Hard-to-abate sectors amidst a widening emissions gap

In anticipation of COP29 and reflecting on the pivotal discussions from COP28 – the 28th Conference of the Parties to the United Nations Framework Convention on Climate Change – a critical narrative emerges regarding progress toward achieving net zero in hard-to-abate sectors.

One of the critical challenges affecting the current pace of change is linked to people, organisational, and ecosystem transformation. Transformations of this significance require full leadership commitment and understanding for what’s next. To meet sustainability goals beyond 2030, proactive measures are essential to establish the necessary systems, foster the right mindset, develop critical capabilities, implement innovative technologies, and drive value chain transformations crucial for a successful transition. For this, besides people and leadership, access to affordable financing is another crucial success factor.

As COP29 approaches, it presents a crucial opportunity to reassess and amplify the insights and commitments articulated during COP28. This moment necessitates renewed determination and collaborative action to shape a sustainable future.

COP28 marked the first Global Stocktake – the “UAE Consensus” – where countries evaluated their progress toward the Paris Agreement goals. This evaluation will guide future actions, including the next round of Nationally Determined Contributions (NDCs) due in 2025 before COP30. Scientifically speaking, the current outlook is concerning. The UN Emissions Gap Report 2023 reveals that current climate pledges still set the world to a 2.9°C temperature rise, far exceeding the 1.5°C goal.1 The report urges swift, transformative action, especially from high-emission nations, and explores the potential of carbon removal technologies. That said, COP28 focused on several key themes and triggered notable advancements in decarbonisation and climate action, led by various initiatives to foster sustainable practices. 

The overarching outcome is reflected by the ”unprecedented reference to transitioning away from all fossil fuels in energy systems, in a just, orderly and equitable manner in this critical decade to enable the world to reach net zero emissions by 2050, in keeping with the science”.

In line with this signalling of the “beginning of the end of the fossil fuel era”, the COP Presidency  had launched with multiple partners the Global Decarbonisation Accelerator (GDA). The GDA embraces three main pillars, all highly relevant for hard-to-abate sectors:

The first pillar is about creating awareness and effective results and actions to support the reduction of methane and other non-CO2 greenhouse gas (GHG) emissions across sectors through mobilisation of USD 1.2bn. This was sending a strong signal to NDCs, taking into account the entirety of GHG emissions. Discussions for “effective pathways to zero methane emissions by 2030” were held, including national and international oil companies. Actions on reducing methane emissions are particularly important for quick impact to slow down global warming, because its global warming potential (GWP) is about 28 times higher and significantly short-lived compared to CO2. Living up to this commitment does require a detailed screening of processes and equipment at existing sites as well as foresighted planning of upcoming greenfield investments. Companies with large and complex site and asset portfolios can benefit from concerted GHG emission reduction initiatives.

The other two pillars address the energy system. Decarbonising today’s energy system (second pillar) while building the energy system of the future (third pillar). For the second pillar, another key milestone contribution of COP28 is the Oil & Gas Decarbonisation Charter (OGDC) to decarbonise the energy system of today. Over 50 national and global oil companies, accounting for about 40% of global oil production, committed to net-zero operations (scope 1 and 2) by 2050, with plans to eliminate routine flaring by 2030 and reduce methane emissions.

The Utilities for Net-Zero Alliance is addressing the energy system of the future and has united 31 partners, including 25 global utility companies, “for a joint commitment to advance  electrification, renewables-ready grids and clean energy deployment in line with the goals of the 2030 Breakthroughs”.

Implementing the respective decarbonisation roadmaps including the required renewables concepts and sources will hardly leave any current process across the whole organisation untouched. The leadership has to ensure taking people gradually along the transformational journey. A journey that requires a change in mindsets and behaviours towards the major sustainability levers and material topics resulting in new job profiles, skills, capabilities and ways of collaboration even outside the own organisation along the value chain.

Decarbonisation also requires orchestration on the country level. Countries like Canada, Germany, the United States, and the United Kingdom committed to green public procurement,  ledging to buy low – and near-zero-emission steel, cement, and concrete. Significant  commitments involving major hard-to-abate sectors can be expected to send a strong demand signal across industries and drive investments in low-carbon technologies.

