Global companies work to facilitate firm market demand signals for the breakthrough technologies essential for a net-zero transition in “hard-to-abate” sectors.

BY PABLO BURKOLTER

Following years of insufficient climate action, it is becoming increasingly evident that the Paris Agreement to limit global warming to well below 2 degrees Celsius (2°C) and pursue all efforts to limit it to below 1.5°C could be in jeopardy.

Every fraction of a degree of warming carries greater risks of cascading climate tipping points, which society must do all it can to mitigate. About 40 percent of the emissions reductions necessary to transition the global economy to net zero by 2050 relies on the development of breakthrough technologies and energy solutions, such as bioenergy, renewable hydrogen-based fuels, green methanol and ammonia, sustainable aviation fuels (SAF), or carbon dioxide removal (CDR)—all of which are at a critical period of early deployment and carry a green premium, a higher cost than traditional technology. The window is rapidly closing to demonstrate and commercialize these innovative technologies over the critical 2020s decade, so they become available for massive scale-up to enable net-zero emissions by 2050.

Recognizing the urgency of bringing these technologies to market, President Joe Biden and the World Economic Forum launched the First Movers Coalition (FMC) at the United Nations Climate Change Conference in Glasgow (COP26) in November 2021. The launch was supported by 35 global companies that joined to send a powerful signal that there is firm market demand for the emerging technologies essential for a net-zero transition in “hard-to-abate” sectors. Six economically essential sectors—aluminum, cement and concrete, steel, aviation, shipping, and trucking—currently account for a third of global emissions. If left unabated, these sectors are projected to account for 50 percent of emissions by 2050, driven by a significant increase in global demand estimated at 80 percent for aluminum, 40 percent for cement and concrete, and 30 percent for steel. While sea freight is predicted to triple, trucking is expected to double by mid-century.

Stimulation of demand is essential to bring about a systemic change across these sectors and accelerate the pace of the transition to low-carbon solutions. FMC works to create the demand signal needed for technologies to go through the pilot-scale demonstration phase and accelerate the timelines to reach the first go-to-market projects on the path to large-scale commercialization beyond 2030.

Former U.S. Special Presidential Envoy for Climate John Kerry became co-chair of the coalition and continues to drive this initiative forward, rallying top companies with high climate ambition and a willingness to harness their purchasing power to decarbonize heavy-emitting industries. FMC and similar coalitions and initiatives that stimulate market demand, accelerate low-carbon technology deployment, and help facilitate bankable offtake agreements are vital to reducing and eliminating the green premium as well as to jump-starting the market for near-zero emissions products and services to achieve the Paris Agreement’s emissions reduction targets.

Taking Stock of First Movers in Action

Since its launch two years ago, and through the dedicated work of its 100 member companies that have made more than 120 commitments under FMC, the coalition has become the largest private-sector-led global demand signal for products and services made with innovative near-zero emissions technologies and energy solutions.

Members make purchasing commitments applicable to a minimum percentage of their existing spend on products and services in one or more FMC sectors by 2030 (e.g., 10 percent of the company’s steel procured or 10 percent of the volume of goods shipped overseas). These procurement figures can be small for a company but represent a substantial demand when aggregating all member commitments. It is estimated that the FMC now represents about $16 billion in aggregate annual demand by 2030, equating to 31 million tons of annual CO2 equivalent emissions reductions once these purchasing commitments are met.

FMC has evolved from a purely demand signaling initiative to also support members’ procurement efforts across all seven sectors. The coalition convenes players involved in the full life cycle of a product such as, say, low-carbon aluminum or steel to foster collaboration and action on breakthrough technologies. FMC convenes regional workshops, bringing together experts to discuss scaling up the supply of near-zero emission solutions, identify the challenges and barriers to increasing both demand and supply, and develop concrete recommendations for a way forward.

To catalyze the emergence and commercialization of near-zero emissions innovations, the coalition launched two challenges—one on aviation in collaboration with UpLink, the World Economic Forum’s innovation platform, and one on steel in partnership with the Rocky Mountain Institute (RMI), ResponsibleSteel, and Greenhouse. And in January 2024, the First Suppliers Hub was launched as an online database where current and future suppliers of FMC-compliant technologies can present their products and connect with buyers.

Six economically essential sectors—aluminum, cement and concrete, steel, aviation, shipping, and trucking—currently account for a third of global emissions.

The value of collaboration has been evident in the past two years. FMC has played an important role in connecting players and creating unconventional partnerships between value chain actors (i.e., those involved in the full life cycle of a product) and other industry sectors to bridge the gaps between demand, supply, and essential ecosystem enablers such as policy, finance, and infrastructure. This has resulted in an increasing number of offtake agreements and investments with suppliers, translating purchasing commitments into action and bringing breakthrough technologies one step closer to commercial scale.

For instance, in January 2024, FMC member Ball Corporation announced a collaboration with fellow coalition member Novelis to launch its first-ever low-carbon aluminum cup, made of 90 percent recycled aluminum supplied by Novelis and 10 percent FMC-compliant low-carbon primary aluminum, supplied by Alcoa from the ElysisTM process—an R&D technology that eliminates direct greenhouse gas emissions from the aluminum smelting process.

In the aviation sector, where there is already strong demand for sustainable aviation fuels (SAF), public-private partnerships between governments, airlines, fuel suppliers, and investors are needed to expedite its deployment and deliver net-zero aviation. One example of full value chain collaboration that stands out is the Minnesota SAF Hub, where multiple coalition members from different sectors collaborate with the state government and airport to find solutions to scale SAF global production and replace conventional jet fuel.

