Editing IPCC:AR6/WGIII/Chapter-11 (section)

== 11.6 Policy Approaches and Strategies ==

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Industrial decarbonisation is technically possible on the mid-century horizon, but requires scale up of technology development and deployment, multi-institutional coordination, and sectoral and national industrial policies with detailed subsectoral and regional mitigation pathways and transparent monitoring and evaluation processes ( [[#Åhman--2017|Åhman et al. 2017]] ; [[#Wesseling--2017|Wesseling et al. 2017]] ; [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Rissman--2020|Rissman et al. 2020]] ; [[#Nilsson--2021|Nilsson et al. 2021]] ). Transitions of industrial systems entail innovations, plant and technology phase-outs, changes across and within existing value chains, new sectoral couplings, and large investments in enabling electricity, hydrogen, and other infrastructures. Low-carbon transitions are likely to be contested, non-linear and require a multi-level perspective policy approach that addresses a large spectrum of social, political, cultural and technical changes as well as accompanying phase-out policies, and involve a wide range of actors, including civil society groups, local authorities, labour unions and industry associations e( [[#Geels--2017|Geels et al. 2017]] ; [[#Rogge--2017|Rogge and Johnstone 2017]] ; [[#Yamada--2019|Yamada and Tanaka 2019]] ; [[#Koasidis--2020|Koasidis et al. 2020]] ). See also Cross-Chapter Box 12.

Deployment of the mitigation options presented in this chapter (Sections and 11.4) needs support from a mix of policy instruments including: GHG pricing coupled with border adjustments or other economic signals for trade-exposed industries; robust government support for research, development, and deployment; energy, material and emissions standards; recycling policies; sectoral technology roadmaps; market pull policies; and support for new infrastructure ( ) ( [[#Flanagan--2011|Flanagan et al. 2011]] ; [[#Rogge--2017|Rogge et al. 2017]] ; [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Tvinnereim--2018|Tvinnereim and Mehling 2018]] ; [[#Creutzig--2019|Creutzig 2019]] ; [[#Bataille--2020a|Bataille 2020a]] ; [[#Rissman--2020|Rissman et al. 2020]] ). The combination of the above will depend on specific sectoral market barriers, technology maturity, and local political and social acceptance ( [[#Hoppmann--2013|Hoppmann et al. 2013]] ; [[#Rogge--2016|Rogge and Reichardt 2016]] ). Industrial decarbonisation policies need to be innovative and definitive about net zero CO 2 emissions to trigger the level of investment needed for the profound changes in production, use and recycling of basic materials needed ( [[#Nilsson--2021|Nilsson et al. 2021]] ). Inclusive and transparent governance that assesses industry decarbonisation progress, monitors innovation and accountability, and provides regular recommendations for policy adjustments is also important for progressing ( [[#Mathy--2016|Mathy et al. 2016]] ; [[#Bataille--2020a|Bataille 2020a]] ).

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[[File:d64c4c374da8afec61110e040345a6c7 IPCC_AR6_WGIII_Figure_11_15.png]]

'''Figure 11.15 | Schematic figure showing the lifecycle of materials (green), mitigation options (light blue) and policy approach''' '''es (dark blue).'''

The level of policy experience and institutional capacity needed varies widely across the mitigation options. In many countries, energy efficiency is a well-established policy field with decades of experience from voluntary and negotiated agreements, regulations, standards, energy audits, and demand-side management (DSM) programmes (see AR5), but there are also many countries where the application of energy efficiency policy is absent or nascent (see AR5) ( [[#Tanaka--2011|Tanaka 2011]] ; [[#Fischedick--2014|Fischedick et al. 2014]] a; [[#García-Quevedo--2021|García-Quevedo and Jové-Llopis 2021]] ; [[#Saunders--2021|Saunders et al. 2021]] ). The application of DSM and load flexibility will also need to grow with electrification and renewable energy integration.

Materials efficiency and circular economy are not well understood from a policy perspective and were for a long time neglected in low-GHG industry roadmaps although they may represent significant potential ( [[#Allwood--2011|Allwood et al. 2011]] ; [[#Gonzalez%20Hernandez--2018b|Gonzalez Hernandez et al. 2018b]] ; [[#IEA--2019b|IEA 2019b]] , 2020a; [[#Calisto%20Friant--2021|Calisto Friant et al. 2021]] ; [[#Polverini--2021|Polverini 2021]] ). Material efficiency is also neglected in products design, architectural and civil engineering education, infrastructure and building codes, and urban planning ( [[IPCC:Wg3:Chapter:Chapter-5#5.6|Section 5.6]] ) ( [[#Braun--2018|Braun et al. 2018]] ; [[#Orr--2019|Orr et al. 2019]] ). For example, the overuse of steel and concrete in construction is well documented but policies or strategies (e.g., design guidelines or regulation) for improving the situation are lacking ( [[#Dunant--2018|Dunant et al. 2018]] ; [[#Shanks--2019|Shanks et al. 2019]] ). Various circular economy solutions are gaining interest from policymakers with examples such as regulations and economic incentives for repair and reuse, initiatives to reduce planned obsolescence, and setting targets for recycling. Barriers that policies need to address are often specific to the different material loops (e.g., copper contamination for steel and lack of technologies or poor economics for plastics).

There is also a growing interest from policymakers in electrification and fuel switching but the focus has been mainly on innovation and on developing technical production-side solutions rather than on creating markets for enabling demand for low-carbon products, although the concept of green public procurement is gaining traction. The situation is similar for CCU and CCS. Low-carbon technologies adoption represents an additional cost to producers, and this must be handled through fiscal incentives like tax benefits, GHG pricing, green subsidies, regulation and permit procedures. For example, the 45Q tax credit provides some incentives to reduce investor risk for CCS and attract private investment in the USA ( [[#Ochu--2021|Ochu and Friedmann 2021]] ).

Since industrial decarbonisation is only recently emerging as a policy field there is little international collaboration on facilitation (Oberthür et al. 2021). Given that most key materials markets are global and competitive, unless there is much greater global governance to contribute to the decarbonisation of GHG-intensive industry through intergovernmental and transnational institutions it is questionable that the world will achieve industry decarbonisation by 2050.

As GHG pricing, through GHG taxes or cap and trade schemes, has remained a central avenue for climate policy, this section begins with a review of how the industrial sector has been concerned with these instruments. The rest of the section is then structured into five key topics, following insights on key failures that policy must address to enable and support large-scale transformations as well as the need for complementary mixes of policies to achieve this goal ( [[#Weber--2012|Weber and Rohracher 2012]] ; [[#Rogge--2016|Rogge and Reichardt 2016]] ; [[#Grillitsch--2019|Grillitsch et al. 2019]] ). The section describes how the need to focus on long-term transitions rather than incremental changes can be managed through the planning and strategising of transition pathways; discusses the role of research, development, and innovation policy; highlights the need for enabling low-carbon demand and market creation; reflects on the necessity of establishing and maintaining a level of knowledge and capacity in the policy domain about the industrial transition challenge; and points to the critical importance of coherence across geographical and policy contexts. The section concludes with a reflection on how different groups of actors needs to take up different parts of the responsibility for mitigating climate change in the industrial sector.

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=== 11.6.1 GHG Prices and GHG Markets ===

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Internalising the cost of GHG emissions in consumer choices and producer investment decisions has been a major strategy promoted by economists and considered by policymakers to mitigate emissions cost-effectively and to incentivise low-GHG innovations in a purportedly technology neutral way ( [[#Stiglitz--2017|Stiglitz et al. 2017]] ; [[#Boyce--2018|Boyce 2018]] ). In the absence of a coordinated effort, individual countries, regions and cities have implemented carbon-pricing schemes. As of 23 August 2021, 64 carbon schemes have been implemented or are scheduled by law for implementation, covering 22.5% of global GHG emissions ( [[#World%20Bank--2020|World Bank 2020]] ), 35 of which are carbon taxes, primarily implemented on a national level and 29 of which are emissions trading schemes, spread across national and sub-national jurisdictions.

