First Sectoral Conversation on Industry on 1/2 December 2021

“Sectoral Conversations” are a central element of NDC ASPECTS to co-create robust research results together with sectoral experts and stakeholders (more details). The first Sectoral Conversation on industry took place online on the 1st and 2nd December 2021. Present at the conversation were around 35 experts (academia, government, industry, think tanks) covering among others Europe, India, South Africa, China, and the US.

The main goal of the Sectoral Conversations on industry will be to explore how the current Nationally Determined Contributions (NDCs) under the UNFCCC’s Paris Agreement can be improved and brought in line with the overall goal to keep global average temperature increase below 1.5-2˚C. In particular, the following questions will be addressed:

• Where do we stand with regard to the transition of energy-intensive industries, and what are the major challenges/opportunities ahead?
• What can we learn from industrial strategies that have been or are being put into practice? Do these strategies address some of the previously identified challenges?
• What are the elements that contribute to implementable industrial strategies that are consistent with the goals stated under the Paris Agreement?

The focus of the first Sectoral Conversation was mainly on setting the scene. Regarding challenges, participants highlighted the following:

• Availability of green infrastructure (e.g., green energy, CO₂ transport and storage). Work is needed on policy and planning, which might require new institutions, and/or enhanced coordination between relevant actors and institutions. A core question is how to prioritise the use of new infrastructure by different actors.
• Labelling, certification, measurement of emissions: in the face of complex global value chains, the measurement and verification of products and their embedded emissions become increasingly complex and difficult. However, this is central to fulfilling standards and certifications and needs to be addressed immediately. The challenge is particularly large for small/emerging economies due to a lack of capacity. In contrast, industrialised countries are in a good position to fund initiatives to establish certification schemes.
• Creating demand for green products: in this context, green public procurement was much discussed. While global progress on this can be observed, many challenges remain such as difficulties of administrative procedures, related costs, or the required training of public administration. In essence, creating demand is essential for driving transition, but green public procurement is “easily adopted but difficult to implement.”
• Global competition: There was much discussion on the EU plans for a carbon border adjustment mechanism (CBAM) and its benefits and drawbacks

A reoccurring issue was regional disparities and, in particular, challenges faced by small and/or developing/emerging economies. It is important to consider the economic optimisation of sectoral decarbonisation across the entire global value chain, as GHG emissions have the same effect across the world, but mitigation activities require differentiation. There is a need for more economic analysis on global solutions, i.e., optimisation of the economic cost of decarbonisation across multiple countries. For example, many steel multinationals focus on decarbonisation in Europe while they continue emission-intensive production elsewhere (e.g., South Africa). Overall, more attention needs to be paid to the decarbonisation of emerging economies rather than on how to drive transition in industrialised countries.

Furthermore, discussions on levelling the playing field (global competition) need to consider the different starting points of countries and differences across regions. The discussion has so far been dominated by the Global North thinking of what a level playing field actually means. Industries in developing countries exist in a fundamentally different economic context of transition support by their "host" government. Developing countries often operate within highly constrained "fiscal" space, while existing social welfare nets are also limited. This changes the political context completely in terms of political support for transition policies and costs.

The second Sectoral Conversation will take place in the summer and will undertake a deep dive into best practices with regard to industrial strategy for climate transition. Participants at the first conversation recommended focusing on the following:

• Best practices: financing, investment risks and how to address them, creating demand for low carbon products, government policy initiatives;
• The role of international institutions in collecting and assessing best practices and the role of institutions such as the UK Climate Change Committee to draw on and feed into this process;
• Best practices from outside EU/non-EU perspective (e.g., planning processes in China).

Gauri Khandekar is a Researcher in the Environment and Sustainability Cluster at the Brussels School of Governance (profile page)

Wolfgang Obergassel is the Co-Head of Research Unit Global Climate Governance at the Wuppertal Institute for Climate, Environment, Energy (profile page)

Georgios Xexakis is a Researcher and Project Manager at HOLISTIC P.C. (profile page)