As addressing the climate crisis becomes increasingly urgent, so-called “hard-to-abate” industries need to reduce their environmental impact; carbon-intensive sectors with few clear, viable low-emission alternatives, such as road freight, steel and cement making, chemicals, aviation, and deep-sea shipping.
For years, decarbonising these industries was deferred as attention focused on easier-to-address emission sources. But today we are increasingly turning our attention to hard-to-abate businesses, which account for roughly one-third of global CO2 emissions.
According to Deloitte (2021), there are two key strategic challenges which face most businesses in hard-to-abate sectors; technical gaps and business model gaps.
Technical gaps arise when direct electrification is structurally constrained, whilst other viable low-carbon alternatives do not exist or are not yet available at scale. For example, emissions from internal combustion engines in road freight could be reduced with the expansion of battery electric vehicles, but for many uses, fuel cell electric vehicles using hydrogen will be required. Hydrogen is also required to produce synthetic sustainable fuels for aviation, as well as synthetic methanol and green or blue ammonia for shipping.
Technical gaps bleed into business model gaps. In some cases, a viable low-carbon solution exists but it may be more expensive to implement or operate, it may be less productive, it may yield a lower-quality output, it may require changes in supplier or customer behaviour, and so on. Implementing such solutions unilaterally could put an organisation at a disadvantage relative to competitors.
In aviation, bio sustainable aviation fuel (SAF), for instance, is a biofuel produced from a variety of feedstocks that can reduce life cycle carbon emissions from aviation by up to 80%. However, SAF currently costs two to four times more than conventional jet fuel and supply is extremely limited, making it uneconomic.
Addressing the challenges characteristic of many hard-to-abate industries requires accepting that decarbonisation is a systems problem that demands multistakeholder approaches.
Escaping constraints requires working beyond the four walls of your business. Closing technical and business gaps will require focused research, development, and deployment, all backed by patient capital. This effort will only be the result of a collaborative ecosystem approach.
Organisations must work collaboratively and quickly to remove barriers and accelerate adoption of new technologies and business models.
For this to happen a mindset change is required from all players.
Firstly, “winning” now no longer means besting your competitors, but working collectively to achieve lower emissions.
Secondly, stop viewing change as impossible. No amount of technological innovation or policy shift is impossible if people, consumers, customers, business executives, government leaders, and beyond, align their voices in a way that sends demand signals.
Thirdly, act together and act big. Too often companies get stuck in an endless cycle of pilot projects, but hard-to-abate sectors can’t focus on small steps to decarbonise because progress will not come fast enough. Act big. Have the confidence to act quickly with minimally viable moves in order to provoke a future which is increasingly desired by all.
Forging consensus among disparate actors and ensuring they abide by their commitments, often in an environment of intense competition, requires the active participation of an ecosystem architect.
The architect works to remove friction, secure direction and create efficiencies. That can mean coordinating data-sharing, bringing in new players to fill key gaps in capabilities, or creating standards or specifications.
Who is the ecosystem architect in your industry? This is a question that needs answered, if we are to work collaboratively to change an industry.
The greatest risk to your business and the world is the risk of waiting too long to make progress. Companies in hard-to-abate industries must start working collaboratively today.