Assessments of pricing mechanisms show generally that they lead to reduced emissions, even in sectors that receive free allocation such as industry ( [[#Martin--2016|Martin et al. 2016]] ; [[#Haites--2018|Haites et al. 2018]] ; [[#Narassimhan--2018|Narassimhan et al. 2018]] ; [[#Metcalf--2019|Metcalf 2019]] ; [[#Bayer--2020|Bayer and Aklin 2020]] ). However, questions remain as to whether these schemes can bring emissions down fast enough to reach the Paris Agreement goals ( [[#Boyce--2018|Boyce 2018]] ; [[#Tvinnereim--2018|Tvinnereim and Mehling 2018]] ; [[#World%20Bank%20Group--2019|World Bank Group 2019]] ). Most carbon prices are well below the levels needed to motivate investments in high-cost options that are needed to reach net zero emissions ( [[#11.4.1.5|Section 11.4.1.5]] ). Among the 64 carbon-price schemes implemented worldwide today, only nine have carbon prices above USD40 ( [[#World%20Bank--2020|World Bank 2020]] ). These are all based in Europe and include EU Emissions Trading System (ETS) (above USD40 since March 2021), Switzerland ETS, and seven countries with carbon taxes. Furthermore, emissions-intensive and trade-exposed (EITE) industries are typically allowed exemptions and receive provisions that shelter them from any significant cost increase in virtually all pricing schemes ( [[#Haites--2018|Haites 2018]] ). These provisions have been allocated due to concerns about loss of competitiveness and carbon leakage which result from relocation and increased imports from jurisdictions with no, or weak, GHG emission regulations ( [[#Branger--2014a|Branger and Quirion 2014a]] ; [[#Branger--2014b|Branger and Quirion 2014b]] ; [[#Jakob--2021a|Jakob 2021a]] ). Embodied emissions in international trade accounts for one quarter of global CO 2 emissions in 2015 ( [[#Moran--2018|Moran et al. 2018]] ) and has increased significantly over the past few decades, representing a significant challenge to competitiveness related to climate policy. CBAM, or CBA are trade-based mechanisms designed to ‘equalise’ the carbon costs for domestic and foreign producers. They are increasingly being considered by policymakers to address carbon leakage and create a level playing field for products produced in jurisdiction with no, or lower, carbon price ( [[#Mehling--2019|Mehling et al. 2019]] ; [[#Markkanen--2021|Markkanen et al. 2021]] ). On 14 July 2021, the European Commission adopted a proposal for a CBAM that requires importers of aluminium, cement, iron and steel, electricity and fertiliser to buy certificates at the ETS price for the emissions embedded in the imported products ( [[#European%20Commission--2021|European Commission 2021]] ; [[#Mörsdorf--2021|Mörsdorf 2021]] ). CBAMs should be crafted very carefully, to meet technical and legal challenges ( [[#Jakob--2014|Jakob et al. 2014]] ; [[#Sakai--2016|Sakai and Barrett 2016]] ; [[#Rocchi--2018|Rocchi et al. 2018]] ; [[#Cosbey--2019|Cosbey et al. 2019]] ; [[#Joltreau--2019|Joltreau and Sommerfeld 2019]] ; [[#Pyrka--2020|Pyrka et al. 2020]] ). Technical challenges arise because estimating the price adjustment requires reliable data on the GHG content of products imported as well as a clear understanding of the climate policy implications from the countries of imports. Application of pricing tools in industry requires standardisation (benchmarking) of carbon-intensity assessments at products, installations, enterprises, countries, regions, and the global level. The limited number of existing benchmarking systems are not yet harmonised and thus not able to fulfill this function effectively. This limits the scope of products that can potentially be covered by CBAM-type policies ( [[#Bashmakov--2021a|Bashmakov et al. 2021a]] ).

Legal challenges arise because CBAM can be perceived as a protectionist measure violating the principle of non-discrimination under the regulations of the World Trade Organization (WTO). However the absence of GHG prices can also been perceived as a subsidy for fossil fuel-based production ( [[#Stiglitz--2006|Stiglitz 2006]] ; [[#Al%20Khourdajie--2020|Al Khourdajie and Finus 2020]] ; [[#Kuusi--2020|Kuusi et al. 2020]] ). Another argument supporting CBAM implementation is the possibility to induce low-GHG investment in non-regulated regions ( [[#Cosbey--2019|Cosbey et al. 2019]] ).

Thus far, California is the only jurisdiction that has implemented CBA tariffs applied on electricity imports from neighbouring states and provides insights on how a CBA can work in practice by using ‘default’ GHG emissions intensity benchmarks ( [[#Fowlie--2021|Fowlie et al. 2021]] ). CBAM is an approach likely to be applied first to a few selected energy-intensive industries that are at risk of carbon leakage, as the EU is considering. The implementation of CBA needs to balance applicability versus fairness of treatment. An option recently proposed is an individual adjustment mechanism to give companies exporting to the EU the option to demonstrate their actual carbon intensity ( [[#Mehling--2020|Mehling and Ritz 2020]] ). Any CBAMs will have to comply with multilaterally agreed rules under the WTO Agreements to be implemented.

The adoption of CBAM by different countries may evolve into the formation of a climate club where countries would align on specific elements of climate regulation (e.g., primary iron or clinker intensity) to facilitate implementation and incentivise countries to join ( [[#Nordhaus--2015|Nordhaus 2015]] ; [[#Hagen--2021|Hagen and Schneider 2021]] ; [[#Tagliapietra--2021a|Tagliapietra and Wolff 2021a]] ,b). However, not all countries have the same abilities to report, adapt and transition to low-carbon production. The implications of CBAMs on trade relationships should be considered to avoid country divide and separation from a common goal of global decarbonisation ( [[#Michaelowa--2019|Michaelowa et al. 2019]] ; [[#Kuusi--2020|Kuusi et al. 2020]] ; [[#Banerjee--2021|Banerjee 2021]] ; [[#Eicke--2021|Eicke et al. 2021]] ; [[#Bashmakov--2021|Bashmakov 2021]] ). The globalisation of markets and the fragmentation of supply chains complicates the assignment of responsibility for GHG emissions mitigations related to trade ( [[#Jakob--2021|Jakob et al. 2021]] ). Production-based carbon-price schemes minimise the incentives for downstream carbon abatement due to the imperfect pass through of carbon costs and therefore overlook demand-side solutions such as material efficiency ( [[#Skelton--2017|Skelton and Allwood 2017]] ; [[#Baker--2018|Baker 2018]] ). An alternative approach is to set the carbon pricing downstream on the consumption of carbon-intensive materials, whether they are imported or produced locally ( [[#Neuhoff--2015|Neuhoff et al. 2015]] , 2019; [[#Munnings--2019|Munnings et al. 2019]] ). However, implementation of consumption-based GHG pricing is also challenged by the need of product GHG traceability and enforcement transaction costs ( [[#Jakob--2014|Jakob et al. 2014]] ; [[#Munnings--2019|Munnings et al. 2019]] ). Hybrid approaches are also considered ( [[#Neuhoff--2015|Neuhoff et al. 2015]] ; [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Jakob--2021|Jakob et al. 2021]] ). The efficacy of GHG prices to achieve major industry decarbonisation has been challenged by additional real world implementation problems, such as highly regionally fragmented GHG markets ( [[#Boyce--2018|Boyce 2018]] ; [[#Tvinnereim--2018|Tvinnereim and Mehling 2018]] ) and the difficult social acceptance of price increases ( [[#Bailey--2012|Bailey et al. 2012]] ; [[#Raymond--2019|Raymond 2019]] ). The higher GHG prices likely needed to incentivise industry to adopt low-GHG solutions pose social equity issues and resistance ( [[#Grainger--2010|Grainger and Kolstad 2010]] ; [[#Bataille--2018b|Bataille et al. 2018b]] ; [[#Hourcade--2018|Hourcade et al. 2018]] ; [[#Huang--2019b|Huang et al. 2019b]] ; [[#Wang--2019|Wang et al. 2019]] ). GHG pricing is also associated with promoting mainly incremental low-cost options and not investments in radical technical change or the transformation of socio-technical systems (Grubb et al. 2014; [[#Vogt-Schilb--2018|Vogt-Schilb et al. 2018]] ; [[#Stiglitz--2019|Stiglitz 2019]] ; [[#Rosenbloom--2020|Rosenbloom et al. 2020]] ). Transparent and strategic management of cap-and-trade proceeds toward inclusive decarbonisation transition that support high abatement cost options can contribute toward easing these shortcomings ( [[#Carl--2016|Carl and Fedor 2016]] ; [[#Raymond--2019|Raymond 2019]] ). In California, Senate Bill 535 (De León, Statutes of 2012) require that at least a quarter of the proceeds go to projects that provide a benefit to disadvantaged communities ( [[#California%20Climate%20Investments--2020|California Climate Investments 2020]] ).

