Why decarbonizing manufacturing is critical to meeting our climate targets

Quentin is an Investor at Join Capital, an early-stage VC fund specialized in Industrial Tech, where he focuses on investments in companies decarbonizing manufacturing.

Biggest area(s) in climate you’d like to see more founders working on and investment going to?

Decarbonized Manufacturing.

TL;DR

• Manufacturing is a critical sector and the largest contributor to global CO2 emissions, with roughly 30% of global emissions. However, startup funding in this space remains limited, with less than 10% of global Climate Tech VC investments.

• Various approaches can significantly reduce manufacturing emissions: demand-side approaches, energy efficiency, electrification, low-carbon fuels, low-carbon processes, and carbon capture and storage (CCS) or utilization (CCU).

• There is no silver bullet. Decarbonizing manufacturing will require well-designed policies to accelerate innovation and provide incentives for technology deployment, as well as the appropriate level of funding for technology startups in that space.

Manufacturing is one of the most important sectors in Climate Tech. Here is why:

Manufacturing is a foundational block of our society, providing the materials and products we use every day such as the cement for the buildings we live in, the steel and plastics for the cars we drive, and the fertilizer for the food we eat. Manufacturing is also providing us with the net zero technologies we need to fight climate change, such as wind turbines, solar panels, and long-duration batteries.

Unfortunately, manufacturing is also the largest contributor to global GHG emissions. Industrial sectors accounted for roughly 30% of global emissions in 2019. This puts the industry second after energy in total GHG emissions and lifts it to the first position when indirect emissions are considered. Industrial emissions have also been growing faster than emissions in any other sector recently, driven by increased demand for manufactured goods.

Multiple available and emerging options have the potential to significantly reduce global GHG emissions from manufacturing. As in other sectors, startups are stepping up to the challenge and developing innovative technologies to create a more sustainable manufacturing industry. But despite their potential, Climate Tech investment in startups in manufacturing remains limited, with less than 10% of global Climate Tech VC investments in 2022.

The pollution challenge

Overall industrial direct GHG emissions amount to 14.1 Gt CO2e, and scales up to 20 Gt CO2e after indirect emissions are added. While emissions come from all manufacturing sectors (such as food and beverage, paper and pulp, or textiles), three stand out as the main contributors: iron & steel, chemicals & plastics, and cement. These sectors combined are responsible for over 40% of global CO2e emissions, making them critical decarbonization targets for manufacturing.

Emissions are coming from three main sources:

1. Processes emissions: most manufacturing processes involve a chemical reaction that generates CO2 as a byproduct (e.g., the production of cement generates CO2 as a byproduct of the calcination of limestone)

2. Direct emissions: many manufacturing processes involve the on-site combustion of fossil fuels (e.g., coal, natural gas, or oil) to generate the heat required to make the chemical reaction happen (e.g., steel production requires high temperatures to melt iron ore and other raw materials)

3. Indirect emissions: other manufacturing processes use purchased heat or electricity generated from fossil fuels, mainly to operate machines requiring electricity as a power source (e.g. CNC machines, compressors, or conveyor belts)

The most-emitting industries are particularly hard to abate for various technical challenges:

1. Feedstocks are hard to substitute in the process. These are the raw materials that are processed into end products and generate process emissions (e.g., limestone for cement production). They are an inherent part of the industrial processes and replacing them is complex.

2. Processes heavily rely on fossil fuels. They are used to generate high temperatures required by most manufacturing processes and generate direct emissions (e.g. steel production often requires temperatures above 1,500 °C). Switching to low-carbon alternatives is complex and costly.

3. Changing existing process equipment is hard. Industrial processes are highly integrated, and changing one part often requires changing other parts. Additionally, production facilities have long lifetimes (typically over 50 years) so changing processes often requires expensive rebuilding or retrofits.

Possible solutions

Various approaches are being explored to reduce emissions from manufacturing. On the demand side, approaches like material efficiency or enhanced recycling can reduce the need for new production, thereby reducing emissions. On the supply side, improving energy efficiency, replacing fossil fuels with electricity or sustainable fuels, and using less carbon-intensive processes can help reduce emissions from the production process. Carbon capture will also likely be needed to mitigate remaining emissions that cannot be eliminated.

