OCTOBER 2024Forging a Post-Carbon IndustryInsights from AsiaInstitut Montaigne is a leading independent think tank based in Paris.Our pragmatic research and ideas aim to help governments,industry and societies to adapt to our complex world.Institut Montaignes publications and events focus on major economic,societal,technological,environmental and geopolitical changes.We aim to serve the public interest through instructive analysis on French and European public policies and by providing an open and safe space for rigorous policy debate.3FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAREPORT-October 2024Forging a Post-Carbon IndustryInsights from AsiaExplainerTo understand the world in which we operateReportDeep-dive analyses and long-term policy solutionsIssue PaperTo break down the key challenges facing societiesExclusive InsightsUnique data-driven analyses and practical scenario exercisesPolicy PaperTo provide practical recommenda-tionsInstitut Montaignes reports are comprehensive analyses that result from collective reflection.They aim to put forward long-term solutions to todays most pressing public policy challenges.5FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAPart 2Strategies to decarbonize the Steel and Aluminum Sectors 6AuthorJoseph DellatteDr.Joseph Dellatte joined Institut Montaignes Asia Program in 2022 as Research Fellow for Climate,Energy,and Environment.He is also a Research Associate at Kyoto University(Japan)and a member of the Japanese Research Group on Renewable Energy Economics.He specializes in international climate policy and global climate governance,focusing on carbon pricing,industry decarbonization policy,transition finance and Asia-Europe relations on climate.7Table of contentsIntroduction .9Comparative Sectoral Strategies to decarbonize industry .111.Strategies for Decarbonize the Steel Sector .11a.Chinas Steel Sector Strategy .14b.Japans Steel Sector Strategy .26c.South Koreas Steel Sector Strategy .31d.The European Steel Strategy .35e.Electrifying the Steel Sector .45f.Electrification in China .45g.Electrification in Japan .48h.Electrification in South Korea .50i.Electrifying the European Steel Sector .53j.Producing Primary Steel Using Clean Hydrogen .56k.China and Hydrogen Steelmaking .59l.Japan and Hydrogen Steelmaking .63m.South Korea and Hydrogen Steelmaking .66n.The Impact of Technology Uncertainty .71o.The Fundamental Challenges in Designing an Efficient Steel Decarbonization Policy .76p.Key Comparative Insights .82q.Summary of Recommendations for the Steel Sector in Europe .96INSTITUT MONTAIGNE82.Strategies to Decarbonize the Aluminum Sector .98a.The Current State of the Aluminum Sector .98b.Aluminum Production and Process .99c.Decarbonizing the primary aluminum processes .102d.Decarbonization Strategies for Secondary Aluminum .103e.Decarbonizing a Highly Geopolitical Sector .106f.Chinas Strategy for Aluminum .107g.Japan and Aluminum decarbonization .117h.Korea and aluminum decarbonization .125i.The European Strategy for Aluminum .132j.The key challenges emerging from the EU CBAM in the Aluminum Sector .144k.Policy Recommendations for a European Industrial Strategy to decarbonize the aluminum sector .149Appendix .152List of All Interviewees and Stakeholders Consulted .160Acknowledgments .1699In the face of the climate crisis,as the world moves rapidly toward the dan-gerous threshold of 2C warming,decarbonizing industries has become an urgent priority.As the second part of the Institut Montaignes research report on Industrial Decarbonization Policies and Strategies in Europe and Asia,this paper examines critical issues surrounding the decarbo-nization of two essential sectors:steel and aluminum.These industries are central to global economic activity but also contribute significantly to greenhouse gas emissions.The dual challenge of reducing emissions while maintaining industrial competitiveness forms the crux of the ana-lysis in this report.The first part of this report provides an extensive exploration of decar-bonization policies and strategies in Europe,China,Japan,and South Korea.It addresses fundamental questions such as defining clean indus-trial policy and global decarbonization strategies and offers comparative insights into Europe and Asias approaches.The focus of Part 1 is on iden-tifying the necessary technical solutions and policy frameworks to enable a shift to greener production methods.In this second part,the emphasis shifts to a more granular examina-tion of the steel and aluminum sectors.Both sectors are indispensable for the post-carbon economy,with steel required for renewable energy infrastructure and aluminum crucial for lightweight transportation solu-tions.The report undertakes a comparative analysis of the strategies pursued by Europe,China,Japan,and South Korea to decarbonize these industries,highlighting the policy choices,technological advancements,and economic conditions shaping each regions approach.Specifically,this section assesses technological pathways such as electri-fication,hydrogen-based steel production,and recycling of secondary aluminum and evaluates the financial and policy support mechanisms IntroductionINSTITUT MONTAIGNE10that will drive their deployment.With Europe on the cusp of implemen-ting more aggressive climate policies through instruments such as the removal of free allocation from the EU Emissions Trading Scheme(ETS),the Carbon Border Adjustment Mechanism(CBAM),and the Net-Zero Industry Act,it is vital to understand the competitive dynamics between green and carbon-intensive goods and their impact on decision-making for decarbonization.Finally,this report provides recommendations tai-lored to the European context and is intended to ensure that the steel and aluminum industries can decarbonize without compromising their role in future economic prosperity.11FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAComparative Sectoral Strategies to Decarbonize Industry1.STRATEGIES FOR DECARBONIZING THE STEEL SECTORThe steel industrys transition is essential for meeting climate goals,and despite the inherent challenges,it is technologically achievable with the right policies in place.In fact,while“green”or“low-carbon”steel might not be entirely zero-carbon due to some very hard-to-abate emissions in the process,options have been examined that offer significant reduc-tions in emissions of up to 95percent while the remaining emis-sions are abatable using carbon capture technologies.There are two types of steel.Primary steel is produced from iron ore through various processes,while secondary steel is recycled from scrap metal.Steel is produced by two main routes:the blast furnacebasic oxygen furnace(BFBOF)route and the electric arc furnace(EAF)route.The BFBOF route primarily uses iron ore and coke as raw materials to produce primary steel,1 and the EAF route mainly recycles scrap steel 2 to produce secondary steel.Additionally,among the technologies that will be key in decarbonizing the steel sector,direct reduced iron(DRI),currently fossil-based and reliant on natural gas,already contributes approximately 7percent to global crude steel production.3 In 2022,71.5percent of global crude 1 It is also worth noting that the BFBOF route typically incorporates around 20 percent scrap in its production process.2 However,virgin pig iron or hot briquetted iron(HBI)are frequently utilized in the mix to achieve the desired product quality.3 Midrex Technologies,Inc.,“2022 World Direct Reduction Statistics,”2023,https:/ MONTAIGNE12steel production,totaling 1.34billion tons,used the BFBOF route,while 28.2percent came from the EAF route powered by electricity.4Overall,the steel industrys decarbonization strategies involve a mix of advanced technologies and bold initiatives,often using untested methods.While these approaches hold great promise for reducing car-bon emissions,they are accompanied by significant technological and financial uncertainties.The transition to low-carbon steel production presents significant challenges.The high cost of renewable hydrogen and the need for substantial investments in new infrastructure,inclu-ding renewable energy and hydrogen supply chains,pose financial and logistic hurdles.Producing low-carbon steel is currently estimated to be 35100percent more expensive than traditional methods,but it is expected to become competitive as technologies mature and economies of scale are achieved.54 International Energy Agency,“Global Crude Steel Production by Process Route and Scenario(20192050)”October 5,2020,https:/www.iea.org/data-and-statistics/charts/global-crude-steel-production-by-process-route-and-scenario-2019-2050.5 Eurometal,“EU Steel Industrys 60 Decarbonization Projects Could Cut Emissions by a Third,”June2,2022,https:/ A POST-CARBON INDUSTRYINSIGHTS FROM ASIAFigure 1:Proportion of operating steel capacity by technology type in the top 10 steel producersCoal-based blast furnace-basic oxygen furnace(BF-BOF)methodDirect reduced iron-electric arc furnace(DRI-EAF)methodLower emissions electric arc furnace(EAF)method0204060Percentage of operating steel capacity(%)Production of operating steel capacity by technology type in top ten steel producers.How to reed this chart:%of operating steel capacity by techologogy type.height of bars=total operating steel capacity in thousand tonnes per year(ttpa).Source:Global Steel Plant Tracker,Global Energy Monitor801000 ttpa500 ttpa1,000 ttpa1,500 ttpaIranBrazilGermanyTrkiyeSouth KoreaRussiaIndiaUnited StatesJapanChinaINSTITUT MONTAIGNE14a.Chinas Steel Sector StrategyChina is by far the worlds largest steel producer,with massive primary steel production via coal-based blast furnaces,nearing 913million tons per annum(mtpa)in operation and with an additional 97mtpa under development.6 This substantial coal-based production is incompatible with the countrys carbon neutrality goals for 2060,as well as with the projected domestic steel demand,indicating significant overcapacity.Currently,China exports 6percent of its steel,and this figure is expected to grow in the future due to weak domestic demand,7 even if the Chinese government theoretically aims to keep primary steel in the domestic market.8 The steel sector represents around 15percent of Chinas greenhouse gas(GHG)emissions.9Dealing with Overcapacity as the Main AnswerChinas first priority in reducing emissions in its steel sector is to reduce overcapacity.The difficulties in addressing the overcapacity issue in the steel sector are largely due to the nature of Chinas industrial policy,as although the bodies that set policy at the national level the National Development and Reform Commission(NDRC),Ministry of Industry and 6 Global Energy Monitor,“Global Steel Plant Tracker,”accessed September 9,2024,https:/globalenergymonitor.org/projects/global-steel-plant-tracker/.7 Ali Hasanbeigi,Hongyou Lu,and Nan Zhou,“Net-Zero Roadmap for Chinas Steel Industry,”Global Efficiency Intelligence&Berkeley Lab,March 2023,https:/eta-publications.lbl.gov/sites/default/files/china_steel_roadmap-2mar2023.pdf.8 取消钢铁产品出口退税有何深意？影响几何？What Is the Deeper Significance of Canceling Export Tax Rebates on Steel Products?What Are the Impacts?,Csteelnews,August 2,2021,http:/ 钢铁业推进绿色低碳转型 Steel Industry Promotes Green and Low-Carbon Transition,Economic Daily News,July 13,2023,http:/ A POST-CARBON INDUSTRYINSIGHTS FROM ASIAInformation Technology(MIIT),and the Ministry of Ecology and the Envi-ronment(MEE)aim to reduce overcapacity,the implementation of industrial policies is the responsibility of certain provinces that may be reluctant to shut down plants due to the potential negative impact on economic growth.Consequently,until very recently,investments in coal-based blast fur-nace(BF)plants continued,despite policies aimed at reducing capacity and decarbonizing the sector.This schizophrenic situation of maintai-ning overcapacity while pursuing decarbonization goals risks creating stranded assets if polluting assets are not incrementally phased out.If China is serious about its carbon neutrality objectives,these stranded assets could theoretically amount to up to RMB 1.92 trillion(approxi-mately 244billion)by 2050.10Chinas tentative response to the overcapacity problem is long-standing and has been driven not so much by decarbonization but by the econo-mic risks associated with the decommissioning and proliferation of small assets.National initiatives,originating from the 1 N targets for the indus-try,11 explicitly aim to reduce emissions by addressing overcapacity in the steel sector.These initiatives seek to reform the steel supply to better align with Chinas economic needs and facilitate the shift toward low-carbon industries.However,it is important to note that in China,the definition of“low carbon”also includes the use of“coal in a cleaner man-ner.”10 “BFBOF projects approved in 20212023 alone will face the risk of ending up as stranded assets worth USD 118 billion.If BFBOF projects approved in 20172020 are included,the risk of stranded assets comes to USD 270 billion.”:Xinyi Shen,“Steel Sector Decarbonisation in China Stalls,with Investments in Coal-Based Steel Plants since 2021 Exceeding USD 100 Billion Despite Overcapacity and Climate Goal,”Centre for Research on Energy and Clean Air,March 2024,https:/energyandcleanair.org/wp/wp-content/uploads/2024/03/CREA_2023H2-China-steel-analysis.pdf.11 National Development and Reform Commission,China,“Action Plan for Carbon Dioxide Peaking before 2030,”October 27,2021,https:/ MONTAIGNE16The“Guidance Catalogue for Industrial Restructuring(2024)”12 outlines the governments clear strategy of concentrating the industry and promo-ting the development of larger production facilities rather than multi-plying smaller ones.By employing a“capacity-replacement strategy,”this plan seeks to reduce the number of small production facilities.By defining what is permitted,restricted,and prohibited,the plan aims to increase cen-tral and provincial government control over the productive apparatus to restructure it as desired.However,despite the existence of this plan and various other central government policies,“illegal constructions,”parti-cularly in steel-dependent provinces such as Guangxi,remain persistent.13In addition,between 2017 and 2023,provincial governments in China approved numerous new iron and steelmaking projects through capa-city swap plans,which require retiring larger amounts of existing capacity and building new capacity to ensure a net reduction or stabilization in total production.These plans also aim to increase efficiency and reduce emissions per unit of production.14 However,many of the new projects approved are set to utilize outdated BF technology,which relies heavily on coal,rather than adopting cleaner methods such as electric arc furnaces(EAFs).Recent analyses indicate that no new coal-based steel or cement plants were approved in China during the first six months of 2024 15 and recently,the central government announced a“pause”on all new steel pro-jects,halting the issuance of permits for future developments,including for EAFs.16 The long-term stability of this decision remains uncertain,but 12 National Development and Reform Commission,China,产业结构调整指导目录(2024年本)Guiding Catalogue for Industrial Structure Adjustment(2024 Edition),December 29,2023,https:/ Shen,“Steel Sector Decarbonisation in China Stalls.”14 For more on this,see:Jonas Algers and Max hman,“Phase-In and Phase-Out Policies in the Global Steel Transition,”Climate Policy(2024):114.https:/doi.org/10.1080/14693062.2024.2353127.15 Xinyi Shen and Belinda Schpe,“Turning Point:China Permitted No New Coal-Based Steel Projects in H1 2024 as Policies Drive Decarbonisation,”Centre for Research on Energy and Clean Air,July 2024,https:/energyandcleanair.org/publication/turning-point-china-permitted-no-new-coal-based-steel-projects-in-h1-2024-as-policies-drive-decarbonisation/.17FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAit logically reflects the significant decline in the countrys infrastructure and construction demand.The future expansion of Chinas steel capacity remains uncertain.By 2025,capacity-replacement projects are expected to renew about one-third of Chinas steelmaking capacity,further increasing the risk of stranded assets in the sector.Beyond decarbonization objectives,the primary factor influencing the future of the steel industry in China and thus decarbonization and electrification will be the sustainability of this decline in the demand for primary steel.The Governments Role in Guiding the SectorBeyond dealing with overcapacity,national policies also aim to develop so-called green production chains.The strategy at the national and pro-vincial levels is increasingly to mitigate emissions from conventional coal-based blast furnaces that cannot be phased out quickly enough and replaced by carbon-neutral processes,primarily through carbon capture,utilization,and storage(CCUS)technologies.This is visible in the guidance concerning steel sector restructuring provided by the NDRC,17 MIIT,18 and MEE.1916 Ministry of Industry and Information Technology of the Peoples Republic of China,工业和信息化部办公厅关于暂停钢铁产能置换工作的通知 Notice of the General Office of the Ministry of Industry and Information Technology on Suspending Steel Capacity Replacement Work,August 20,2024,https:/ 锻长板补短板 持续增强钢铁行业核心竞争力 Strengthening Advantages and Addressing Weaknesses to Continuously Enhance the Core Competitiveness of the Steel Industry,Csteelnews,January 31,2024,http:/ Ministry of Industry and Information Technology,China,关于政协十三届全国委员会一次会议第2236号（工交邮电类161号）提案答复的函 Reply to Proposal No.2236(Industry,Transport,and Telecommunications No.161)of the First Session of the 13th National Committee of the Chinese Peoples Political Consultative Conference,September 17,2008,https:/ Ministry of Ecology and Environment,China,关于推进实施钢铁行业超低排放的意见 