Climate change is one of the biggest challenges of our time. The decarbonisation of industrial processes is one way to counter it and a top goal for policy makers and industry players.
But what is decarbonisation and how does it work? I asked Kristian Uppenberg, head of Advanced Materials at the European Investment Bank, and Marc Tonteling, one of the bank’s engineers, who specialise in energy intensive industries.
What is decarbonisation?
Marc: Industry emits greenhouse gases, especially CO2. This is even more the case for energy intensive industries, such as steel, cement, glass or plastics, which emit roughly 15% of overall worldwide CO2 emissions. In order to stop global warming, these carbon emissions will need to be reduced and eventually eliminated altogether. As an example: Energy intensive industries often use high temperatures and/or chemical processes, and high temperatures are easy to reach by burning carbon fuels, leading then to greenhouse gas emissions. An additional challenge for the energy intensive industries is that their CO2 emissions are, in some cases, partially a by-product of the chemical transformation process during the production of these materials, and this is why it is not easy to decarbonise. It is not enough to just shift the energy source or fuel, since carbon is also used as a raw material or plays a crucial role in the chemical transformation reactions.
Kristian: Indeed, one characteristic of energy intensive industries, or process industries, is that they often entail a chemical reaction in which the output is not a discrete product but a new material or compound. The ingredients that go into this process are different in each industry, and so is the source of CO2 emissions. Therefore, when we apply these decarbonisation technologies, they are process specific. Carbon is used both as a source of energy and as a feed-stock, which is what makes these industries so difficult to decarbonise. Unless you capture the CO2 emissions and the source and prevent them from going out into the atmosphere, you need to come up with an alternative chemical process that still generates the desired output but without emitting CO2 as a by-product. Decarbonisation in industry would be an important step towards making Europe carbon neutral by 2050 and reaching the goals of the Paris agreement. As an intermediate step, Europe has committed to reducing its CO2 emissions by half already by 2030. This means that radical changes need to be implemented quite soon.
How does decarbonisation work?
Marc: There are a lot of roadmaps of the different sectors describing potential technical solutions for decarbonisation in energy-intensive industries, but there are five technologies that are most frequently identified in these roadmaps:
- electrification of heat, which is when furnaces are powered by electricity, instead of burning fuels. Of course this always has to be renewable electricity
- the use of hydrogen as fuel in a furnace or as feed-stock in chemicals, or as a reactant in chemical processes
- the use of biomass as fuel or feed-stock. In other words, replacing coal by bio coal, or gas by bio-gas. One example of this is charcoal, which is the transformation of wood into coal and has a neutral CO2 impact
- carbon capture and storage. This is when greenhouse gases are separated from other industrial gases, then compressed and pumped into the ground so that they are not released in the atmosphere, and
- carbon capture and usage. This process aims to transform industrial gases into something useful, for example ethanol or raw materials that can be used in the chemical industry.
Many of these technologies and solutions are still at relatively early stages of development and are often very costly when compared to conventional production methods. To make them usable on a large scale and competitive, very substantial amounts of investment will be needed in research and development, including investments in pilot plants and full-scale demonstration plants.
But for decarbonisation to fulfil its purpose, these technologies must function with green/renewable energy
Kristian: While electrification is clearly a promising route to decarbonising industry, this only makes sense if the electricity itself is green.
Another important element to successfully deploying decarbonisation technologies in industry is that these must be able to compete with conventional technologies in the open market place. Today this is very often not the case. Decarbonised production is simply too expensive to be competitive. And here’s where the EU emissions trading system (EU ETS) comes in. This is an auction system where energy intensive industries have to buy the right to emit CO2. If we didn’t have this pricing mechanism for CO2 emissions, the dirty solutions would always be the cheaper ones.
The right to emit CO2 will become more and more expensive over time, because the number of emission rights keeps shrinking. This is an important incentive for energy-intensive industries to shift to low-carbon technologies, so that they can remain competitive in the future. CO2 emission-intensive production will gradually become more expensive due to the rising cost of these emissions. At the same time, decarbonized production should gradually become cheaper, as technologies are improved and deployed at a larger scale. At some point in the future, at a CO2-emission price that is clearly much higher than it is today, emission-intensive production would become uncompetitive.
But there is an additional challenge, namely that these green production processes have to compete also with materials imported from outside the EU, for example, which again are cheaper and produced with carbon-emitting, conventional technologies.
