Chris Bataille

1. Deep mitigation in industrial sectors exposed to
international competition
How can we trigger investment in low GHG processes
in a world moving at different climate policy speeds?
1 1 N O V E MB E R 2 0 2 2
I P C C . C H

2. The interlocking strategies for industrial decarbonization, and what will likely & likely not
have competitiveness issues
E.g., using ground limestone and calcined clay replacements for clinker in cement could reduce CO2 emissions 40-
50%, but has minimal cost impacts, and therefore is not a competitiveness issue. Adding CCS for the remaining 50%
will likely have cost and competitiveness impacts.
Low costs, little
chance of leakage,
barriers are
domestic with some
cost structure and
agency issues. Trade
policy NOT needed.
Significant added
costs per unit &
usually traded.
Leakage possible.
Lead/niche markets
& competitiveness
trade policy ARE
needed.

3. Getting investment going in deep mitigation technologies for
industry is not about technology, but risk management
• While emerging technology exists to largely decarbonize most industrial processes,
innovation will be slow without policy intervention because:
– of typically very low profit margins
– the first generation of transformative technologies will cost +20-100% more for producers
while adding only 0.5-2% to vehicles, and a few % to building/infrastructure
– these commodities are normally undifferentiated and market share is sensitive to costs
– capital costs are focussed and upfront
– facility lives are long and turnover is slow
– Except for some recent public green procurement & private bilateral offtake
agreements), there are very few markets for more expensive low GHG materials
• Policy for heavy industry needs to target these challenges directly, it’s mainly about risk

4. • Negative, exclusionary climate clubs, the original conception made known by Nordhaus
 A group of nations with strong climate policy join in a group and raise a collective border carbon
tariff to protect their vulnerable industries. The EU has some characteristics like this. This
conception still dominates trade thinking, with leakage as a key concept
 Carbon pricing works for partial reductions, but transformational shifts require more
• Positive, inclusionary climate clubs (e.g., Hermville et al 2022, Nilsson et al 2022), also EU.
 Differential $/t CO2e effort ok, maybe even global welfare maximizing given different welfare
functions
 Countries work together on a shared GHG accounting and MRV system
 Countries work together towards technology transformation. Shared R&D, tech intellectual
property, & commercialization costs (e.g., for lead market contracts for difference).
 Non-participants are welcome to export ultra-clean products and even capture lead market
subsidies on parity with domestic producers (Scope 1 & 2 matters here)
The role of risk and relative costs in making decarbonization investments
Is there a role for both negative and positive “climate clubs”?

5. The role of risk and relative costs in making decarbonization investments
Can we think systematically about reducing leakage, reducing risk for clean
production, innovation & commercialization, building economies of scale, and
getting costs to rough parity without generating a political backlash?

6. Combined possible strategies for traded & non-traded components
• A multi-level policy commitment to transition to net-zero GHG industry
• Domestic building code, design & recyclability policies to encourage material efficiency/circularity
• Sector based transition pathway planning process including all key stakeholders to assess strategic &
tech options, competitive (dis)advantages, infrastructure needs and uncertainties
• Inclusionary climate club elements: Accelerated R&D and commercialization; technology sharing;
common MRV & regulatory standards; create pooled lead markets to build economies of scale w/
green procurement, content regs, supply chain branding, guaranteed pricing & output subsidies
• Exclusionary climate club elements: Eventual exposure of all sectors to broad GHG pricing with
competitiveness protections, e.g. border carbon adjustments sensitive to emerging economy needs
• Early retirement may be necessary for long-lived, highly GHG-intense facilities, with a comprehensive
just transition for workforces and communities

7. @IPCC_CH
#IPCReport
For more information:
IPCC Secretariat: ipcc-sec@wmo.int
IPCC Press Office: ipcc-media@wmo.int
Visit ipcc.ch
@IPCC
@IPCC
linkedin.com/
company/ipcc
Thank you.
cbataill@gmail.com / cb3794@columbia.edu
Lead Author Chapter 11 Industry
Chris Bataille