In parallel, commitments were made to scale up green hydrogen production, carbon capture, utilisation, and storage (CCUS), and renewable energy technologies, all crucial for cutting emissions where direct electrification is challenging. The chemicals industry will also be an important target for these technologies. With the right financing schemes and functioning carbon markets in place, rewarding the early movers compared to the laggards, an accelerated further improvement and adoption of these technologies can be expected. COP29 is expected to contribute also in this regard.

The Industrial Transition Accelerator (ITA) supported by the Mission Possible Partnership  (MPP) is another considerable global key initiative launched at COP28 aiming to initiate transformational actions in major highemitting and hard-to-abate sectors such as aluminium, chemicals, cement, steel, aviation, shipping and transportation and keeping the 1.5°C target within reach.

It is an example of cross-sector and value chain collaboration accompanying the overall industrial transformation process. New and unconventional views on collaboration that create value for the industry and communities overall have to be thought of. Circular concepts such as industrial symbiosis at scale can result from such collaboration efforts for everybody’s benefit.

The initiative helps overcome critical barriers to industrial decarbonisation, including high costs, technical challenges, regulatory hurdles and finance through public private collaborations. On the one hand, it demonstrates what international, cross-sector and cross-functional partnerships can establish in measurable terms. On the other hand, by the initiative’s own judgment, more such efforts are urgently needed:

In other words, what has been achieved so far on a global scale is not enough to be on track with the goals of the Paris Agreement. This is even more concerning in the context of dedicated UN-driven initiatives such as UNFCCC’s Technology Executive Committee (TEC), which has been advocating for climate technologies since 2010. TEC is expected to be pivotal for transformative climate action in challenging hard-to-abate sectors, from integrating renewable energy to fostering innovation. One lever that could further leverage coordinated efforts such as GDA and TEC is the establishment of well-functioning global carbon markets. Despite progress at COP28 with discussions clarifying technical aspects, negotiations during two consecutive COPs have not delivered results to bring international carbon markets under Article 6 of the Paris Agreement to life. With consensus on operationalising Articles 6.2 and 6.4, the UN-driven carbon market mechanism under Article 6.4 remains ongoing, stalling critical climate mitigation efforts.

There has been a notable shift from technical aspects to political considerations in developing a draft negotiating text for COP29 deliberations. This shift could address renewable energy or carbon market needs, for example, enabling comprehensive systemic transformations across sectors to reduce emissions, strengthen resilience and mobilise resources sustainably.

What can we learn from industry leaders in hard-to-abate sectors?

Industry leaders underscore the need for a proactive,  ollaborative, and strategic approach to transforming challenges into opportunities. They emphasise that the path to decarbonising hard-to-abate sectors requires transformation across people,  organisational structures, and ecosystems. To achieve sustainability goals beyond 2030, immediate action is crucial for implementing essential systems, technologies, and value chain shifts, which in turn call for strong leadership, capacity building, and a significant cultural shift across all organisations.

Net-zero targets call for continuous effort; it is not a one-time initiative

Decarbonisation plans and investments can only transform into action and outcomes if they become embedded into the day-to-day fabric of doing business. For instance, the cost of carbon and remediation needs to be part of the business case assessment and gating process. This requires alignment with finance teams on the value and price of carbon and how it is managed.

People and organisations need to make deep cultural changes to reorganise in this way. This is more effectively done by making people understand the purpose and value of the change.

Decarbonisation is not a strategy you define once and forget. It must evolve alongside our business operations to stay relevant for the next 20 to 30 years.

- Head of Sustainability of a leading GCC chemicals company

Reducing GHG emissions requires a holistic approach for lasting impact

Sustainability discussions often emphasise decarbonisation, presenting a significant challenge for hard-to-abate sectors such as the chemical industry. Given that carbon is a necessary component in many final products, a comprehensive strategy is essential. This should include not only decarbonisation efforts but also a focus on enhancing heat efficiency and implementing carbon capture technologies. By adopting this multifaceted approach, the industry can effectively navigate sustainability goals while ensuring product integrity and operational sustainability. A dedicated task-force can help develop a company-wide aligned approach while ensuring insights and learnings are spread between sites and assets at different locations. 