Marc: One important point is the level playing field. If we apply these rules only to Europe there are certain sectors that will simply not be able to compete globally and that’s where we have the distinction between local and global markets. Products like steel, plastic, certain chemicals and glass are traded globally, so if they can be imported from other parts of the world that have other standards, they will be cheaper. Other products, such as electricity, cannot be transported all over the world, and that’s one of many reasons why, in my opinion, the electricity sector has already developed well into low-carbon or renewable electricity sources.
Are decarbonisation and energy efficiency the same thing?
Kristian: Energy efficiency improvements can achieve a lot in terms of reducing CO2 emissions, especially in a world where the production of energy is not green. But in certain sectors, improving energy efficiency is not sufficient to eliminate greenhouse gas emissions completely. In order to do that, we need to change the process itself, into one that does not emit CO2 as a by-product. Or alternatively we capture the CO2 and then store it in the ground. This also illustrates why decarbonisation and energy efficiency are not the same thing. “Efficiency” in the technical sense is about minimizing losses. For example by converting one type of energy into another, there are always losses. By continuously optimising and innovating on different conventional process steps, we obtain more energy efficient processes, but there is always a limit to what you can reach. In other words, in processes where, for example, CO2 is a by-product even a 100% efficient process would still emit considerable amounts of CO2. Instead, in such a case we would actually be willing to accept a less energy efficient process, if that means that no CO2 emissions are part of this process. For example, to capture and store CO2 uses additional energy that we don’t need if we simply release the CO2 into the atmosphere. This also means that decarbonisation of industry would require a very significant increase in the production of renewable electricity, as often low-carbon or zero-carbon processes are less energy efficient but free from CO2 emissions.
The good thing is that the technologies to produce green electricity are today quite mature and cost efficient. This certainly helps bring electrification of industrial processes closer to competitiveness.
Marc: Something that adds to the complexity of this is that by changing the process, your old equipment might become obsolete. We can use an analogy from the automotive industry. The way to decarbonise mobility now is to use electric cars which are fundamentally different from conventional cars. This means that a capital investment needs to be made to change assets or equipment. In addition, in order to really contribute to decarbonisation the electricity that is used to power them needs to be green. This is similar to the challenge that the energy-intensive industries are facing. In order to achieve decarbonisation, they will have to replace their assets and they will need large amounts of green electricity. Typically electricity is an expensive form of energy compared to coal or natural gas.
Is there a way to achieve decarbonisation without using more energy?
Kristian: Producing new materials with these decarbonisation technologies is a complicated process and does require in multiple cases more energy. On the other hand, we can also use recycled materials that have already gone through the initial steps. For instance, in the case of steel, the initial highly carbon intensive step of transforming iron ore into steel has already taken place. Which is why we want to recycle as much as possible where this is feasible, especially in those processes where this requires less energy, or where the use of recycled materials avoids repeating the CO2 emissions in primary production of such materials. But it must be said that we will not be able to meet all the demand from these materials, because demand is growing at a pace that is faster than the supply of recycled/secondary feed-stock.
There’s a stock factor here. Countries that have been economically at a high level of development for many decades such as Europe and the US, have a large stock of steel circulating in the economy that can be recycled. But in a country like China which is growing at such a fast rate, the available stock of steel that can be recycled is not very large compared to the needs, when they are building new cities, new infrastructure, new factories.
Marc: Material efficiency has also an important role to play in decarbonisation. Optimising steel, glass or cement consumption, in other words, reducing that consumption.
Kristian: In all industries, we see a trend towards using as little material as possible. Just take the example of a plastic water bottle. They are a lot thinner today than they used to be twenty years ago. Or in the automotive industry, this is a big area of research, to design the structural components using more advanced types of steel that will achieve the same structural properties with less weight and using less steel.
Marc: But we must again stress that using recycled materials or reducing consumption will not suffice. Europe for example produces roughly 160 million tons of steel per year. Out of these, 60 are recycled and 100 are primary, so transformation from iron ore to iron and then to steel. This need of primary material is not expected to significantly change over the next 50 years, or even up until 2100. And on top of that, in less developed economies, the primary will even need to increase with also an increasing world population.
Why and how does the European Investment Bank get involved?
Marc: A lot of this has to do with innovation, one of the Bank’s primary eligibility goals. We support all these industries by supporting their research and development programmes and we can also support them in capital investments in certain cases, as demonstration projects. So we can provide funding from the early stage research up to the first commercial demonstration of these technologies.
Today, these industries are based on conventional technology. To go to the low-carbon solutions, they would have to build new plants which would often require more energy and a different type of energy or feedstock that is more expensive. These technologies are often not very mature so there’s technological risk. It may also be small or medium size companies, not only the larger manufacturers. That is why the European Investment Bank tries to be involved as much as it can on the innovation side.