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Annex to the Climate, Energy and Environment Ministers' Communiqué

Conclusions Regarding the Industrial Decarbonisation Agenda

Berlin, May 27, 2022

The G7 Industrial Decarbonisation Agenda (IDA) was initiated in 2021 at the initiative of the UK G7 Presidency and the United States to enhance collaboration among G7 Members, including on regulation, standards, investment, procurements and joint research related to industrial decarbonisation. This work has continued by the German G7 Presidency and the G7 Members agree on taking the process forward.

The IDA set the focus on working on the alignment of the general definition of near zero emission steel and cement production, which could send a signal to markets and could accelerate initiatives that work on market creation, whereas the discussed definition is not intended to imply a specific production pathway or exclude a specific methodology, denote a specific carbon content or entirely rule out any residual emissions. Another focus has been the development of a policy toolbox for the industry transition. For this purpose, the G7 German Presidency commissioned IEA to conduct two workshops on "Achieving Net Zero Heavy Industry Sectors in G7 Members ("Defining a standard for near zero emission materials production" and "Policy and financing mechanisms") and a Report "Achieving Net Zero Heavy Industry Sectors in G7 Members" (IEA Report). The challenge is large, but so is the opportunity for first movers: According to the IEA Report, following the pathway laid out in the IEA's Net Zero Emissions by 2050 Scenario would imply a global market for near zero emission production in 2030 of around 100 Mt for primary steel and 250 Mt for clinker used in cement. The IEA estimates that G7 members could in aggregate account for around 25 Mt of this output for each material by 2030 (or around 10-15 % of the G7's combined output today).

The elements presented below in Part A and B reflect the discussion held in the G7 IDA group and are informed by the IEA Report. They provide essential context to the terms of paragraph 77 of the Climate, Energy and Environment Ministers' Meeting Communiqué of May 2022. They should be seen as conclusions drawn from the IEA Report. They highlight the relevance of the policy toolbox and definitions for decarbonising the industry, while respecting specific national and regional circumstances especially in the hard-to-abate industry sectors.

This document further summarizes joint actions recommended in the IEA Report and discussed in the G7 IDA group. It has been agreed to explore the details of these elements and actions further within the IDA framework, and to review progress adequately. It could be referred to and be built on these elements in other international fora related to industry decarbonisation. Other interested countries are invited to use these elements as guidelines for policy development and implementation.

Part A: Achieving Net Zero Heavy Industry Sectors

  1. Industrial Transition Plans and Policies
  2. Finance for Near Zero Emissions Demonstration Projects
  3. Finance Mechanisms for Technology Deployment
  4. Market Creation
  5. Advance International Industry Decarbonisation Collaborations

Policy Toolbox for the Industry Transition towards Near Zero Emission Material Production

Governments can help enable the industry sector transition to net-zero through a robust and comprehensive set of policies. A strong policy framework will require a multi-faceted response with measures that address multiple complex elements. Here is a non-exhaustive list of the various options in the policy toolbox to be considered adopting or expanding, as a complement to measures already in place.

I. Framework fundamentals

Establishing plans and policy for long-term CO2 emission reductions

Mobilising finance and investment

II. Targeted action for specific sectors and strategies

Managing existing assets and near-term investment

Creating markets to support deployment of near zero emission materials production

Developing technologies

Accelerating material efficiency

III. Enabling conditions

International co-operation and creating a level playing field

Infrastructure planning and development

Tracking progress and improving data

Part B: Standards and Definitions for Near Zero Emission Materials Production

  1. Measurement Standards for Material Production
  2. Thresholds for Near Zero Emission Material Production
  3. Thresholds for Interim Steps in the Transition Phase
  4. Definitions for other production sectors, and products and projects

Considerations for Definitions of Near Zero Emission Materials Production

Definitions of near zero emission materials production will be important for differentiated market creation, sustainable public procurement, tracking progress, and other targeted policy support. The definitions in the IEA Report do not imply a specific production pathway or exclude a specific methodology, denote a specific carbon content or entirely rule out any residual emissions. Here, a non-exhaustive list of the relevant considerations is provided.

The focus for the definitions is on material production. This can serve as a base and provide guidance for other work streams, initiatives and frameworks that are focused on products and projects. A uniform and clear end-point in the process that facilitates comparability has been set: in the case of iron and steel, this is crude steel production, while in the case of cement and concrete, this is cement production.

Definition method

Near zero emission production definition

Stable and absolute definitions based on a fixed emissions intensity are identified, as these are most straightforward. The objective here is to define what constitutes near zero emission materials production, not to specify an average emission intensity compatible at different points in time with a pathway to net zero.

For each material, the near zero emissions definitions can be applied with two different scope considerations: one encompassing only direct emissions and one encompassing both direct and indirect emissions, with the latter being the long-term goal. They are complementary in the incentives provided and governments can choose which to use for different purposes depending on their particular circumstances, or to use them in parallel. This provision enables the recognition of early efforts being undertaken to dramatically reduce direct emissions in advance of, say, a sufficiently decarbonised electricity grid. Clarity must be maintained by stipulating which scope the definition is being applied to in a given instance.

Direct emissions are defined according to internationally recognised frameworks for energy and emissions accounting, such as the IEA World Energy Balances and the IPCC's Guidelines for Greenhouse Gas Emissions Accounting. Indirect emissions included would be limited to those arising from clearly defined steps in the production process. Key steps of the production value chain are included whether they occur on the same or different sites (e. g. iron ore agglomeration in the case of steel, clinker production in the case of cement), thus the direct and indirect terminology is used rather than referring to "Scopes". Using the terminology of the Greenhouse Gas Protocol, so-called "Scope 3" emissions on one site could be "Scope 1" emissions on another site.

→ Example for primary crude steel production of the steps of the supply chain included (regardless of the ownership associated with each of the sources of emissions):

The thresholds for near zero steel and cement production take account of the share of scrap use in the case of steel, and the clinker ratio in the case of cement. Ambition is crucial – to be truly "near zero", the emission intensity thresholds are set to allow only a limited amount of residual emissions, taking into account estimates of likely residual emissions from the various key production pathways that are compatible with an energy system that achieves net zero emissions (such as that described in the IEA's Net Zero Emissions by 2050 Scenario, and other scenarios with comparable climate ambition).

Low emissions production definition

A definition for "low emissions production" can also be useful to provide time-limited and context-dependent recognition of interim measures that deliver substantial improvements in emissions intensity, in line with a trajectory to meet Paris Agreement goals, but which do not meet the near zero emissions definition. Recognition for interim measures can be evaluated on a continuous sliding scale, defined between the near zero threshold and a multiple thereof, with the tonnages of output calculated in proportion to the emissions intensity reduction achieved. Over time, the stringency of the low emissions production definition can be increased, using "band ranges" similar to the energy performance certificates used in the buildings sector.

Interaction with existing standards and other definitions

Existing measurement standards and those under development are available for evaluating the emissions intensity of steel (e.g. ISO 14404, ISO 20915, Worldsteel Benchmarking System) and cement (e. g. ISO 19694-3, GCCA Cement CO2 and Energy Protocol) production. There is a need to consolidate existing work on measurement standards, ensure their fitness for purpose, and at the same time avoid the development of duplicate standards and protocols. At the national and regional level, the IPCC's Guidelines on National Greenhouse Gas Inventories are the gold standard, and plant level accounting should be compatible with these overarching guidelines.

Consistency with other definitions is important. Other definitions and interactions to consider when developing definitions for near zero emissions steel and cement include the following:

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Source: Official Website of the 2022 German G7 Presidency

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