Opinions on Promoting the Implementation of Ultra-Low Emissions in the Steel Industry,April 28,2019,https:/ MONTAIGNE18Notably,the“14th Five-Year Plan for Raw Materials”(2021)20 and the“Steel Industry Development Guidelines,”21 two key documents for the indus-trys decarbonization,do not set specific emissions reduction targets for steel up to 2025.However,recent rules set annual carbon inten-sity reduction targets in the industrial sectors for each steel route:1percent for blast furnaces and 2percent for EAF.22Overall,there is considerable instability in the sectors decarbonization goals.For example,the China Iron and Steel Association(CSA),a government-linked agency,initially set goals in 2021 to peak steel emis-sions by 2025 and reduce emissions by 30percent by 2030.However,in 2022,the association revised these targets to a less ambitious peak emissions timeframe between 2025 and 2030.23Provinces with high levels of steel production,such as Hebei,Jiangsu,and Shandong,all have plans to develop low-carbon steelmaking,although these plans focus more on improving current production chains than on achieving carbon neutrality.24 There is an overall disparate alignment 20 Ministry of Industry and Information Technology,China,三部委关于印发“十四五”原材料工业发展规划的通知 Notice from Three Ministries on Issuing the 14th Five-Year Development Plan for the Raw Materials Industry,December 29,2021,https:/ State Council of the Peoples Republic of China,三部委关于促进钢铁工业高质量发展的指导意见 Guiding Opinions from Three Ministries on Promoting High-Quality Development of the Steel Industry,January 20,2022,https:/ State Council of the Peoples Republic of China,国家发展改革委有关负责同志就钢铁、炼油、合成氨、水泥4个行业节能降碳专项行动计划答记者问 National Development and Reform Commission Officials Answer Questions on the Special Action Plans for Energy Conservation and Carbon Reduction in the Steel,Refining,Synthetic Ammonia,and Cement Industries,June 8,2024,https:/ 中共中央 国务院关于完整准确全面贯彻新发展理念 做好碳达峰碳中和工作的意见 Opinions from the Central Committee of the Communist Party of China and the State Council on Fully and Accurately Implementing the New Development Philosophy to Achieve Carbon Peak and Carbon Neutrality,China Central Television(CCTV),October 24,2021,https:/ Environmental Defense Fund,“Chinas Policies and Actions on Carbon Peaking and Carbon Neutrality,”2023,http:/www.prcee.org/yjcg/yjbg/202403/W020240313623895148361.pdf.19FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAbetween national and local objectives.Most provincial governments prioritize maximizing employment,income,and growth over closing steel mills and reducing emissions.One of the central governments goals is to create national champions in major industries,especially steel.This involves consolidating state-owned enterprises(SOEs)and absorbing some private entities to enhance control and benefit from economies of scale.The goal is to place 60percent of steel production in the hands of the top 10 producers,up from the current 40percent.This means concentrating more of this production in the hands of SOEs,since 60percent of current production is privately owned.25Interestingly,most major players in Chinas steel industry have more ambitious goals than those officially implemented by the central govern-ment.Echoing this,at COP28,Li Jiang,a member of Chinas State Council,announced that all state-owned steel enterprises must have a carbon emissions limitation plan,answering to the governments willingness to address this issue and illustrating the strategy of taking back control over the production engine.25 Shen,“Steel Sector Decarbonisation in China Stalls.”INSTITUT MONTAIGNE20A Cooperative and Technology-Agnostic R&D ApproachMIITs“Guidance on Promoting High-Quality Development of the Steel Industry”27 provided key guidance defining industrial policy concerning steel in China and established the Low-Carbon Metallurgy Innovation Alliance.This alliance is designed to enhance collaborative efforts to develop low-carbon technologies across the steel industry by uniting R&D efforts from various stakeholders,including industry,academia,and government entities.The alliance aims to foster innovation,facili-tate the exchange of knowledge,standardize new low-carbon processes,CompanyProduction Volume(million tons)OwnershipChina Baowu Steel Group131.84SOEHBIS Group43.76SOEAnsteel Group55.65SOEJiangsu Group41.45PrivateShougang Group33.83SOEShandong Iron and Steel Group30.0SOEBeijing Jianlong Heavy Industry Group28.67PrivateTianjin Iron and Steel Group27.0SOEHunan Valin Steel Co.,Ltd26.48PrivateXinyu Iron and Steel Co.,Ltd23.91PrivateTable 1:Top Chinese Steelmakers by Production Volume2626 Table by the author,based on World Steel Association,“2023:World Steel in Figures,”May 18,2023,https:/worldsteel.org/wp-content/uploads/World-Steel-in-Figures-2023.pdf.27 State Council of the Peoples Republic of China,“Guiding Opinions on Promoting High-Quality Development of the Steel Industry.”21FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAand accelerate the implementation of these technologies in industrial applications.This collaborative approach is intended to streamline the transition to greener steel production methods by adopting a techno-logy-agnostic approach,notably using hydrogen,CCUS,and EAFs.Chinas approach to decarbonization in its industrial policy,particularly in the steel sector,could be characterized more as catch-up R&D than pioneering primary R&D.However,this perspective is both accurate and misleading.Private steelmaking companies in China are encouraged to innovate not only with respect to decarbonization but also to improve efficiency and capture market share.In contrast,SOEs have been incen-tivized to scale up production to meet the substantial domestic demand for steel at least until the recent real estate crisis.SOEs are,however,also encouraged to promote innovation in the steel sector,and the govern-ment encourages increasing the intensity of industry R&D to about 1.5percent of the total output value.28China is already demonstrating hydrogen-based steel production and has been operating a full-scale“hydrogen-ready”DRI since early 2024.29 It also has several R&D initiatives focused on the steel sec-tor.Nevertheless,the country closely monitors global competitors and market trends to absorb new technological innovations from abroad,particularly those suitable for the Chinese steel industry.Chinese guidelines for the steel sector promote almost any technology with the potential to decarbonize,reduce emissions,or improve energy efficiency.There are no significant restrictions on which directions to 28 Ministry of Industry and Information Technology,China,三部门关于促进钢铁工业高质量发展的指导意见 Guiding Opinions from Three Departments on Promoting High-Quality Development of the Steel Industry,February 7,2022,https:/ Danieli Group,“New Energiron DRI Plant Starts Production at Baowu,”January 17,2024,https:/ MONTAIGNE22pursue as long as they contribute to a more integrated,energy-efficient,and carbon-neutral sector by 2060 10 years later than other major competitor nations.This approach allows the Chinese steel sector to rapidly adopt technology when the timing is optimal,seeking to gain a second-mover advantage.Overcapacity in the sector also aids decarbo-nization efforts,as it may facilitate reducing absolute emissions through potential decommissioning while allowing for a more gradual decrease in energy intensity.The Example of BaowuBaowu,the leading player in Chinas steel industry,is at the fore-front of initiatives aimed at decarbonization,positioning itself as the industry leader in this area within China.It also demonstrates the integrated innovation approach that is emerging in the Chinese industrial decarbonization strategy,which focuses on big SOE actors such as Baowu.The company has developed a comprehensive carbon neutrality technology roadmap,30 which encompasses nearly all available decarbonization technologies.This roadmap includes electri-fication using clean energy,hydrogen reduction processes,and CCUS.In its decarbonization plan,Baowu also advocates for standards for low-carbon steel to support the significant investments it plans to undertake.31 The company stresses that the technological mix necessary to achieve decarbonization,30 Baowu Group,专题解读|碳中和冶金路线图和零碳工厂 Thematic Interpretation|Carbon Neutrality Metallurgy Roadmap and Zero-Carbon Factory,December 2,2021,https:/ A recent proposal for a standard on low-carbon steel was recently published by the China Iron and Steel Association with inputs from BAOWU.23FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAinvolving electrification,CCUS,and hydrogen,requires coordi-nated action across the entire steel value chain.To this end,Baowu has launched a Low Carbon Alliance 32 under the gui-dance and support of MIIT to integrate these efforts into its value chain.Baowu therefore partners with numerous companies,leveraging a broad range of technologies including energy storage,which is crucial for producing the renewable hydrogen necessary for steel manufacturing through the H2-DRI process.33 Baowus 12-point strategy progresses from small prototypes to larger ones and moves to the demonstration phase before advancing to commercialization and integration into the companys value chain.To fund these initiatives,Baowu has established a RMB 54.8billion(approximately 7billion)fund targeting clean energy and green technology projects,aimed at achieving its carbon neutrality goals by 2050.This plan is supported by the Industry Innovation Fund established by the Chinese government.Addi-tionally,Baowus strategy targets cross-sectoral cooperation with diverse industries such as petrochemicals and energy production,encompassing both hydrogen and renewable elec-tricity.This holistic approach underscores the centrality of R&D on decarbonization strategies by SOEs such as Baowu in Chinas broader industrial decarbonization strategy.32 Baowu Group,“Conference:To Reshape the Key Role of the Steel Industry in the Sustainable Development of Mankind,”2021,https:/ Rio Tinto,“China Baowu and Rio Tinto Extend Climate Partnership to Decarbonise the Steel Value Chain,”June 12,2023,https:/ MONTAIGNE24Responding to the EU Carbon Border Adjustment MechanismThe government announced that the Chinese national emissions tra-ding scheme(ETS)would be extended to the industrial sector,inclu-ding steel,from 2025.34 This would mark a new milestone,and this move aligns with the evolving international market,especially in light of the EUs CBAM.However,the intensity-based nature of the Chinese ETS is unlikely to change before 2030,and the actual trading of allowances from the steel sector under the Chinese ETS may not happen for some years.Even if adjustments are made,the actual emissions reductions required from the sector remain undetermined and are unlikely to be burdensome com-pared to those of direct competitors,at least before 2030.This implies that the Chinese steel sector will have more flexibility to observe and adapt to winning technologies during the transition period and gain the sought-after second-mover advantage.Chinas future steel production trends are difficult to predict.However,many reports analyzing Chinas steel sector converge on the view that the production peak is imminent,followed by a continuous decline until stabilization around 2050.The Rocky Mountain Institute 35 predicts around 621million tons of steel production in China by 2050,with a shift toward secondary steel production using EAF technology.However,it is likely that Chinas steel sector will ultimately be a mix of electrifi-cation,clean hydrogen reduction,and extensive use of CCUS for the newest coal-based assets that will not be decommissioned.34 六五环境日|钢铁行业绿色低碳转型成效明显 专访中国钢铁工业协会有关负责人 65th World Environment Day|Steel Industrys Green and Low-Carbon Transition Shows Significant Results An Interview with Officials from the China Iron and Steel Industry Association,China Environment News,June 5,2024,http:/ Rocky Mountain Institute,加速工业深度脱碳：中国水泥行业碳中和之路 Accelerating Deep Industrial Decarbonization:The Path to Carbon Neutrality for Chinas Cement Industry,August 31,2022,https:/ A POST-CARBON INDUSTRYINSIGHTS FROM ASIANotably,most industry stakeholders view steel as a crucial factor in Chinas economic development and believe that while the steel sector should be controlled,any constraints placed on it must not interfere with Chinas pursuit of its development priorities.Therefore,there is a strong emphasis on guiding the sector toward CCUS,thus enabling carbon-in-tensive facilities to be kept in operation as long as possible.LegislationDateIssuerLinkGuidance Catalogue for Industrial Restructuring 362024National Development and Reform Commission(NDRC)https:/ 14th Five-Year Plan for Raw Materials372021Ministry of Industry and Information Technology(MIIT)https:/ Industry Development Guidelines 382022MIIThttps:/ on Promoting High-Quality Development of the Steel Industry 392022MIIThttps:/ national Emissions Trading System(ETS)402021Ministry of Environment and Ecology(MEE)https:/ Plan for Carbon Peaking in the Industrial Sector 412022MIIT/NDRChttps:/ 2:Chinese Policies for Decarbonizing the Steel Sector36 National Development and Reform Commission of the Peoples Republic of China,“Guiding Catalogue for Industrial Structure Adjustment(2024 Edition).”37 Ministry of Industry and Information Technology,China,“Notice from Three Ministries on Issuing the 14th Five-Year Development Plan for the Raw Materials Industry.”38 State Council of the Peoples Republic of China,“Guiding Opinions from Three Ministries on Promoting High-Quality Development of the Steel Industry.”39 State Council of the Peoples Republic of China,“Guiding Opinions from Three Ministries on Promoting High-Quality Development of the Steel Industry.”40 钢铁行业绿色低碳转型成效明显 Significant Results in the Steel Industrys Green and Low-Carbon Transition,China Environment News,June 5,2024,https:/ State Council of the Peoples Republic of China,工业领域碳达峰实施方案 Implementation Plan for Carbon Peaking in the Industrial Sector,August 2022,https:/ MONTAIGNE26b.Japans Steel Sector StrategyJapan is the third-largest steel producer globally,and the sector repre-sents about 14percent of total Japanese GHG emissions.46 The country has adopted a multifaceted strategy to decarbonize its steel industry as part of its broader goal of achieving carbon neutrality by 2050.42 Ministry of Industry and Information Technology of the Peoples Republic of China,十四五”工业绿色发展规划 14th Five-Year Plan for Green Industrial Development,December 3,2021,https:/ National Development and Reform Commission,China,关于加强绿色电力证书与节能降碳政策衔接大力促进非化石能源消费的通知 Notice on Strengthening the Coordination of Green Power Certificates and Energy Conservation and Carbon Reduction Policies to Vigorously Promote Non-Fossil Energy Consumption,February 2,2024,https:/ National Development and Reform Commission,China,氢能产业发展中长期规划（2021-2035 年）Medium-and Long-Term Plan for Hydrogen Energy Industry Development(20212035),March 23,2022,https:/ National Development and Reform Commission,China,工业和信息化部 国家发展和改革委员会 生态环境部关于促进钢铁工业高质量发展的指导意见 Guiding Opinions from the Ministry of Industry and Information Technology,National Development and Reform Commission,and Ministry of Ecology and Environment on Promoting High-Quality Development of the Steel Industry,May 20,2022,https:/ Ministry of Economy,Trade and Industry,Japan,“Technology Roadmap Formulated for Transition Finance toward Decarbonization in the Iron and Steel Sectors,”October 27,2021,https:/www.meti.go.jp/english/press/2021/1027_002.html.LegislationDateIssuerLinkGuidelines for the steel sector 422021MIIThttps:/ electricity consumption mandate 432024NDRChttps:/ Industry Development Mid-Long Term Plan(20212035)442022NDRChttps:/ Metallurgy Action Plan 452022NDRChttps:/ A POST-CARBON INDUSTRYINSIGHTS FROM ASIAThe challenges faced by Japan are significant due to its high depen-dence on primary steel production,the limited availability of scrap metal necessary for EAF production,and the real difficulty of either producing clean hydrogen locally or importing it cheaply.The extent of these challenges calls into question the capacity of Japan to remain a major primary steel producer in a post-carbon world.Aware of these difficult challenges,the Japanese government,through various policies and funding mechanisms,has laid out comprehensive strategies to overcome these hurdles.The Basis of the StrategyJapans steel strategy supports four directions to decarbonize and lower GHG emissions in the steel industry.The strategy focuses heavily on hydrogen as a decarbonization vector.The Green Growth Strategy,47 launched in December 2020,emphasizes the development of hydrogen reduction steelmaking technologies.Japan is also pushing for electrification particularly improving EAF processes to remove impurity,the adoption of DRIEAF processes,and a mix between CCUS and hydrogen called carbon recycling BFs to complement its hydrogen strategy.CCUS technologies play a pivotal role in Japans current strategy to decarbonize the steel industry.The government has committed to sup-porting the development of these technologies to capture and utilize CO2 emissions from steel production processes.The Roadmap for Car-bon Recycling Technologies,48 launched in July 2021,outlines the plan 47 Ministry of Economy,Trade and Industry,Japan,“Green Growth Strategy through Achieving Carbon Neutrality in 2050,”June 18,2021,https:/www.meti.go.jp/english/policy/energy_environment/global_warming/ggs2050/pdf/ggs_full_en1013.pdf.INSTITUT MONTAIGNE28to commercialize CO2 utilization technologies by 2030 and expand them further by 2040.In terms of the timeline for the steel sector,this implies the following:The Technology Roadmap for Iron and Steel plans to begin imple-menting CO2 capture in regular blast furnaces before 2030.49 The