Decarbonisation should be reframed as an opportunity

There is a huge market opportunity for minerals, metals and chemicals in the context of the energy transition that goes beyond differentiation through the delivery of low-carbon solutions. For instance, the provision of materials for the electric vehicle industry, solar and wind power operations, and renewable energy storage. This ability to drive efficiency across society in a sustainable future, such as in building and transport, is a significant business opportunity.

It is critical that this view will be adopted by more and more companies as decarbonisation, done systematically, can help reduce cost and differentiate potentially leading to increased market share for fast movers. These effects support the ROI of decarbonisation related investments and contribute to make the economics work.

Costs need to be managed and we need clear support for transitionary technologies. But there is a huge opportunity and we should recognise this as well as the challenge. This is what is going to make this transition real.

- EVP sustainability, technology and innovation, and chief technology and sustainability officer of a leading global chemicals company

Ecosystem collaboration is essential

Addressing Scope 3 emissions presents a pressing challenge that demands unprecedented cooperation across the entire value chain of hard-to-abate sectors. This collaboration must extend even to competitors and include stakeholders such as customers,  governments, and regulators. For example, downstream chemical producers cannot achieve their net-zero targets without upstream suppliers providing reduced-carbon derivatives. Smaller companies often lack the resources necessary for significant innovation and transformation, relying on their larger counterparts to make advancements accessible to the wider market. Even major players can gain from working together and sharing responsibilities. A notable example is the collaboration between Sabic, BASF, and Linde, which culminated in the successful launch of the world’s first large-scale electrically heated steam cracking furnace designed to produce low-carbon olefins.

The art is in steering the whole value chain in a collaborative effort and not on individual positions. Transparency plays a role, as does the supply of raw materials with a reduced carbon footprint. How do we share the challenges and, in the future, the successes? I think this is starting, but to really steer the value chain in a circular direction still needs to come.

- Dr. Christian Haessler, in 2024, when he served as Head of Global Public Affairs, Group Innovation, and Sustainability at Covestro.

Act now – don’t wait for perfect conditions

Industry leaders emphasise that waiting for ideal regulatory or financial frameworks will only delay critical progress. Taking bold steps today, even amid uncertainty, is the key to building momentum and unlocking future support. This can be through an ambitious internal target setting that is in line with the Paris Agreement and then cascading the required actions over time and form implementation champions and teams around the major initiatives. Public announcement of such ambitious net-zero targets out of a position of confidence does help discipline and align the organization towards the set targets.

Formalizing targets within an international framework such as e.g. SBTi is an option to further enhance credibility in the global business community. Bold steps would include also serious search for alternative feedstock or energy sources or strong signals to the organization on how Sustainability will be embedded in the leaderships decision making in future as a first trigger for cultural change. 

Taking action, demonstrating the impact, engaging with the value chain on the feedback, understanding which models work and which ones don’t work. This is how a transition happens. It doesn’t happen by waiting for a perfect set of solutions or regulatory environment. Talking about the perfect scenario and what’s required doesn’t get us there. But showing movement, showing that we’re learning and being more transparent about the steps that we’re taking and the risk and challenges involved, that’s how you change the dialogue.

- Rafael Chaves Santos, Professor of Economics at FGV Brazil and dss⁺ Impact advisory board member

COP28 has demonstrated a significant coordinated effort to tackle the decarbonisation challenge, keeping the chance of meeting global emissions reduction targets alive.

As we approach COP29, continued progress will require emphasis on the critical role of ongoing investments, policy backing, and international cooperation as foundational pillars for future actions. The focus on hard-to-abate sectors is crucial, as they are vital to efficiently realising global climate objectives.

As per the International Energy Agency (IEA), in 2023, USD 1.7 trillion have been invested in climate solutions. Compared to what is required in the upcoming decades to become in line with

the Paris Agreement, this amount is just a drop in the ocean. COP29 is expected to provide impulse, with special focus on climate finance, enabling the public and private sector to exponentially increase the engagement in climate related investments based on two pillars: enhancing ambition and enabling action.

