Low-carbon industrial hubs

Hard-to-abate sectors face unique challenges

As the global push to fight climate change gains momentum, the demand for decarbonization technologies is growing. Some sectors are seeing reduced costs as the adoption of readily available low-carbon solutions accelerates and drives innovation and efficiency. However, commercially available solutions remain frustratingly out of reach for sectors where efficiency gains and green electrification cannot address the majority of emissions.

For these sectors—often referred to as “hard to abate”—technical and business model gaps compound the challenge of finding cost-effective solutions to address what amounts to around 30% of total global greenhouse gas (GHG) emissions¹. And this share is projected to grow as other sectors decarbonize, increasing the urgency for the hard-to-abate industries of iron and steel, road freight, aviation, chemicals, cement, and shipping to find ways to bring innovations to the market in time to mitigate climate impacts².

The good news is that there are known decarbonization technology solutions under development today with the potential to reduce emissions from hard-to-abate sectors. The bad news is that many of them are nascent or otherwise cost-prohibitive. Among the most promising are clean hydrogen and carbon capture, utilization, and storage (CCUS). Combined, these have the potential to abate more than 50% of industrial emissions by 2070³.

One key pathway to achieving industrial sustainability is by funneling investment for viable low-carbon technologies in regions with matching, growing demand. By co-locating supply and demand, “hubs” can bring down infrastructure costs and drive economies of scale, serving as an aggregation point for local demand before expanding transportation infrastructure to provide dispersed supply elsewhere in the country or for export. Bound by a specific region, representing a significant level of aggregated point-source emissions, and bringing together actors from across value chains and sectors, hubs sit at the intersection of customers, geography, and collaborators that enable organizations to maximize value. As our analysis will later illustrate, collective action in a hub drives significant cost reduction for collaborators when compared to the costs associated with individual investments.

The hub concept

Hubs offer an ecosystem of financiers, startups, equipment manufacturers, professional service providers, suppliers, and customers across different sectors and segments. Through ecosystem collaboration, hubs can accelerate technological development, encourage downstream adoption of clean hydrogen and/or carbon capture for multiple end uses, and drive long-term decarbonization transformation across industrial value chains. “Coopetition” among hub members creates conditions that may accelerate hub success by lowering the perceived risk of investment—as participants see others in their industry investing—and by creating more tangible competition. For ecosystems to work well, companies will have to give up old notions of “competitive advantages” in which most moves are exclusively zero-sum and instead think about the value of “collaborative advantage” and “adaptive advantage” that comes from working with others—even former competitors.

Typically centered around geographies with regional advantages (e.g., endemic natural geological storage formations, existing infrastructure, a skilled workforce, favorable regulatory conditions, tax incentives, etc.), successful hubs benefit from solution integration and scale and reap the rewards of increased innovation, access to human capital, investment flows, and more.

What makes a successful hub?

The success of different hubs and hub projects will ultimately be driven less by the amount of public funding secured, or the number of participants involved, but more by how well hub organizers are able to navigate the complexity surrounding hub development. This will include sending the right demand signals to ecosystem collaborators, making near-term investment decisions for bottom-line impact down the road, and reorienting mid- and long-term business goals and capital expenditure to meaningfully advance hubs for lower emissions. By aggregating emissions from other point sources, companies can drive toward more efficient pipelines and lower the per-ton cost of CO2 transported. Hydrogen producers and consumers in the hub can expect similar transportation and storage cost reductions due to economies of scale. Regardless of size and industry, companies could see a reduction of between 20% and 95% in the capital investment required for decarbonization, exemplified by the two sample hubs below.

As a result, hubs will typically encompass a multitude of partners with inherently mismatched capabilities, motivations, and timelines. Where Deloitte has been invited into hub development, it has been to provide the interstitial matter to fill these gaps; convening like-minded partners and providing a third-party perspective to drive toward shared objectives while rounding out hub capabilities with additional services as hub projects evolve. In our experience, hubs that can accelerate alignment across their interdependent and complex stakeholder network will thrive, while those that cannot are unlikely to make it past the planning phases.

Conclusion

As the pressure to reach net zero mounts from investors, regulators, customers, and other stakeholder groups, and the demand for low-carbon products and solutions grows, hard-to-abate sectors are rightfully seeking pathways to achieve meaningful emissions reduction while preserving value for shareholders. Hubs present a relatively accessible option for industry in the near term to make good on emissions reduction pledges and demonstrate action on climate change.

Our analysis shows that while new federal funding has kick-started hub formation around the country and sparked fierce competition for grants and incentives, there is a considerable business case for cross-sector collaboration within low-carbon industrial hubs even without government support. How a hub is configured—involving the right partners, securing demand among diverse end uses, engaging the complete value chain, structuring agreements governing shared infrastructure, coordinating among various stakeholders, and more—will ultimately be important determinants of success.

Facing technical and business model barriers to reducing emissions, harder-to-abate industries must embrace collective ecosystem approaches like low-carbon industrial hubs to accelerate beyond incremental change and catalyze tipping points in low-carbon innovation for industrial sustainability. Strategic participation in hubs is a quick win, attainable in this decade, for sectors that don’t have many options—reducing the cost of abatement, enabling further technological innovation, and unlocking emissions reduction benefits now while enabling deep decarbonization down the road.

Acknowledgements

Special thanks to co-authors Alex Beutel, Matt Floyd, and Ian Goulding for their significant contributions to this study.

Endnotes

¹ Deloitte, “Getting from harder-to-abate to a low-carbon future: Ecosystem approaches for the toughest climate challenges,” 2021
² IEA, “Net-Zero by 2050: A Roadmap for the Global Energy Sector,” May 2021
³ IEA, “The challenge of reaching zero emissions in heavy industry,” September 2020
⁴ Source: Deloitte Analysis