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Industrial Decarbonisation: Hard-to-Abate Sectors

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Examining hard-to-abate sector's specific CO2 generation activities, fuel inputs, and viable decarbonization options, including electrification, is required to provide an accurate outlook on this critical aspect of the energy transition. 

Global, Federal, and State Emissions Targets

Hard-to-abate emissions continue to be forecast as minimally changing to 2050 across various sectors in Australia, including transportation and industrial sectors. Transportation and industrial processes are forecast to account for which account for over a third of total baseline emissions by 2040, as shown in Figure 1. These industries rely on energy-intensive processes that are difficult to decarbonise, such as high-temperature furnaces, heavy machinery, and chemical reactions.

Figure 1 – Australia’s Baseline Emissions Projections by Sector, Source: Energeia, DCCEEW (2024)

Figure 2 below shows the emissions targets federally and by state, which show the level of reduction needed vs. the forecast emissions over time shown in Figure 1. Understanding the factors driving industrial emissions, and the unique abatement options of these sectors, including their potential for energy efficiency, fuel switching or post-emissions abatement is crucial for utilities, policymakers, and industry leaders.

Figure 2 – State and Federal CO2 Targets, Source: Energeia, DCCEEW (2024), State Governments, Note: Energeia legend includes “State”, 2020 datapoint is historical, TAS has already exceeded net zero target and are net negative

The following sections summarise Energeia’s latest research into hard-to-abate industrial emissions, including the factors contributing to their persistence, strategies for improving energy efficiency and reducing emissions, and opportunities for implementing carbon capture and alternative technologies. These sections offer actionable insights and recommendations designed to help stakeholders address the complexities of decarbonising hard-to-abate industries while maintaining economic competitiveness.

Australian Industrial Energy Consumption

Industrial energy usage is shown below in Figure 3 by industrial segment and fuel type along with corresponding emissions. Heavy duty transport, mining, chemical and petrochemical production, and aluminium production have the highest total energy use.

Figure 3 – Industrial Energy Usage by Segment and Fuel Type in 2024, Source: Energeia, DCCEEW (2024)

These same sectors generate more than double the level of CO2 than most other sectors. This investigation into hard-to-abate sectors has focused on a subset of these, where more than electrification is likely to be required for a range of reasons.

Figure 4 – Industrial CO2 Emissions by Segment in 2024, Source: Energeia, DCCEEW (2024)

Which Sectors and Processes are Hard to Abate

Hard-to-abate processes occur in a number of different sectors. Each of the hard-to-abate end uses typically involves one of the following:

  • Processes with CO2 as a feedstock
  • Processes with CO2 as a byproduct
  • Processes requiring a light-weight fuel, typically aviation
  • Processes requiring a dense fuel, typically shipping
  • Processes at very high temperatures, which have historically been difficult and/or costly to achieve with electricity

Table 1 below summarises the sectors and their corresponding processes which classify them as hard to abate.

Table 1 – Summary of Hard-to-Abate Industry Sectors, Source: Energeia Research

Solutions for Abatement

The following table summarises the different solutions which aim to abate carbon emissions from processes.

Table 2 – Summary of Solutions for Hard-to-Abate Industry Sectors, Source: Energeia Research

Global, Federal, and State Targets

Different hard-to-abate sectors benefit from different solutions for emissions abatement. Mixed solutions may be required for different processes within the same industry. Energy efficiency, and alternative processes may not abate all emissions.

Table 3 – Potential Solutions by Section, Source: Energeia Research

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Cost to Abate

Energeia researched and modelled the cost per metric ton of CO2 abatement to decarbonise different sectors. Energeia’s analysis shows a wide range of costs among potential decarbonisation pathways for hard-to-abate industry sectors.

Industrial Sector

Figure 5 below shows the outcomes of the modelling for iron and steel production. Key iron and steel abatement options can be extremely expensive at over $1,700/CO2e, with carbon capture, utilisation and storage (CCUS) or offsets potentially being more cost-effective solution.

Figure 5 – Iron and Steel Production Costs by Key Abatement Solution, Source: Zuberi et al. (2022), IEA (2021 & 2020), ARENA (2022), Note * indicates a solution that can address all stages of production, ^ indicates a simplified levelised cost

For aluminium, shown in Figure 6 below, there are a number of options at much lower cost, but as is the case for iron and steel, CCUS is the only solution (other than offsets) capable of achieving 100% abatement net of lower-cost alternative process solutions.

Figure 6 – Aluminium Production Costs by Key Abatement Solution, Source: Zuberi et al. (2022), IEA (2021 & 2020), ARENA (2022), Note * indicates a solution that can address all stages of production, ^ indicates a simplified levelised cost

For cement production, costs rise compared to aluminium, and improved thermal efficiency is the lowest cost solution to abatement, however, this solution is not capable of abating all emissions. Note that the CCUS costs are vastly different between steel and iron vs. cement, mainly due to the difference in capture and utilisation costs.

