In the Paris Agreement of 2015, member states agreed to limit global warming to 2 °C versus pre-industrial levels. This would imply reducing greenhouse gas (GHG) emissions by 80 to 95 percent of the 1990 level by 2050. As industry accounted for about 28 percent of global greenhouse gas emissions in 2014, it follows that these targets cannot be reached without decarbonizing industrial activities. Industrial sites have long lifetimes; therefore, upgrading or replacing these facilities to lower carbon emissions requires that planning and investments start well in advance.
In this report, we investigate options to decarbonize industrial processes, especially in the cement, steel, ethylene, and ammonia sectors. We selected these sectors because they are hard to abate, due to their relatively high share of emissions from feedstocks and high-temperature heat compared to other sectors. We conclude that decarbonizing industry is technically possible, even though technical and economical hurdles arise. We also identify the drivers of costs associated with decarbonization and the impact it will have on the broader energy system.
The industrial sector is both a global economic powerhouse and a major emitter of GHG emissions
The industrial sector is a vital source of wealth, prosperity, and social value on a global scale. Industrial companies produce about one-quarter of global GDP and employment and make materials and goods that are integral to our daily lives, such as fertilizer to feed the growing global population, steel and plastics for the cars we drive, and cement for the buildings we live and work in.
In 2014, direct GHG emissions from industrial processes and indirect GHG emissions from generating the electricity used in the industry made up ~15 Gton CO2e (~28 percent) of global GHG emissions. CO2 comprises over 90 percent of direct and indirect GHG emissions from industrial processes. Between 1990 and 2014, GHG emissions from the industrial sector increased by 69 percent (2.2 percent per year), while emissions from other sectors such as power, transport, and buildings increased by 23 percent (0.9 percent per year).
Almost 45 percent of industry’s CO2 emissions result from the manufacturing of cement (3 Gton CO2), steel (2.9 Gton CO2), ammonia (0.5 Gton CO2), and ethylene (0.2 Gton CO2)—the four sectors that are the focus of this report. In these four production processes, about 45 percent of CO2 emissions come from feedstocks, which are the raw materials that companies process into industrial products (for example, limestone in cement production and natural gas in ammonia production). Another 35 percent of CO2 emissions come from burning fuel to generate high-temperature heat. The remaining 20 percent of CO2 emissions are the result of other energy requirements: either the onsite burning of fossil fuels to produce medium- or low-temperature heat, and other uses on the industrial site (about 13 percent) or machine drive (about 7 percent) (see Exhibit 1).
Exhibit 1: Why are the steel, cement, ammonia, and ethylene sectors hard to abate?
Source: IEA data from World Energy Statistics © OECD/IEA 2017 IEA Publishing; Enerdata: global energy and CO2 data; expert interviews
After breakthroughs in the power, transport, and buildings sectors, industrial decarbonization is the next frontier
Global efforts have driven innovation and the scaling up of decarbonization technologies for the power, buildings, and transport sectors. This has led to major reductions in the costs of these technologies. Examples are the recent reductions in the costs of solar photovoltaic modules and electric vehicles. Less innovation and cost reduction have taken place for industrial decarbonization technologies. This makes the pathways for reducing industrial CO2emissions less clear than they are for other sectors.
Besides that, CO2 emissions in the four focus sectors are hard to abate for four technical reasons. First, the 45 percent of CO2 emissions that result from feedstocks cannot be abated by a change in fuels, only by changes to processes. Second, 35 percent of emissions come from burning fossil fuels to generate high-temperature heat (in the focus sectors, process temperatures can reach 700 °C to over 1,600 °C). Abating these emissions by switching to alternative fuels such as zero-carbon electricity would be difficult because this would require significant changes to the furnace design. Third, industrial processes are highly integrated, so any change to one part of a process must be accompanied by changes to other parts of that process. Finally, production facilities have long lifetimes, typically exceeding 50 years (with regular maintenance). Changing processes at existing sites requires costly rebuilds or retrofits.