Clear and firm emission reduction caps towards 2050 are essential for sending strong signals to businesses. However, many researchers recognise that complementary policies must be developed to set current production and consumption patterns toward a path consistent with achieving the Paris Agreement goals as cap-and-trade or carbon taxes are not enough ( [[#Schmalensee--2017|Schmalensee and Stavins 2017]] ; [[#Vogt-Schilb--2017|Vogt-Schilb and Hallegatte 2017]] ; [[#Bataille--2018b|Bataille et al. 2018b]] ; [[#Kirchner--2019|Kirchner et al. 2019]] ). In this broader policy context, proceeds from pricing schemes can be used to support the deployment of options with near-term abatement costs that are too high to be incentivised by the prevailing carbon price, but which show substantial cost-reduction potential with scale and learning, and to ensure a just transition ( [[#Wang--2021|Wang and Lo 2021]] ).

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=== 11.6.2 Transition Pathways Planning and Strategies ===

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Decarbonising the industry sector requires transitioning how material and products are produced and used today to development pathways that include the strategies outlined in Sections 11.3 and [[#_idTextAnchor006|11.4]] and Figure 11.15. Such broad approaches require the development of transition planning that assesses the impacts of the different strategies and considers local conditions and social challenges that may result from conflicts with established practices and interests, with planning and strategies directly linked to these challenges.

Governments have traditionally used voluntary agreements or mandatory energy or emission reduction targets to achieve emission reduction for specific emission-intensive sectors (e.g., UK Climate Change Agreements; India Performance, Achieve and Trade scheme). Sector visions, roadmaps and pathways combined with a larger context of socio-economic goals, with clear objectives and policy direction, are needed for every industrial sector to achieve decarbonisation and at the time of writing they are emerging for some sectors. Grillitsch et al. (2019b) working from the socio-technical transitions literature, focuses on the need for maintaining ‘directionality’ for innovation (e.g., towards net zero transformation), the capacity for iterative technological and policy ‘experimentation’ and learning, ‘demand articulation’ (e.g., engagement of material efficiency and high value circularity), and ‘policy coordination’ as four main framing challenges. Wesseling et al. (2017b) bridges from the socio-technical transitions literature to a world more recognisable by executives and engineers, composed of structural components that include actors (e.g., firms, trade associations, government, research organisations, consumers, etc.), institutions (e.g., legal structures, norms, values and formal policies or regulations), technologies (e.g., facilities, infrastructure) and system interactions.

Several studies ( [[#Åhman--2017|Åhman et al. 2017]] ; [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Material%20Economics--2019|Material Economics 2019]] ; [[#Wyns--2019|Wyns et al. 2019]] ) offer detailed transition plans using roughly the same five overarching strategies: (i) policies to encourage material efficiency and high quality circularity; (ii) ‘supply push’ R&amp;D and early commercialisation as well as ‘demand pull’ to develop niche markets and help emerging technologies cross ‘the valley of death’; (iii) GHG pricing or regulations with competitiveness provisions to trigger innovation and systemic GHG reduction; (iv) long-run, low-cost finance mechanisms to enable investment and reduce risk; (v) infrastructure planning and construction (e.g. CO 2 transport and disposal, electricity and hydrogen transmission and storage), and institutional support (e.g., labour market training and transition support; electricity market reform). Wesseling et al. (2017b) and ( [[#Bataille--2018a|Bataille et al. 2018a]] ) further add a step to conduct ongoing stakeholder engagements, including stakeholders with effective ‘veto’ power (i.e., firms, unions, government, communities, indigenous groups), to share and gather information, educate, debate, and build consensus for a robust, politically resilient policy package. This engagement of stakeholders can also bring on new supply chain collaborations and bridge the cost pass-through challenge (e.g., the Swedish HYBRIT steel project, or the ELYSIS consortium, with plans to bring fully commercialised inert electrodes for bauxite electrolysis to market by 2024).

Detailed sectoral roadmaps that assess the technical, economic, social and political opportunities and provide a clear path to low-GHG development are needed to guide policy designs. For example, the German state of North Rhine Westphalia passed a Climate Process Law that resulted in the adoption of a Climate Protection Plan that set subsector targets through a transparent stakeholder engagement process based on scenario development and identification of low-GHG options ( [[#Lechtenböhmer--2015|Lechtenböhmer et al. 2015]] ), see Box 11.3. Another example is the UK set of Industrial Decarbonisation and Energy Efficiency Roadmaps to 2050 as well as the UK Strategic Growth Plan, which are accompanied by Action Plans for each energy-intensive subsector.

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=== Box 11.3 | IN4Cl imate NRW – Initiative for a Climate-friendly Industry in North Rhine-Westphalia (NRW) ===

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IN4Climate NRW (www.in4climate.nrw) was launched in September 2019 by the state government of North Rhine-Westphalia ( [[#IN4climate.NRW--2019|IN4climate.NRW 2019]] ) as a platform for collaboration between representatives from industry, science and politics. IN4climate.NRW offers a common space to develop innovative strategies for a carbon-neutral industrial sector, bringing together different perspectives and competencies.

North Rhine-Westphalia is Germany’s industrial heartland. Around 19% of North Rhine-Westphalia’s GHGs have their origin in the industry sector. Consequently, the sector bears a particular responsibility when it comes to climate protection, but the state is also a source of high-quality jobs and export value. The NRW government understands that the state’s current competitive advantage can only be maintained if the regional industry positions itself as a front runner for becoming GHG-neutral.

In working together across different branches (more than 30 companies representing mainly steel, cement, chemical, aluminium industry, refineries and energy utilities) and enabling a direct interaction between industry and government officials, IN4Climate provides a benefit to the participating companies. People from the different areas are working together in so-called innovation teams and underlying working groups with a self-organised process of setting their milestones and working schedule while reflecting long-term needs as well as short-term requirements based on political or societal discussions.

The innovation teams aim to identify and set concrete impulses for development and implementation of breakthrough technologies, specify necessary infrastructures (e.g., for hydrogen production, storage and transport) and appropriate policy settings (i.e., integrated state, national and European policy mix). They also include an attempt to create a discourse between the public and the industry sectors as a kind of sounding board for the early detection of barriers and obstacles.

Box 11.3

The initiative has been successful so far, for example, having developed a clear vision for a hydrogen strategy and an associated policy framework as well as a broader decarbonisation strategy for the whole sector. It is present at the national level as well as at the European level. Being successful and unique, IN4Climate is useful as a blueprint for other regions and is often visited by companies and administration staff from other German states.