implementation of carbon-neutral processes such as clean hydrogen DRI is not envisioned before 2040.Overall,major stakeholders in the Japanese steel industry do not expect new processes to be introduced before 2040,aligning with the timeline for replacing most Japanese blast furnaces.The Regulatory and Financial FrameworkThe Japanese government has introduced several financial instruments and regulatory measures to support the steel industrys transition.The Green Innovation Fund,with an allocation of JPY 2 trillion(approxima-tely 12billion),is supporting projects to decarbonize the steel indus-try for a total of JPY 193.5billion(approximately 1.15billion)until 2030:50 JPY 14billion(approximately 88million)for on-site hydrogen direct reduction JPY 121billion(approximately 762million)for low-carbon tech 48 Ministry of Economy,Trade and Industry,Japan,“Roadmap for Carbon Recycling Technologies,”July 2021,https:/www.meti.go.jp/english/press/2021/pdf/0726_003a.pdf.49 Ministry of Economy,Trade and Industry,Japan,“Technology Roadmap for Transition Finance in Iron and Steel Sector,”October 2021,https:/www.meti.go.jp/policy/energy_environment/global_warming/transition/transition_finance_technology_roadmap_iron_and_steel_eng.pdf.50 Ministry of Economy,Trade and Industry,Japan,基金事業 Green Innovation Fund Project,October 15,2021,https:/www.meti.go.jp/policy/energy_environment/global_warming/gifund/pdf/gif_09_randd.pdf.29FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAusing CO2 contained in external hydrogen and blast furnace exhaust gas JPY 34.5billion(approximately 217.4million)for hydrogen direct injection(in classic blast furnaces,not carbon neutral) additional 10percent subsidy rate JPY 23.6billion(approximately 148.7million)to improve EAF by removing impuritiesThe GX Transition Bonds,part of the Green Transformation(GX)strategy,offer additional financial support for green projects,backed by a total publicprivate investment of JPY 150 trillion(approximately 945billion)over the next decade.51 Moreover,the Development Bank of Japans GRIT Strategy aims to invest JPY 5.5 trillion(approximately 34.7billion)in green and innovative initiatives by 2026,including pro-jects in the steel sector.52A Cooperative R&D and Demonstration ApproachJapans policy emphasizes collaboration across industry,academia,and government to foster innovation in low-carbon steel production.This strategy aims to unify efforts to develop and standardize new low-car-bon processes and to enhance research,facilitate knowledge exchange,and accelerate the adoption of low-carbon steel technologies.Against this backdrop,COURSE50 and Super COURSE50,the flagship projects developed by NEDO and the main Japanese steel companies(NipponSteel,JFE Steel,and KobeSteel),include efforts to separate and 51 Ministry of Economy,Trade and Industry,Japan,知経済基礎知識GX何？Essential Economic Knowledge You Should Know What Is GX?,January 17,2023,https:/journal.meti.go.jp/p/25136/.52 Development Bank of Japan,“Response to the TCFD Recommendations,”2022,https:/www.dbj.jp/en/pdf/CSR_disclo/2022/tcfd.pdf.INSTITUT MONTAIGNE30recover CO2 from blast furnaces,reduce emissions by 20percent through CO2 recycling and mineralization technologies,and use hydrogen injec-tion in blast furnaces.53 These projects,which represent the most concrete actions to decrease emissions in the steel sector in Japan to date,do not aim for carbon neutrality but rather to enable emissions reduction during the transition period using currently available technologies(i.e.,fossil-fuel-based blast furnaces).53 Nippon Steel,日本製鉄株式会社 説明資料 Nippon Steel Corporation Presentation Materials,2022,https:/www.meti.go.jp/shingikai/sankoshin/green_innovation/energy_structure/pdf/010_06_00.pdf.54 Ministry of Economy,Trade and Industry,Japan,“Green Growth Strategy through Achieving Carbon Neutrality in 2050.”55 Ministry of Economy,Trade and Industry,Japan,“Roadmap for Carbon Recycling Technologies.”56 Ministry of Economy,Trade and Industry,Japan,“Technology Roadmap for Transition Finance in Iron and Steel Sector.”57 Ministry of Economy,Trade and Industry,Japan,“Basic Hydrogen Strategy,”June 6,2023,https:/www.meti.go.jp/shingikai/enecho/shoene_shinene/suiso_seisaku/pdf/20230606_5.pdf.LegislationDateIssuerLinkGreen Growth Strategy 542020Ministry of Economy,Trade and Industry(METI)https:/www.meti.go.jp/english/policy/energy_environment/global_warming/ggs2050/pdf/ggs_full_en1013.pdfRoadmap for Carbon Recycling Technologies 552021METIhttps:/www.meti.go.jp/english/press/2021/pdf/0726_003a.pdfTechnology Roadmap for Iron and Steel 562021METIhttps:/www.meti.go.jp/policy/energy_environment/global_warming/transition/transition_finance_technology_roadmap_iron_and_steel_eng.pdfComprehensive Roadmap for Hydrogen Reduction Steelmaking 572023METIhttps:/www.meti.go.jp/shingikai/enecho/shoene_shinene/suiso_seisaku/pdf/20230606_5.pdfTable 3:Summary:Japanese Policies 31FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAc.South Koreas Steel Sector StrategySouth Korea is a major player in the global steel industry,with large com-panies such as POSCO and Hyundai Steel contributing to its status as the worlds sixth-largest steel producer.The steel sector in South Korea is responsible for about 13percent of the nations GHG emissions.58South Koreas steel sector is also highly trade-oriented,producing approximately 70million tons of steel annually,with 30million tons destined for export.Of these exports,around 10percent are shipped to the EU,10percent to the US,10percent to China,and 20percent to ASEAN countries,with the remainder distributed globally.59 This broad export strategy exposes the sector to diverse market demands,from“green-friendly”customers in the EU to those prioritizing high-quality steel at competitive prices.This reality complicates the decarbonization strategy of South Korean players.As is the case for Japan,South Korean stakeholders may face difficult choices and potentially a complete shift in their production model in the post-carbon economy.Despite this reality,the South Korean government is still betting heavily on its steel sector and aims to become the third-largest steel producer in the future.60The Basis of the StrategySimilar to Japan and Europe,one of the primary challenges for South Korea in decarbonizing its steel sector is the high cost associated with transitio-ning to low-carbon technologies.The development and implementation 60 Government of South Korea,Steel Industry Development Strategy,Februa-ry 2023,https:/www.korea.kr/docViewer/skin/doc.html?fn=6edabc4005c40af9225651251ae-2d12a&rs=/docViewer/result/2023.02/17/6edabc4005c40af9225651251ae2d12a.INSTITUT MONTAIGNE32of hydrogen-based steelmaking and wider adoption of electrification are the South Korean governments primary strategy.In addition,CCUS is also part of the South Korean governments agenda.In terms of the timeline,this has the following implications:The main industry players target large-scale deployment of CCUS from 2040 and of most other emissions reduction technologies from 2035.In the“Scenario Plan for 2050 Carbon Neutrality,”the government plans to fully replace blast furnaces and converters with hydrogen reduction steelmaking by 2050.The government also aims to replace crude steel production with steel scrap electricity processes“when possible.”61However,despite these targets,the extent of government involvement in the deployment of these decarbonization technologies remains to be determined.From a technological perspective,South Korea faces limita-tions similar to those faced by its Asian counterparts.First,the country has limited access to scrap metal,which is necessary for EAF production.Moreover,South Korea currently has a low capacity for producing clean hydrogen domestically and thus relies heavily on imports,complicating the transition to hydrogen-based steelmaking.62The Support FrameworkTo support the financial needs of the steel industry during its transition,the South Korean government has essentially established an R&D funding 61 Government of South Korea,2050 2050 Carbon Neutrality Scenario Proposal,October 18,2021,https:/tips.energy.or.kr/uplolad/carbon/1_2050 -.pdf.62 Which triggers investment from big Korean steelmakers abroad:POSCO is investing in a full-scale hydrogen electrolyzer in Oman.See Global Energy Monitor,“POSCO Oman Green Steel Project.”accessed September 9,2024,https:/www.gem.wiki/POSCO_Oman_green_steel_project.33FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAmechanism through the Carbon Neutral Industrial Core Technology Development Project(October 2022).This project,which selected 100 core domestic carbon-neutral technologies to invest in,is highly techno-logy-agnostic and remains modest in scope,dedicating KRW 209billion(140million)to the steel sector.63In response to the EUs CBAM,the South Korean government has partne-red with the countrys three main steel companies POSCO Holdings Inc.,Hyundai Steel Co.,and Dongkuk Steel Mill Co.to promote investment and technology development aimed at achieving low-carbon steelma-king.This partnership has led to the establishment of a dedicated KRW 1.5 trillion(around 1billion)fund to advance decarbonized steel production.64The South Korean government has also introduced various support mechanisms,including low-interest loans,subsidies,and tax rebates.However,these supports are primarily directed toward R&D,with no capital expenditure(CAPEX)or OPEX subsidies in the pipeline.The government is,however,considering the introduction of contracts for difference tailored for green hydrogen projects,which could provide a stable revenue stream and encourage private investment.Companies are also forming coalitions to support R&D in decarboni-zing the steel sector.In February 2021,a Low Carbon Process Research Group 65 was launched following a joint declaration by five of the largest 63 2050 Carbon Neutrality Commission,South Korea,Launch of Domestic Task Force for Carbon Regulation in the Steel Industry,January 11,2023,https:/www.2050cnc.go.kr/base/board/read?boardManagementNo=43&boardNo=1238&page=1&-searchCategory=&searchType=&searchWord=&menuLevel=2&menuNo=16.64 Igasnet,3 Aiming for Top 3 in Global Exports With Low-Carbon,High-Value-Added Steel,March 22,2023,http:/ ETNews,R&D 2000.Hyundai Steels R&D Investment in Eco-Friendly Steel Surpasses 200 Billion Won.Reaches Record High,March 2023,https:/ MONTAIGNE34domestic steel companies KG Steel,SeAH Steel Holdings,POSCO,Dong-kuk Steel,and SIMPAC to achieve carbon neutrality.LegislationDateIssuerLinkScenario Plan for 2050 Carbon Neutrality 662021Government of South Koreahttps:/tips.energy.or.kr/uplolad/carbon/1_2050 -.pdfKorean Emissions Trading Scheme 672015Government of South Koreahttps:/ Industrial Growth Strategy through Revitalization of Circular Economy 682023Ministry of Economy and Financehttps:/www.moef.go.kr/com/cmm/fms/FileDown.do;jsessionid=0.node20?atch-FileId=ATCH_000000000023349&fileSn=6Hydrogen Economy Roadmap 692019MOTIEhttps:/www.motie.go.kr/common/download.do?fid=bbs&bbs_cd_n=72&bbs_seq_n=210222&file_seq_n=1Green New Deal 702020The Government of the Republic of Koreahttps:/content.gihub.org/dev/media/1192/korea_korean-new-deal.pdfCarbon Neutral Strategy 2050 712020The Government of the Republic of Koreahttps:/unfccc.int/sites/default/files/resource/LTS1_RKorea.pdfTable 4:Summary:Korean Policies for Decarbonizing the Steel Sector66 Joint Interagency,South Korea,2050 2050 Carbon Neutrality Scenario Draft,2021,https:/tips.energy.or.kr/uplolad/carbon/1_2050 -.pdf.67 International Carbon Action Partnership,“Korea Emissions Trading Scheme,”2015,https:/ Ministry of Economy and Finance,South Korea,Industrial Growth Strategy Through Circular Economy Revitalization,June 21,2023,https:/www.moef.go.kr/com/cmm/fms/FileDown.do;jsessionid=0.node20?atchFileId=ATCH_000000000023349&fileSn=6.69 Ministry of Trade,Industry and Energy,“Hydrogen Economy Roadmap of Korea,”2019,https:/faolex.fao.org/docs/pdf/kor209756.pdf.70 Government of the Republic of Korea,“Korean New Deal:National Strategy for a Great Transformation,”July 2020,https:/content.gihub.org/dev/media/1192/korea_korean-new-deal.pdf.71 Government of the Republic of Korea,“2050 Carbon Neutral Strategy of the Republic of Korea:Towards a Sustainable and Green Society,”December 2020,https:/unfccc.int/sites/default/files/resource/LTS1_RKorea.pdf.35FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAd.The European Steel StrategyThe European Union is a leading player in global steel production,and the sector is critical to its economy,providing around 330,000 direct jobs and 2.5million indirect jobs.The EU steel industry is also responsible for approximately 5percent of the EUs CO2 emissions,making its decarbonization essential for achieving the EUs broader climate goals of reducing GHG emissions by 55percent by 2030 and achieving climate neutrality by 2050.72The decarbonization of the steel industry in Europe is a complex issue that involves both the European Union and its Member States.While the EU sets overarching climate goals and provides funding mecha-nisms,Member States have their own specific strategies and prio-rities.Overall,the EU and its Member States committed approximately 10.5billion for steel sector decarbonization projects from January 2023 to March 2024.This funding structure includes a mix of direct grants,soft loans,and,increasingly,OPEX compensation.This can lead to a somewhat disorganized policy landscape,with varying approaches and timelines for achieving decarbonization targets,poten-tially complicating the overall coordination and effectiveness of Europes efforts to reduce CO2 emissions in the steel sector.A significant fac-tor contributing to this challenge is the uneven financial capacity of Member States to invest in the decarbonization of their industrial sectors.72 Joint Research Centre,European Commission,“EU Climate Targets:How to Decarbonise the Steel Industry,”June 15,2022,https:/joint-research-centre.ec.europa.eu/jrc-news-and-updates/eu-cli-mate-targets-how-decarbonise-steel-industry-2022-06-15_en.INSTITUT MONTAIGNE36The European StrategyThe EUs strategy for decarbonizing its steel industry hinges on reforming the ETS free allocation system.This reform will gradually increase the car-bon price burden on the industry,thereby creating stronger incentives for stringent decarbonization efforts starting in 2028.Additionally,the implementation of the EU CBAM will enable the European steel sector to remain competitive in the European market compared to non-EU compe-titors.The carbon levy is intended to offset the cost differences imposed by the carbon price,reducing the risk associated with low-carbon steel production in Europe.While this measure will affect the sectors compe-titiveness outside the European market,it is considered neutral for the European steel sector,as the EU is a net importer of steel.73The European strategy focuses on the deployment of breakthrough technologies such as hydrogen-based steelmaking,advanced elec-trification through EAFs,and,to a lesser extent,carbon capture and storage.Hydrogen-based direct reduced iron(H2-DRI)is particularly emphasized,with projects across Europe aiming to replace conventional blast furnaces with hydrogen alternatives.The first H2-DRI in the world was produced at the Hybit Plant in Sweden.74 The REPowerEU plan optimistically antici-pates that around 30percent of the EUs primary steel production will be decarbonized using renewable hydrogen by 2030.7573 In 2023,the EU imported 26 million tons of finished steel products and exported 16.3 million tons of finished steel products.See:European Steel Association(EUROFER),“European Steel in Figures 2024,”2024,pp.37,43,https:/www.eurofer.eu/assets/publications/brochures-booklets-and-fact-sheets/european-steel-in-figures-2024/European-Steel-In-Figures-2024-v2.pdf.74 HYBRIT,“HYBRIT:SSAB,LKAB and Vattenfall First in the World with Hydrogen-Reduced Sponge Iron,”June 21,2021,https:/www.hybritdevelopment.se/en/hybrit-ssab-lkab-and-vattenfall-first-in-the-world-with-hydrogen-reduced-sponge-iron.75 Julian Somers,Joint Research Centre,“Technologies to Decarbonise the EU Steel Industry,”2022,https:/op.europa.eu/en/publication-detail/-/publication/fd3b326a-8aed-11ec-8c40-01aa75ed71a1/language-en.37FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIACCUS is another strategy that is being considered,but there have been only a few projects of this type so far.76 CCUS involves capturing CO2 emissions directly from steel plants and either reusing them in industrial processes or storing them underground.Projects such as the Dunkirk CCS initiative in France and similar endeavors in Belgium and Austria highlight this approach.The success of CCUS depends heavily on the development of robust infrastructure and the implementation of supportive regulatory frameworks that are still in their early stages,posing significant imple-mentation challenges.The newly adopted Net-Zero Industrial Act is intended to accelerate this work.The EU LevelBoth the EU and individual Member States provide financial support for decarbonizing the steel sector.The EU primarily funds R&D and the initial deployment of innovative technologies through Horizon Europe,the EU Research Fund for Coal and Steel(RFCS),and the Innovation Fund.In contrast,substantial CAPEX support,particularly for building new facilities and scaling up green technologies,comes from national government subsidies.The European Steel Technology Platform(ESTEP),as part of the broa-der EU industrial policy strategy,facilitates collaboration among stakehol-ders to develop and implement innovative low-carbon technologies in steel production.ESTEPs activities include promoting hydrogen-based steelmaking and carbon capture technologies and supporting over 100decarbonization projects that could collectively reduce emissions by 30percent by 2030.This project aims to bring breakthrough techno-logies to the large-scale demonstration stage by 2030.7776 There are three relatively minor projects in Europe to use CCUS in the steel sector:the Steelanol CCU project in Ghent,a CCS pilot in Dunkirk,France,and another pilot at Voestalpine in Linz,Austria.The vast majority of recent projects focus on hydrogen.77 European Steel Technology Platform(ESTEP),“Clean Steel Partnership,”accessed September 3,2024,https:/www.estep.eu/clean-steel-partnership.INSTITUT MONTAIGNE38The EU Research Fund for Coal and Steel(RFCS)is a central funding mechanism designed to foster innovation and research in Europes coal and steel sectors,leveraging the legacy assets of the former European Coal and Steel Community.78 It supports projects aimed at improving environmental sustainability,energy efficiency,and industrial safety,with a strong focus on reducing CO emissions in steel production and enhan-cing the recyclability of materials.Additionally,the Clean Steel Partnership,launched under the Horizon Europe program and the RFCS,is funded by a combination of EU and private sector contributions.The EU has committed 700million to this initiative for the period 20212027,which is matched by an expected 1billion from the private steel sector.This partnership aims to deve-lop breakthrough technologies to drastically reduce CO2 emissions from steel production.Finally,the EUs Innovation Fund,financed by the EU ETS,also plays a role in providing CAPEX for the demonstration of low-CO2 plants.The Innovation Fund covers up to 60percent of total project costs.79 In 2024,the fund opened a 4billion call for proposals,targeting various industrial sectors,including steel.This funding supports large-scale projects(with CAPEX over 100million)and medium-scale projects(CAPEX between 20million and 100million),among others.Overall,in line with its com-mitment to advancing innovative technologies in the steel sector,the EU Innovation Fund provided over 399million in funding between 2021 and 2024(for four projects,the largest of which are in Sweden).8078 European Commission,“Research Fund for Coal and Steel(RFCS),”accessed September 11,2024,https:/research-and-innovation.ec.europa.eu/funding/funding-opportunities/funding-pro-grammes-and-open-calls/research-fund-coal-and-steel-rfcs_en.79 European Commission.