Economic factors add to the challenge. Cement, steel, ammonia, and ethylene are commodity products for which cost is the decisive consideration in purchasing decisions. With the exception of cement, these products are traded globally. Generally, across all four sectors, externalities are not priced in and the willingness to pay more for a sustainable or decarbonized product is not yet there. Therefore, companies that increase their production costs by adopting low-carbon processes and technologies will find themselves at an economic disadvantage to industrial producers that do not.
Industrial companies can reduce CO2 emissions in various ways, with the optimum local mix depending on the availability of biomass, carbon-storage capacity and low-cost zero-carbon electricity and hydrogen, as well as projection changes in production capacity
A combination of decarbonization technologies could bring industry emissions close to zero: demand-side measures, energy efficiency improvements, electrification of heat, using hydrogen (made with zero-carbon electricity) as feedstock or fuel, using biomass as feedstock or fuel, carbon capture and storage (CCS), and other innovations.
The optimum mix of decarbonization options depends greatly on local factors. The most important factors are access to low-cost zero-carbon electricity and access to a suitable kind of sustainably produced biomass because most processes in the focus sectors have significant energy- and energy-carrier-related feedstock requirements that could be replaced by one or both of these alternatives. The local availability of carbon storage capacity and public and regulatory support for carbon storage determine whether CCS is an option. The regional growth outlook for the four focus sectors matters, too, because certain decarbonization options are cost-effective for use at existing (brownfield) industrial facilities while others are more economical for newly built (greenfield) facilities.
Since the optimum combination of decarbonization options will vary greatly from one facility to the next, companies will need to evaluate their options on a site-specific basis. To help industrial companies narrow down their options and focus on the most promising ones, we offer the following observations, which account for current commodity prices and technologies (see Exhibit 2):
Energy efficiency improvements can reduce carbon emissions competitively, but cannot lead to deep decarbonization on their own. Energy efficiency improvements that lower fuel consumption by 15 to 20 percent can be economical in the long run. However, depending on the payback times on energy efficiency required by companies (sometimes less than two years), implementation can be less than the potential of 15 to 20 percent.
Where carbon-storage sites are available, CCS is the lowest-cost decarbonization option at current commodity prices. However, CCS is not necessarily a straightforward option for decarbonization. CCS imposes an additional operational cost on industrial companies, whereas further innovation could make alternative decarbonization options (for example, electrification of heat) cost competitive vis-à-vis conventional production technology. CCS can only be implemented in regions with adequate carbon-storage locations, and supportive local regulations and public opinion. CCS has the distinction of being the only technology that can currently fully abate process-related CO2 emissions from cement production.
At zero-carbon electricity prices below ~USD 50/MWh, using zero-carbon electricity for heat or using hydrogen based on zero-carbon electricity becomes more economical than CCS. Electricity prices below USD 50/MWh have already been achieved locally (e.g., hydro and nuclear-based power-system of Sweden) and could be achieved in more places with the current downward cost trend in renewable electricity generation. The minimum price that makes it less expensive to switch to zero-carbon electricity than to apply CCS for decarbonization depends strongly on the sector, local fossil fuel and other commodity prices and the state of the production site.
» At electricity prices below ~USD50/MWh, electrifying heat production at greenfield cement plants is more cost-competitive than applying CCS to the emissions from fuel consumption, provided that very-high-temperature electric furnaces are available.[7, 8]
» At electricity prices below ~USD35/MWh, hydrogen use for greenfield ammonia and steel production sites is more cost-competitive than applying CCS to conventional production processes.
» At electricity prices below ~USD25/MWh, electrification of heat in greenfield ethylene production and in brownfield cement production and usage of hydrogen for brownfield steel production are more cost-competitive than applying CCS to conventional production processes.
» Finally, below an electricity price of ~USD15/MWh, usage of hydrogen for brownfield ammonia production and electrification of heat for ethylene production are more cost-competitive than applying CCS to conventional production processes. This means that electric heat production and usage of electricity to make hydrogen are more economical approaches to decarbonization than CCS in all four focus sectors at this electricity price level.
