After 150 years of fossil-fuel based manufacturing, innovations in clean energy technologies are paving the way for new systems based on circular concepts, renewable energy and sustainable energy use. Industrial manufacturers are now trying to capitalise on the opportunities.

Carbon capture, utilisation and storage (CCUS) and hydrogen are generating particular interest in industrial sectors where emissions are harder to abate. They are using captured carbon in fertiliser and synthetic fuel production, for example, and hydrogen fuel cells to power everything from buildings to vehicles.

Now, these new applications need to achieve commercial viability. CCUS and hydrogen have the potential to decarbonise heat and industrial processes, but many applications are still in the planning or trial stages and lack incentives to scale up. And this needs to happen at speed in order to meet net zero targets and society’s demands for decarbonisation.

“The magnitude of the shifts we're about to go through are going to be bigger and happen over a shorter period of time than ever before,” says Ryan Hawk, global industrial manufacturing and automotive leader at PwC. “We are going to see greater cross-industry collaboration and a shift to value-chain ecosystems from the traditional linear value chains. And I would argue that it's not only the hard-to-abate sectors that have to deal with this, but every sector.”

Strategic partnerships allow companies to share knowledge, talent and organisational and financial capabilities, expand their core offerings and cater to the rising demand for energy transition-related technologies. They also help them to spread the cost and risk of investing in large infrastructure projects.

One good example of this is the UK’s HyNet North West development, which will generate and supply low carbon hydrogen for local industry.¹

Circular solutions are an important part of the puzzle

We will start to see more of these ecosystems of connected processes, technologies and value chains as hard-to-abate industries seek to decarbonise. The circular economy also forms part of this ecosystem for many sectors, including steel, by reducing the extraction and processing of new raw materials. Many companies are now embracing more circular models of manufacturing, incentivised by society’s growing customer demand for sustainability as well as a need to insulate themselves against commodity price spikes and limited supplies of raw materials.

There is particular scrutiny on the steel industry, which accounts for 7–9 per cent of global CO₂ emissions.² Some firms are focusing on remelting and reusing structural steel, which can cut a significant portion of emissions while introducing cost savings. Others, such as the US-based manufacturer Nucor, are capitalising on the emerging market for green steel. Nucor recently designed a new form of low-carbon, high-strength steel for the offshore wind industry made with more than 90 per cent recycled content, and with an electric arc furnace that produces one-fifth of the emissions of an average blast furnace.³

Other sectors, such as transport, manufacturing, steel, chemicals and refining, aim to use and monetise the carbon they extract. The US-based carbon capture firm LanzaTech, for example, ferments industrial carbon to create ethanol for fuel, clothing, beauty products and household cleaners.⁴ And in cement manufacturing, new technology that captures process emissions during combustion reduces CO₂ emissions by 90 per cent.⁵ The carbon can then be stored or sold to other companies as a raw material for the synthesis of basic chemicals or fuels, or reused in cement production.

Competition should not come at the expense of collaboration

First movers with a differentiated value proposition will gain an advantage in the race to net zero, and will cascade the demand for low- and zero-carbon products and services emissions down the supply chain. The rewards will be even greater for those that find ways to decarbonise more cheaply and competitively.

As decarbonising technologies gain traction, companies can generate stronger financial returns by capturing government subsidies for green industries, increasing their profit margins with a green premium on more sustainable goods and services. The competition for market share will be fierce, but companies must be willing to balance their competitive instincts with the need to create collaborative partnerships that will form a net zero ecosystem.

“The technical solutions are out there, but many things need to happen to make those solutions a reality,” says Hawk. “How do you create that environment, that framework, that level of trust to make the ecosystem work? As competitors, we have to come together to build the market for decarbonisation.”

This article is based on a Financial Times round table discussion under Chatham House Rules held in collaboration with PwC.