7.12.2 System transitions, inertia and decision-making

Given the complexity of the industrial sector, the changes required to achieve low GHG emissions cannot be characterized in terms of a single system transition. For example, development of an inert electrode for aluminium smelting would significantly lower GHG emissions from this process, but would have no impact on emissions from other industries.

Inertia in the industrial sector is characterized by capital stock turnover rate. As discussed in Section 7.6, the capital stock in many industries has lifetimes measured in decades. While opportunities exist for retrofitting some capital stock, basic changes in technology occur only when the capital stock is installed or replaced. This inertia is often referred to as ‘technology lock-in’, a concept first proposed by Arthur (1988). IEA (2006a) discusses the potential effects of technology lock-in in electric power generation, where much of the capital stock in developed nations will be replaced, and much of the capital stock in developing nations will be installed, in the next few decades. Installation of lower-cost, but less efficient technology will then impact GHG emission for decades thereafter. The same concerns and impacts apply in the industrial sector.

Industrial companies are hierarchical organizations and have well-established decision-making processes. In large companies, these processes have formal methods for incorporating technical and economic information, as well as regulatory requirements, consumer preferences and stakeholder inputs. Procedures in SMEs are often informal, but all successful enterprises have to address the same set of inputs.