Exhibit 2: With low electricity prices, cost-based trade-offs will favor more electrification and hydrogen than CCS
Lower costs for capital equipment or process innovations could make electrification or the use of zero-carbon electricity based hydrogen economical at higher electricity prices.
Using biomass as a fuel or feedstock is financially more attractive than the electrification of heat or the use of hydrogen in cement production and at electricity prices above ~USD 20/MWh in steel production. Mature technologies are available for using biomass as fuel and feedstock in steel and as fuel in cement production. These technologies reduce emissions more economically than CCS on the conventional process. Biomass can also replace fossil fuel feedstocks for ethylene and ammonia production. Though this approach costs more than electrification or hydrogen usage, it also abates emissions in both the process and at end-of-life of the product, such as the emissions from incineration of plastics made from ethylene. The global supply of sustainably produced biomass, however, is deemed limited at the global level. Additionally, re-forestation to generate offsets might be a counter use of biomass rather than the shipping and usage in industrial processes.
Demand-side measures are effective for decarbonization but were not a focus of this report. Replacing conventional industrial products with lower-emission alternatives (e.g., replacement of cement with wood for construction) would result in significant reductions in CO2 emissions from the four focus sectors. Radical changes in consumption patterns driven by technology changes could further offset demand, such as reduced build-out of roads (and therefore cement) through autonomous driving, reduced demand for ammonia through precision agriculture. Moreover increasing the circularity of products, by e.g., recycling or reusing them can also cut CO2 emissions. Producing material based on recycled products generally consumes less energy and feedstock than the production of virgin materials. As an example, producing steel from steel scrap requires only about a quarter of the energy required to produce virgin steel.
Industrial decarbonization will require increased investment in industrial sites and has to go hand in hand with an accelerated build-out of zero-carbon electricity generation
Completely decarbonizing the energy-intensive industrial processes in the four focus sectors will have a major impact on the energy system. It is estimated that it would require ~25 EJ to 55 EJ per year of low-cost zero-carbon electricity. In a business-as-usual world, only 6 EJ per year would be needed, indicating that, regardless of the mix of decarbonization options chosen, electricity consumption will go up significantly. The transition in the power and industrial sectors should thus go hand in hand. The industrial sector might be able to lower the costs of the power sector transition, e.g., by providing grid balancing, while being a large off-taker that can support increased build-out of generation capacity.
The total costs of fully decarbonizing these four sectors globally are estimated to be ~USD 21 trillion between today and 2050. This can be lowered to ~USD 11 trillion if zero-carbon electricity prices come down further compared to fossil fuel prices (see Exhibit 3). These estimates are based on cost assumptions that do not allow for process innovations or significant reductions in the costs of capital equipment. Furthermore, they heavily depend on the emission reduction target, local commodity prices, the selected mix of decarbonization options, and the current state of the production site. The estimated costs for complete decarbonization of the four focus sectors are equivalent to a yearly cost of ~0.4 to 0.8 percent of global GDP (USD 78 trillion). According to the estimations in this report, about 50 to 60 percent of these costs consist of operating expenses and the remainder consists of capital expenditures, mainly for cement decarbonization.
An analysis of the effects of different electricity prices suggests that decarbonization would have an upward impact on the costs of the industrial products: cement doubling in price, ethylene seeing a price increase of ~40 to 50 percent, and steel and ammonia experiencing a ~5 to 35 percent increase in price.
Exhibit 3: The total costs of decarbonization are highly dependent on the electricity price
Source: McKinsey Energy Insights
Advance planning and timely action could drive technological maturation, lower the cost of industrial decarbonization and ensure the industry energy transition advances in parallel with required changes in energy supply
Governments can develop roadmaps for industrial decarbonization on local and regional levels. Setting such a longer-term direction for decarbonization could support planning for decarbonization by other parties, including industrial companies, utilities and owners of key infrastructure (such as the electricity grid or hydrogen pipelines), and unlock investments with long payback times. Such a roadmap should take a perspective, e.g., on the production outlook, resource availability (including carbon-storage sites), additional resources required (zero-carbon electricity generation, etc.), coordinated roll-out of infrastructure and demand-side measures, as well as the role government would play (e.g., in the development of critical infrastructure).
