IFIs and heavy industry decarbonization in emerging and developing economies.
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- Only a few IFIs currently offer dedicated technical and financial assistance for heavy industry decarbonization in emerging and developing economies.
- While there is one targeted joint assistance program in place, it has yet to start its operations.
- To avoid the addition of new high-carbon assets during the current decade, it is vital to scale-up assistance to deploy clean technologies, both through adequate funding to existing, dedicated programs, and through new instruments.
- Given the complexity of the stakeholder landscape around heavy industry decarbonization, the available assistance needs to be more transparent and better coordinated, ideally resulting in integrated approaches co-created among key stakeholder groups.
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IFIs and heavy industry decarbonization in emerging and developing economiesDecarbonizing heavy industry is a major component of global efforts to mitigate climate change. Steel production alone generates 6% of all global greenhouse gas emissions, and cement production 5%. It is estimated that reaching net zero for steel would require USD 17 billion of investment above business as usual, and an additional USD 2.64 trillion in related infrastructure. For cement the figures are USD 30 billion in additional capital expenditure and USD 300 billion for infrastructure (World Economic Forum, 2023).
To scale-up breakthrough technologies for decarbonizing heavy industry, innovative financing approaches that blend different sources of public and private capital are essential; and such collaborations must be established in the current decade to avoid further lock-in of new high-carbon assets.
In emerging and developing economies (EDEs), transitioning heavy industry to net zero is particularly burdensome because of complex and interlinked challenges. It is especially difficult to scale up climate finance because of higher costs of capital as well as real and perceived investment risks; limited state and technical capacity slow the development of enabling environments; and lower renewable energy penetration sets higher barriers for the electrification of key processes (Ameli et al., 2021).
At the same time, EDEs are likely to see the highest increase in demand for industrial products over the next decades, and instruments such as the EU’s Carbon Border Adjustment Mechanism may fundamentally shift market conditions for industrial production and export.
IFIs can play a major role in transitioning heavy industry to net zero. By providing targeted concessional capital, IFIs can help de-risk investments for first movers and commercial financiers, and technical assistance at different levels can support the development of national transition plans, sectoral and corporate roadmaps, project pipelines, and capacity development (OECD, 2022).
However, in their study on low-carbon steel production, Maltais et al. (2022) show that IFIs’ involvement in supporting transitions in heavy industry is only just in its early stages. Several barriers have so far hindered IFIs from engaging more actively in this space, including misalignment between IFI financing mandates and the needs of corporates involved, the size of investments needed, and country priorities focused on other sectors.
Against this backdrop, this brief provides an overview of the technical and financial assistance that IFIs currently provide to heavy industry decarbonization in EDEs. It links to LeadIT’s commitment to the Steel Breakthrough Agenda, which highlighted enhancing international assistance towards decarbonization of the steel sector as one of its priority international actions for 2023.