“Innovation Fund Projects,”accessed September 9,2024,https:/climate.ec.europa.eu/eu-action/eu-funding-climate-action/innovation-fund/innovation-fund-projects_en.80 European Commission,“Innovation Fund Portfolio of the Signed Projects,”accessed September9,2024,https:/dashboard.tech.ec.europa.eu/qs_digit_dashboard_mt/public/sense/app/6e4815c8-1f4c-4664-b9ca-8454f77d758d/sheet/bac47ac8-b5c7-4cd1-87ad-9f8d6d238eae/state/analysis.39FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAThe Member State LevelThe EU Member States each have their own specific strategies and fun-ding mechanisms,representing the largest proportion of the aid given to industries.This can lead to a somewhat disorganized policy landscape with varying approaches,financial means,and timelines for achieving decarbonization targets,potentially complicating the overall coordina-tion and effectiveness of Europes efforts to reduce CO2 emissions in the steel sector.France has its own strategy for decarbonizing its steel industry and aims to cut overall industrial emissions by 35percent by 2030 compared to 1990 levels.81 Initially,this plan was supported by an investment of 5.5billion under the France 2030 plan.However,in October 2023,the government revised this allocation,reducing the decarbonization fund by 1billion,bringing the total to 4.5billion.82 Despite this reduction,4billion remains earmarked for high-quality decarbonization projects and 1billion for deploying low-carbon technologies.The strategy emphasizes carbon capture and storage(CCS),the produc-tion of low-carbon hydrogen,and the increased use of biomass.Notably,ArcelorMittals projects in Fos-sur-Mer and Dunkirk are central to this plan,with combined investments of 1.7billion aimed at imple-menting EAF and H2-DRI technologies.8381 Ministre de lconomie,des Finances et de la Souverainet industrielle et numrique,Le gou-vernement dvoile son plan daction pour dcarboner lindustrie,February 8,2022,https:/www.economie.gouv.fr/plan-action-gouvernement-pour-decarboner-industrie.82 Ministre de lconomie,des Finances et de la Souverainet industrielle et numrique,“Matriser la dpense pour investir dans lavenir,”September 27,2023,https:/www.budget.gouv.fr/files/files/plf/plf-2024/dossier-presse-projet-de-loi-de-finances-2024.pdf.83 ArcelorMittal,“1.7 Billion Decarbonisation Investment to Transform Our French Steelmaking Operations,”accessed September 3,2024,https:/ MONTAIGNE40Germany,one of Europes largest steel producers,also plans to decarbo-nize its steel industry despite growing issues in this sector in the country.Germanys strategy focuses on the use of hydrogen to replace coal in steel production,supported by significant government funding and publicprivate partnerships.The German government has launched a 50billion funding program to support energy-intensive industries such as steel with the aim of ensuring they can transition to climate-neu-tral production.84 The country will also subsidize OPEX using innovative carbon contracts for difference(CCfD)that will most likely support low-carbon steel production.Notable projects include Thyssenkrupps green steel initiative,which has attracted a 2billion subsidy package from the German government and received EU approval.85 Additionally,Salzgitter Flachstahl has been granted over 1billion for decarbonization activities.86The German subsidy efforts alone will not be sufficient to replace the countrys entire BFBOF capacity.While companies such as Thys-senKrupp and Salzgitter have already begun construction,ArcelorMittal remains undecided on whether to proceed with its investment,despite the available funding.The initial strategy involved launching operations with natural gas and gradually transitioning to hydrogen as it becomes available at scale.However,the economic feasibility of this“on-ramp”was 84 Germany Trade&Invest(GTAI),“Germany Targets Billions for Steel Sector Decarboniza-tion,”June 16,2023,https:/www.gtai.de/en/invest/industries/energy/germany-targets-bil-lions-for-steel-sector-decarbonization-1011840.85 European Commission.“State Aid:Commission Approves German 550 Million Direct Grant and Conditional Payment Mechanism of up to 1.45 Billion to support ThyssenKrupp Steel Europe in Decarbonising its Steel Production and Accelerating Renewable Hydrogen Uptake,”July 20,2023,https:/ec.europa.eu/commission/presscorner/detail/en/IP_23_3928;Thyssenkrupp,“Thyssenkrupp Steel to Receive Federal and State Government Funding Totaling around Two Billion Euros,”July26,2023,https:/www.thyssenkrupp- Federal Ministry for Economic Affairs and Climate Action(BMWK),“Habeck and Weil Hand over Funding Notice Worth Nearly One Billion Euros,”April 18,2023,https:/www.bmwk.de/Redaktion/EN/Pressemitteilungen/2023/04/230418-habeck-and-weil-hand-over-funding-notice-worth-nearly-one-billion-euros.html.41FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAcompromised by the surge in natural gas prices resulting from Rus-sias war on Ukraine,making the shift to hydrogen less attractive in the near term.87Other major steel-producing countries in the EU such as Italy,Spain,and the Netherlands are also making strides toward decarbonization.Italy,for example,is focusing on direct reduction pilot plants powered by hydrogen.Spain is investing in various projects including the use of green electricity and circular economy principles to minimize the carbon foot-print of steel production.The Netherlands,home to Tata Steels IJmuiden plant,is exploring innovative ironmaking technologies such as HIsarna,which aims to significantly reduce CO2 emissions.Key ChallengesEurope holds a dominant position in the global engineering market for steel manufacturing equipment,with the top three companies SMS Group,88 Danieli,89 and Primetals 90 headquartered within the EU.Danieli has developed its own DRI technology,while SMS Group and Primetals serve as the primary licensees of the Midrex technology,which is being explored in the United States.This gives the European steel industry a significant advantage in the production and deployment of advanced DRI solutions.The transition to carbon neutrality in the European steel sector hinges on the availability of cost-competitive fossil-free energy carriers 87 For more on the current situation in Germanys steel sector,see:Federal Ministry for Econo-mic Affairs and Climate Action,“Drucksache 20/11678,”2024,https:/table.media/wp-content/uploads/2024/07/04153753/2024-07-02-Antwort-BuRe-KA-Gruener-Stahl-Drs.-20-11678-2-1.pdf.88 SMS Group,corporate website,accessed September 9,2024,https:/www.sms-.89 Danieli,corporate website,accessed September 9,2024,https:/ Primetals Technologies,corporate website,accessed September 9,2024,https:/.INSTITUT MONTAIGNE42especially electricity and clean hydrogen steelmaking and related infrastructure,including for CO2 transport and storage,as well as car-bon recycling mechanisms.However,the choice of decarbonization vectors is also subject to local conditions regarding the availability of renewable and low-carbon resources.The EU has enacted ambitious climate policies with short-,middle-,and long-term instruments for decarbonization.Under current legislation and industry projections,the continued operation of BFBOF plants in Europe will become virtually impossible shortly after the end of the free allocations in the EU ETS(2038 by some projections).This has still led to a marked increase in the pace of decarbonization initiatives,highlighted by significant recent investments.Despite this progress,there remains no viable business case for large-scale investments in green steel without substantial state support.The financial hurdles in decarbonizing the steel industry are significant,requiring major public funding to drive the transition to low-carbon production methods.Against this backdrop,in the steel sector,two main challenges to the low-carbon transition remain.The first is the price gap,as the cost of green steel production is around 30100percent more expensive than that of traditional fossil-based steel.The second challenge is the depen-dence on regional markets for energy sources for low-carbon steel,such as hydrogen and electricity,rather than on the global market,mea-ning that EU steel producers need to contend with regional prices rather than global ones,as well as with local conditions regarding resource avai-lability.To achieve its target of cutting GHG emissions by 55percent by 2030 and carbon neutrality by 2050,the current EU projects need to be expanded to an industrial scale.Within the EU,the capacity investment needs for low-carbon projects in the steel sector are estimated by sector repre-sentatives to reach the following amounts:9143FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA 31billion for capital expenditures(CAPEX)by 2030.54billion for operating expenditures(OPEX)by 2050.This level of investment is not currently being met by European industries or public authorities.91 European Steel Association(EUROFER),“Low-CO2 Emissions Projects,”May 23,2022,https:/www.eurofer.eu/issues/climate-and-energy/maps-of-key-low-carbon-steel-projects.EU Policy/DirectiveSpecific Targets/RequirementsDescriptionFit-for-55 Package,2021 92Reduce emissions by 55%by 2030 compared to 1990 levels.Emphasis on using hydrogen in steel production and implementing CCS technologies.EU Emissions Trading System(ETS)93 and CBAM 94,2023Gradual reduction in the cap on emissions allowances by 2.2%annually.Total end of free allocation by 2034.Introduction of Carbon Border Adjustment Mechanism(CBAM).Reduces emissions allowances over time and prevents carbon leakage by adjusting the price of carbon at the border for imported steelEnergy Efficiency Directive(EED)95,2023Improve energy efficiency by 32.5%by 2030. further increase its energy efficiency ambition by at least 11.7%in 2030 compared to the level of efforts under the 2020 EU Reference Scenario.Targets improvements in energy efficiency.(no precise target by sector).Most industries are obliged to implement a system of energy management.No precise target by sectorRenewable Energy Directive(RED III)96,2023Increase the share of renewable energy in the EUs energy mix to 42.5%by 2030 in all sectors.Annual increase in the share of renewable energy in each sector by 1.6%until 2030.Circular Economy Action Plan 97,2020The plan aims to increase the recycling rate from 33%in 2020 to over 50%by 2050.Promotes sustainable product design,increases recycling rates,and reduces waste.Table 5:Summary:EU Policies for Decarbonizing the Steel SectorINSTITUT MONTAIGNE44EU Policy/DirectiveSpecific Targets/RequirementsDescriptionEcodesign for Sustainable Products Regulation(ESPR)98,2024Expands the Ecodesign Directive(2009/125/EC)to cover nearly all products,focusing on sustainability and circular economy principles.ESPR aims to improve product design to enhance durability,recyclability,and energy efficiency while reducing overall environmental impact throughout the product life cycle.Targets industries,including steel,to decarbonize production and use more recycled materials.Industrial Emissions Directive(IED)99,2022 Reduce industrial emissions through the application of Best Available Techniques(BAT).Ensures industries use BAT to minimize emissions:CCUS,Scrap,DRI,EAF,heat recovery.92 European Commission,“Delivering the European Green Deal,”accessed September 9,2024,https:/commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal/deli-vering-european-green-deal_en.93 European Commission,“EU Emissions Trading System(EU ETS),”accessed September 9,2024,https:/climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en.94 European Commission,“Carbon Border Adjustment Mechanism,”accessed September 9,2024,https:/taxation-customs.ec.europa.eu/carbon-border-adjustment-mechanism_en.95 European Commission,“Energy Efficiency Directive,”accessed September 9,2024,https:/energy.ec.europa.eu/topics/energy-efficiency/energy-efficiency-targets-directive-and-rules/energy-efficiency-directive_en.96 European Union,“Directive(EU)2023/2413 of the European Parliament and of the Council of 18 October 2023,”October 18,2023,https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202302413.97 European Commission,“Circular Economy Action Plan,”accessed September 9,2024,https:/environment.ec.europa.eu/strategy/circular-economy-action-plan_en.98 European Commission,“Ecodesign for Sustainable Products Regulation,”accessed September 9,2024,https:/commission.europa.eu/energy-climate-change-environment/standards-tools-and-labels/products-labelling-rules-and-requirements/sustainable-products/ecodesign-sustainable-products-regulation_en.99 European Commission,“Industrial and Livestock Rearing Emissions Directive(IED 2.0),”accessed September 9,2024,https:/environment.ec.europa.eu/topics/industrial-emissions-and-safety/industrial-and-livestock-rearing-emissions-directive-ied-20_en.45FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAe.Electrifying the Steel SectorThe EAF process for producing secondary steel involves melting scrap steel with an electric arc,significantly reducing reliance on primary steel-making methods and therefore lowering CO2 emissions.This process is particularly suitable for developed economies with abundant scrap steel supplies.This process alone is capable of reducing carbon dioxide emissions by nearly 90percent per ton of crude steel produced.To be carbon neutral,this process requires access to abundant clean electricity.Despite its benefits,scaling the EAF process globally faces several challen-ges.One major hurdle is the variation in scrap steel quality,which can contain impurities that affect the steels properties,posing challenges for industries requiring high-grade materials such as the automotive and aerospace sectors.Additionally,the availability and quality of scrap steel vary significantly across regions,impacting the feasibility of widespread adoption.Enhancing the efficiency and output quality of EAF steel requires advanced sorting and pretreatment technologies to remove impurities,increasing both operational complexity and costs.The global steel industry is investing in R&D to overcome these obstacles.Some innovations,such as using plastic waste as a foaming agent in EAFs,have shown promise in improving sustainability and reducing costs.100f.Electrification in ChinaIt has become fashionable to describe China as the worlds first“electros-tate”a country leading the global electrification revolution.A significant part of Chinas strategy to decarbonize the steel industry is outlined in the“Implementation Plan for Carbon Peaking in the Industrial Sector”101 100 World Steel Association,“Climate Change and the Production of Iron and Steel,”2021,https:/worldsteel.org/wp-content/uploads/Climate-change-production-of-iron-and-steel-2021.pdf.101 State Council of the Peoples Republic of China,“Implementation Plan for Carbon Peaking in the Industrial Sector.”INSTITUT MONTAIGNE46and the MIIT“Guidelines for the Steel Sector.”102 These documents focus heavily on the development of EAFs to reduce emissions.This could be one of the low-hanging fruit of Chinas industrial decarbonization.The steel sector is currently predominantly based on primary steel production and lacks effective recycling policies.EAFs are seen as a straightforward way to reduce emissions in the short term while main-taining sufficient production levels.The initial target is to produce up to 15percent of steel from EAFs by 2025.To achieve this 