IPCC Fourth Assessment Report: Climate Change 2007
Climate Change 2007: Working Group III: Mitigation of Climate Change

7.6 Barriers to industrial GHG mitigation

Full use of mitigation options is not being made in either industrialized or developing nations (high agreement, much evidence). In many areas of the world, GHG mitigation is neither demanded nor rewarded by the market or government. In these areas, companies will invest in GHG mitigation to the extent that other factors provide a return for their investments. This return can be economic, for example energy-efficiency improvements that show an economic payout. Nicholson (2004) reported that the projects BP undertook to lower its CO2 emissions by 10% increased shareholder value by US$ 650 million. Alternatively, the return can be in terms of achievement of a larger corporate goal, for example DuPont’s commitment to cut its GHG emission by two-thirds as part of a larger commitment to sustainable growth (Holliday, 2001).

Even though a broad range of cost-effective GHG mitigation technologies exist, a variety of economic barriers prevent their full realisation in both developed and developing countries. Policies and measures must overcome the effective costs of capital (Toman, 2003). Industry needs a stable, transparent policy regime addressing both economic and environmental concerns to reduce the costs of capital.

The slow rate of capital stock turnover in many of the industries covered in this chapter is a barrier to mitigation (Worrell and Biermans, 2005). Excess capacity, as exists in some industries, can further slow capital stock turnover. Policies that encourage capital stock turnover, such as Japan’s programme to subsidize the installation of new high performance furnaces (WEC, 2001), will increase GHG mitigation. Companies must also take into consideration the risks involved with adopting a new technology, the payback period of a technology, the appropriate discount rate and transaction costs. Newer, relatively expensive technologies often have longer payback periods and represent a greater risk. Reliability is a key concern of industry, making new technologies less attractive (Rosenberg, 1999). Discount rates vary substantially across industries and little information exists on transaction costs of mitigation options (US EPA, 2003).

Resource constraints are also a significant barrier to mitigation. Unless legally mandated, GHG mitigation will have to compete for financial and technical resources against projects to achieve other company goals. Financial constraints can hinder diffusion of technologies within firms (Canepa and Stoneman, 2004). Projects to increase capacity or bring new products to the market typically have priority, especially in developing countries, where markets are growing rapidly and where a large portion of industrial capacity is in SMEs. Energy efficiency and other GHG mitigation technologies can provide attractive rates of return, but they tend to increase initial capital costs, which can be a barrier in locations where capital is limited. If the technology involved is new to the market in question, even if it is well-demonstrated elsewhere, the problem of raising capital may be further exacerbated (Shashank, 2004). Provision of funding for demonstration of the technology can overcome this barrier (CPCB, 2005).

The rate of technology transfer is another factor limiting the adoption of mitigation technologies. As documented in the IPCC Special Report Methodological and Technological Issues in Technology Transfer (IPCC, 2000c), lack of an enabling environment is a barrier to technology transfer in some countries. Even when an enabling environment is present, the ability of industrial organizations to access and absorb information on technologies is limited. Access to information tends to be more of a problem in developing nations, but all companies, even the largest, have limited technical resources to interpret and translate the available information. The success of programmes such as US DOE’s Industrial Technologies Programs (ITP) and of the voluntary information sharing programmes discussed in Section 7.9.2 is evidence of the pervasiveness of this barrier.

McKane et al. (2005) provide a case study of the interaction of some of these elements in their analysis of the barriers to the adoption of energy-efficient electric motors and motor-systems. These include: (1) industrial markets that focus on components, not systems; (2) energy efficiency not being a core mission for most industries, which results in a lack of internal support systems for mitigation goals; and (3) lack of technical skills to optimize the systems to the specific application – one size does not fit all. They found industrial energy efficiency standards a useful tool in overcoming these barriers.