It is particularly the so far missing intensive and dedicated cooperation across industrial subsectors that can be seen as a success factor. Facing substantial transformation needs associated with structural changes and infrastructure challenges, very often solutions can’t be provided and realised by a single sector but need cooperation and coordination. Even more, chicken-and-egg problems like the construction of new infrastructures (e.g., for hydrogen and CO 2 disposal) require cooperation and new modes of collaboration. IN4Climate provides the necessary link for this.

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=== 11.6.3 Technological Research, Development, and Innovation ===

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Policies for research, development, and innovation (RDI) for industry are present in most countries but it is only recently, and mainly in developed countries, that decarbonisation of emissions-intensive industries has been prioritised ( [[#Åhman--2017|Åhman et al. 2017]] ; [[#Nilsson--2021|Nilsson et al. 2021]] ). Emission-intensive industries are characterised by large dominant actors and mature process technologies with high fixed cost, long payback times and low profit margins on the primary production side of the value chain. Investments in RDI are commonly low and aimed at incremental improvements to processes and products ( [[#Wesseling--2017|Wesseling et al. 2017]] ).

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==== 11.6.3.1 Applied Research ====

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Investing in RDI for low-GHG process emissions is risky and uncompetitive in the absence of convincing climate policy. Research investment should be guided by assessing options, technology readiness levels, and roadmaps towards technology demonstration and commercialisation. The potential GHG and environmental implications need to be assessed early on to assess the sustainability implications and to direct research needs ( [[#Yao--2018|Yao and Masanet 2018]] ; [[#Zimmerman--2020|Zimmerman et al. 2020]] ). Strategic areas for RDI can be focused on a set of possible process options for producing basic materials using fossil-free energy and feedstock, or CCU and CCS (Sections [[#_idTextAnchor014|11.3.5]] and ). Policies to enhance RDI include public funding for applied research, technological and business model experimentation, pilot and demonstration projects, as well as support for education and training – which further have the positive side effect of leading to spill-overs and network effects through labour market mobility and collaboration ( [[#Nemet--2018|Nemet et al. 2018]] ). Innovative business models will not emerge if the transition is not considered along the full value chain with a focus on materials efficiency, circularity, and new roles for industry in a transitioning energy system, including possibly providing demand response for electricity through designed-in flexibility, for example, by combining electrolysis hydrogen production with substantial storage ( [[#Vogl--2018|Vogl et al. 2018]] ).

Fostering collaborative innovation across sectors through the support of knowledge sharing and capabilities building is important as mitigation options involve new or stronger sectoral couplings ( [[#Tönjes--2020|Tönjes et al. 2020]] ). One example is linking chemicals to forestry in the upscaling of forest bio-refineries, although it has proven to be difficult to engage a diverse group of actors in such collaborations ( [[#Karltorp--2012|Karltorp and Sandén 2012]] ; Bauer et al. 2018). Heterogeneous collaboration and knowledge exchange can be encouraged through conscious design of RDI programs and by supporting network initiatives involving diverse actor groups ( [[#Van%20Rijnsoever--2015|Van Rijnsoever et al. 2015]] ; [[#Söderholm--2019|Söderholm et al. 2019]] ).

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==== 11.6.3.2 Policy Support From Demonstration to Market ====

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Applied research is relatively inexpensive compared to piloting, demonstrations, and early commercialisation, and arguably a lot of it has already been done for the key technologies that need to climb the technology readiness ladder (see Table 11.3). This includes electricity and hydrogen-based processes, electro-thermal technologies, high-temperature heat pumps, catalysis, lightweight building construction, low embodied carbon construction materials, etc. Demonstration to market strategies can be particularly successful when the complete supply chain is considered. A prominent example of such an integrated supply chain approach is the UK Offshore Wind Accelerator Project. Coordinated by the UK Carbon Trust and working with wind turbine manufacturers, the project looked across the potential supply chain for floating offshore wind and identified what components manufacturers could innovate and produce by themselves, and where there were gaps beyond the capability of any one firm. This process led to several key areas of work where the government and firms could work together; once the concepts were piloted and proven, the firms went back into a competitive mode. The project illustrates the potential importance of third parties, including government, in creating platforms and opportunities for cross-industry exchange and collaboration ( [[#Tönjes--2020|Tönjes et al. 2020]] ).

Pilot and demonstration projects funded through public-private partnerships contributes to risk mitigation for industries and helps inform on the feasibility, performance, costs and environmental impacts of decarbonisation technologies. Most countries already maintain government research and deployment programs. For example, Horizon Europe has a total budget of 95.5 billion EUR (USD117 billion) for 2021–2027, of which 30% will be directed to green technology research. The EU has conducted several demonstration projects for emission-intensive industries, such as the Ultra-Low Carbon Steel (ULCOS) project ( [[#Abdul%20Quader--2016|Abdul Quader et al. 2016]] ), which led to several small-scale pilots that are now going to larger-scale firm pilots (e.g., HISARNA, HYBRIT and SIDERWIN). Supported by the EU, several cement firms are working together on the cement LEILAC project, where a new form of limestone calciner is being developed to concentrate the process CO 2 emerging from quicklime production (about 60% of cement emissions) for eventual utilisation or geological storage (as one of many options for cement, see for example, [[#Plaza--2020|Plaza et al. 2020]] ). If LEILAC works, it is conceivable that existing cement plants globally that are located near CCS opportunities could have their emissions reduced by 60% with one major retrofit of the kiln.

Once a technology has been demonstrated with scale-up potential, the next stage is commercialisation. This is a very expensive stage, where costs are not yet compensated by revenue (see, e.g., [[#Åhman--2018|Åhman et al. 2018]] and [[#Nemet--2018|Nemet et al. 2018]] ). The H-DRI, SIDERWIN and LEILAC examples are all at the stage of scaling up. Given the resource requirement, a diversified portfolio of investors and support is required to share the risk. LEILAC includes several firms, as did the UK Offshore Wind Accelerator. Government funds are also required and could be refunded in the future through an equity position, royalty or tax. Fast-growing economies, which are adding new industrial capacity, can provide opportunities to pilot, demonstrate and scale up new technologies, as shown by the rapid expansion of electric vehicle and solar panel production in China, which contributed to driving down costs ( [[#Nemet--2019|Nemet 2019]] ; [[#Hsieh--2020|Hsieh et al. 2020]] ; [[#Jackson--2021|Jackson et al. 2021]] ).

Finally, large capital flows towards deployment of low-GHG solutions will not materialise without a growing demand for low-carbon materials and products that allows business opportunities. Policy will thus be needed to support the first niche markets which are essential for refining new decarbonised technologies, troubleshooting, and for building manufacturing economies of scale. Market creation does however go beyond the nurturing, shielding, and empowerment of early niches ( [[#Smith--2012|Smith and Raven 2012]] ; [[#Raven--2016|Raven et al. 2016]] ) and must also consider how to significantly reshape existing markets to create space for decarbonised solutions and crowd out fossil-based ones ( [[#Mazzucato--2016|Mazzucato 2016]] ).

<div id="11.6.4" class="h2-container"></div>

<span id="market-pull"></span>
=== 11.6.4 Market Pull ===

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The perception of an increasing durable demand for low-GHG products induces manufacturers to invest in decarbonisation strategies ( [[#Olatunji--2019|Olatunji et al. 2019]] ). Policies can support and accelerate this process by creating niche markets, stimulating demand for low-carbon products through procurement and financing and by addressing informational and other market barriers.

