World Bank: East Asia's $1.7 Trillion Clean Industry Opportunity

New report shows clean industry can cut emissions and boost economies

East Asia’s industrial sector manufactures a comprehensive array of products used across the globe, from vehicles and consumer electronics to construction materials and everyday chemicals. But that economic powerhouse comes at a price, with the industrial sector consuming the largest share of final energy use in China (47 percent), Indonesia (44 percent), and Viet Nam (51 percent). Together, these three countries account for 85 percent of the energy-related industrial carbon dioxide (CO₂) emissions in the Asia-Pacific region. Given their industrial sectors’ high productivity, energy demand, and fossil fuel-driven emissions, the World Bank recently set out to identify ways to eliminate industrial emissions across the region and published their results in a new flagship report, Industrial Decarbonization in East Asia: Transforming Energy, Finance, Technology, and Jobs.

Created in collaboration with Energy Innovation and others, the report models the cumulative deployment of different industrial decarbonization technologies in six tiers, from mature, cost-saving measures like energy efficiency and electrification of low-temperature heat to more costly and nascent solutions like clean hydrogen and carbon capture and storage. The report’s accompanying open-source computer model deconstructs the impacts of these technology interventions on costs, industrial energy use, and emissions. The report also examines how smart policies might achieve these modeled decarbonization solutions. It offers recommendations for both policymakers and investors, as well as case studies that explore everything from producing clean steel and cement to establishing low-carbon industrial parks.

Understanding where and how to best invest in industrial decarbonization is crucial for meeting regional and global climate goals, and it is a dire necessity in the realm of climate finance, where just 1.4 percent of funding ($52 billion per year) flows to the emissions-intensive industrial sector. The sector’s inherent complexity and diversity, along with practical concerns such as skilled labor shortages, high clean energy costs, and grid constraints on renewables development, have driven this financing gap. And the magnitude of industrial emissions will only grow in the near future: the report projects that, if no new policies are implemented, economic growth in Indonesia and Viet Nam will drive up industrial CO₂ emissions by another 70 and 87 percent, respectively, by 2050.

A Tiered Approach to Industrial Decarbonization

The first two technology tiers modeled in the report are the most easily attainable – they include efficiency improvements in materials and energy, and straightforward “easy” electrification efforts such as direct electrification of low-temperature industrial process heat (e.g., using heat pumps), replacing fossil-fueled engines with electric motors, and partially shifting from primary to recycled steel production. The first tier’s efficiency measures offer a robust and cost-effective solution for reducing an impressive portion of the studied countries’ emissions, ranging from 26 percent in Indonesia to 36 percent in China. The easy electrification efforts provide similarly impressive climate benefits, reducing about a quarter of emissions in China and Viet Nam, and 35 percent in Indonesia. All but 3 to 5 percent of the remaining emissions are eliminated by implementing the four remaining tiers, which include additional direct electrification strategies, carbon capture and storage, clean hydrogen combustion, and clean chemical feedstocks derived from a mixture of captured carbon, bioenergy, and clean hydrogen.

Critically, the full potential of these emissions reductions is contingent on the industrial sector being backed by a non-emitting power grid driven by renewables and nuclear. As seen below in Indonesia (Figure 1), the six modeled decarbonization tiers handily reduce CO₂ emissions to minuscule levels if the grid is on-target with net-zero goals. However, if the power grid remains in its current fossil-fueled state, industrial CO₂ emissions will remain high in 2050 (as shown by the dotted bars)—still below business-as-usual levels, but higher than today’s levels. Modeling the other countries shows similar patterns, where the tiered interventions backed by a clean grid can reach almost full decarbonization, but a grid with the current mix of energy sources will still drive considerable CO₂ emissions: over 5.6 billion tons in China’s case.

Figure 1. Cumulative impact of tiered interventions on CO₂ emissions in Indonesia. Energy type denoted by color; dotted bars indicate emissions when the power grid supplies electricity based on the current mix of energy resources.

Calculating the Cost of Decarbonization

How much does it cost to decarbonize East Asia’s industrial sector? The lion’s share of the cost resides in sustainable energy, in the form of electricity, clean hydrogen, and sustainable bioenergy. The combination of efficiency improvements and easy electrification technologies in the first two tiers can save a substantive amount on annual energy expenditures: $24 billion in Indonesia (Figure 2), $16 billion in Viet Nam, and a whopping $451 billion in China. While implementing the next four tiers generally increases energy costs, the savings compared to business as usual are substantial: 28 percent less in China, 18 percent less in Indonesia, and 13 percent less in Viet Nam.

Figure 2. Annual energy expenditures in Indonesia for different decarbonization strategy tiers.

Capital expenditures are the other financial hurdle, as firms adapt their facilities to accommodate new clean industrial equipment. Across the three studied countries, capital investment needs for industrial decarbonization total $1.7 trillion, with $1.5 trillion of that investment needed in China. Though considerable, this amounts to just $60 billion annually, or about 0.3 percent of China’s GDP.

Charting a Path with Smart Policies

To achieve clean industry in East Asia, the report presents a policy package along four foundational fronts: energy, finance, technology, and jobs. As noted earlier, a clean grid is crucial to accomplishing industrial decarbonization, requiring policies to support grid flexibility, expansion, and optimization, while prioritizing renewable energy. The report lays out a number of financing approaches for policy makers and investors to attract investment in clean industry with concessional financing, carbon pricing, and risk-sharing instruments. Advancement of emerging clean technologies can be promoted through the implementation of robust standards, innovative business models (such as heat-as-a-service), technical assistance, and funding for R&D and pilot projects. Lastly, vocational training and workforce transition programs are necessary to provide the requisite skilled workforce in pragmatic and diverse fields from clean-tech installation to carbon accounting.

East Asia is well-positioned to become a success story for clean industry. Manufacturing behemoths and high-growth emerging economies alike have the capacity to transform their facilities to run efficiently on clean power using the next generation of industrial technologies. With the World Bank’s new flagship report as a roadmap, smart policies and wise investment choices can jumpstart the region’s industrial transformation, drive technological innovation, and cut pollution, bringing public health benefits while pursuing a clean energy future.