Adjust regulation and incentives in line with decarbonization roadmaps. Various policy mechanisms could support industrial decarbonization. These might include direct incentives for companies to decarbonize or adjustments to the financial requirements placed on utilities and other companies involved in energy generation and distribution.
Industrial companies should prepare for decarbonization by conducting a detailed review of each facility in their portfolio. Such a review should include the availability of low-cost zero-carbon electricity, zero-carbon hydrogen, biomass, and carbon-storage capacity near the facility as these will differ on a country-by-country basis. Interaction with other stakeholders, such as governments, utilities, and other industrial companies, could help to identify synergies between industrial decarbonization and decarbonization in other sectors or companies, driving targeted innovation and driving down costs. For example, companies in an industrial cluster might benefit from shared carbon-storage infrastructure.
Governments, industrial companies, and research institutions can support innovation and the scale-up of promising decarbonization technologies, which is required to reach full decarbonization of the industrial sector. Innovative decarbonization technologies could potentially lower the costs of the industry transition. Governments can support the development of innovative decarbonization options, including the scale-up of global markets, e.g., in certain types of biomass, or the introduction of innovative processes to lower implementation costs. Overall, decarbonizing industrial sectors requires collaboration across governments, industrial players, and research institutes, similar to the effort that led to the cost reduction and scale-up of renewable energy generation.
McKinsey & Company, www.mckinsey.com. Copyright (c) 2018 McKinsey & Company. All rights reserved. Reprinted by permission.
About the authors
Occo Roelofsen is a Senior Partner, Arnout de Pee is a Partner, Eveline Speelman is an Associate Partner, and Maaike Witteveen is an Engagement Manager in McKinsey’s Amsterdam office. Dickon Pinner is a Senior Partner in McKinsey’s San Francisco office and Ken Somers is a Partner in McKinsey’s Antwerp office.
 Feedstocks are the raw materials that companies process into industrial products. High-temperature heat is defined in this report as a temperature requirement above 500 °C.
 Based on IEA data from the World Emissions Database © OECD/IEA 2018, IEA Publishing; modified by McKinsey.
 Breakdown of emissions is defined by the use of various reports and datasets, most importantly IEA, Enerdata, heat and cooling demand, market perspective (JRC 2012), and sector energy consumption flow charts by the US Department of Energy combined with input from experts. Activities up and down the value chain are not included in these numbers and could lead to additional emissions, e.g., transportation of fuel to the production site or incineration of ethylene-based plastics at end of product life.
 Other innovations can be non-fossil-fuel feedstock change (e.g., alternatives for limestone feedstock in cement production) and other innovative processes (e.g., reduction of iron ore with electrolysis).
 At the current state of technology, process emissions from cement production can only be abated by a change in the feedstock. Alternatives for the conventional feedstock (limestone) are not available (yet) at scale. Hence, decarbonizing cement production currently relies on CCS.
 The zero-carbon electricity price should be the average wholesale industrial end user price, so including, e.g., transmission, distribution, and storage costs.
 Electrification of very-high-temperature heat (>1,600 °C) required in cement production would require research, as these temperatures are not yet reached in electric furnaces.
 Process emissions from cement production cannot be abated by a fuel change and therefore require CCS, irrespective of electricity prices.
 These total costs include all capital and operational costs on industrial sites, but exclude other costs, e.g., build-out of zero-carbon electricity generation capacity.
 Conventional prices assumed are: cement USD 120/ton, steel USD 700/ton, ammonia USD 300/ton and ethylene USD 1,000/ton.
