The industrial sector is a critical engine of economic growth in emerging and developing economies. Industrial production is highly energy-intensive and fossil-based, making for one of the largest sources of carbon emissions. For instance, the industrial sector is responsible for nearly 30% of India’s greenhouse gas (GHG) emissions. The country’s high economic growth means that demand for industrial materials such as steel, and their related emissions, are expected to grow rapidly in the coming decades.

Decarbonization of industry is critical to achieving global climate goals and India’s target to reach net-zero emissions by 2070. This requires significant additional investment in low-carbon technologies and production assets, supporting infrastructure, and modernization of value chains. However, the country faces significant barriers to the decarbonization of industry. These challenges include the complexity of production processes and value chains, potentially locked-in investments in carbon-intensive assets, internationally competitive markets, the unviability of current low-carbon technologies, and high capital expenditure.

CPI’s most recent Global Landscape of Climate Finance shows that in 2021-22 global finance for mitigation activities in industry amounted to just USD 9 billion, and needs to increase dramatically for an industrial transition to net-zero emissions. CPI has also recommended specific policy instruments and enabling conditions required to drive climate-aligned private investment in the heavy-emitting steel and cement sectors in India.

This discussion paper builds on CPI’s earlier work, with a focus on the technologies, challenges, and current state of financing for the decarbonization of India’s iron and steel sectors, since this is the country’s largest GHG-emitting high-growth industrial sector and one of the most challenging to decarbonize. The paper also introduces a conceptual framework for enabling the financing of (sector-agnostic) low-carbon industrial activities at the industry level, as well as measures to stimulate the demand and supply of climate-aligned finance. Finally, it highlights financing and derisking mechanisms that can support low-carbon technologies in the iron and steel sector.

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