Investment in the energy transition has soared in recent years, from US$212 billion in 2013 to more than US$1.7 trillion in 2023, however, most of that investment has been in electrified transport and clean electricity, according to a recent report.

While the increase in investment should be celebrated, there is a need to boost investment in other technologies and hard-to-abate sectors as well, finds the Hard to Abate Sectors and Emmisions II – The Road to Decarbonizations report published by Citi.

Hard-to-abate sectors, such as steel, cement, aluminium, shipping and aviation, the Citi report adds, are today responsible for more than one-third of energy-related greenhouse gas emissions.

Many of these sectors are expected to grow over the coming years. And, if no action is taken, the report warns, emissions from these sectors could increase by more than 50% by mid-century. And, in many countries, hard-to-abate sectors are responsible for a large part of overall emissions.

For example, 36% of China’s emissions are attributed to industrial processes, the report calculates, while in the US the figure is estimated at nearly 23% of all greenhouse gas emissions. Countries, it adds, won’t reach their net-zero commitments unless these sectors are decarbonized.

However, spurred by government support, legislation and a push from clients, such as auto manufacturers and cargo owners, wanting to reduce their Scope 3 emissions, decarbonization in hard-to-abate sectors, the report notes, has started.

Nevertheless, trillions of dollars need to be deployed to scale up solutions and decarbonize these sectors, the report points out, with a previous report estimating that the cost of carbon abatement for steel, cement, aviation and shipping at approximately US$1.6 trillion per annum for a high scenario (not including aluminium or capital investment costs).

And because of these costs, many corporates will not be able to finance their needs on the balance sheet alone and will increasingly need project finance. Solutions for raising capital to fund the transition, the report suggests, include:

• Lending on the balance sheet
• Issuances of sustainable bonds
• Project finance, such as NEOM Green Hydrogen project, Northvolt and H2Green Steel.
• Joint ventures
• Equity, carbon credits and government grants and tax credits.

As well, energy efficiency, increasing recycling and improving the circularity of materials, the report shares, will not be enough to reach net zero in hard-to-abate sectors. Thus, supply-side solutions, such as renewables and nuclear, clean hydrogen, carbon capture and biomass, are needed.