Figure 7 – Cement Production Costs by Abatement Solution, Source: Zuberi et al. (2022), Mission Possible (2022), ARENA (2022) Note * indicates a solution that can address all stages of production

Petrochemical and chemical production have very high abatement costs, as shown in Figure 8 below, with carbon capture the lowest cost solution to full abatement, and hydrogen alternatives the highest cost solution of any hard-to-abate solutions considered.

Figure 8 – Petrochemical and Chemical Production Costs by Abatement Solution, Source: IEA (2021 & 2023). Note * indicates a solution that can address all stages of production

Importantly, many of the key solutions identified here will not be able to reduce 100% of sector emissions, instead requiring a portfolio approach and/or offsets.

Transport Sector

Transport remains one of the largest emitting sectors that many countries are looking to decarbonise moving forward. Figures 9 – 11 show the cost to abate emissions for heavy-duty road transport, shipping and aviation.

For heavy-duty road transport, electrification is the least cost solution for short-distance applications, however, current battery electric technology is constrained by energy density. Biofuels provide a cost-effective solution for reducing emissions in existing fleets across all sectors despite their lower energy density. Alternative fuels (ie. hydrogen) offer a potential technical solution to the energy density challenge for vehicle range, however, face infrastructure and scalability issues due to the immaturity of the technology. Alternate fuels are also currently modelled to be the highest-cost solution.

Figure 9 – Heavy Duty Transport Production Costs by Abatement Solution, Source: European Commission (2022), European Parliament (2023), freethink (2024), Energeia Research

Heavy duty transport and shipping appear capable of decarbonisation without CCUS or offsets, however, aviation remains high cost.

Figure 10 – Shipping Production Costs by Abatement Solution, Source: ARENA (2024), Concawe (2022), Rony et al. (2023), NatureEnergy (2024), Energeia Research
Figure 11 – Aviation Production Costs by Abatement Solution, Source: Energeia, ARENA (2024)

Future Directions

Uncertainty in costs additionally drives the complexity of decarbonisation of hard-to-abate sectors. Figures 12 and 13 below show the range in estimates of solution cost forecasts for carbon capture and storage, and LULUCF, which both are additional costs to established carbon emitting technologies to make them carbon neutral.

Figure 12 – Carbon Capture and Storage (CCS), Source: Energeia,IEA (2022), Wood Mackenzie (2021)
Figure 13 – Land Use, Land-Use Change and Forestry (LULUCF), Source: Energia, MIT (2024)

Figure 14 shows that biodiesel is forecast be an economic abatement solution for diesel applications, e.g. heavy transport and mining, between now and 2050. This assumes lifetime scope 1 emissions for biodiesel, which assumes 100% of CO2 emissions are in balance. i.e. net emissions of production and use are 0 tCO2.

Figure 14 – Biofuel Substitution, Source: Energeia, ARENA (2021), DCCEEW

Figure 15 shows green hydrogen as an abatement option for natural gas. Forecasts currently show that hydrogen is not forecasted to be competitive with alternative fuel options (i.e. a zero cost premium) for transport, despite a large reduction in forecast costs.

Figure 15 – Green Hydrogen Substitution, Source: Energeia, PWC, AEMO, ACIL Allen

Takeaways and Recommendations

Energeia’s key takeaways and recommendations for tackling emissions reductions in hard-to-abate industries (derived from Energeia’s best practice research and innovative analysis) are summarised below.

Key Takeaways:

  • Transportation and industrial processes are forecast to account for which account for over a third of total baseline emissions by 2040
  • Of these, a large proportion of them are not suited to electrification for a range of reasons​
  • While specific solutions are being developed in each case, they can be very high-cost​
  • CCS/CCUS and offsets are general approaches that may be needed to achieve abatement targets​
  • A key question is how accurate the CCS / CCUS cost estimates are

Key Recommendations:

  • Electric high temperature heat technologies are a key solution that will be essential to the transition​
  • R&D focus will be key to bringing its cost down​
  • While biofuels are relatively low cost, there are not enough of them to meet all needs​
  • Green hydrogen will be needed to provide feedstock, and the focus should be on this application​
  • Much is riding on CCS / CCUS and LULUCF, and additional effort should be focused on them to bring costs down and ensure capacity
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For more detailed information regarding the key challenges of analysing and optimising electrification, best practice methods, and insight into their implementation and implications, please see Energeia’s webinar and associated materials.

For more information or to discuss your specific needs, please request a meeting with our team.

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