15percent EAF production target by 2025,China would need to produce 143mtpa using EAF technology.As of January 2024,China has 151mtpa of EAF capacity in operation,indicating that the necessary infrastructure is already in place,provided that EAF capacity utiliza-tion rates are optimized.103 Furthermore,the MIIT guidelines for 2030 have fluctuated over time.Initially,in 2020,the goal was for 20percent of Chinese steel to come from EAFs by 2030.104 This target was scaled back in the MIIT 2022 decarbonization plan due to concerns that increasing EAF capacity amid overcapacity would necessitate significant reductions in BF operations,a potentially disruptive strategy for many provinces that are still investing in these traditional carbon-intensive furnaces.A major limitation in the electrification of the Chinese steel industry is the difficulty of accessing steel scrap in China,although this supply is expected to increase.105 This leads to some EAFs being fed not with 102 Ministry of Industry and Information Technology,China,“14th Five-Year Plan for Green Indus-trial Development.”103 Global Energy Monitor,“In China,a Small Boost to Low-Emissions Steelmaking Can Mean Big Cuts to Its Carbon Footprint,”China Steel Brief,March 2024,https:/globalenergymonitor.org/wp-content/uploads/2024/03/GEM-China-steel-brief-March-2024.pdf.104 State Council of the Peoples Republic of China,“Guiding Opinions from Three Ministries on Promoting High-Quality Development of the Steel Industry.”105 There are hardly any sophisticated models projecting steel availability/supply.However,some sources expect an increase to 320million tons by 2025,390 million tons by 2030,and up to 500million tons by 2050.See:Global Energy Monitor,“Global Steel Plant Tracker.”47FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIArecycled steel scrap but with pig iron from traditional coal-based BFs due to the current scrap shortage and massive availability of pig iron.106 Another significant challenge is the availability of low-carbon electri-city.Despite Chinas gigantic renewable electricity generation capacity,it has not yet met the growing demand from the grid,leading many cur-rent EAFs to be powered by coal-based electricity.Main National Strategy to Enhance the Use of Electric Arc FurnacesThe success of the Chinese electrification strategy relies on a complete overhaul of the countrys recycling capacity.The“14th Five-Year Plan on Raw Materials”107 and the“Steel Industry Development Guidelines”108 prioritize electrification in the short term,encouraging provinces to support the transition to EAFs connected to low-carbon energy sources and implement policies to improve access to steel scrap.Traditional industrial policy instruments,such as fiscal incentives and the creation of a price index for scrap iron and steel,are used to guide the mar-ket.These documents set specific targets,such as achieving a 30percent ratio of scrap steel utilization in steelmaking by the end of the 14th Five-Year-Plan period and reaching 200million tons of annual pro-cessing capacity for scrap iron and steel.The national government also implemented a clean electricity consumption mandate that may have an effect on the current usage of clean electricity by EAF in China.109106 This is the current reality of Chinese EAFs,which are the most carbon-intensive in the world,with 2.1 tn.CO2/tn.steel compared to a global average of 1.3 tn.CO2/tn.steel.107 Ministry of Industry and Information Technology,China,“14th Five-Year Plan for the Development of the Raw Materials Industry.”108 State Council of the Peoples Republic of China,“Guiding Opinions from Three Ministries on Promoting High-Quality Development of the Steel Industry.”109 National Development and Reform Commission,China,“Notice on Strengthening the Coordination of Green Power Certificates and Energy Conservation and Carbon Reduction Policies to Vigorously Promote Non-Fossil Energy Consumption.”INSTITUT MONTAIGNE48Currently,however,most experts and Chinese industrialists interviewed for this study emphasize that EAFs powered by renewable energy are still less competitive than coal-based processes.Therefore,without subs-tantial subsidies,a reform of the electricity market,and the imple-mentation of a significant carbon price,this competitiveness issue is unlikely to change,even if additional EAF capacity is built.Furthermore,current R&D support for improving EAFs and scrap quality is not at the forefront of the Chinese steel sector strategy.110 Indeed,most funding and guidance is going toward other technologies,particularly CCUS and hydrogen reduction processes.g.Electrification in JapanThe Japanese government has laid out an extensive strategy to promote electrification within the steel sector.The Technology Roadmap for Iron and Steel 111 plans to expand EAF and improve the technology to large-scale EAF and low-impurity EAF steel from 2030.Key ChallengesOne of the primary hurdles in shifting to EAF technology in Japan is the low level of utilization of high-quality steel scrap in the country.This scarcity is compounded by the high demand for scrap from other sectors and the export of scrap metal.To address the scrap availability issue,the government is considering implementing new policies including stricter regulations on scrap exports and incentives for recycling 110 While EAF is a mature technology,research could still be valuable in improving scrap sorting and feedstock monitoringpotentially through AI technology.This would enhance the quality of secondary steelmaking,minimizing the reliance on virgin pig iron or HBI to achieve the desired steel grades.111 Ministry of Economy,Trade and Industry,Japan,“Technology Roadmap for Transition Finance in Iron and Steel Sector,”October 2021,https:/www.meti.go.jp/english/press/2021/pdf/1027_002a.pdf.49FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAwithin Japan.Also under consideration is financing the development of advanced sorting and processing technologies to improve the quality and availability of scrap for EAF use.The high cost of electricity in Japan,coupled with the need for subs-tantial investment in grid infrastructure,complicates the electrifi-cation strategy.Although EAFs are less carbon-intensive,they require significant amounts of electricity,making their operation economically challenging without substantial support and subsidies.The government is,therefore,considering policies to reduce electricity costs for steel producers,such as subsidies for renewable energy use and invest-ments in grid infrastructure to support the increased demand from elec-trified steel production.Additionally,the quality of steel produced by current EAF technologies does not meet the demands of the Japanese economy,particularly in car and machine manufacturing,which requires higher-quality steel.The-refore,switching completely to EAFs in the near future is not consi-dered desirable by most industry stakeholders,who are calling for further development of technologies to remove impurities from scrap steel.Policy Framework and StrategiesThe Japanese governments Green Growth Strategy,launched in December 2020,includes support for the development and adoption of EAF technology.112 The government aims to promote the transition to EAFs by providing financial incentives,investing in R&D,and sup-porting the necessary infrastructure developments.Through the 112 Ministry of Economy,Trade and Industry,Japan,“Green Growth Strategy through Achieving Carbon Neutrality in 2050.”INSTITUT MONTAIGNE50Green Innovation Fund,the Japanese government has allocated JPY 23.6billion(approximately 149million)to support the electrification of the steel sector.113 Additionally,the GX Transition Bonds,114 designed to attract private investment in green projects,are also supposed to pro-vide additional financial support for electrification(under the renewable energy use portfolio of JPY 31 trillion,or approximately 195.51billion).The Japanese strategy places a strong emphasis on R&D.The Green Innovation Fund supports various projects aimed at improving the performance of EAFs(which are currently 30percent less efficient than BFs).For instance,significant investments are being made to tackle the challenges associated with removing impurities in scrap steel,which is crucial for producing high-quality steel through the EAF route and esta-blishing large-scale EAFs,as the technology roadmap sees emerging from 2040.The Japanese government is also implementing various regulatory measures to support the transition to electrified steel production.These include setting ambitious targets for scrap utilization and creating market mechanisms to ensure the availability of low-carbon electri-city,especially where EAFs are located.115h.Electrification in South KoreaSouth Korea is also actively pursuing policies to increase the use of EAFs as part of its broader decarbonization strategy for the steel industry.The countrys main vehicle to decarbonize industry the Carbon Neutral 113 Ministry of Economy,Trade and Industry,Japan,“Green Innovation Fund Project.”114 Ministry of Economy,Trade and Industry,Japan,“Japan Climate Transition Bond Framework,”November 2023,https:/www.meti.go.jp/policy/energy_environment/global_warming/transition/climate_transition_bond_framework_eng.pdf.115 Ministry of Economy,Trade and Industry,Japan,“Technology Roadmap Formulated for Transition Finance toward Decarbonization in the Iron and Steel Sectors.”51FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAIndustrial Core Technology Development Project promotes electrifi-cation,with an emphasis on EAFs in the steel sector.A major obstacle is the demand for primary steel from key customers in the electronics and car manufacturing sectors.South Koreas industrial requirements necessitate a continuous supply of primary steel,which is traditionally produced using blast furnaces.This dependence on primary steel complicates the transition to EAFs.Moreover,South Korea a key importer of scrap metals,notably from Japan still faces limitations in accessing sufficient quantities of scrap steel,which is crucial for the effective operation of EAFs.Therefore,the govern-ment has set objectives of building a steel scrap ecosystem and enabling access to the resource,which is currently behind in the country.116Scrap Steel StrategyAccess to scrap steel has thus become a central strategy for a country as heavily involved in steelmaking as South Korea.The South Korean govern-ment has,therefore,established a strategy of ensuring a balanced sup-ply and demand of steel resources,with the aim of securing a circular steel economy.117 This involves conducting a detailed statistical investi-gation across all stages of the steel value chain,including the occurrence,demand,and distribution of steel by grade and region.In the first half of 2023,the government launched the“Iron Resources Coexistence Forum”to foster collaboration between steel manufactu-ring companies and steel scrap companies.To secure a stable scrap sup-ply,efforts will be made to obtain scrap volumes from key international sources,particularly the US and Japan,while reviewing measures to 116 Government of South Korea,“Steel Industry Development Strategy.”117 Ministry of Economy and Finance,South Korea,“Industrial Growth Strategy Through Circular Economy Revitalization.”INSTITUT MONTAIGNE52prevent the outflow of domestic scrap.In this sense,the economic bat-tle for scrap metal will only become more acute when decarbonization goals are implemented more stringently.The high initial investment required for transitioning from traditional BFs to EAFs presents another significant challenge.The capital expenditure needed for this shift is substantial,and the existing funding mecha-nisms in South Korea are not sufficient to cover these costs entirely.Additionally,the energy supply and infrastructure required to support EAF technology present further complications.EAFs demand a stable and substantial supply of electricity,ideally sourced from renewable energy.However,South Koreas current renewable energy infrastructure may not be adequate to meet this increased demand,and the nuclear sector itself is considered key for future development.To address these challenges,the government is investing in R&D to improve the efficiency of EAF technology and is providing KRW 24.1bil-lion(approximately 16.2million)toward this end for the period 20242025.118 This includes efforts to enhance the efficiency of EAFs and to integrate them with imported DRI steel.By importing DRI steel,South Korea can supplement the scrap steel supply needed for EAF operations,facilitating the transition to greener steel production methods.Companies are also betting on improving and expanding their use of EAFs.Dongkuk Steel is planning to complete an R&D project on hyper-electric furnaces by 2028.119 POSCO is betting on the establishment of renewable electric furnaces based on bridge technology by 2030 and expects to close down all its coal processes by 2050.120118 Ministry of Economy and Finance,South Korea,“Industrial Growth Strategy Through Circular Economy Revitalization.”119 An advanced type of EAF,see:Dongkuk Steel,“Steel for Green,”2022,https:/ POSCO,“POSCOs Initiative for a Clean Earth,”accessed October 1,2024,https:/www.posco.co.kr/homepage/docs/eng7/jsp/climate/s91c6000010a.jsp.53FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAi.Electrifying the European Steel SectorThe advancement of EAF technology in Europe marks a stride toward decarbonizing the steel industry.Electrification in Europe presents a viable solution to some of the challenges of deploying hydrogen reduc-tion steelmaking,given the high costs associated with producing or importing clean hydrogen.If the main strategy to decarbonize the steel industry in Europe is still targeting hydrogen reduction,the future of European steel in a post-carbon world may rely heavily on EAF tech-nology,potentially supported by a model of importing primary steel or reduced iron.The Political Economy of EAF in EuropeAt the European level,support and strategies for electrifying the steel sector and industry in general are relatively weak.Overall,industries electrification strategies mostly depend on national poli-cies,which play a crucial role in supporting EAF adoption.For instance,Germany has pledged 1.3billion to help decarbonize steel production by building EAFs at ArcelorMittals factories in Bremen and Eisenhttens-tadt.121 This funding is part of a larger 2.5billion investment package aimed at reducing carbon emissions by 60percent by 2030.122The growing market demand for low-carbon steel,driven by consumer preferences and corporate sustainability goals,supports the economic 121 Federal Ministry for Economic Affairs and Climate Action(BMWK),“Habeck bergibt Fr-derbescheid ber rund 1,3 Milliarden Euro an ArcelorMittal”Habeck Delivers Grant of Around 1.3 Billion Euros to ArcelorMittal,May 30,2024,https:/www.bmwk.de/Redaktion/DE/Presse-mitteilungen/2024/05/20240530-foerderbescheid-1.3-mrd-euro-arcelormittal.html.122 Jack McGovan,“German Govt Pledges 1.3 Bln in Funding to Help Decarbonise Steel Production,”Clean Energy Wire,February 6,2024,https:/www.cleanenergywire.org/news/german-govt-pledges-eu13-bln-funding-help-decarbonise-steel-production.INSTITUT MONTAIGNE54viability of EAF technology and,therefore,the demand for scrap.Des-pite the high electricity costs associated with its operation,countries with abundant renewable energy sources,such as Spain and the Nordic nations,find EAF technology particularly viable.123In contrast to most of its Asian counterparts,Europe benefits from a robust recycling infrastructure,ensuring a steady supply of steel scrap,which is essential for EAF operations.However,over the past decade,the EUs scrap exports have surged significantly,primarily to Tr-kiye.124 Some have raised concerns that the current CBAM regulation does not include pre-consumer scrap,potentially creating a loophole that could allow CBAM requirements to be easily circumvented.125123 Halina Yermolenko,“European Investment in the EAF Continues to Grow,”July 6,2023,GMK Center,https:/gmk.center/en/news/european-investment-in-the-eaf-continues-to-grow/.124 In 2021,the EU exported 13.1 million tons of ferrous scrap to Trkiye,making it the largest destination for EU scrap,accounting for nearly 48percent of all EU ferrous metal exports.This trend continued into 2023,with Trkiye remaining the primary destination,receiving 12.2million tons of recyclable raw materials from the EU.See:Eurostat,“Exports in Recyclable Raw Materials Increased in 2023,”May 22,2024,https:/ec.europa.eu/eurostat/web/products-eurostat-news/w/ddn-20240522-1.125 Sandbag Smarter Climate Policy,“A Scrap Game:Impacts of the EU Carbon Border Adjustment Mechanism,”June 3,2024,https:/sandbag.be/2024/06/03/a-scrap-game-cbam-impacts/.024681012Figure 2:EU steel scrap exports by destinationTurkiyeIndiaUnited Kingdom CountriesEgyptIndonesiaExports(million tons)55FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIATo address the environmental concerns associated with scrap exports,the EU is revising its Waste Shipment Regulation.The updated regu-lation,which was adopted in April 2024 and will take full effect by May 2027,introduces stricter controls on the export of waste,particularly to non-OECD countries.These countries must now demonstrate their capability to manage the waste sustainably before they are permitted to receive it.This regulatory overhaul aims to bolster the circular economy within the EU by ensuring that waste is recycled and reused within the union,thus supporting the EAF sector and reducing the environmen-tal impact of waste exports.126The Future Role of EAF in EuropeEAF technology currently accounts for 44percent of Europes steel production,especially in countries with strong recycling