<div id="11.6.4.1" class="h3-container"></div>

<span id="public-procurement"></span>
==== 11.6.4.1 Public Procurement ====

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Governments spend a large portion of their budget on the provision of products and material through infrastructure development, general equipment, and miscellaneous goods. The OECD estimates that an average of 30% of general government expenditure goes to public procurements in OECD countries, representing 12.6% of GDP, which makes government a powerful market actor ( [[#OECD--2021|OECD 2021]] ). Public procurement can therefore create a significant market pull and be used to pursue strategic environmental goals ( [[#Ghisetti--2017|Ghisetti 2017]] ). Local, regional and national authorities can use their purchasing power to create niche markets and to guarantee demand for low-GHG products and material ( [[#Wesseling--2018|Wesseling and Edquist 2018]] ; [[#Muslemani--2021|Muslemani et al. 2021]] ). In some cases, governments will have to adapt government procurement policies that are not well suited for the procurement of products and services that focus on the decarbonisation benefits and longer-term procurement commitments of emissions-reducing technologies and projects ( [[#Ghisetti--2017|Ghisetti 2017]] ). Implementation can be challenged by the complexity of criteria, the lack of credible information to check GHG intensities and the added time needed for selection ( [[#Geng--2008|Geng and Doberstein 2008]] ; [[#Testa--2012|Testa et al. 2012]] ; [[#Bratt--2013|Bratt et al. 2013]] ; [[#Zhu--2013|Zhu et al. 2013]] ; [[#Cheng--2018|Cheng et al. 2018]] ; [[#Liu--2019b|Liu et al. 2019b]] ). To ease these hurdles, the EU commission has developed environmental criteria that can be directly inserted in tender documents ( [[#Igarashi--2015|Igarashi et al. 2015]] ; [[#European%20Commission--2016|European Commission 2016]] ). These criteria are voluntary, and the extent of their application varies across public authorities ( [[#Michelsen--2009|Michelsen and de Boer 2009]] ; [[#Bratt--2013|Bratt et al. 2013]] ; [[#Testa--2016|Testa et al. 2016]] ). In the Netherlands, companies achieving a desirable certification level under the national CO 2 Performance Ladder obtain a competitive advantage in public procurement ( [[#Rietbergen--2013|Rietbergen and Blok 2013]] ; [[#Rietbergen--2015|Rietbergen et al. 2015]] ). Globally, many countries have implemented green product procurement or sustainable procurement following Sustainable Development Goal (SDG) 12 – ‘Responsible consumption and production’ ( [[#UNEP--2017|UNEP 2017]] ). Public procurement is also developing at sub-national levels. For example, the state of California in the United States of America passed the Buy Clean California Act (AB 262) that establishes maximum acceptable global warming potentials for eligible steel and glass construction materials for public procurement ( [[#USGBC-LA--2018|USGBC-LA 2018]] ) (Box 11.4).

<div id="Box 11.4 | Buy Clean" class="h2-container"></div>

<span id="box-11.4-buy-clean-california-act"></span>
=== Box 11.4 | Buy Clean California Act ===

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In October 2017, California passed Assembly Bill (AB) 262, the Buy Clean California Act, a new law requiring state-funded building projects to consider the global warming potential (GWP) of certain construction materials during procurement. The goal of AB 262 is to use California’s substantial purchasing power to buy low-carbon products. Such low-carbon public procurement will directly reduce emissions by using lower-carbon products, and indirectly by sending a market signal to manufacturers to reduce their emissions in order to stay competitive in California.

The bill requirements are two-pronged: as of January 2020, manufacturers of eligible materials must submit a facility-specific environmental product declaration (EPD), and the eligible materials must demonstrate (through submitted EPDs) GWP below the product-specific compliance limits defined by the state Department of General Services (DGS), which will regulate policy implementation. The eligible materials include structural steel, carbon steel rebar, flat glass, and mineral wool insulation. In January 2021, the DGS published maximum acceptable GWP limits for each product category set at the industry average of facility-specific GWP for each material. Beginning 1 July 2021, awarding authorities were required to verify GWP compliance for all eligible materials ( USGBC-LA 2 018; [[#DGS--2020|DGS 2020]] ) .

Prior to adoption of the Buy Clean California Act, the California Department of Transportation (Caltrans) had been evaluating the use of lifecycle assessment and EPDs in evaluating materials. In addition to the materials specified in Buy Clean California Act (noted above), the Caltrans project includes materials used extensively in transportation (concrete, asphalt, and aggregate). Also, the California High-Speed Rail project had begun using EPDs as part of its procurement process. The High-Speed Rail Sustainability Report states that the construction projects will: (i) require EPDs for construction materials including steel products and concrete mix designs, and (ii) require ‘optimized lifecycle scores for major materials’ and include additional strategies to reduce impacts across the life cycle of the project (Simone n et al. 2019) .

Several other states such as Washington, Minnesota, Oregon, Colorado, New York and New Jersey are developing similar types of Buy Clean regulations ( [[#Simonen--2019|Simonen et al. 2019]] ; [[#BGA--2020|BGA 2020]] ).

<div id="11.6.4.2" class="h3-container"></div>

<span id="private-procurement"></span>
==== 11.6.4.2 Private Procurement ====

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The number of companies producing sustainability reports has increased rapidly over the last decade ( [[#Jackson--2018|Jackson and Belkhir 2018]] ) and so has the number of pledges to carbon neutrality announced. This trend has mainly been driven by consumer concerns, investor requests, and as a business strategy to gain a competitive advantage ( [[#Higgins--2016|Higgins and Coffey 2016]] ; [[#Ibáñez-Forés--2016|Ibáñez-Forés et al. 2016]] ; [[#Koberg--2019|Koberg and Longoni 2019]] ). For example, Apple and the governments of Québec and Canada are the financier and lead market maker in the Elysis consortium to bring inert electrodes to market for bauxite smelting to make zero-GHG aluminium. Aluminium is a very small fraction of the cost of a laptop or smartphone, so even expensive low-emissions aluminium adds to Apple’s brand at very little cost per unit sold. Some countries are also requiring corporate to report their emissions. For example, the French government requires companies with 500 or more employees and financial institutions to report Corporate Social Responsibility (CSR) and disclose publicly Scope 1 (direct emissions), Scope 2 (indirect emissions from purchased electricity) and Scope 3 (emissions from supply chain impacts and consumer usage and end-of-life recycling practices) emissions ( [[#Mason--2016|Mason et al. 2016]] ).

The most common climate mitigation strategies used by corporates are to set emissions reduction targets in line with the Paris Agreement goals through science-based targets (SBTs) and to develop internal carbon pricing ( [[#Kuo--2021|Kuo and Chang 2021]] ). The SBT initiative records that 338 SBT companies reduced their emissions by 302 MtCO 2 -eq between 2015 and 2019 ( [[#SBTi--2021|SBTi 2021]] ). As of August 2021, 858 companies had set SBT and over 2000 companies across the world currently use internal carbon pricing with a median internal carbon price of USD25 per metric tonne of CO 2 -eq ( [[#Bartlett--2021|Bartlett et al. 2021]] ). The most determined companies have developed internal GHG abatement strategies that incorporate their supply chains’ emissions ( [[#Martí--2015|Martí et al. 2015]] ; [[#Gillingham--2017|Gillingham et al. 2017]] ; [[#Tost--2020|Tost et al. 2020]] ) and design procurement contracts that encourage or require their suppliers to also improve their product GHG footprint ( [[#Liu--2019a|Liu et al. 2019a]] ). For many corporations, the emissions impact within their supply chain far exceeds their operations direct emissions ( [[#CDP--2019|CDP 2019]] ). Therefore, the opportunities to reduce emissions through purchasing goods and services from the supply chain (Scope 3) have much greater potentials than from direct emissions.

However, these trends have to be approached with caution as some of the emissions reductions are not direct emissions reductions from companies’ operations, instead often from offset projects of varying quality ( [[#Chrobak--2021|Chrobak 2021]] ). There is a lack of consistency and comparability in the way firms are reporting emissions, which limits the possibilities to assess companies’ actual ambition and progress ( [[#Sullivan--2012|Sullivan and Gouldson 2012]] ; [[#Burritt--2014|Burritt and Schaltegger 2014]] ; [[#Liu--2015|Liu et al. 2015]] ; [[#Rietbergen--2015|Rietbergen et al. 2015]] ; Blanco et al. 2016). More research is needed to assess the current impacts of corporate voluntary climate actions and if these efforts meet the Paris Agreement’s goals ( [[#Rietbergen--2015|Rietbergen et al. 2015]] ; [[#Wang--2018|Wang and Sueyoshi 2018]] ). It will be critically important that the international corporate accounting frameworks, standards, and related guidance (e.g., GHG Protocol) be maintained and improved to reflect evolving needs in the global market and to allow for comparison of objectives and progress.