Increased awareness of methane’s impact on the environment is leading to increased monitoring for methane leaks. In order to reduce the amount of methane emitted into the atmosphere, we need better detection technologies. Last summer, EDF collaborated with the world’s largest oilfield service company – Schlumberger – to test a variety of stationary and hand-held technologies to detect methane leaks from equipment in the upstream oil and gas sector. To learn more about how technology and innovation can help solve the methane problem visit business.edf.org.
Published on Mar 29, 2018
Full project details are available on the Geoscience BC website: http://www.geosciencebc.com/s/2016-06… GHGMap uses novel sensors, developed by NASA/JPL , on drones to improve the speed, accuracy, safety and cost of measuring greenhouse gas (GHG) emissions. The technology will be used to remotely map emissions of gases such as methane, ethane and carbon dioxide — providing the independent measurement data needed for informed decisions. Developing and using new technologies to better understand GHG emissions helps Canada to maintain its reputation as a leader in clean resource development, in GHG emission reduction and in innovation. By bringing technology closer to commercialization, GHGMap will also create new economic opportunities for Western Canada. GHGMap meets a need to accurately and cost-effectively measure emissions of methane, ethane and carbon dioxide from sites that may be high sources of GHGs. These include natural and manmade sites such as, wetlands, landfills, sewage treatment plants, agricultural feedlots, gas wells, infrastructure and pipelines, dams and thawing permafrost. – Accurate measurement is essential to reliably assess true GHG emissions, not just modelled values. – As legislation evolves to work towards emissions reduction targets, governments need measurement-based GHG budgets to develop robust GHG inventories and quantify and verify reductions. – The petroleum energy sector and others want GHGMap to identify and reduce emissions. – Communities are demanding comprehensive, accurate and economical ways to obtain GHG emissions data, as they seek to make balanced resource development and the environmental decisions. Initially running from 2017 to 2020, GHGMap will: – Provide the first Canadian GHG inventory based on real-time, remote data collection, rather than the emissions models currently used for reporting. – Deploy laser spectrometer (OPLS) technology from NASA’s Jet Propulsion Laboratory (JPL) to measure GHG emissions. – Rapidly obtain and report measurements of trace quantities of greenhouse gas emissions on a regional scale or within just a few metres of GHG emitting site. – Identify and test greenhouse gas emissions at a variety of petroleum energy sites in Western Canada to improve identification and remediation. – Train highly qualified personnel to use equipment to survey GHG emissions. – Demonstrate real-time GHG emission monitoring and attract future commercial investment in and use of the technology by demonstrating a sustainable business model. The technology will be tested at selected gas sites in northeast British Columbia before being rolled out to other parts of Western Canada. Project Benefits GHGMap uses a laser spectrometer (OPLS) originally designed by NASA’s Jet Propulsion Laboratory that measures critical GHGs, including methane, ethane and carbon dioxide at parts-per-billion levels. This tiny, 400 g OPLS instrument is mounted and flown on a small Unmanned Aerial Vehicle (sUAV or drone) to map GHG concentrations and distributions. The GHGMap team, which includes Geoscience BC, Geochemical Analytic Services, InDro Robotics and NASA/JPL, is also partnering with Optical Knowledge Systems to build the next generation system, a Capillary Absorption Spectrometer (CAS), which will add the powerfully diagnostic gas fingerprinting of carbon isotope to the measurement palette. This will use ‘atmospheric dispersion’ and ‘eddy covariance flux’ modelling to pinpoint locations and intensities of specific emissions. An important feature is the integration of large-scale methane and carbon dioxide measurements using Canada’s new GHGSat satellite. GHGMap bridges the scale and data gaps between satellite data and on-site pointsource measurements.
Published on Feb 22, 2018
Digital technologies are shaping the world around us, and Statoil intends to be a driver of change in the energy industry. This film provides an overview of the digital ambitions and technologies which Statoil is working to implement on the Johan Sverdrup field to further improve safety, production and value.
Published on Feb 8, 2018
The Health and Safety Executive has written to all oil and gas operators expressing concern about the number of gas releases in the industry.
The regulator said some had come “perilously close to disaster” and that more needed to be done to tackle them.