systems and access to affordable electricity.127 Italy and Spain,where projects focus on integrating clean electricity into the steelmaking process,are notable leaders in this field.For instance,ArcelorMittals initiatives in Sestao,Spain,aim to utilize green electricity and H-DRI to produce low-carbon steel.128 The integration of renewable energy into the steel production process offers a promising pathway to sustainability,but it also requires substantial investment and poses risks related to energy supply stability and cost.126 European Commission,“New Regulation on Waste Shipments Enters into Force,”May 20,2024,https:/environment.ec.europa.eu/news/new-regulation-waste-shipments-enters-force-2024-05-20_en.127 Annalisa Villa,“Europe to Press on with Low-Emission Steel Production Projects in 2024,”S&P Global,December 12,2023,https:/ ArcelorMittal,“ArcelorMittal Sestao to Become the Worlds First Full-Scale Zero Carbon-Emissions Steel Plant,”July 2021,https:/ MONTAIGNE56Looking ahead,EAFs could play an even more significant role,particularly if primary steelmaking or ironmaking is transferred outside of Europe due to the high costs associated with hydrogen production.Hydrogen-based steelmaking,while promising,is currently expensive.If Europe shifts primary steelmaking abroad,EAF technology,relying on recycled steel scrap or imported reduced iron,could become the predomi-nant method within the continent.j.Producing Primary Steel Using Clean HydrogenDecarbonizing the primary steel production process is a complex challenge.The production of iron,which is the precursor to steel,is parti-cularly carbon-intensive.There are two primary reasons for this:first,the process requires enormous amounts of heat,and second,carbon is used as a feedstock to facilitate the chemical reaction necessary to reduce iron ore into pure iron.This ironmaking process alone accounts for 3 to 4 giga-tons of GHG emissions annually and is a major source of other pollutants.One classic approach to decreasing steel emissions involves using natural gas in a process called direct reduced iron(DRI),which takes place in a shaft furnace.Unlike traditional BFs using coal,DRI requires less heat and does not melt the iron.Instead,it purifies iron ore,and where natural gas is used,it can be replaced with hydrogen produced from clean elec-tricity.This hydrogen can eliminate the vast majority of GHG emissions associated with iron production.This decarbonizing strategy is the most widely considered by the steel industry worldwide.Traditional steel production methods,which use a BF followed by a BOF,produce,on average,2.44 tons of CO2 equivalents per ton of steel,with massive variations between countries and methods used.129 In contrast,using clean hydrogen DRI associated with an EAF powe-red by clean electricity can reduce emissions by up to 97percent.130 57FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIAThe fundamental chemical reaction in steel production involves breaking the bonds between iron and oxygen atoms in iron ore(iron oxide).In tradi-tional methods,carbon from coal serves as the bonding agent,producing CO2 as a byproduct.However,in the hydrogen reduction process,hydrogen replaces carbon,and the byproduct is water vapor instead of CO2.131Different Types of DRI TechDifferent DRI technologies have varying requirements regarding the quality of iron ore,which is a critical element for decarbonizing the steel industry:132 H2 shaft furnaces require high-grade iron ore(ore with more than 6768percent of iron)to function efficiently.These furnaces operate by using hydrogen to directly reduce iron ore at high tem-peratures,resulting in lower carbon emissions.However,the need for high-grade iron ore is a significant limitation.133 Recent advance-ments aim to allow these furnaces to use lower-grade ore by enhan-cing the reduction process and incorporating robust purification systems to handle impurities.129 For more on emissions disparities between China,Europe,Japan,and South Korea,see:Ruo-chong Xu et al.,“Plant-by-Plant Decarbonization Strategies for the Global Steel Industry,”Nature Climate Change 13(2023):10671074,https:/ Jessica Terry,Chathurika Gamage,Nick Yavorsky,and Rachel Wilmoth,“Unlocking the First Wave of Breakthrough Steel Investments in the United States,”RMI,2023,https:/rmi.org/insight/unlocking-first-wave-of-breakthrough-steel-investments-in-the-united-states/.131 Josu Rodrguez Diez,Silvia Tom-Torquemada,Asier Vicente,Jon Reyes,and G.Alonso Orcajo,“Decarbonization Pathways,Strategies,and Use Cases to Achieve Net-Zero CO2 Emissions in the Steelmaking Industry,”Energies 16,no.21(2023):7360,https:/doi.org/10.3390/en16217360.132 Soroush Basirat,“Green Steel Pathways for the New Hydrogen-Powered DRI-EAF Projects,”Energy Post,April 4,2024,http:/web.archive.org/web/20240520054028/https:/energypost.eu/green-steel-pathways-for-the-new-hydrogen-powered-dri-eaf-projects/.133 Technically,it is not the DRI plants that struggle with lower-grade ores,but rather the EAFs in the second stage of the process.INSTITUT MONTAIGNE58-Midrex is the leading technology for shaft DRI production and can operate using natural gas,with the ability to gradually integrate hydrogen as it becomes more cost-effective.This flexibility allows for a smoother transition from natural gas to hydrogen,making it a viable option for regions currently reliant on natural gas.-Energiron technology is an inherently hydrogen-ready tech,mea-ning it can start using hydrogen as a reducing gas without signifi-cant equipment modifications.This technology can handle a variety of iron ore grades,although optimal performance is achieved with higher-grade ores.Energirons capability to adapt to different redu-cing gases positions it as a crucial technology for the steel industrys transition to lower carbon emissions.The HyREX process,developed by POSCO in South Korea,134 repre-sents a flexible and innovative approach to DRI steel production capable of handling lower-grade iron ore fines directly in a fluidized bed reactor.Unlike traditional DRI processes that require high-grade iron ore pellets and utilize shaft furnaces,HyREX bypasses the pel-letization step,reducing both costs and carbon emissions.135 By integrating hydrogen reduction with electric melting,HyREX effi-ciently removes impurities,producing high-quality steel.136 Howe-ver,its significant energy requirements due to the endothermic hydrogen reduction reaction present a challenge,making the pro-cess heavily reliant on consistent and affordable renewable energy sources to maintain reaction temperatures and ensure economic sustainability.134 POSCO,“Great Conversion to Low-Carbon Eco-Friendly Steelmaking Process(HyREX),”June 2,2022,https:/ For more information see:Agora Industry,“Low-Carbon Technologies for the Global Steel Transformation,”April 11,2024,https:/www.agora-industry.org/publications/low-carbon-technologies-for-the-global-steel-transformation.136 Primetals Technologies,“HyREX demonstration plant from POSCO and Primetals Technologies,”August 31,2022,https:/ A POST-CARBON INDUSTRYINSIGHTS FROM ASIAGlobally,around 400 integrated steel mills rely on blast furnaces.137 Each will face a decision within the next 20 years about whether to reinvest in coal-based steelmaking or pivot to cleaner alternatives.For primary steel,the shift to DRI processes using clean hydrogen is crucial,offering a cleaner method and avoiding reinvestment in outdated carbon-inten-sive technology.Currently,some industrial steel companies,especially in Europe,are transitioning from BFs to“hydrogen-ready”shaft fur-naces.However,the term“hydrogen ready”should be approached with caution,as these furnaces,in the absence of a massive supply of clean hydrogen,will run initially on natural gas,with a vague timeline for transitioning to hydrogen.k.China and Hydrogen SteelmakingChinas industry decarbonization strategy,like that of other countries,aims to develop hydrogen use for steel production.China is a leader in electrolyzer production and plans to leverage its significant advance-ments in renewable energy to produce hydrogen,some of which will be used in the steel industry.However,the Chinese policy on hydrogen use in the steel sector is somewhat flexible.China aims to develop shaft furnaces for DRI and combine hydrogen with natural gas in traditional BFs by 2030.In China,where a large,relatively young fleet of BFs exists,this technology is being prioritized for the near-to-medium term.This approach reduces emissions but is not carbon neutral,helping to limit the number of stranded assets.In many parts of the world,the availability of hydrogen has limited the development of clean H2-DRI plants.However,China stands out by having 137 SteelWatch,“Sunsetting Coal in Steel Production,”June 2023,https:/steelwatch.org/wp-content/uploads/2023/06/FINAL-SteelWatch_SunsettingCoalInSteel_June2023-sunday-25th-june.pdf.INSTITUT MONTAIGNE60built a substantial share of electrolyzers powered by renewable energy.Despite being the worlds largest consumer and producer of hydrogen,Chinese hydrogen facilities operate at less than 10percent capacity on average.Therefore,hydrogen availability is not the primary limitation for Chinese H2-DRI production.Instead,the industrys main challenge lies in inadequate energy resources.In recent years,China has experienced insufficient power supply and abrupt power cuts,known as the“power shortage,”leading to unstable energy supplies for industrial users and consequences for hydrogen-based DRI deployment and EAF production.138 However,the extensive deployment of renewable energy in the country suggests the potential for a swift and substantial supply of clean hydrogen.This is particularly important for enhancing flexibility within the electricity grid.Conse-quently,this development could significantly incentivize the shift toward hydrogen-based steelmaking in China.SupportIn 2022,China released its first Hydrogen Industry Development Mid-Long Term Plan(20212035).139 This plan clarifies that hydrogen will be part of Chinas energy supply systems and emphasizes the coordinated deve-lopment of the hydrogen supply chain,including production,storage,transportation,and utilization,especially in transportation and industrial sectors such as steel.138 Rachel Parkes,“Hydrogen Electrolyser Factories Are Only Operating at 10pacity on Average:BNEF,”Hydrogen Insight,February 1,2024,https:/ National Development and Reform Commission,China,“Medium-and Long-Term Plan for Hydrogen Energy Industry Development(20212035).”61FORGING A POST-CARBON INDUSTRYINSIGHTS FRO
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OCTOBER 2024Forging a Post-Carbon IndustryInsights from AsiaInstitut Montaigne is a leading independent think tank based in Paris.Our pragmatic research and ideas aim to help governments,industry and societies to adapt to our complex world.Institut Montaignes publications and events focus on major economic,societal,technological,environmental and geopolitical changes.We aim to serve the public interest through instructive analysis on French and European public policies and by providing an open and safe space for rigorous policy debate.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA3REPORT-October 2024Forging a Post-Carbon IndustryInsights from AsiaExplainerTo understand the world in which we operateReportDeep-dive analyses and long-term policy solutionsIssue PaperTo break down the key challenges facing societiesExclusive InsightsUnique data-driven analyses and practical scenario exercisesPolicy PaperTo provide practical recommenda-tionsInstitut Montaignes reports are comprehensive analyses that result from collective reflection.They aim to put forward long-term solutions to todays most pressing public policy challenges.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA5Part 1Shaping a Clean Industrial Strategy for Europe6AuthorJoseph DellatteDr.Joseph Dellatte joined Institut Montaignes Asia Program in 2022 as Research Fellow for Climate,Energy,and Environment.He is also a Research Associate at Kyoto University(Japan)and a member of the Japanese Research Group on Renewable Energy Economics.He specializes in international climate policy and global climate governance,focusing on carbon pricing,industry decarbonization policy,transition finance and Asia-Europe relations on climate.7ForewordThis report is divided into three parts.Part 1 seeks to address the mul-tifaceted challenge of decarbonizing industry through a comparative analysis of the policies and strategies employed by Europe,China,Japan,and South Korea.By examining how these major industrial powers are navigating the shift from carbon-intensive production to a greener,low-emissions future,the report explores the intricacies of transitioning key sectors such as steel,aluminum,chemicals,and cement toward car-bon neutrality.Parts 2 and 3 explore sector-specific issues in decarbonizing the steel,aluminum,and chemicals sectors.They assess how the global landscape will be affected by decarbonization and offer a comparative perspective on how relevant policy is implemented and support is provided in Europe and Asia,respectively.The reports first chapter provides a broad overview of what constitutes clean industrial policy,focusing on the experiences of Europe and Asia.The second chapter surveys the global landscape of industrial decarboni-zation,exploring the key technologies and processes that are fundamen-tal to achieving this goal.Finally,the third chapter provides a comparative perspective on the risks,uncertainties,and opportunities that come with transitioning to a decarbonized industrial economy.It concludes by drawing on lessons from Asia to offer recommendations for how Europe can strengthen its clean industrial strategy while navigating competitive pressures from global industrial powers.By synthesizing policy insights and technological trends from both Europe and Asia,this report aims to contribute to the development of a comprehensive and effective clean industrial strategy for the European Union.Through rigorous analysis,it seeks to set the stage for a deeper understanding of the critical elements required to decarbonize the most carbon-intensive sectors,thus ensuring their competitiveness in a post-carbon world.8Table of contentsForeword .7Introduction .101 What Is Clean Industrial Policy?.161.1.European Industrial Policy .161.2.Chinas Industrial Policy .331.3.Japans Industrial Policy .411.4.South Koreas Industrial Policy .472 How to Decarbonize Industry Globally?.512.1.A Very Uneven Industry Geography to Decarbonize .512.2.Transition Technologies and Processes .552.3.Electrification .572.4.Clean Hydrogen .622.5.Raw Material Substitution .672.6.Carbon Capture,Utilization,and Storage .68FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA93 Clean Industrial Policy Comparative Perspectives .823.1.Defining Clear Objectives .823.2.Different Types of Risks and Uncertainties .833.3.Mitigating the Risk of the Clean Transition .873.4.Innovation,Demonstration,and Scaling Up .1103.5.Green Standardization and Demand-Side Creation .1413.6.General Recommendations:Create Sectoral-Based Streamlined Clean Industrial Strategies .158The EU should adopt a Clean Industrial Deal incorporating the following elements:.171Appendix .180List of All Interviewees and Stakeholders Consulted .189Acknowledgements .19810IntroductionThe industrial sector 1 is a major contributor to global greenhouse gas emissions,accounting for between a quarter and a third of all emis-sions,taking all gases,sources,and countries into consideration.It is,thus,evident that it will not be possible to reach carbon neutrality wit-hout first decarbonizing industry.2Globally,the industrial sector lags behind other sectors in several key areas of decarbonization.The pathway to carbon neutrality for the indus-trial sector is significantly less defined than it is for transportation or electricity,as decarbonization technologies are less advanced and decar-bonization policies are less developed for industry than for other sectors.In spite of the growing coalition-building activity focused on indus-trial decarbonization,new and effective business models for decar-bonizing the industrial sector are only beginning to emerge.In the years since climate change became a matter of urgent international concern,little progress has been made in reducing industrial emissions.Industrial emissions have continued to rise in many regions over the past 1520 years,driven largely by increased production to meet the global demand for higher living standards.Addressing these gaps will require concerted effort and innovative approaches to bring the industrial sector in line with the fight against climate change.1 The industrial sector encompasses businesses involved in the manufacturing,processing,and production of goods,including heavy industries such as steel,chemicals,aluminum,cement,and machinery,as well as light industries such as food and electronics.2 Direct emissions,which are greenhouse gasses emitted directly from industrial processes,constitute about a quarter of global emissions.When including indirect emissions from electricity consumption,this figure comfortably exceeds a third.Other sectors indirect emissions are actually the industrial sectors direct(scope one and two)emissions.