7.1.1 Status of the sector

This chapter focuses on the mitigation of GHGs from energy-intensive industries: iron and steel, non-ferrous metals, chemicals (including fertilisers), petroleum refining, minerals (cement, lime, glass and ceramics) and pulp and paper, which account for most of the sector’s energy consumption in most countries (Dasgupta and Roy, 2000; IEA, 2003a,b; Sinton and Fridley, 2000). The food processing industry is also important because it represents a large share of industrial energy consumption in many non-industrialized countries. Each of these industries is discussed in detail in Section 7.4.

Globally, large enterprises dominate these industries. However, small- and medium-sized enterprises (SMEs) are important in developing nations. For example, in India, SMEs have significant shares in the metals, chemicals, food and pulp and paper industries (GOI, 2005). There are 39.8 million SMEs in China, accounting for 99% of the country’s enterprises, 50% of asset value, 60% of turnover, 60% of exports and 75% of employment (APEC, 2002). While regulations are moving large industrial enterprises towards the use of environmentally sound technology, SMEs may not have the economic or technical capacity to install the necessary control equipment (Chaudhuri and Gupta, 2003; Gupta, 2002) or are slower to innovate (Swamidass, 2003). These SME limitations create special challenges for efforts to mitigate GHG emissions. However, innovative R&D for SMEs is also taking place for this sector (See Section 7.7).

7.1.2 Development trends

The production of energy-intensive industrial goods has grown dramatically and is expected to continue growing as population and per capita income increase. Since 1970, global annual production of cement increased 271%; aluminium, 223%; steel, 84% (USGS, 2005), ammonia, 200% (IFA, 2005) and paper, 180% (FAO, 2006).

Much of the world’s energy-intensive industry is now located in developing nations. China is the world’s largest producer of steel (IISI, 2005), aluminium and cement (USGS, 2005). In 2003, developing countries accounted for 42% of global steel production (IISI, 2005), 57% of global nitrogen fertilizer production (IFA, 2004), 78% of global cement manufacture and about 50% of global primary aluminium production (USGS, 2005). Since many facilities in developing nations are new, they sometimes incorporate the latest technology and have the lowest specific emission rates (BEE, 2006; IEA, 2006c). This has been demonstrated in the aluminium (Navarro et al., 2003), cement (BEE, 2003), fertilizer (Swaminathan and Sukalac, 2004) and steel industries (Tata Steel, Ltd., 2005). However, due to the continuing need to upgrade existing facilities, there is a huge demand for technology transfer (hardware, software and know-how) to developing nations to achieve energy efficiency and emissions reduction in their industrial sectors (high agreement, much evidence).

New rules introduced both domestically and through the multilateral trade system, foreign buyers, insurance companies, and banks require SMEs to comply with higher technical (e.g., technical barriers to trade), environmental (ISO, 1996), and labour standards (ENDS-Directory, 2006). These efforts can be in conflict with pressures for economic growth and increased employment, for example in China, where the government’s efforts to ban the use of small-scale coke-producing facilities for energy efficiency and environmental reasons have been unsuccessful due to the high demand for this product (IEA, 2006a).

Competition within the developing world for export markets, foreign investment, and resources is intensifying. Multinational enterprises seeking out new markets and investments offer both large enterprises (Rock, 2005) and capable SMEs the opportunity to insert themselves into global value chains through subcontracting linkages, while at the same time increasing competitive pressure on other enterprises, which could lose their existing markets. Against this backdrop, SMEs, SME associations, support institutions, and governments in transition and developing countries face the challenge of adopting new approaches and fostering SME competitiveness. Integration of SME development strategy in the broader national strategies for technology development, sustainable development and/or poverty reduction and growth is under consideration in transition and developing countries (GOI, 2004).