<div id="11.6.4.3" class="h3-container"></div>

<span id="ghg-content-certifications"></span>
==== 11.6.4.3 GHG Content Certifications ====

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The development of GHG labels corresponds to a growing demand from consumers desiring information about the climate impacts of their consumption ( [[#Darnall--2012|Darnall et al. 2012]] ; [[#Tan--2014|Tan et al. 2014]] ; [[#Feucht--2018|Feucht and Zander 2018]] ). GHG labels fill this information gap by empowering consumers’ purchasing decisions and creating higher value for low-GHG products and materials ( [[#Vanclay--2011|Vanclay et al. 2011]] ; [[#Cohen--2012|Cohen and Vandenbergh 2012]] ). The willingness to pay for lower-GHG products has been found to be positive but to depend on socio-economic consumer characteristics, cultural preferences and the product considered ( [[#Shuai--2014|Shuai et al. 2014]] ; [[#de-Magistris--2016|de-Magistris and Gracia 2016]] ; [[#Tait--2016|Tait et al. 2016]] ; Li et al. 2017; [[#Feucht--2018|Feucht and Zander 2018]] ). Companies and governments that favour low-GHG products and who are seeking to achieve environmental, social, and governance (ESG) goals also need readily available and reliable information about the GHG content of products and materials they purchase and produce ( [[#Long--2016|Long and Young 2016]] ; [[#Munasinghe--2016|Munasinghe et al. 2016]] ).

Numerous methodologies have been developed by public and private organisations to meet the needs for credible and comparable environmental metrics at the product and organisation levels. Most follow lifecycle assessment standards as described in ISO 14040 and ISO 14044, ISO 14067 for climate change footprint only and ISO 14025 (2006) for environmental product declarations (EPD), but the way system boundaries are applied in practice varies ( [[#Wu--2014|Wu et al. 2014]] ; [[#Liu--2016|Liu et al. 2016]] ). Adoption has been challenged by the complexity and the profusion of applications which contribute to confuse stakeholders ( [[#Gadema--2011|Gadema and Oglethorpe 2011]] ; [[#Guenther--2012|Guenther et al. 2012]] ; [[#Brécard--2014|Brécard 2014]] ). The options of applying different system boundaries and allocation principles involve value judgements that in turn influence the results ( [[#Tanaka--2008|Tanaka 2008]] ; [[#Finnveden--2009|Finnveden et al. 2009]] ; [[#McManus--2015|McManus et al. 2015]] ; [[#Overland--2019|Overland 2019]] ). A more systematic and coordinated international approach based on transparent and reliable data and methodologies is needed to induce global low-GHG market development ( [[#Pandey--2011|Pandey et al. 2011]] ; [[#Darnall--2012|Darnall et al. 2012]] ; [[#Tan--2014|Tan et al. 2014]] ).

Within the context of GHG content certifications and EPD development, more transparency is needed to increase international comparability and to validate claims to meet consumers demand for low-GHG material and products ( [[#Rangelov--2021|Rangelov et al. 2021]] ). Greater automation, publicly available reference databases, benchmarking systems and increased stakeholder collaboration can also support the important role of conveying credible emissions information between producers, traders and consumers.

<div id="11.6.4.4" class="h3-container"></div>

<span id="performance-standards-and-codes"></span>
==== 11.6.4.4 Performance Standards and Codes ====

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Policymakers can set minimum performance standards or maximum emission content specifications through legislation to increase the use of low-GHG materials and products by mandating the adoption of low-GHG production and construction processes while requiring material and resource efficiency aspects.

Construction of buildings represented 11% of energy and process-related CO 2 emissions globally in 2018 ( [[#IEA%20and%20UNEP--2019|IEA and]] [[#UNEP--2019|UNEP 2019]] ). The share of embodied emissions in construction is increasing as building energy efficiency is improving and energy supply is decarbonised ( [[#Chastas--2016|Chastas et al. 2016]] ). As a result, jurisdictions are increasingly considering new requirements in building codes to reduce embodied emissions. This is the case of France’s new building code which is shifting from a thermal regulation (RT 2012) to an environmental regulation (RE 2020) to include embodied GHG LCA metrics for encouraging use of low-GHG building materials ( [[#Ministère%20de%20la%20Transition%20écologique%20et%20solidaire--2018|Ministère de la Transition écologique et solidaire 2018]] ; [[#Schwarz--2020|Schwarz et al. 2020]] ). The 2018 International Green Construction Code (IGCC) provides technical requirements that can be adopted by jurisdictions for encouraging low-GHG building construction, which also covers minimum longevity and durability of structural, building envelope, and hardscape materials (Art. 1001.3.2.3) ( [[#Celadyn--2014|Celadyn 2014]] ). Low-GHG building rating systems, such as LEEDs, are voluntary standards which include specific requirements on material resources in their rating scale. Trade-offs between energy performance achievement and material used in building construction needs to be further assessed and considered as low-GHG building code requirements develop. Local governments can also lead the way by adopting standards for construction. This is the case of the county of Marin in California which specifies maximum embodied carbon in kgCO 2 -eq m –3 and maximum ordinary Portland cement content in lbs/yd 3 for different levels of concrete compressive strength ( [[#Marin%20County--2021|Marin County 2021]] ).

Governments are also turning their attention to developing standards to increase the durability of products and materials by requiring options for maintenance, reparability, reusability, upgradability, recyclability and waste handling. For example, the EU Ecodesign Directive includes new requirements for manufacturers to make available for a minimum of seven to 10 years spare parts to repair household equipment ( [[#Talens%20Peiró--2020|Talens Peiró et al. 2020]] ; [[#Calisto%20Friant--2021|Calisto Friant et al. 2021]] ; [[#Nikolaou--2021|Nikolaou and Tsagarakis 2021]] ). The European Commission plans to widen the resource efficiency requirements beyond energy-related products to cover products such as textiles and furniture as well as high-impact intermediary products such as steel, cement and chemicals in a new sustainable product policy legislative initiative. ( [[#Domenech--2019|Domenech and Bahn-Walkowiak 2019]] ; [[#Llorente-González--2019|Llorente-González and Vence 2019]] ; [[#European%20Commission--2020|European Commission 2020]] ; [[#Polverini--2021|Polverini 2021]] ).

Further research is needed to understand how different international and national frameworks, codes, and standards that focus on emissions can work in unison to amplify their mutually desired outcomes. Building performance and market instrument trading frameworks recognised globally do not always incentivise the same outcomes due to the differences in market approach. LCA metrics are a useful tool to help assess optimal options for ultimate emission reduction objectives ( [[#Röck--2020|Röck et al. 2020]] ; [[#Shadram--2020|Shadram et al. 2020]] ).

<div id="11.6.4.5" class="h3-container"></div>

<span id="financial-incentives"></span>
==== 11.6.4.5 Financial Incentives ====

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Fossil-free basic materials production will often lead to higher costs of production, for example, 20–40% more for steel, 70–115% more for cement, and potentially 15–60% for chemicals ( [[#Material%20Economics--2019|Material Economics 2019]] ). There is a nascent literature on what are effectively material ‘feed-in-tariffs’ to bridge the commercialisation ‘valley of death’ ( [[#Wilson--2011|Wilson and Grubler 2011]] ) of early development of low-GHG materials ( [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Neuhoff--2018|Neuhoff et al. 2018]] ; [[#Sartor--2019|Sartor and Bataille 2019]] ; [[#Wyns--2019|Wyns et al. 2019]] ). Renewable electricity support schemes have typically been price-based (e.g., production subsidies and feed-in-tariffs) or volume-based (e.g., quota obligations and certificate schemes) and both principles can be applied when thinking about low-GHG materials. Auction schemes are typically used for larger-scale projects, for example, offshore wind parks.

