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Decarbonizing industry requires transformational change across a range of hard-to-abate sectors, spanning industrial heat and hydrogen. Globally, industrial emissions account for roughly 30% percent of the total, and in a European context must be tackled to maintain competitiveness and industrial leadership.
Hydrogen, an indispensable industrial feedstock currently deployed to refine oil and produce fuels, chemicals, and fertilizers, is generated using fossil fuels in high-emitting processes. Worldwide, hydrogen generation accounts for almost one gigatonne of CO2 emissions per year. In a decarbonized future, hydrogen uses will extend to support the decarbonization of certain hard-to-abate sectors, such as steel, shipping, and aviation. However, its use deployment should be limited, as it is energy-intensive to generate, and it does not contribute to significant emissions abatement in all applications.
Alongside hydrogen, heat pumps, electric boilers, and thermal energy storage offer a route to electrify industrial heat and rapidly reduce emissions. This spans both low-temperature solutions with high technology readiness levels and higher-temperature systems now entering commercial deployment. These solutions offer a more efficient pathway for the large share of industrial energy demand spanning sectors such as dairy, chemicals, and steel forging.
Policymakers should support the continued build-out of renewable energy sources to reduce electricity costs to levels comparable with fossil alternatives. The deployment of battery and thermal energy storage technologies should also be encouraged, alongside greater process flexibility. Upgrading the electricity grid and streamlining grid connections must be prioritised, as electricity will become the backbone of many industrial processes.
Renewable energy should not be used for the production of green hydrogen for sectors where other technologies would be more efficient or deliver a lower carbon abatement cost. The decarbonization of existing hydrogen production should be considered a low-hanging fruit and a no-regret option for clean hydrogen deployment. Policy incentives should not be extended to hydrogen uses that are inefficient and will lead to marginal emissions reduction, such as space heating, synthetic fuels for light-duty vehicles, and electricity generation (power sector).
The decarbonization of industrial heat will be driven primarily by reductions in electricity costs, but will also depend on targeted policy support to shorten payback periods for new technologies. In the near term, policymakers should initially advocate for subsidizing capital and operational costs to lower the risk for businesses.
