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Sustainability SeriesArticle18 May 2021

Hard-To-Abate Sectors and Emissions

The Toughest Nuts to Crack for a Net Zero Future
Progress towards a more sustainable global economy is already being made in many sectors, through actions such as the promotion of electric vehicles and recycling schemes, as well as an increased focus on energy efficiency in buildings.

The Toughest Nuts to Crack for a Net Zero Future

The COVID-19 pandemic has been noteworthy for so many negative things, but there was one temporary bright spot — global carbon emissions declined. With the sudden halt in industrial production and transportation coming to a standstill, cities saw noticeable declines in air pollution and the atmosphere benefitted from a decline in greenhouse gas emissions. Although these benefits were temporary and reversed once economic activity started to ramp up, it was encouraging to see that declines in emissions can actually happen.

Obviously shutting down major sectors of the economy for periods of time isn’t the long-term answer to reducing emissions. But seeing evidence that lowering emissions can lead to a decline in greenhouse gas concentrations — whether the decline is big or small — is important and has helped changed attitudes toward making the effort.

In our Citi GPS report Financing a Greener Planet, we noted that government focus on climate action is actually accelerating with stronger climate policies and net zero emissions targets being put in place. This increased focus on climate is occurring in parallel with a rise in corporate and individual focus. Stimulus packages in many countries are focusing on green infrastructure and technology investment that help the economy transition away from fossil fuels.

Progress towards a more sustainable global economy is already being made in a number of sectors, through actions such as the promotion of electric vehicles and recycling schemes, as well as an increased focus on energy efficiency in buildings. But not all sectors are created equal in terms of how easy it is to convert them to green. Certain sectors are harder to abate than others and it will take breakthroughs in technology, investment, and time to lower emissions.

In the report that follows, Citi’s Sustainable Finance team takes a detailed look at two hard-to-abate sectors — transport (road freight, aviation and shipping) and industry (cement and steel) — which need to be focused on to successfully meet net-zero emission commitments. Collectively, these sectors account for 25% of today’s global carbon emissions, but have the potential to rise by 50% through 2050 given growth expectations.

Although demand-side solutions can help, they’re not sufficient to drive emissions levels down towards zero. Instead, supply-side solutions need to be incorporated. The team identifies three such solutions — hydrogen, bioenergy, and carbon capture, utilization & storage (CCUS) — they believe can be the keys to ‘cracking the carbon nut’ in hard-to-abate sectors. There is a cost premium associated with each of these solutions, but as technology advances and supply is scaled up, costs should fall and demand should increase.

Identifying hard-to-abate sectors and the potential solutions to drive down emissions should help rally investment and accelerate capital deployment to fund the net zero transition. This won’t be easy, but it is doable — especially with coordinated efforts between governments, corporates and investors.

Click here to view the report in full.

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