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA11THE COMING GREEN INDUSTRIAL REVOLUTIONThe world stands on the brink of a transformative green industrial revo-lution.As the global industrial landscape undergoes a profound trans-formation,the emergence of green industrial policies has become a pivotal element in steering the world toward a carbon-neutral future.This paper endeavors to analyze how several major industrial powers China,the European Union,South Korea,and Japan are naviga-ting the shift from a carbon-intensive industrial base to carbon neutrality.The analysis focuses on the steel,aluminum,cement,and chemicals sectors,which are not only fundamental to modern civilization but also represent significant challenges in terms of decarbonization.For years,certain industrial sectors were considered too“trade-exposed”or“technologically immature”to be integrated into decarbonization objectives.Others were tagged as“hard to abate”due to significant technological and economic gaps that make low-carbon alternatives both less viable and more costly.The EU Emissions Trading System(ETS),for example,provided free allocations to emissions-intensive trade-exposed(EITE)sectors most industries highlighting the policy accommodations made to buffer competitive industries from the full cost of carbon pricing.However,this is changing rapidly due to the necessity of speeding up efforts to achieve carbon neutrality by 2050,and competitive indus-trial policies are emerging in many parts of the world.The importance of robust green industrial policies is underscored by their potential to significantly influence market transitions and reconfigure industrial value chains.This raises several critical questions:What defines an industrial decarbonization policy?How are these policies being formulated and INSTITUT MONTAIGNE12implemented across the major industrial regions?How do these strate-gies align with the broader objective of achieving economic growth and carbon neutrality?The transition toward green industrial policy is marked by varying approaches in different regions of the world.The European Union aims to integrate environmental concerns with market mechanisms and regu-latory policies using the Emissions Trading System and the European Green Deal.In contrast,China leverages substantial planning to achieve a state-driven industrial policy that also scales up green technology and infrastructure,reflecting its unique governance and economic model.Japan,one of the birthplaces of contemporary industrial policy,needs to maintain its protected industrial bases while slowly advancing its decar-bonization goals despite geographical and resource constraints.Finally,South Korea,a major industrial hub with heavily concentrated powerful industrial actors,is trying to adapt its innovation-based industrial strategy to reduce emissions.The diversity of these strategies highlights not only the complexity of glo-bal industrial transformation but also the disordered manner in which decarbonization is being approached worldwide.This prompts the following further questions:How effective are clean industrial policies in fostering a unified global market for green goods?What steps can be taken to ensure these policies adequately support the rapid decarbonization of industrial goods?What are the risks and opportunities presented by the reorganization of industrial value chains,influenced by energy-cost considerations and geo-economic factors favoring more localized supply chains?FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA13EUROPE IN THE POST-CARBON WORLDFueled by a world-beating ambition,Europe is now entering a phase of intense reflection on its green industrial strategy.In response to the com-petitive pressures posed by Chinas continental scale industrial policies and the United States Inflation Reduction Act(IRA),the European Union is considering formulating a Clean Industrial Deal 3 to address these challenges effectively.This strategic pivot raises crucial questions:What lessons can Europe draw from the policies implemented in China,Japan,and South Korea,the Asian industrial powerhouses?What avenues are avai-lable for international cooperation,and what are the potential areas of friction?As Europe shapes its strategy,understanding these dynamics is critical for fostering a resilient and competitive green industrial sector that is aligned with Europes climate goals and economic interests.MethodologyTo conduct this comprehensive analysis of industrial decarboni-zation across Europe,China,Japan,and South Korea,a rigorous academic methodology was applied,encompassing extensive documentary research,semi-structured interviews,and the orga-nization of an international policy dialogue.3 European Commission,“Statement at the European Parliament Plenary by President Ursula von der Leyen,”July 2024,https:/ec.europa.eu/commission/presscorner/detail/en/statement_24_3871.INSTITUT MONTAIGNE14Policy ReviewThe foundational data for this study were collected through an exhaus-tive review of policy instruments implemented in the targeted regions.For China,policies from the National Development and Reform Com-mission(NDRC),the Ministry of Ecology and Environment(MEE),the Ministry of Industry and Information Technology(MITT),and the Ministry of Finance were examined,as well as the regulations of some provincial governments and industry associations.In South Korea,sources included the Ministry of Trade,Industry and Energy(MOTIE),the Ministry of Finance,the Presidential Committee on Net Zero,and the Ministry of Environment,among other governmental agencies.Japanese policy documents from the Ministry of Economy,Trade and Industry(METI)and the Ministry of the Environment were reviewed,along with policy documents from agencies such as the New Energy and Industrial Technology Development Organization(NEDO).Euro-pean policies from various European Commission bodies,such as DG CLIMA,DG GROW,and DG TAXUD,and from national ministries in France and Germany were analyzed.Additionally,the ESG strategies of 154 companies across the steel,aluminum,chemicals,and cement sectors in the four jurisdictions were scrutinized with a view to understanding corporate approaches to industry decarbonization.Semi-Structured InterviewsTo enhance the understanding of the policy landscape,523 semi-struc-tured interviews were conducted with a diverse array of stakeholders in the four countries.Some of the interviews were conducted online,while others were conducted in-person in Europe,Japan,and South Korea,as well as at COP28 in Dubai.They included interactions with government officials from the relevant ministries,corporate stakeholders from the decarbonization and technology teams of industries in four sectors(steel,cement,chemicals,and aluminum),industry federation representatives,FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA15and delegates from international organizations such as the OECD,UNIDO,and the International Energy Agency(IEA).EUAsia Policy DialogueFurther enriching the data,a high-level EUAsia policy dialogue was organized in January 2024 with Japans NEDO,featuring stakeholders from the EU,Japan,South Korea,China,and the OECD.This dialogue focused on discussing the four main challenges outlined in this paper:supporting decarbonization vectors,bridging the cost gap,standardi-zing green industrial goods,and analyzing the impact on international cooperation.INSTITUT MONTAIGNE161 What Is Clean Industrial Policy?1.1.EUROPEAN INDUSTRIAL POLICYThe European Union is at the forefront of the green transition,propelled by comprehensive strategies such as the European Green Deal and the Fit for 55 agenda.These initiatives aim to achieve a 55 percent reduction in CO2 emissions by 2030 and net-zero emissions by 2050,positioning Europe as a leader in the global shift to a sustainable economy.The new European Commission will need to implement this ambitious agenda and formulate a genuine Clean Industrial Deal,reconciling future European competitiveness against the green objectives.Faced with the massive challenge of energy costs,Europe stands at a crossroads and must maximize its own potential for clean electricity generation.For industrial sectors such as steel,aluminum,and chemicals,soaring energy costs pose an existential threat,compelling them to innovate and adopt green practices to remain relevant.Explainer:“The Clean Industrial Deal”A“Clean Industrial Deal”for Europe would be a comprehensive policy framework aimed at decarbonizing Europes industrial sector while ensuring its global competitiveness.It would be aligned with overarching goals of the European Green Deal,fos-tering the transition to a low-carbon economy through innova-tion,investment in clean technologies,and the establishment of a circular economy.Such an initiative would emphasize the need FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA17for sustainable industrial transformation to ensure that European industries can reduce greenhouse gas emissions,utilize resources more efficiently,and create green jobs,all while maintaining their position in the global market.It would also include mechanisms for carbon pricing,support for green hydrogen,and measures to prevent carbon leakage to ensure that industries do not relocate to regions with lower environmental standards.a.Challenges Facing EuropeEurope initially approached its decarbonization efforts through a mar-ket-based lens,exemplified by the ETS,which incentivized companies to internalize the cost of carbon emissions.This strategy has proven effec-tive in reducing European emissions and is set to accelerate decarboni-zation as free allocations are phased out.However,Europe lacks a comprehensive strategy to support the emer-gence of carbon-neutral technologies,processes,and industries.Although the current strategies reduce emissions,they do not sufficiently promote the rapid development of industrial alternatives,especially given the following factors:The emergency elsewhere of aggressive green industrial policies supporting clean technologies,particularly in the United States and China.The lack of urgency in decarbonization policies imposed on ener-gy-intensive industries in other parts of the world.The timeliness of investing in Europes heavy industries,given that significant investment is essential as much of the existing conventio-nal capital stock is aging and nearing the end of its investment cycle.4INSTITUT MONTAIGNE18Against this backdrop,decarbonizing Europes industrial sector is not only an environmental imperative but also a strategic necessity.Recent global shifts,exemplified by the US Inflation Reduction Act and Chinas aggressive cleantech trade strategies,highlight the growing com-petitiveness of global markets.These countries not only benefit from financial and legislative support for their industries but also create conditions that have the potential to isolate European products if they fail to innovate toward greener solutions.In this context,European industry cannot undergo a clean transition wit-hout a comprehensive“verticalization”of industrial policy to financially support industrial sectors,promote their products,and shield them from“unfair”international competition that does not adhere to the same rules in terms of decarbonization.Major industrialized countries are transitioning to this approach,which seeks to decarbonize while protecting their industries and enhancing strategic autonomy.This shift marks a paradigm change away from the previously dominant vision of liberalization and globalization,which prio-ritized economies of scale and efficiency at all costs.In this new industrial policy framework,political and geopolitical factors supplement eco-nomic rationality,with the goal of creating new economic projects and employment opportunities that are not subject to offshoring.4 On this point,please see Agora Industry,Wuppertal Institute,and Lund University,“Global Steel at a Crossroads:Why the Global Steel Sector Needs to Invest in Climate-Neutral Technologies in the 2020s,”2021,https:/static.agora-energiewende.de/fileadmin/Projekte/2021/2021-06_IND_INT_GlobalSteel/A-EW_236_Global-Steel-at-a-Crossroads_WEB.pdf.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA19Explainer:“Vertical Industrial Policy”vs.“Horizontal Industrial Policy”Vertical industrial policy targets specific sectors or industries with tailored interventions such as subsidies,tax incentives,or regula-tions to promote their development,often with the goal of crea-ting competitive advantages or addressing market failures within those sectors.In contrast,horizontal industrial policy focuses on broad,cross-cutting measures that impact all sectors of the economy equally,such as improving infrastructure,education,or innovation systems,with the aim of enhancing overall economic efficiency,productivity,and competitiveness across the entire economy.Both approaches are used to foster economic growth,but they differ in scope and focus.b.What Industrial Decarbonization Strategy for Europe?Europe stands at a crossroads in its industrial history,confronted with the imperative to not only sustain its industrial base but also to transform it in response to the climate crisis.The path to decarbonization is fraught with significant challenges.The transition demands a profound overhaul of the industrial sector and particularly of carbon-intensive industries,which are integral to Europes economy but detrimental to its environ-mental goals.Decarbonizing energy-intensive sectors such as steel,chemicals,cement,and aluminum is particularly challenging due to the complexity of their processes and significance of their energy requirements.If Europe is unable to meet its decarbonization goals and produce or supply suf-ficient amounts of low-cost decarbonized energy,it may see entire INSTITUT MONTAIGNE20historic sectors relocate to regions with abundant decarbonized energy.For the European Union,this presents a complex economic dilemma that calls for political decisions about the future of Europes industry.Should Europe strive to preserve at any cost energy-intensive indus-tries that will be difficult to decarbonize?Or should it take economic rationality into consideration and produce what can no longer be produced domestically without support policies elsewhere?Implementing industrial policies,coupled with intelligent“protectionist”measures,could allow Europe to decarbonize its industries while shiel-ding them from competition by foreign products.This approach would be costly,and Europe must decide whether the benefits justify the expense,balancing economic autonomy and industrial rationality.What is certain is that the global resurgence of industrial strategies necessitates that Europe move beyond purely regulatory decarbo-nization policies.It must reconsider and develop industrial support strategies.However,the complexities of European governance further complicate this process.In response to the US Inflation Reduction Act(IRA),Europe has not adopted a unified large-scale investment strategy.Instead,it relaxed stringent single-market state aid rules,5 a solution that favors fiscally strong,highly industrialized countries such as Germany 6 but creates significant disparities for smaller EU Member States lacking fiscal space to invest in industrial decarbonization.This disparity underscores the need for cohesive political choices.5 More precisely,the Commission extended exceptions that had been introduced during the COVID-19 crisis.6 It is worth noting that the decision by the German Federal Constitutional Court in November 2023 significantly constrained the German governments fiscal capabilities to support German industries.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA21The primary question concerns the future composition of Europes indus-trial fabric.Will industry remain predominantly in traditional regions such as Germany or Czechia,or should Europe implement policies that promote a more balanced industrial distribution across the EU?Should Europe deliberately align industrial production with clean energy production capacities and situate heavy,energy-intensive industries near clean energy sources?While this issue is distinctly European,it reflects broader challenges in industrial decarbonization policies worldwide.It pertains to the essence of the industrial endeavor in the post-carbon era.Industrial activities require abundant raw materials and energy,which explains why indus-tries are often located either near these resources or in locations to which they can be easily transported in bulk,e.g.,seaports and near large rivers.Higher-value or specialized industries may be situated where access to human skills,proximity to clients,or synergies and“network effects”that have emerged through the clustering of adjacent industries outweigh the importance of raw materials or energy resources.For the European Union,as for other industrialized countries aiming for decarbonization,it is,therefore,essential to reconsider the entire industrial fabric in light of the following new criteria imposed by decarbonization:Where is clean energy available?Where can we manufacture clean hydrogen cheaply?Where can CO2 be stored?Which locations are going to be economically efficient?Which industries are too strategic to be left to economic efficiency?Thus,the states role in driving decarbonization and industrial policy must be redefined.The need for a clean industrial policy also arises from the necessity of addressing persistent market failures,particularly coor-dination failures,which are pervasive in heavy and complex industries.INSTITUT MONTAIGNE22Coordination failures occur when the profitability of individual firms depends on complementary actions by others,but no single entity has the incentive to act first.7 A clean industrial policy can correct these inef-ficiencies by aligning private incentives with broader social goals,thus ensuring the development of sustainable industries and technologies.Therefore,beyond market policies,the state must guide the emergence of the clean industrial revolution.Like its competitors implementing clean industrial policies,Europe must redefine its trajectory to help its economy and industries decarbonize.This cannot be achieved without a mix of public policies.These must be market-based instruments,such as the ETS,the phasing out of free allocation,and the implementation of the Carbon Border Adjustment Mechanism,as well as regulatory measures from the Green Deal.Addi-tionally,a more“directive”approach supporting specific sectors,par-ticularly energy-intensive ones,is necessary.c.Europes Current Clean Industrial Policy LandscapeAt face value,the European strategies are designed to not only spur tech-nological innovation but also secure the existing industrial base by making Europe a more competitive energy provider.This ambition extends beyond financial and regulatory adjustments it seeks to fun-damentally reshape market dynamics by empowering consumers to choose net-zero and circular products through transparent environ-mental labeling and fostering a competitive but sustainable tax envi-ronment across Europe.7 For more on coordination failures,see:Rka Juhsz,Nathan Lane,and Dani Rodrik,“The New Economics of Industrial Policy,”Annual Review of Economics 16(2024):213242,https:/doi.org/10.1146/annurev-economics-081023-024638.