♻️ Demand-side approaches

Various approaches can reduce the demand for goods, therefore reducing emissions associated with their production. These include material efficiency (e.g., using 3D printing instead of costing to use fewer materials and reduce waste), material substitution (e.g. replacing conventional materials like cement with lower-emission alternatives like wood), and other circular economy approaches (e.g., increasing recycling or reuse of plastic, producing steel from steel scrap, or increasing the durability of concrete). Exciting startups to watch in this space: Hyperganic, Leko Labs, Ioniqa, Traceless Materials, Cylib, and Continuum.

⚡ Energy efficiency improvements

Energy efficiency can significantly reduce emissions in manufacturing by reducing the amount of energy required to produce goods. It has long been recognized as the main mitigation option, as it reduces the necessary scale of deployment for low-carbon energy supplies and associated costs. These approaches include reducing heat needs via improved thermal insulation, reusing heat generated by industrial processes through industrial heat pumps, or implementing real-time monitoring with smart energy management systems. Exciting startups to watch in this space: Orcan Energy, Futraheat, Tocircle, Kerith, and Ecoplanet.

⚡ Electrification of heat

Direct emissions from the use of fossil fuels can be reduced by switching to low-carbon electricity for industrial heating equipment. Electrification is most viable when minimal retrofitting and rebuilding are needed, so it is currently the most viable in light industrial sectors. However, some thermochemical processes for chemicals, such as methane or methanol, could be replaced by electrochemical ones (i.e., using electricity, rather than heat, to drive chemical reactions). It may even become feasible to electrify cement calcination through plasma or microwave options. Exciting startups to watch in this space: Heaten, Airthium, Heatrix, and Atmonia.

🔥 Low-carbon fuels for heat

Direct emissions from the use of fossil fuels can also be reduced by switching to low-carbon fuels such as hydrogen, biofuels, or e-fuels. Hydrogen and e-fuels are still in the early stages of commercialization. However, biofuels like solid biomass (e.g. from wood chips) are already commonly used in the industry, even occasionally used in cement kilns and boilers. Other biofuels like biomethane, biomethanol, or bioethanol are also available and “drop-in” compatible (i.e. they can replace fossil fuels without requiring significant infrastructure modifications). Exciting startups to watch in this space: Ineratec, H2 Green Steel, Reverion, Sakowin, Synhelion, and Turn Energy.

🧪 Low-carbon feedstocks and processes

Process emissions can be reduced by reducing the proportion of conventional feedstocks or substituting them for low-carbon alternatives. For example, fly ashes can be used to reduce the proportion of cement in concrete, charcoal can be used instead of coal for steel production. Similarly, low-carbon hydrogen can replace natural gas for ammonia production (more info here). Exciting startups to watch in this space: SGMA, enaDyne, Biosimo Chemicals, EcoLocked, BioZeroc.

💨 Carbon capture and storage (CCS) or usage (CCU)

Carbon capture and storage will also likely be needed to mitigate remaining emissions that cannot be eliminated with the options above. Specifically, point-source carbon capture (capturing CO2 at the source, such as an industrial furnace, before it is released into the atmosphere) can prevent emissions from contributing to climate change. In the case of CCS, CO2 is stored in a suitable geological formation. In the case of CCU, CO2 is subsequently converted into valuable products such as feedstock or synthetic fuel for industrial processes. Exciting startups to watch in this space: Carbon Clean, Ucaneo, Parallel Carbon, RepAir, and Dioxycle.

The way forward

Decarbonizing manufacturing is a complex and long-term process that will require a combination of approaches. Technologies will likely be deployed progressively, with demand-side interventions and already commercialized efficiency technologies dominating first, and more nascent technologies such as alternative fuels becoming more impactful later. However, many technological and economic challenges remain to be addressed. This will require well-designed policies to accelerate innovation and provide incentives for technology deployment, as well as an appropriate level of funding for technology startups in this space.

At Join Capital, we're excited about manufacturing decarbonization, and would love to talk to founders in this space. If this sounds like you, feel free to reach out at [email protected].