In shipping, Amazon, a founding member of the FMC, has been instrumental in getting the Zero Emission Maritime Buyers Alliance (ZEMBA) off the ground. Through ZEMBA, cargo owners can demonstrate demand through forward-procurement of zero-emission maritime freight services. Amazon is supporting joint efforts under ZEMBA to ship 600,000 TEUs (20-foot equivalent units) on zero-emission vessels over three years, which will result in close to 1 million tons of CO2 emissions reduction.

Carbon dioxide removal (CDR) is increasingly seen as a critical decarbonization tool if we are to hit the Paris climate goals. Up to 10 billion tons of CDR per year is expected to be needed by 2050, according to the median estimates of scenarios considered by the Intergovernmental Panel on Climate Change (IPCC). FMC decided in 2022 to also launch a CDR program under which members commit to contract for at least 50,000 tonnes or $25 million worth of durable and scalable CO2 removal by 2030. To date, while advance purchases for engineered CDR are only at a total of about 11 million tonnes—a minuscule fraction of what is needed—FMC members and implementation partners represent more than 80 percent of that total.

Microsoft is leading the charge, accounting for more than 60 percent of all engineered CDR purchases made to date. Among the deals concluded is a 2023 agreement with fellow FMC member Orsted and Aker Carbon Capture, committing to one of the world’s largest carbon removal agreements—2.76 million tonnes of durable CDR over 11 years.

These collaborations are a testament to the power that demand signals and early procurement commitments can play in accelerating the deployment of emerging clean energy technologies. The Mission Possible Partnership’s Global Project Tracker reveals, however, that the heavy industry transition needs to accelerate sevenfold to meet 2030 climate targets. To reach FMC’s goals by 2030, the initiatives that FMC members have taken need to be replicated at scale and supported by adequate infrastructure, financing, and an enabling policy environment.

The Way Forward

FMC’s work has brought to light the challenges of scaling up near-zero emissions products and services, especially at the pace required to get on track for net zero, and the risk that as demand-side signals increase, potential supply shortages might emerge. Some of these challenges are:

• Insufficient renewable energy capacity and grid infrastructure to provide the zero-carbon electricity needed to decarbonize (e.g., to produce green hydrogen).

• Lack of technology at commercial scale, despite significant progress in developing pathways and pilots that could lead to decarbonization. Will a particular technology prove to be the final pathway, or will it just be transitional, leading to a different path altogether?

• Unwillingness to pay for green premiums. Demand remains insufficient, especially at the green premium, to justify the investment required to produce near-zero emissions solutions. For example, zero-emission fuels for shipping currently cost three to four times the price of bunker fuel, while sustainable aviation fuel can cost five times more than traditional jet fuels.

• Insufficient collaboration between suppliers, innovators, financiers, demand-side buyers, policymakers, and others in the value chain.

Carbon dioxide removal (CDR) is increasingly seen as a critical decarbonization tool if we are to hit the Paris climate goals.

To spearhead the shift to near-zero emissions products and services and accelerate the demand for net-zero technologies, additional measures could help us move faster and at scale.

First, governments need to enact more supportive policies and regulations that help industry decarbonize, through carbon taxation, tax credits, low-interest loans, subsidies, grants, and other incentives. Policy incentives worth mentioning include the production and investment tax credits envisaged under the U.S. Inflation Reduction Act (2022), or the subventions provided under the European Union’s Green Deal Industrial Plan, and the Emissions Trading Scheme. FMC currently has 13 government partners, in addition to the United States, to support efforts on policy and regulations, with more countries interested in partnering, as well.

Since public procurement represents a significant share of GDP, the adoption of low-carbon procurement practices could also send a strong market signal to suppliers, incentivize investment and supply chains development, facilitate uptake, and reduce the green premium. In the cement and concrete sector, public procurement is responsible for 40 to 60 percent of global concrete sales, highlighting the impact that public procurement could have.

Policy can be leveraged to ensure a broad application of decarbonization targets that can further spur the market by setting mandates for the private sector, for instance. Countries like the United States have signed the Industrial Deep Decarbonisation Initiative (IDDI), co-launched in 2021 by the United Nations Industrial Development Organization and the Clean Energy Ministerial, to tackle carbon-intensive construction materials such as steel, cement, and concrete. But the number of countries signatory to IDDI remains low.

Because the breakthrough technologies needed to decarbonize the hard-to-abate industrial sectors require enormous up-front capital investment and ongoing production premiums but are also exposed to operational risks, international financial institutions, domestic development banks, and commercial banks need to cooperate and accelerate efforts to offer financial products that unlock funding and de-risk investments. These may include blended finance, concessionary loans, sustainability bonds, and first-loss insurance.

Realizing the Paris Agreement means the so-called hard-to-abate sectors have to abate. Addressing the many challenges to the development, financing, and adoption of these technologies is crucial to gain traction and continue making progress. FMC will continue to serve as a platform for companies around the world to leverage their collective purchasing power to accelerate the deployment of near-zero emission solutions. It will continue to drive collaboration efforts across value chains, including through aggregated demand, finance, and infrastructure, as well as sharing lessons in global forums aimed at strengthening the demand signal for low-carbon technology.

Pablo Burkolter is lead on Corporate Climate Ambition at the World Economic Forum, supporting business engagement across the organization’s climate initiatives, including the Alliance of CEO Climate Leaders and the First Movers Coalition. He previously led the forum’s Network of Global Future Councils and supported programming and session development in nature, climate, and energy for top-tier events such as the annual meeting in Davos. Before joining the World Economic Forum in 2014, he worked on policy and academic research on sustainability.

Read More...

• “It’s Not Just about Paris: International Climate Action Today” by Karen Florini & Ann Florini, The Foreign Service Journal, July-August 2017
• “The Benefits of International Partnerships” by William Peduto, The Foreign Service Journal, January-February 2022
• “First Movers Coalition: largest clean demand signal for emerging climate technologies,” World Economic Forum, January 2024