Building a greener future: decarbonizing heavy industries for sustainable urbanization

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Between now and 2050, global steel demand is projected to rise by 30% and cement demand by 12 to 23%.

Thirty years from now the global population will approach 9.7 billiontwo-thirds of people will live in densely populated urban areas, and the planet will face an unprecedented building boom. Homes, hospitals, schools, offices, roads, and countless other structures will require more cement, steel, glass, and plastics than has ever been produced before. The industries that manufacture these essential building materials already account for a third of greenhouse gas emissions.  In the face of this projected demand, the only way to ensure a sustainable future -- particularly in emerging economies where 90% of the expansion will occur – is through deliberate collaboration between businesses, governments, and lenders to decarbonize heavy industry. 

Decarbonization of the building industry, however, will be challenging. Between now and 2050, global steel demand is projected to rise by 30% and cement demand by 12 to 23%. The manufacture of these crucial building materials requires extremely high temperatures and thus large amounts of fossil fuels. To make virgin steel, the first step is to break the chemical bond between iron and oxygen in a blast furnace at a temperature of 1000°C or hotter. To produce cement, the limestone must be heated in a kiln to around 1300°C. Currently, the primary way to achieve these extreme temperatures is by combusting fossil fuels—mostly coal, which emits large amounts of carbon dioxide. More CO2 is released later in the production cycles for steel and cement through process emissions, which are the result of chemical reactions in the manufacturing operation.

Given these conditions, it is paramount for economies today to support the growth and competitiveness of manufacturers that prioritize environmental sustainability, implement circular processes, practice social responsibility and good governance, and invest in the research and development needed to recast their industries into green engines for development. Manufacturing companies and investors are considering innovative technologies such as renewable fuels, carbon curing, and carbon capture and storage as routes for decarbonizing emissions. Rolling out such cutting-edge solutions at scale will require huge capital investments at attractive commercial terms. Technologies that are still in their infancy will need to gain wider acceptance. Circular processes, for example, could help decarbonize roughly 80% of total cement and concrete emissions by 2050, according to a recent McKinsey report. Additional research and development also will be needed to help heavy industry decarbonize, coupled with supportive ecosystems. If these conditions are met, however, the impact could be huge.

Various strategies can help drive change among companies, their customers, and investors. Governments and other stakeholders, including the International Finance Corporation (IFC), are working with the private sector on a range of such strategies to help manufacturers in heavy industries achieve greener production —and also realize financial savings and a competitive edge. This year IFC made €120 million available to Senegal's largest cement manufacturer, Sococim, to upgrade their facilities and become one of the world's lowest-emitting cement makers. This will also accelerate job creation and development in West Africa, where population growth, urbanization, and demand for new infrastructure is booming.

Sococim’s upgrades are a step in the right direction. But much more will be needed to meet the challenges. We need systemic changes at a magnitude not yet seen to get the building materials sector on track to achieve net zero emissions by 2050.  According to the International Energy Agency, direct CO2 intensity of cement production increased about 1.5% a year between 2015 and 2021 but will need to decline by 3% every year through 2030 to reach net zero. The same holds true for steel manufacturers, which have made some progress, but not enough. Our latest Sustainability Note on decarbonizing heavy industries lays out many of the challenges and possible routes for successful decarbonization.

Governments can drive innovation by offering tax breaks and subsidies to offset the costs and risks of decarbonization, and by devising balanced regulations, clean energy standards, and public-private investments in infrastructure that support reuse and recycling. Collaborations between local manufacturers, global brands, and value chain partners are also beginning to coalesce and yield decarbonization initiatives that are making an appreciable difference.  One such initiative is the Global Trade Supply Finance program – a collaboration among local suppliers, global brands, banks, and IFC -- that utilizes incentive financing to make supply chains more environmentally friendly and establish standards and certifications to institutionalize climate-friendly practices and fair labor environments. In the long run, decarbonization can improve operational efficiencies and burnish brand reputations as consumers and boardrooms are increasingly insistent on moving toward cleaner and greener products.

As today’s emerging economies grow more urban, industrialized, richer, and populous, there is an enormous opportunity to help them transition to a greener production future without inflicting the kind of environmental and climate damage we’ve seen in the past.

 

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Authors

Femi Akinrebiyo

IFC Manager of Global Manufacturing and Trade Supplier Finance

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