The Paris Agreement’s goal to limit global surface temperature to 1.5°C above pre-industrial levels requires the swift decarbonisation of all sectors of the economy by 2050. However, some sectors are much harder to decarbonise due to their physical, technological or market-specific circumstances.
These ‘hard-to-abate’ sectors include energy-intensive industries with substantial challenges in reducing emissions like shipping, aviation, iron and steel, chemicals and petrochemicals and the like. Taken together, they collectively account for approximately one-quarter of the world’s energy consumption and around one-fifth of total CO2 emissions .
Here in Malaysia, policies like the newly approved Energy Efficiency and Conservation Act (EECA) represent the government’s efforts to double-down on regulations to ensure compliance with energy efficiency standards, initially targeting buildings of large energy consumers in the manufacturing and commercial sectors.
Going forward, the nation will need a combination of approaches involving renewables and energy efficiency to achieve full decarbonisation of hard-to-abate sectors. This calls for decisive and collective action, with far-reaching implications for climate policies, infrastructure, supply chains, and business models.
Understanding the landscape for industrial emissions
While all economic sectors are exposed to the energy transition, some more than others. The sectors with the highest degree of exposure directly emit significant quantities of CO2 emissions (for instance, the coal and gas power sector) or sell products that emit CO2 emissions (such as, the fossil fuel sector).
According to McKinsey & Co , about 20% of global GDP is in these sectors, with a further 10% of GDP in sectors with high-emissions supply chains like construction. The remaining 70% of GDP have less pronounced direct exposure, but they are nonetheless dependent on the highly exposed sectors through interconnected economic and financial systems.
Here in Malaysia, an examination of hard-to-abate sectors revealed 23 million tonnes of CO2 emissions equivalent (mtCO2eq) from the metal industry, 9mtCO2eq from the chemical industry, 57mtCO2eq from the waste industry, and 18 mtCO2eq from the cement industry – collectively accounting for 32% of the nation’s 330 mtCO2eq emitted in 2019.
Given the economy’s reliance on these hard-to-abate sectors, simply shutting them down or forcing them to use expensive renewables technologies could lead to job losses and widespread economic disruption. Which is why the steps needed to decarbonise these sectors have long been debated and yet progress so far has been slow.
Fortunately, two important factors have changed in recent years. First is the unprecedented social and political momentum pushing for decarbonisation. Second is the technological maturity and increasing competitiveness of renewable technologies, potentially bringing solutions closer to reality for major decarbonisation challenges in these sectors
Key technological pathways towards full decarbonisation
While each sector is different and will require different approaches, most emission reductions for hard-to-abate sectors must be achieved through a combination of technological pathways which primarily rely on renewables and energy efficiency. Direct electrification will play an increasing role, with key contributions in multiple applications.
Some of these solutions are already mature, or close to technological maturity. The Indonesia-Japan Steel Efficiency Project for example introduced a regenerative burner combustion system that captures furnace waste heat to preheat air, cutting energy use by 35% while boosting steel output by 15%.
Meanwhile, bioenergy and synthetic fuels will play a critical, complementary role to electrification. Brazilian petrochemical company, Braskem, created the world’s first bio-based plastic from sustainably sourced sugarcane for consumer packaging. As the product stores CO2 from the sugarcane, Braskem’s solution has a negative carbon footprint.
Indirect electrification – or via the production of renewable hydrogen – is also set to play an important role in achieving deep emissions reductions in hard-to-abate sectors. It can do this as a reductant in the production of iron in primary steel production, as a form of synthetic fuels for shipping and aviation, and as a feedstock for chemical industries.
Renewables technology pathways must be complemented by continuous energy efficiency improvements and the application of the principles of the circular economy. Additionally, emissions can be further reduced through the application of CO2 capture, utilisation and/or removal measures – provided these technologies are scalable and economically viable.
France’s Hoffman Green Cement, for instance, industrialised a technological breakthrough for designing and producing extremely low-carbon cements – with a carbon footprint 5 times lower than traditional cement . Thanks to their innovative solution, construction players can significantly reduce their carbon footprint to create sustainable cities of tomorrow.
Enabling conditions to accelerate decarbonisation in hard-to-abate sectors
While new technologies are increasingly available and despite making promising progress in recent years, none of the hard-to-abate sectors are on a trajectory compatible with reaching net-zero emissions by mid-century. As such, several enabling conditions need to be put in place to accelerate their decarbonisation.
Firstly, these sectors need a supporting policy environment to accelerate the massive investments required in green technology and infrastructure. Implementing national carbon pricing policies that internalise the full value of the negative environmental externalities of fossil fuels can create a more level playing field for the adoption of green technologies.
Which is why the Malaysian government’s plans in the recent Budget 2025 to implement a carbon tax aimed at the iron, steel and energy industry by 2026 is a timely one. This creates opportunities for Malaysia to put a price on carbon and incentivise carbon reductions, which may be extended to other key sectors in the future.
But in the absence of a sufficiently high and widespread carbon price for now, there is a need to kickstart markets for low carbon commodities. Since the production of low carbon commodities comes at a cost premium, industry players are disincentivised to invest in assets for their production given this would put them at a commercial disadvantage.
This creates opportunities for Malaysia to put a price on carbon and incentivise carbon reductions, which may be extended to other key sectors in the future.
Green public procurement programmes like Malaysia’s Government Green Procurement (GGP) can help to create demand for low-carbon commodities at scale. The GGP’s implementation across 12 ministries and their agencies achieved a total value amounting RM482 million, with cumulative CO2 emission reductions of 100.431 kilotonnes.
Beyond national initiatives, decarbonisation of hard-to-abate sectors is a multi-lateral challenge, given industrial commodities are globally traded. With its upcoming ASEAN chairmanship, Malaysia can foster mutually beneficial partnerships to decarbonise regional supply chains for these commodities, thereby lowering the cost of decarbonisation for all.
Decarbonising now to secure a greener, cleaner industrial future for all
The decarbonisation of hard-to-abate sectors represents one of the most formidable yet critical challenges in the fight against climate change. The interplay between policy, technology, and market mechanisms will be critical in this transition, offering the promise of not only meeting climate targets but also fostering sustainable economic growth.
The opportunity for Malaysia to lead globally in how to decarbonise industry and bend the emissions curve further downwards, is an opportunity that we cannot afford to go to waste. We must create the right incentive mechanisms, financial support, and technological development to decarbonise now and secure a greener industrial future that works for all.