- Heavy industry accounts for around 30% of global emissions.
- The drive to decarbonize this sector is a challenge – but it also presents an enormous opportunity.
- Innovation in both technology and policy-making has a huge role to play in this transition.
- Here are five things that need to change to foster the conditions needed for that innovation to flourish.
From the car to the colour TV, disruptive ideas typically scale from 2-3% to over 80% market share within 10-15 years. Take renewable energy: in 2014, one year before the Paris Agreement was struck, electricity from solar and wind was only cheaper than new coal and gas plants in 1% of the world. Because of what we call ‘The Paris Effect’, solar and wind are now the cheapest form of new generation in countries covering over 70% of global GDP.
We hold two very different perspectives; one of us is an industrialist leading a company famous for making aero-engines, the other has spent her career working to tackle climate change. But we stand united in the belief that governmental resolve to achieve net-zero emissions by 2050 must be complemented by private sector action writ large – and that far from sounding the death knell for heavy industry, the climate transition is a golden opportunity to pursue the next growth agenda.
Succeeding on time is daunting, but achievable. The pandemic gave us a glimpse of the scale of transformation required. CO2 emissions fell at a steeper rate in 2020 than in any year since World War Two. This rate of reduction must now be repeated annually for the next 30 years, but not at the expense of lives and livelihoods. Can it be done? Yes – but every company, in every sector and geography will have to evolve to meet this imperative, alongside national governments.
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This will be most difficult for the highest-emitting sectors, and it is to these business leaders we turn to manage an effective ‘net’ in the transition to zero – one that is inclusive and just, enforces both radical cuts to polluting emissions and focuses on real and additional carbon removals well beyond offsetting.
Together, heavy industries account for around 30% of global emissions. In some, such as steel or cement, chemistry has made carbon part of the production process for centuries. In others, such as aviation, the physics of generating enough thrust to get 300 tonnes of metal in the air, and to keep it there safely for 8,000 nautical miles, has made fossil-based fuels difficult to dislodge.
But the climate crisis is forcing those vital industries to reimagine their future. Recent ground-breaking legal rulings and shareholder revolts have revealed a commercial threat even greater than disrupting a business model: not disrupting it fast enough.
At Rolls-Royce we find ourselves facing this conundrum: we make technologies that power planes, trains, ships and communities; parts of the global economy that are both critical to human development and amongst the hardest to decarbonize. We could seek to defy the inevitable shift to low-carbon solutions, playing at both the future and the past. Or we can decide to lead the climate revolution. We’ve chosen the latter and we’re not alone.
Thousands of companies have joined the UN's Race to Zero to align their entire value chain with achieving net zero by 2050 because it’s a future-proof strategy, and because no company can do this alone. We are on the cusp of the most significant opportunity business has or will see for generations. We need to work across value chains to ensure technology contributes to the shape of the global economy for the next century. To play its part, Rolls-Royce has committed three-quarters of our R&D spend to net-zero innovation to decarbonize transport, energy and the built environment.
Global aviation, amongst the sectors that suffered huge losses from the pandemic, needs a shot in the arm. It’s why next month Rolls-Royce will showcase the possibilities for technology, attempting to break the world speed record with the fastest all-electric plane.
As we work on economic recovery, the commercial imperative for prioritising net zero is even stronger. We know that protecting the climate will safeguard health and livelihoods, and so placing that objective at the core of strategy is exactly how businesses will attract the necessary talent to deliver innovation and growth in a low-carbon world.
This is a mindset shift, which many industrial leaders are already choosing: from viewing measures to curb climate change as a financial burden, to actively embracing the zero-carbon transition as a huge economic opportunity. Shareholders will be better served by those at the forefront of this transition. Analysis by the UN PRI of the world’s 1,000 most valuable companies finds climate-related policy could permanently wipe 43% off the value of the highest-polluting companies and add 33% value to the best performers.-
Technology is only one part of the equation. Policy is the other. We need innovation in both. To assist and accelerate industrialists as they deliver on their net-zero strategies, five things need to change.
What's the World Economic Forum doing about the transition to clean energy?
Moving to clean energy is key to combating climate change, yet in the past five years, the energy transition has stagnated.
Energy consumption and production contribute to two-thirds of global emissions, and 81% of the global energy system is still based on fossil fuels, the same percentage as 30 years ago. Plus, improvements in the energy intensity of the global economy (the amount of energy used per unit of economic activity) are slowing. In 2018 energy intensity improved by 1.2%, the slowest rate since 2010.
Effective policies, private-sector action and public-private cooperation are needed to create a more inclusive, sustainable, affordable and secure global energy system.
Benchmarking progress is essential to a successful transition. The World Economic Forum’s Energy Transition Index, which ranks 115 economies on how well they balance energy security and access with environmental sustainability and affordability, shows that the biggest challenge facing energy transition is the lack of readiness among the world’s largest emitters, including US, China, India and Russia. The 10 countries that score the highest in terms of readiness account for only 2.6% of global annual emissions.
To future-proof the global energy system, the Forum’s Shaping the Future of Energy and Materials Platform is working on initiatives including, Systemic Efficiency, Innovation and Clean Energy and the Global Battery Alliance to encourage and enable innovative energy investments, technologies and solutions.
Additionally, the Mission Possible Platform (MPP) is working to assemble public and private partners to further the industry transition to set heavy industry and mobility sectors on the pathway towards net-zero emissions. MPP is an initiative created by the World Economic Forum and the Energy Transitions Commission.
Is your organisation interested in working with the World Economic Forum? Find out more here.
First, we need global consistency between countries and regions to establish level playing fields which avoid the risk of carbon leakage.
Second, we need to tackle the natural removal of carbon already in the atmosphere, alongside radical reductions. This will require prioritising and incentivising investment in regenerating nature’s natural carbon sinks, protecting existing ecosystems and restoring those that have been degraded. But realistically, technological solutions that can abate or remove greenhouse gas emissions will also be needed, particularly for heavy industry. This conditionality can direct public financing to invest in de-risking the development and deployment of these technologies in the first instance.
Third, we need to incentivise efficient and circular practices across the entire end-to-end value chain, protecting biodiversity and nature, human health and social mobility, and economic growth, without negatively impacting developing economies.
Fourth, the transition is going to require a lot of finance – up to $100 trillion between now and 2050. We need that capital to be directed beyond companies which are green today to industries fundamental to the greening of the whole economy.
Finally, only a transition perceived as fair will be successful. In the aftermath of the pandemic, we need policies and investments that enable companies to contribute to inclusive growth and durable job creation. With exponential growth comes enormous opportunity – and our industrial heartlands must act now to secure a role in the net-zero carbon economy, or risk being left behind.
You can listen to Christiana and Warren in conversation about Rolls-Royce’s net zero ambitions here.