The HSE said a “lack of leadership” was often to blame for leaks, and called for firms to review their processes.
Operators have until July to respond with a summary of their planned improvements.
The HSE has written to operators ahead of the 30th anniversary of the Piper Alpha disaster. The platform exploded in July 1988, leaving 167 men dead.
It said it had become concerned by the number of releases still happening.
The plan is to then feed back the findings to the sector at an event later in the year.
Chris Flint, the HSE’s director of energy division, said: “Every HCR (hydrocarbon release) is a safety threat, as it represents a failure in an operator’s management of its risks.
“I recognise the steps the industry has taken to reduce the overall number of HCRs, however HCRs remain a concern, particularly major HCRs because of their greater potential to lead to fires, explosions and multiple losses of life.
“There have been several such releases in recent years that have come perilously close to disaster.”
He added: “Experience from our investigations is that HCRs typically happen because there have been failings across the board.
“If you get the safety culture right, staff will be much more likely to spot hazards, challenge when standards aren’t right, and be engaged in improvement.”
Oil & Gas UK’s chief executive Deirdre Michie said: “As the HSE recognise in the letter sent to our members, our industry has delivered “a substantial and welcome downward trend in the total number of HCRs since 2005.
“However, we all know there is never room for complacency.
“We understand why the HSE wants to highlight areas where industry can further improve and we continue to work closely with them to reduce hydrocarbon releases.
“The industry is committed to ensuring lessons are learned and good practice is shared, and look forward to using the results of this initiative to progress this important work.”
In 2012, a leak on Total’s Elgin platform continued for 51 days.
The company was fined more than £1m.
Satellite measurement is an ideal method for monitoring methane emissions from shale gas operations. Current methods require crews to visit each facility on a regular basis, whereas GHGSat’s high resolution satellites can identify superemitters through periodic surveys of all shale gas operations, without any on-site equipment, at a fraction of the cost of current methods.
As of 2019, GHGSat aircraft measurements will provide very-high resolution measurements of shale gas plays to complement GHGSat satellite measurements. Very high resolution measurements from GHGSat aircraft sensors will enable detection of smaller leaks, and localize those leaks within a facility to facilitate repair. GHGSat aircraft sensors will leverage the same post-processing toolchain used by its satellites, thereby cross-validating results and providing cost-effective aircraft services.
GHGSat’s “tiered solution” will combine satellite and aircraft measurements in a single service to detect approximately 90% of all methane leaks (by volume) from shale gas operations. This service is unique – no other company can combine both satellite and aircraft measurements in a single, cost-effective service for shale gas operators.
Inspections in the oil & gas industry can be a costly, dangerous job. Learn how the #Intel Falcon 8+ is reducing injury risk and creating cost savings. Subscribe now to Intel Business on YouTube: http://intel.ly/intelitcenteryt About Intel Business: Get all the IT info you need, right here. From data center to devices, the Intel® Business Center has the resources, guidance, and expert insights you need to get your IT projects done right. Connect with Intel Business: Visit Intel Business’s WEBSITE: http://intel.ly/itcenter Follow Intel Business on TWITTER: https://twitter.com/IntelITCenter Follow Intel Business on LINKEDIN: https://www.linkedin.com/company/it-c… Follow Intel Business on FACEBOOK: https://www.facebook.com/IntelBusiness Intel Falcon 8+ Drone transforms inspections conducted in the oil and gas industry | Intel Business https://www.youtube.com/intelitcenter
Youtube Published on Nov 16, 2017
The World Economic Forum launched today the Fostering Effective Energy Transition report, which ranks 114 countries on how well they are able to balance energy security and access with environmental sustainability and affordability
The report finds that worldwide progress towards environmental sustainability has stalled, while energy prices have risen in real terms in more than half of the countries surveyed despite an overall fall in fuel prices
Sweden, Norway and Switzerland lead the rankings table; France and UK lead the way among the G7 countries; and the world’s two largest economies, the United States and China, score highly on their readiness for energy transition