillion in investments by 2050, particularly in the production, energy and transport sectors, a new World Economic Forum report said on Tuesday.

The report noted that major producing countries and regions such as India, China, the US, and EU have now committed to net-zero targets, making it imperative for businesses within their jurisdictions to align their operations and strategies with the evolving regulatory landscape.

However, complex and ever-changing policy regimes result in businesses allocating substantial resources towards compliance, impeding progress, and therefore establishing more consistent and stable regulatory frameworks with well-defined timelines is imperative for mitigating these risks, it said.

Taking stock of progress towards net-zero emissions for eight industries that emit 40 per cent of global greenhouse gas, the World Economic Forum Net-Zero Industry Tracker 2023 report said global funding and stronger policy incentives are needed to scale clean power, clean hydrogen and carbon capture around industrial clusters.

The eight industries analysed in the report, published in collaboration with Accenture, included steel, cement, aluminum, ammonia, oil and gas, aviation, shipping and trucking.

These industries depend on fossil fuels for 90 per cent of their energy demand and pose some of the most technological and capital-intensive decarbonization challenges.

While the pathway to net-zero in these sectors will differ based on unique sectoral and regional factors, investments in clean power, clean hydrogen and infrastructure for carbon capture, utilization and storage (CCUS) will be needed to accelerate industrial decarbonization across most sectors.

According to the report, the $13.5 trillion in investments is derived from average clean power generation costs of solar, off-shore and on-shore wind, nuclear and geothermal, electrolyzer costs for clean hydrogen and carbon transport, as well as storage costs.

Carbon pricing, tax subsidies, public procurement and the development of strong business cases can support in mobilizing necessary investments, said Geneva-based WEF, which describes itself as an international organisation for public-private cooperation committed to improving the state of the world.

However, raising capital for high-risk projects with unproven technologies could be challenging in the current macroeconomic environment.

Institutional investors and multilateral banks, therefore, can play an important role by providing access to low-cost capital linked to emissions targets; equally vital is adapting financial models to the needs of various industries and regions.

The report noted that in countries like India and China, national-level action plans and roadmaps for clean hydrogen have been adopted to encourage investments across the hydrogen value chain that aid large-scale industrial transformation.

Also, the G20 member countries have agreed to guiding principles that enable the production, consumption and global trade of clean hydrogen.

In the US and Europe, where internal combustion engine (ICE) trucks are substantially more expensive than in India and China, the upfront net capital investment required to achieve net-zero is 25-30 per cent more than continuing to use mostly diesel.

However, in India and China, where ICE trucks are cheaper, the incremental costs of zero emission trucks (ZETs) and their infrastructure are more significant.

It further said that America relies on secondary processes for 70 per cent of its steel production. Other major steel producing regions like India and the EU exhibit a more balanced distribution between primary and secondary steelmaking.

In India and the US, capital flows will need to address the maintenance of the existing electric arc furnace (EAF) asset base as capacity expansion will be limited by scrap availability.

The twin forces of urbanization and population growth are driving cement consumption in China (51 per cent of global demand) and India (9 per cent of global demand), which necessitates accelerated action to decarbonize the cement sector to mitigate the impacts of increased production, the WEF said.