Based on how feed-in-tariffs worked, a contract for difference (CfD) could guarantee a minimum and higher-than-market price for a given volume of early low-GHG materials. CfDs could be based on a minimum effective GHG price reflecting parity with the costs of current higher-emitting technologies, or directly on the higher base capital and operating costs for a lower-GHG material ( [[#Richstein--2017|Richstein 2017]] ; [[#Chiappinelli--2019|Chiappinelli et al. 2019]] ; [[#Sartor--2019|Sartor and Bataille 2019]] ; [[#Vogl--2021a|Vogl et al. 2021a]] ). CfDs can also be offered through low-GHG material procurement where an agreed price offsets the incremental cost of buying low-GHG content product or material. Private firms, by themselves or collectively, can also guarantee a higher than market price for low-GHG materials from their supplier for marketing purposes ( [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Bataille--2020a|Bataille 2020a]] ). Reverse auctions (by which the lowest bidder gets the production subsidy) for low-GHG materials is also an option but it remains to be analysed and explored. While these financial incentive schemes have been implemented for renewable energy, their application to incentivise and support low-GHG material production have yet to be developed and implemented. The German government is currently developing a draft law which will allow companies that commit to cut GHG emissions by more than half using innovative technologies to bid for 10-year CfDs with a guaranteed price for low-carbon steel, chemical and cement products (Agora Energiewende and Wuppertal Institut 2019; [[#BMU--2021|BMU 2021]] ).

New and innovative financial market contracts for basic materials that represent low-carbon varieties of conventional materials are emerging. This is the case of aluminium for which quantity of low-GHG production already exist in countries where hydroelectric power is a common power source. Market developments will allow for low-GHG aluminium to trade at a premium rate as demand develops. For example, Harbor Aluminium has launched a green aluminium spot premium at the end of October 2019 and the London Metal Exchange has introduced a ‘green aluminium’ spot exchange contract. ( [[#LME--2020|LME 2020]] ; [[#Das--2021|Das 2021]] ).

<div id="11.6.4.6" class="h3-container"></div>

<span id="extended-producer-responsibility"></span>
==== 11.6.4.6 Extended Producer Responsibility ====

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Extended producer responsibility (EPR) systems are increasingly used by policymakers to require producers to take responsibility for the end life of their outputs and to cover the cost of recycling of materials or otherwise responsibly managing problematic wastes ( [[#Kaza--2018|Kaza et al. 2018]] ). According to the OECD, there are about 400 EPR systems in operation worldwide, three quarters of which have been established over the last two decades. One third of EPR systems cover small consumer electronic equipment, followed by packaging and tyres (each 17%), vehicles, lead-acid batteries and a range of other products ( [[#OECD--2016|OECD 2016]] ).

While the economic value of some discarded materials such as steel, paper and aluminium is generally high enough to justify the cost and efforts of recycling, at current rates of 85%, above 60%, and 43%, respectively ( [[#Graedel--2011|Graedel et al. 2011]] ; Cullen and Allwood 2013), others like plastic or concrete have a much lower re-circularity value ( [[#Graedel--2011|Graedel et al. 2011]] ). Most plastic waste ends up in landfills or dumped in the environment, with 9% recycled and 12% incinerated globally ( [[#Geyer--2017|Geyer et al. 2017]] ; [[#UNEP--2018|UNEP 2018]] ). Collected waste plastics from OECD countries were largely exported to China until a ban in 2018 required OECD countries to review their practices ( [[#Qu--2019|Qu et al. 2019]] ). EPR schemes may thus need to be strengthened to actually achieve a reduced use of virgin GHG-intensive materials. The potential for re-circularity of unreacted cement and aggregates in concrete is increasing as new standards and requirement develops. For example, concrete fines are now standardised as a new cement constituent in the European standardisation CEN/TC 51 – ‘cements and construction limes’.

<div id="11.6.5" class="h2-container"></div>

<span id="knowledge-and-capacity"></span>

=== 11.6.5 Knowledge and Capacity ===

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It is important that government bodies, academia and other actors strengthen their knowledge and capacities for the broad transformational changes envisioned for industry. In Japan, industry has been voluntarily working on GHG reduction, under the Framework of Keidanren’s Commitment to a Low-carbon Society since 2009. Government and scientific experts regularly review their commitments and discuss results, monitoring methods, and reconsidering goals. Industry federations/associations can obtain advice in the follow-up meetings from other industries and academics. The energy and transport sectors have decades of building institutions and expertise, whereas industrial decarbonisation is largely a new policy domain. Most countries have experience in energy efficiency policies, some areas of research and innovation, waste management, regulations for operational permits and pollution control, worker safety and perhaps fuel switching. There is less experience with market demand pull policies although low-GHG public procurement is increasingly being tested. Circular economy policies are evolving but potential policies for managing material demand growth are less understood. Material efficiency policies through, for example, product standards or regulation against planned obsolescence are nascent but relatively unexplored ( [[#Gonzalez%20Hernandez--2018a|Gonzalez Hernandez et al. 2018a]] ).

All this argues for active co-oversight, management and assessment by government, firms, sector associations and other actors, in effect the formation of an active industrial policy that includes decarbonisation in its broader mandate of economic and social development ( [[#OECD--2019b|OECD 2019b]] ; [[#Bataille--2020a|Bataille 2020a]] ). This could draw from the quadruple helix innovation model, which considers the role of government, universities, the private sector, the natural environment and social systems to foster collaboration in innovation ( [[#Carayannis--2019|Carayannis and Campbell 2019]] ; [[#Durán-Romero--2020|Durán-Romero et al. 2020]] ). Important aspects of governance include mechanisms for monitoring, transparency, and accountability. It may involve the development of new evaluation approaches, including a greater focus on ''ex ante'' evaluations and assessment of, for example, readiness and capacities, rather than ''ex post'' evaluations of outcomes. Such organisational routines for learning have been identified as a key aspect of policy capacity to govern evolutionary processes ( [[#Karo--2018|Karo and Kattel 2018]] ; [[#Kattel--2018|Kattel and Mazzucato 2018]] ). Although many governments have adopted ideas of focusing resources on the mission or challenge of climate change mitigation, comparisons between Western and East Asian contexts show significant differences in the implementation of governance structures ( [[#Karo--2018|Karo 2018]] ; [[#Mazzucato--2020|Mazzucato et al. 2020]] ; [[#Wanzenböck--2020|Wanzenböck et al. 2020]] ). Overall, improved knowledge and stronger expertise is important also to handle information asymmetries and the risk of regulatory capture.

<div id="11.6.6" class="h2-container"></div>

<span id="policy-coherence-and-integration"></span>
=== 11.6.6 Policy Coherence and integration ===

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Industrial net zero transitions, while technically feasible, involve not just a shift in production technology but major shifts in demand, material efficiency, circularity, supply chain structure and geographic location, labour training and adaptation, finance, and industrial policy. This transition must also link decarbonisation to larger environmental and social goals (e.g,. air and water quality, low-GHG growth, poverty alleviation, sustainable development goals) ( [[#OECD--2019b|OECD 2019b]] ).