These pillars are mutually reinforcing, ensuring that ambitious goals are met with practical support mechanisms. Enhancing ambition in NDCs to align with the 1.5°C target will significantly impact various actors, particularly in hard to-abate sectors, by driving regulatory changes, fostering innovation, enhancing collaboration, influencing financial mechanisms, and reshaping market dynamics.10 By enabling action, COP29 emphasises the means of implementation and support, including finance, technology, and capacity building, alongside broader enabling conditions across stakeholders at national, regional, and global levels.11 A top priority is agreeing on a fair and ambitious New Collective Quantified Goal (NCQG) on climate finance, which is critical to account for the needs and priorities of developing countries. The overall key theme of climate finance is especially important for hard-toabate sectors, which require policy support and financial mechanisms to implement decarbonisation strategies such as transitioning to renewable energy sources and scaling innovations. 

COP29 Vision

Enhancing Ambition and Enabling Action

As per the International Energy Agency (IEA), in 2023, USD 1.7 trillion have been invested in climate solutions. Compared to what is required in the upcoming decades to become in line with the Paris Agreement, this amount is just a drop in the ocean. COP29 is expected to provide  impulse, with special focus on climate finance, enabling the public and private sector to exponentially increase the engagement in climate related investments based on two pillars: enhancing ambition and enabling action.

These pillars are mutually reinforcing, ensuring that ambitious goals are met with practical support mechanisms. Enhancing ambition in NDCs to align with the 1.5°C target will significantly impact various actors, particularly in hard to-abate sectors, by driving regulatory changes, fostering innovation, enhancing collaboration, influencing financial mechanisms, and reshaping market dynamics. By enabling action, COP29 emphasises the means of implementation and support, including finance, technology, and capacity building, alongside broader enabling conditions across stakeholders at national, regional, and global levels. A top priority is agreeing on a fair and ambitious New Collective Quantified Goal (NCQG) on climate  finance, which is critical to account for the needs and priorities of developing countries. The overall key theme of climate finance is especially important for hard-toabate sectors, which require policy support and financial mechanisms to implement decarbonisation strategies such as transitioning to renewable energy sources and scaling innovations.

Another priority is finalising the operationalization of Article 6. This will help hardto- abate sectors manage emissions more effectively through mechanisms like carbon credits and offsets. Moreover, COP28 marked the launch of the Loss and Damage Fund to support climate resilience. COP29 is expected to maintain momentum and fully operationalize the fund to provide financial support for vulnerable nations and help them recover from climate-related disasters.

Amidst a widening emissions gap, hard-toabate sectors stand at a critical juncture, positioned to either exacerbate the emissions gap or be crucial for closing it. COP28’s initiatives in shifting to transformative commitments in hard-to abate sectors, for example, tackling high costs and technical barriers, has laid a foundation for further action at COP29 and beyond. Yet, while technologies like green hydrogen and CCUS are essential, the systemic challenges these sectors face – such as their reliance on fossil fuels and complex supply chains – must be addressed.

To close the gap, the focus must shift toward full-value chain decarbonisation, particularly  addressing scope three, often overlooked emissions. This also means fostering deep cross industry collaboration to share innovation and reduce costs through collective action.14 This is why COP29’s focus on climate finance is instrumental, as it can drive innovation through mechanisms like blended finance, climate-linked investments and large-scale funding to secure the capital needed. COP29 should serve as the defining moment for transformational efforts on both country and corporate levels. This will require redefining internal corporate processes and  operating models, as sustainable operations will impact all corporate and business functions. Leadership increasingly caring for sustainability goals and as such redefining corporate culture and people’s mindsets and behaviours to take the right decisions on each operational level what  will happen from the inside. Financing and functioning carbon markets to accelerate the  allocation and application of effective technologies is what will have to develop from the outside and COP29 has the potential to become a pivotal event for this.

On an industrial and country level, partnerships enhancing resource exchange and circular concepts to multiply the impact of their decarbonisation efforts will need to become a priority. Hardto- abate sectors can only turn the tide and ensure a sustainable, low-carbon future through ambitious, collective action.