Heavy industry is a major contributor to greenhouse gases, responsible for as much as 30% of global carbon emissions.1 While many industries—including the aluminium sector—recognize the need for decarbonization, the cost and technical challenges of implementing decarbonization solutions remain significant barriers.
Industrial clusters offer the potential to break down those barriers.
Many decarbonization solutions are broad in their application and can be applied to multiple industries. This creates an opportunity for sectors that are typically the hardest to abate to work together by forming industrial clusters—companies in close physical proximity whether they are in the same or different industries. For example, the Humber Industrial Cluster in the UK brings together the energy, power and steel industries. Collectively, industrial cluster participants can implement decarbonization solutions that might otherwise not be technically or economically feasible for an individual company. These partnerships are mutually beneficial for both industrial and technology partners as the solutions are more cost effective when jointly procured and deployed at scale.
Through industrial clusters, companies can capitalize on economies of scale, share risks and mix-and-match a wider range of solutions that might not be effective in isolation. The World Economic Forum is collaborating with industry coalitions such as the Aluminium for Climate initiative to explore how hard-to-abate sectors can leverage collaboration solutions such as industrial clusters to accelerate decarbonization. The initiative’s recent publication “Closing the Gap for Aluminium Emissions: Technologies to Accelerate Deep Decarbonization of Direct Emissions” highlights the need for breakthrough technologies to mitigate direct emissions in aluminium production. These technologies include: 1) electrification using renewable energy; 2) carbon capture, utilization and storage; and 3) clean hydrogen production—all integral to decarbonizing aluminium. Investment in any one of these technologies might be difficult to justify for an individual company, but in the context of an industrial cluster, the business case improves greatly.
Decarbonization opportunities for industrial clusters
In the aluminium industry, electricity consumption is responsible for around 60% of sectoral emissions.2 Transitioning to renewable electricity presents the greatest opportunity for sectoral decarbonization. Yet, there are major disparities between aluminium companies’ current emission levels, which results in many different decarbonization strategies being pursued. For example, some already have access to reliable, affordable hydropower while others remain reliant on newly constructed captive coal-fired power plants.
For hard-to-transition sites, industrial clusters allow for greater capacity and variability in renewable energy systems. While solar photovoltaic or wind power resources may not be viable for certain industrial sites due to the variable nature of the power supply, industrial clusters allow for multiple feeds of renewable energy to be shared among partners, allowing for more reliable and affordable renewable electricity options. In addition, green hydrogen can complement the deployment of renewables to improve storage potential, manage variability and address energy needs beyond electricity. Shared infrastructure within an industrial cluster can decrease the cost and risk of transitioning to renewables for companies such as aluminium smelters that rely on captive power sources (e.g., a coal-fired power plant).
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Clean hydrogen is considered the ''Swiss Army Knife'' of the energy system, making it a strong candidate for industrial clusters.
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Carbon capture, utilization and storage (CCUS)
For sectors where decarbonizing through renewable electricity alone is still technically unfeasible, CCUS offers a promising option. However, companies must evaluate where they can realize the greatest return for their investment in CCUS. In the aluminium sector, flue gas from smelters has a low concentration of CO2 translating into a carbon capture cost well over US$100/tonne of CO2, while the recent price of carbon credits on the EU Emissions Trading System was €75 (approximately $85).3 Alumina refineries tend to present a better value case as the flue gas contains a higher concentration of CO2, translating to around $50-$80/tonne of CO2.
Another consideration is the cost of carbon transportation and storage. Around one-third of planned CCUS projects are tied to the development of industrial clusters that share transportation and storage infrastructure, as a localized approach reduces complexity and cost.4
In the aluminium industry, around 30% of refining and 35% of smelting production is within the bounds of geological carbon storage formations, as identified by OGCI’s Carbon Storage Resource Catalog.5 Assuming a 90% average capture rate, aluminium refineries and smelters within the bounds of geological storage formations could mitigate up to 6% of sectoral emissions using CCUS, according to Accenture analysis.
Clean hydrogen is considered the ”Swiss Army Knife” of the energy system, making it a strong candidate for industrial clusters. In principle, it can be used across many sectors for a broad range of purposes, including as a source for electricity, fuel and thermal energy.
In the aluminium industry, clean hydrogen has the potential to provide a viable alternative fuel for thermal energy generation, primarily to address the 4% of industry emissions attributed to high-heat processes.6 In addition, clean hydrogen can also be an option to address the 12% of sectoral emissions attributed to low- and medium-heat generation, although it remains expensive compared to fossil fuels in most operating environments. However, electrification remains a more efficient solution as the conversion of electricity to clean hydrogen can experience as much as 20%-40% in conversion losses.7
There are several methods used to generate clean hydrogen, including “blue hydrogen”—splitting natural gas into hydrogen and CO2. However the most sustainable long-term option is “green hydrogen,” which uses renewable energy-powered electrolyzers to produce hydrogen from water.8 While green hydrogen is still costly compared to traditional fossil fuels in most environments (US$3-$5 per kg of H2), organizations across the world are working to make green hydrogen more affordable.9 For example, at COP26, IRENA and the World Economic Forum released a series of “Enabling Measures Roadmaps for Green Hydrogen” with the aim to accelerate green hydrogen deployment globally.10
Accelerating the pace with industrial clusters
Leveraging industrial clusters to significantly reduce hard-to-abate emissions is recognized as increasingly impactful and is being explored by governments around the world to drive concrete emissions reductions in industry. For example, the UK is investing in industrial clusters throughout the nation to have at least one low-carbon cluster by 2030 and a net-zero cluster by 2040.11 Similarly, China has highlighted low- or zero-carbon clusters as a key policy to reduce emissions, with a goal to reach 50 near-zero-carbon zones by 2050.12
Industrial clusters provide numerous benefits to scaling low-carbon solutions by aggregating demand and co-locating supply and demand, reducing the need for long-distance storage and transport infrastructure. Awareness of the benefits of industrial clusters is growing as evidenced by the four global clusters (from Australia, UK and Spain) that initially signed onto the World Economic Forum’s global initiative, “Transitioning Industrial Clusters towards Net Zero,” undertaken in collaboration with Accenture and the Electric Power Research Institute (EPRI). Initiatives such as this could provide a model for how aluminium players across the globe can integrate with and form industrial clusters.
The strategy of each industrial cluster will vary by geography, industry composition, tax structure and more. The location of each cluster will impact technology selection, feasibility and the cost of implementation. Moreover, while an industrial cluster may focus on implementing new technologies, there is also a strong need for policy and financial support. Most importantly, cluster partners should build trust and develop business models that facilitate risk sharing while benefitting all members. By working together, hard-to-abate companies like aluminium producers can accelerate their path to net zero.
3 https://ember-climate.org/data/carbon-price-viewer/ (carbon price on January 4, 2022)