Decarbonisation in certain ‘hard-to-abate’ sectors, such as steel, aluminum and cement is difficult. These are carbon intensive industries that have few viable low emission alternatives as technology is still under development or is available at prohibitive costs
India has committed to become net-zero by 2070 at COP 26. Despite it having one of the lowest per-capita emissions, it is the third largest carbon emitting country. More than 75 percent of India’s districts are categorised as hot spots for extreme climate events. In recognition of this, policymakers are introducing more regulations to accelerate decarbonisation, compelling companies to focus on sustainability and decarbonising their manufacturing processes and supply chains.
Hard-to-abate sectors are carbon intensive
However, decarbonisation in certain ‘hard-to-abate’ sectors, such as steel, aluminum and cement is difficult. These are carbon intensive industries that have few viable low emission alternatives as technology is still under development or is available at prohibitive costs. Sectors such as steel and cement account for 11.4 percent and 7.9 percent of India’s emissions as of 2021.
Emerging Technologies for the hard to abate sectors are still seeking commercial viability
In the steel sector, 46 percent of the capacity in India is using the more energy intensive blast furnace basic oxygen furnace (BF-BOF) production process. This process emits approximately 2.3-2.6 TCO2 / tonne of crude steel, whereas the electric arc furnace (EAF) route using scrap steel emits 0.5 to 0.7 TCO2 / tonne of crude steel. The emerging technologies such as hydrogen fueled direct reduced iron (DRI), renewable energy powered EAF using scrap steel and carbon capture utilisation and storage have been identified for reducing emissions significantly for production of steel.
Hydrogen fueled DRI and CCUs are still in development phase and EAF requires recycled steel. In 2022, only 22 percent of the steel is manufactured from recycled and recovered steel. In the aluminum sector, where the smelting process of converting alumina to aluminum is the most carbon intensive process, technologies like inert anodes and mechanical vapor recompression are being evaluated to reduce carbon emissions. Furthermore, for the cement sector, where two thirds of the emissions come from the clinker manufacturing process there are currently no low emission alternatives, carbon capture, utilisation and storage (CCUS) technologies are still being evaluated.
Six Key Strategies to Expedite Sustainability Efforts:
Despite these challenges, there are multiple levers that such sectors can harness to drive their sustainability journey, until decarbonization technology reaches a mature stage.
Driving Energy Efficiency in the Manufacturing Process and Supply Chain Logistics
Manufacturing and operational processes can be optimized to reduce the amount of energy consumed. Japan’s NEDO has completed a demonstration energy optimization project for a state-owned steel plant in West Bengal. Energy optimization, and renewable energy alone can reduce emission intensity in the BF- BOF pathway by 26 percent in steel manufacturing. Furthermore, companies can drive energy efficiency in their upstream and downstream logistics by (a) looking for opportunities to use rail to replace road transportation, and (b) optimising transport routes and load balancing. These initiatives will simultaneously reduce costs and emissions.
Transitioning Thermal Power Usage to Renewable Power
India has the most cost competitive renewable energy power available under different frameworks including a round-the-clock (RTC) model. Recently, one of the largest steel manufacturers has entered into an agreement to develop 966 MW of captive renewable power under the RTC model. Companies can initially meet part of their power demand through renewable energy sources and once the power storage options become more viable, meet the entire demand with renewable energy.
Driving Product Circularity
Leading companies are investing in product circularity to drive resource usage efficiency and reduce costs. Furthermore, regulations such as the Carbon Border Adjusted Mechanism (CBAM), is encouraging companies exporting aluminum and steel to Europe to evaluate manufacturing of aluminum and steel using recycled scraps. In the case of aluminum, producing it from scrap requires only 5 percent of energy in comparison to energy needed for primary production of aluminum. Leading companies are developing new businesses to manufacture aluminum from recycled aluminum.
Implementing Supplier Sustainability Programs
Supply chain GHG emissions (Scope 3) for the steel industry and cement typically accounts for ~ 30 percent and ~18 percent, respectively. By working on the supply chain and focusing on decarbonising the critical suppliers by spend, companies can significantly reduce their Scope 3 emissions. Furthermore, by rolling out a mandatory supplier code of conduct and a comprehensive supplier sustainability program, companies are de-risking their supply chain and ascertaining, evaluating and proactively mitigating ESG risk permeating from its suppliers.
Integrating ESG into the Operational and Governance DNA
ESG reporting is here to stay. The BRSR guidelines cover environmental, social and governance reporting. As a result, companies will now have to integrate their ESG KPIs into their annual operating plan and establish robust governance and accountability structure for delivery on the ESG KPIs across all levels.
Evaluate the Physical and Transition Risk of Climate Change on Existing Operations, Adopt Mitigating Measures
In coming years, climate change will have an increasing impact on company operations. Physical risks and transition risk may have severe financial implications for a company such as direct damage to assets, indirect disruption in supply chain and changing regulations that would be applicable to the company and its suppliers Therefore, companies must proactively mitigate risks by understanding location specific climate risk evaluation for the company’s operation and pro-actively develop a view on the implications of the changing climate related regulations for the company and its suppliers.
It is imperative for companies to go beyond compliance and take efforts to lay down a foundation for a longer-term transformation to a decarbonized India.
(Santosh Kamath is the Managing Director of Energy Transition at Alvarez & Marsal and Aparna Doshi is the Senior Director at Alvarez & Marsal)