Although there is little evidence of carbon leakage so far it will be ever more important to strive for coherence in climate and trade policies as some countries take the lead in decarbonising internationally traded basic materials ( [[#Jakob--2021b|Jakob 2021b]] ). At the time of writing the previously academic debate on this issue is shifting to real policymaking through debates and negotiations around carbon border adjustment ( [[#11.6.1|Section 11.6.1]] ) and sectoral agreements or climate clubs ( [[#Nordhaus--2015|Nordhaus 2015]] ; [[#Åhman--2017|Åhman et al. 2017]] ; [[#Jakob--2021a|Jakob 2021a]] ; [[#Nilsson--2021|Nilsson et al. 2021]] ). The climate and trade policy integration should also consider what is sometimes called positive leakage, that is that heavy industry production moves to where it is easier to reach zero emissions. As a result, policy should go beyond border measures to include, for example, international technology cooperation and transfer and development of shared lead markets.

Energy-intensive production steps may move where clean resources are most abundant and relatively inexpensive ( [[#Gielen--2020|Gielen et al. 2020]] ; [[#Bataille--2021a|Bataille et al. 2021a]] ). For example, steel-making has historically located itself near iron ore and coal resources whereas in the future it may be located near iron ore and zero-GHG electricity or close to carbon storage sites ( [[#Fischedick--2014|Fischedick et al. 2014]] b; [[#Vogl--2018|Vogl et al. 2018]] ; [[#Bataille--2020a|Bataille 2020a]] ). This indicates large changes in industrial and supply chain structure, with directly associated needs for employment and skills. Some sectors will grow, and some will shrink, with differing skill needs. Each new workforce cohort needs the general specific skill to provide the employment that is needed at each stage in the transition, implicating a need for coordination with policies for education and retraining.

Depending on what mixes of deep decarbonisation strategies are followed in a given region (e.g., material efficiency, electrification, hydrogen, biomass, CCU and CCS), infrastructure will need to be planned, financed and constructed. The UKCCC Net Zero Technical Report describes the infrastructure needs for achieving net zero GHG in the UK by 2050 for every sector of the economy ( [[#UKCCC--2019b|UKCCC 2019b]] ). Transportation would be facilitated with pipelines or ships to allow transfer of captured CO 2 for utilisation and disposal, and associated institutional frameworks ( [[#IEAGHG--2021|IEAGHG 2021]] ). Electrification will require market design and transmission to support increased generation, transmission, and flexible demand. Hydrogen, CCU, and CCS will require significant new or adapted infrastructure. Hydrogen and CO 2 pipelines, and expanded electricity transmission, have natural monopoly characteristics which are normally governed and planned by national and regional grid operators and their regulators. Industrial clustering (also known as eco-parks), such as those planned in Rotterdam (Netherlands) and Teeside (UK), would allow more physical and cost-effective sharing of electricity, CCU, CCS, and hydrogen infrastructure but is dependent on physical planning, permitting, and infrastructure policies.

Costing analysis (Chapter 15) indicates an increased upfront need for financial capital which requires policies to encourage long-term, patient capital that reflects society’s preferences for investment in industrial decarbonisation and the minimum 10 or more years horizon before there are significant new commercially available processes.

All the above indicate the need for general industrial policy as part of a coherent general economic, taxation, investment, employment and social policy for climate change mitigation ( [[#Wesseling--2017|Wesseling et al. 2017]] ; [[#Bataille--2018a|Bataille et al. 2018a]] ; [[#Wyns--2019|Wyns et al. 2019]] ; [[#Nilsson--2021|Nilsson et al. 2021]] ).

<div id="11.6.7" class="h2-container"></div>

<span id="roles-and-responsibilities"></span>
=== 11.6.7 Roles and Responsibilities ===

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While all climate policy requires topic-specific adaptive governance for long-term effectiveness ( [[#Mathy--2016|Mathy et al. 2016]] ), deep decarbonisation of heavy industry has special governance challenges, different from those for the electricity, transport or buildings sectors ( [[#Åhman--2017|Åhman et al. 2017]] ; [[#Wesseling--2017|Wesseling et al. 2017]] ; [[#Bataille--2018a|Bataille et al. 2018a]] ). Competition is strong, investments are rare, capital intensive and very ‘lumpy’. In an atmosphere where transformative innovation is required the process is very capital-focused with non-diversifiable risks unless several companies are involved. There are significant infrastructure needs for electricity, hydrogen, and CCS and CCU. Given there is no ‘natural’ market for low-emissions materials, there is a need to manage both the supply and demand sides of the market, especially in early phase through lead supplier and markets. Finally, there is a very high probability of surprises and substantial learning, which could affect policy choice, direction, and stringency.

Different types of actors thus have to play different but coordinated roles and responsibilities in developing, supporting, and implementing policies for an industrial transition. below shows how the different core parts of integrated policymaking for an industrial transition may depend on efforts from different actors groups and highlights the responsibility of these actor groups in developing a progressive and enabling policy context for the transition. This includes policymakers at local, national, and international arenas as well as civil society organisations, industry firms, and interest organisations.

'''Table 11.6 | Examples of the potential roles of different actors in key policy and governance areas for a low-GHG transition to indicate the importance of agency and wide stakeholder engagement in the governance of industrial d''' '''ecarbonisation.'''

{| class="wikitable"
|-
! Actors

! Direction:

planning and strategising pathways to net zero

! Innovation:

RD&amp;D for new technologies and other solutions

! Market creation:

create and shape demand-pull for various solutions

! Knowledge and capacity:

build institutional capacity across various actors

! Coherence:

establish international and national policy coherence

|-
| International bodies and multilateral collaboration

| More attention to industry in NDCs. Monitor progress and identify gaps. Develop international roadmaps.

| Include heavy industry decarbonisation in technology cooperation (e.g., Mission Innovation).

| International standards, benchmarking systems, and GHG labels. Allow for creation and protection of lead markets.

| Support knowledge building and sharing on industrial decarbonisation.

| Align other conventions and arenas (e.g., WTO) with climate targets and include heavy industry transitions in negotiations.

|-
| Regional and national government and cities

| Require net zero strategies in permitting. Set targets and facilitate roadmaps at various levels. Sunset clauses and phase-out agreements for polluting plants.

| Experimentation for recycling, materials efficiency, and demand management. Hydrogen, electrification, and other infrastructure.

| Public procurement for innovation and lead markets. Green infrastructure investments.

| Develop policy expertise for industrial transformation. Support and facilitate material efficiency and circular solutions through design standards, building codes, recycling, and waste policy.

| Support vertical policy coherence (i.e., international, national, city level).

|-
| Civil society

| Monitor and evaluate leaders and laggards. Support transparency.

| Engage in responsible innovation programs, experimentation, and social innovation.

| Progressive labelling, standards and criteria for low emissions materials and products (e.g., LCA-based), including updating.

| Engage in policy processes and build capacity on industrial decarbonisation. Support consumer information and knowledge.

| Monitor and support policy coherence and coordination across policy domains (trade, climate, waste, etc.).

|-
| Industrial sectors and associations

| Adopt net zero emissions targets, roadmaps, and policy strategies for reaching them. Assess whole value chains, scope 3 emissions and new business models.

| Share best practice. Coordination and collaboration. Efficient markets for new technology (e.g., licensing).

| Work across (new) value chains to establish lead markets for low emissions materials as well as for materials efficiency and circularity.

| Education and retraining for designers, engineers, architects, etc. Information sharing and transparency to reduce information asymmetry.

| Coordination across policy domains (trade, climate, waste, etc.). Explore sectoral couplings, new value chains and location of heavy industry.

|-
| Corporations and companies

| Set zero emissions targets and develop corporate- and plant-level roadmaps for reaching targets.

| Lead and participate in R&amp;D, pilots, and demonstrations. Increase and direct R&amp;D efforts at reaching net zero.

| Marketing and procurement of low-emissions materials and products. Include Scope 3 emissions to assess impact and mitigation strategies.

| Engage in value chains for increased recycling and materials efficiency. Build knowledge and capacity for reorientation and transformation.

| MNCs avoid race to the bottom, and strategically account for high carbon price as part of transition strategy.

|}

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