Industrial emission accounts for about one-third of all global anthropogenic CO2 emissions and are expected to grow rapidly, with major contribution from developing economies. In India, the industrial sector is the largest and fastest-growing energy end-use sector and is expected to be the single largest source of CO2 emissions by 2040. Decarbonization of industries is one of the most critical issues that needs to be addressed to achieve global climate ambition and India\u2019s target of net-zero emissions (NZE) by 2070.<\/p>\n\n\n\n
Steel and cement are the most consumed emission-intensive industrial materials, and India is the second largest producer of both these materials. Combined, they account for 15-20% of India\u2019s emissions, and in a business-as-usual scenario, emissions from these sectors are expected to increase three-fold by 2050. Massive efforts, even greater than those being employed to decarbonize the electricity sector, are needed to decouple industrial growth from emissions.<\/p>\n\n\n\n
Steel and cement are also regarded as \u2018hard-to-abate\u2019 sectors. The sectors have significant process-related emissions and are highly dependent on fossil fuels, primarily coal in India. In addition, these sectors are highly capital-intensive, have long investment and asset replacement cycles, and have a high cost of carbon mitigation. The Mission Possible Partnership estimates that commercialization and deployment of NZE compatible technologies in the steel sector alone would require about USD 10 billion in additional investments globally between 2030 and 20502. This excludes substantial investments required outside steel plants in supporting energy and technology-specific infrastructure. Different sources of capital \u2013 primarily from private sources that include companies, commercial banks, and institutional investors \u2013 would be needed to meet these investment needs.<\/p>\n\n\n\n
There are several levers available to decarbonize industrial sectors, including energy efficiency, fuel switching, process modifications, material circularity and substitution, and resource efficiency. As per sectoral roadmaps of most countries, low-carbon technologies like hydrogen and carbon capture will likely play a critical role in decarbonizing the primary production processes of industrial materials. While these technologies exist, most are currently under development, commercially unviable, and uncompetitive against conventional technologies. Therefore, while decarbonization of steel and cement may be technically possible, economic viability needs to be addressed to attract private investments that can enable the shift to low-carbon production.<\/p>\n\n\n\n
Transitioning these sectors would need coordinated action from the government, industry, and the financial sector. Well designed and targeted policy actions, and an enabling environment supported by effective regulation is needed to effectively address investment risks and barriers, and to create a level playing field between low-carbon and incumbent technologies. Public finance is required to support innovation and de-risk private investments. Financial sector innovation in instruments and services is needed to enable investments in innovative business models. Most importantly, early action in this decade is vital to indigenize breakthrough technologies and avoid carbon lock-in by diverting investments away from carbon intensive assets.<\/p>\n\n\n\n
Several studies have made recommendations on the policies and enabling environment (regulatory, market and financing conditions) required for industrial decarbonization. However, none have analyzed different interventions based on their potential impact on the risk-return profiles of investments and their significance in investment decisions, specifically in the context of breakthrough low-carbon technologies in a developing economy like India. This brief aims to cover this gap. It seeks to support policymakers in making informed decisions and prioritize actions that can drive climate-aligned private investments to bridge the financing gap for low-carbon development of industries in India.<\/strong><\/p>\n\n\n\n This policy brief covers the following:<\/p>\n\n\n\n \u2022 Methodology of the study KEY FINDINGS AND RECOMMENDATIONS<\/p>\n\n\n\n 1.<\/strong> Early actions are needed to align industrial sectors on low-carbon pathways in the longterm<\/strong><\/p>\n\n\n\n Several low-carbon technologies required to decarbonize the largest carbon emitting 2. Expand policy frameworks to drive decarbonization<\/strong> <\/p>\n\n\n\n India\u2019s existing industrial policy frameworks prioritize rapid growth, energy security and competitiveness. There are only a few instruments that promote decarbonization, which primarily focus on low-hanging levers (such as energy efficiency and renewable energy) and are insufficient to drive a low-carbon industrial transition. Well-designed policy frameworks that promote industrial decarbonization must include a mix of fiscal, financial, market-based, and regulatory interventions that target both the supply-side and the demand-side factors (see next point).<\/p>\n\n\n\n 3. Implement an effective policy-mix to unlock private investments in breakthrough low-carbon technologies for industrial decarbonization<\/strong> <\/p>\n\n\n\n Our analysis, substantiated by private sector stakeholders, suggests that the policy instruments expected to have the highest potential impact on directing private investments towards breakthrough technologies for low-carbon production of steel and cement are:<\/p>\n\n\n\n i. Internationally coordinated carbon pricing [Market-based, Supply-side] 4. Strengthen efforts to create well-functioning enabling environments<\/strong> <\/p>\n\n\n\n A functional enabling environment (suitable regulatory, market and financing conditions) would address investment barriers, improve the ease of doing business, and attract private investors. Our analysis, substantiated by private sector stakeholders, suggests that the enablers that have the highest perceived significance when deciding to invest in breakthrough technologies for low-carbon production of steel and cement are:<\/p>\n\n\n\n i. Supporting infrastructure that includes CO2 and hydrogen storage and transportation, RE
\u2022 Review of technologies and existing policies for decarbonizing steel and cement sectors in India
\u2022 Policies and enabling environment to drive private investments in breakthrough low-carbon technologies
\u2022 Conclusion and suggestions for future work<\/p>\n\n\n\n
industrial sectors in India – steel and cement \u2013 are currently commercially unviable and have a significant cost of abatement. A rapid increase in demand for these materials \u2013 expected to be 3-4-fold by 2050 \u2013 and long investment cycles, necessitates early actions by all stakeholder involved to ensure low-carbon capacity addition and avoid carbon lock-in. Markets alone cannot drive adoption of these technologies \u2013 effective policy frameworks and a functioning enabling environment built in coordination with the industry and the financial sector, is needed to effectively address investment risk-returns and unlock private sector investments into these breakthrough technologies.<\/p>\n\n\n\n
ii. Public funding for first-of-a-kind demonstration pilots [Fiscal, Supply-side]
iii. Viability gap funding as capital expenditure subsidies [Fiscal, Supply-side]
iv. Green public procurement of low-carbon materials [Fiscal, Demand-side]
v. Product embodied-carbon standards in end-use sectors [Regulatory, Demand-side]
vi. Interest subvention and\/or credit guarantees [Financial, Supply-side]<\/p>\n\n\n\n
generation, electricity networks, and industrial hubs
ii. Simplified, streamlined, and accelerated permitting procedures for production facilities as
well as supporting technologies
iii. Long-term contracts for the supply of raw materials (e.g., green hydrogen), and off-take of
by-products (e.g., captured CO2) and low-carbon materials (e.g., steel)
iv. Availability of concessional finance and risk mitigation instruments from international
sources that include DFIs, MDBs, and multi-lateral funds<\/p>\n\n\n\n