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA23One of the major challenges is coordinating the various levels of power.Industrial policies are enacted at the national,regional,and European levels,and actions taken by one government can significantly impact other areas.At the European Commission level,green industrial policies are primarily managed by the various directorates:GROW,Com-petition,Trade,Energy,Climate Action,and Research and Innovation.This creates a patchwork of policies at the European level that must be aligned with the various policies at the national and regional levels.8Most research and development support policies within the Euro-pean Union are led by Member States.The Horizon Europe project,with a budget of 95.5billion,allocates about 15.1billion to climate,energy,and mobility.9 This is supplemented by the Innovation Fund,financed by revenues from the EU ETS.These revenues are expected to increase with the phasing out of free quotas,leading to more carbon revenue at the EU level.10These aids generally stop at the early stages of prototyping and demonstration projects and do not extend further.However,for indus-trial decarbonization policies to making it possible for green goods to compete with carbon-intensive goods,deployment,scaling up,and sometimes supporting operational costs are also critical.8 Reinhild Veugelers,Simone Tagliapietra,and Cecilia Trasi,“Green Industrial Policy in Europe:Past,Present,and Prospects,”Journal of Industry,Competition and Trade 24,no.1(2024):122,https:/doi.org/10.1007/s10842-024-00418-5.9 European Climate,Infrastructure and Environment Executive Agency,“Horizon Europe:163.5Million Available to Fund Green,Smart,and Resilient Transport and Mobility,”May 7,2024,https:/cinea.ec.europa.eu/news-events/news/horizon-europe-eu1635-million-available-fund-green-smart-and-resilient-transport-and-mobility-2024-05-07_en.10 The Directorate-General for Competition ensures that these R&D aids comply with single market rules and World Trade Organization regulations.INSTITUT MONTAIGNE24In addition to R&D support,European alliances create cross-border projects and decarbonization technology value chains that are central to the energy transition.Some projects become Important Projects of Common European Interest(IPCEIs),granting them access to substan-tial state aid,as seen with batteries and hydrogen.11 This system allows for state aid significantly larger than typically permitted under EU inter-nal rules.Development banks such as the European Investment Bank(EIB)also play a crucial role in supporting new sectors and cross-sectoral decarbonization projects that private finance actors find too risky to fund in their early stages.d.The Net Zero Industrial ActLike many other industrialized jurisdictions,Europe aims to couple decar-bonization with a resurgence of industry.At a minimum,it aims to protect its existing industrial fabric,which has been strained by the continents struggle to secure affordable energy.To advance this goal,the European Union has implemented the Net Zero Industrial Act(NZIA),12 considered an embryonic green industrial policy with specific targets for the produc-tion of green technology on European soil.The act is a statement of Europes intention of securing its industrial base by promoting the development and deployment of strategic net-zero technologies within its borders.By setting a target of EU domes-tic manufacturing being able to meet at least 40percent of the EUs annual clean tech deployment needs by 2030,the NZIA aims to bolster Europes technological sovereignty while driving significant reductions in carbon emissions.11 European Commission,“Important Projects of Common European Interest(IPCEI),”accessed August 27,2024,https:/competition-policy.ec.europa.eu/state-aid/ipcei_en.12 European Commission,“Net Zero Industry Act,”March 16,2023,https:/single-market-economy.ec.europa.eu/publications/net-zero-industry-act_en.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA25The NZIA can be seen as an embryonic form of EU industrial policy because it marks a deliberate intervention by the EU to shape the direc-tion of economic development,emphasizing the need for state-driven support to build strategic industries.Traditionally,industrial policy in the EU has been a controversial subject due to concerns about market distortion and competition within the single market.However,the NZIA indicates a shift toward a more active role for governments in ensuring the competitiveness of European industries in the global green economy.Beyond establishing targets for domestic manufacturing capacities,it aims to provide streamlined permitting processes and to offer finan-cial incentives for green technologies.It also represents a theoretical move toward a more coordinated and strategic industrial policy.Moreover,the NZIA reflects an acknowledgment that green technologies and industries are critical not only for achieving climate goals but also for maintaining Europes economic sovereignty in an era of increasing geopolitical competition.The NZIA represents an attempt to respond to industrial strategies seen in other global powers,such as the US Inflation Reduction Act or Chinas industrial policies.It is the first EU recognition that state support is necessary to compete globally in these sectors.Hence,the NZIA serves as a foundation for what could evolve into a more coherent and ambitious EU industrial policy focused on fostering green industries,jobs,and innovation.INSTITUT MONTAIGNE26PillarDescriptionBoosting Domestic ManufacturingIncrease EU capacity to produce clean technologies(e.g.,solar,wind,batteries,clean hydrogen)to reduce reliance on imports.Streamlining Permitting ProcessesSimplify and accelerate the approval process for clean technology projects to speed up infrastructure deployment.Financial Incentives and Investment SupportProvide subsidies and access to funding to encourage public and private sector investment in net-zero technologies.Skills Development and Workforce TrainingFocus on reskilling and upskilling workers to meet the demands of the green economy and ensure a capable workforce.Strategic Resilience and DiversificationDiversify supply chains for critical technologies to reduce reliance on non-EU countries and foster innovation in green tech.Carbon Capture and Clean HydrogenPrioritize the deployment of CCS technologies and clean hydrogen production to help decarbonize heavy industries.Circular Economy and SustainabilityPromote sustainable materials,recycling,and environmentally friendly practices in manufacturing processes.Table 1:The Main Pillars of the Net-Zero Industry ActFORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA27Funding MechanismsRegulatory Instruments R&D ProjectsEU-Level*EU Green Deal(2019):Green Deal Industrial PlanEuropean Green Deal Investment Plan:10 bn of Invest EU Fund.17.5bn Just Transition Fund.Funded by ETS:Modernisation Fund.40 bn Innovation Fund.225 bn of unused EU Covid recovery loans(RRF).200 bn of Regional Development Fund(30%)&Cohesion Fund(37%).Framework Program: 15.1 bn Horizon for climate,energy. European Investment Bank(EIB). Connecting Europe Facility. LIFE Programme.Fit for 55 Package(2021):European Emissions Trading System(ETS).Carbon Border Adjustment Mechanism(CBAM).Renewable Energy(RED)&Energy Efficiency Directives(EED)&Industrial Emissions Directive.Circular Economy Action Plan.Horizon Europe:European Institute of Innovation and Technology Regulation.Knowledge and Innovation Communities(KICs)s.European Alliances.Important Projects of Common European Interest(IPCEI).European Battery Alliance.European Clean Hydrogen Alliance.*New types of instruments post-IRA and China deriskingReform of State aid rules for net-zero technologies:The General Block Exemption Regulation(GBER).Temporary Crisis and Transition Framework(TCTF).Net Zero Industry Act.Critical Raw Materials Act.Strategic Technologies for Europe Platform(STEP).Helps channel funds from existing EU programmes towards cleantech(current budget allocated up to 2027).Selected Member StatesFunding mechanismRelevant Policy instruments R&DFrance20 bn France Relance plan green investments.49 projects representing 596million of investment in decarbonizing industry.French Strategy for Climate and Energy:Carbon budget for industry:65 Mt CO2eq(2024-2028).Climate and Resilience Law.20m Investment for the Future Program(PIA 4).Table 2:Overview of Green Industrial Policy in EuropeINSTITUT MONTAIGNE28Germany49billion Climate and Transformation Fund 2024.17billion Green Bond Framework Expenditure(2023).Carbon Contracts for Difference(CCfD)mechanism.Renewable Energy Sources Act(EEG):feed-in tariffs systems to achieve 80%green energy use by 2030,EEG Levy for fossil energy consuming enterprises.Exploration of hydrogen and electrification in steel,chemicals,aluminum,and cement.Billions in funding to convert steel production from coal to hydrogen,to implement the national hydrogen strategy and for other important hydrogen projects(Budget 2024).NetherlandsNational Energy and Climate Plan(INECP):60million to 100million(as of 2023 and including green hydrogen)is available each year from the Climate Budget.SDE schemeNational Climate Agreement:74.17 per tonne CO2 for industrials.Additional CO2 levy(on top of ETS System).Research into electrification and hydrogen use in steel,chemicals,aluminum,and cement sectors.Investment in offshore wind farms.MIDDEN project(Manufacturing Industry Decarbonisation Data Exchange Network).ItalyNational Energy and Climate Plan(NECP):20billion(approx)by 2030 in large-scale solar and wind projects.Ecobonus 65%energy efficiency:Tax credits and grants for renewable energy projects.Exploration of carbon capture and storage(CCS)technologies in heavy industries.SpainNational Integrated Energy and Climate Plan:625,075 M for improvement of technology in industrial equipment and processes;and implementation of energy management systems.Circular Economy Strategy(Espaa Circular 2030).Extensive solar and wind energy projects supplying clean electricity to steel,chemicals,aluminum,and cement sectors(ex:EDP Renewables).Nordic Countries7bn,Danish Green Investment Fund(Grn Investeringsfond).6,5 bn Climate investment Fund in Norway(not EU but in the single market).Enova program(Norway)Klimatklivet initiative(Sweden).Exploration of hydrogen use in steel,chemicals,aluminum,and cement production across Denmark,Finland,Norway,and Sweden.PolandPolish Energy Policy until 2040.Green Technologies Project(Poland).Hydrogen Valley(Poland).FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA29EU Policy/DirectiveSpecific Targets/RequirementsDescriptionEU Emissions Trading System(ETS)reformed by the Green Deal and the Carbon Border Adjustment Mechanism,2023 13Gradual reduction in the cap on emissions allowances by 2.2%annually.End of free allocations on the EU ETS for emissions-intensive trade-exposed sectors.Introduction of Carbon Border Adjustment Mechanism(CBAM).Applies to all energy-intensive sectors,setting a framework for emissions reductions and preventing carbon leakage.Energy Efficiency Directive(EED),2023 14Improve energy efficiency by 32.5%by 2030. further increase its energy efficiency ambition by at least 11.7%in 2030 compared to the level of efforts under the 2020 EU Reference Scenario.Targets improvements in energy efficiency.Most industries are obliged to implement a system of energy management.Renewable Energy Directive(RED III),2023 15Increase the share of renewable energy in the EUs energy mix to 42.5%by 2030 in all sectors.Annual increase in the share of renewable energy in each sector by 1.6%until 2030.Circular Economy Action Plan,2020 16The plan aims to increase the recycling rate from 33%in 2020 to over 50%by 2050.Applies to all sectors,promoting sustainable product design,increased recycling rates,and reduced waste.Industrial Emissions Directive(IED),2022 17Reduce industrial emissions through the application of Best Available Techniques(BAT).Applies to all sectors,ensuring the application of Best Available Techniques to reduce emissions.Strategic Energy Technology Plan(SET Plan),2023 18Accelerate the development and deployment of low-carbon technologies.Focuses on innovation in renewable energy,energy storage,CCUS,and coordination among Member States.Table 3:EU Regulations Applying to all Industrial Sectors13 European Commission,“EU Emissions Trading System(ETS),”2024,http:/web.archive.org/web/20240321235259/https:/climate.ec.europa.eu/eu-action/eu-emissions-trading-system-eu-ets_en.14 European Commission,“EU Energy Policy,”accessed September 9,2024,https:/energy.ec.europa.eu/index_en.15 European Union,“Directive(EU)2023/2413 of the European Parliament and of the Council of 18 October 2023,”https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=OJ:L_202302413.16 European Commission,“Circular Economy Action Plan,”accessed September 9,2024,https:/environment.ec.europa.eu/strategy/circular-economy-action-plan_en.INSTITUT MONTAIGNE30e.Three Issues:Coordination,Financing,and Technology GuidanceIn essence,the EUs present industrial policy resembles a patchwork of national climate and energy policies rather than a long-term strategy.Foundational documents such as the Green Deal Industrial Plan 19 and the NZIA were introduced late in the legislative process and lacked sufficient political momentum to address the finance issue the crux of the challenge for Europe and the coordination issue between Member States industrial policies.The present European strategys main weakness is the lack of new com-mon European funds to achieve its decarbonization goals.The Strate-gic Technologies for Europe Platform(STEP),20 with 10billion,is the only real fund established to stimulate investment in this nascent EU green industrial policy.The NZIA does,however,permit actions typically prohi-bited by European rules,allowing Member States to provide more support to green technology sectors,fund entrepreneurs through tax rebates and loans,and finance OPEX where there is a funding gap.This situation represents a novel development at the EU level.17 European Commission,“Industrial and Livestock Rearing Emissions Directive(IED 2.0),”accessed September 9,2024,https:/environment.ec.europa.eu/topics/industrial-emissions-and-safety/industrial-and-livestock-rearing-emissions-directive-ied-20_en.18 European Union,“Communication from the Commission to the European Parliament,the Council,the European Economic and Social Committee and the Committee of the Regions,”October 20,2023,https:/eur-lex.europa.eu/legal-content/EN/TXT/?uri=CELEX:52023DC0634&qid=1698315020718.19 European Commission,“The Green Deal Industrial Plan,”accessed September 9,2024,https:/commission.europa.eu/strategy-and-policy/priorities-2019-2024/european-green-deal/green-deal-industrial-plan_en.20 European Union,“Strategic Technologies for Europe Platform(STEP),”accessed September 9,2024,https:/strategic-technologies.europa.eu/index_en.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA31The NZIA also includes provisions to accelerate permit issuance and administrative procedures and coordinate private financing,aiming for 92billion in investments,with about 80percent coming from pri-vate funds.21 Furthermore,it promotes the use of public procurement and auction systems with sustainability criteria.Overall,the other major issue with current European industrial strategy is the lack of coordination among different power levels,combined with the lack of European-level decision-making on funding.Cur-rently,industry funding is heavily focused on the national level,with sometimes contradictory goals and policies between different levels and countries.The NZIA is more focused on promoting various national approaches than on creating a strategic European agenda.This lack of common decision-making in financing creates inequalities within the single market,risking fragmentation due to different fiscal capacities among countries.Another significant weakness frequently highlighted by industrial stakeholders is that the European industrial strategy is not agnostic with respect to technology.It tends to prematurely favor certain decar-bonization technologies while excluding others,which hampers fair com-petition among different approaches to determine the most effective solutions.Industries would prefer greater freedom to choose their own paths to carbon neutrality and to be evaluated based on their outco-mes.In this regard,the US Inflation Reduction Act is often seen as more“flexible”and favorable to industry.It is true that the EU has made historical choices in favor of certain tech-nologies for example,prioritizing green hydrogen over low-carbon alternatives and excluding options like nuclear power or blue hydrogen.21 European Commission,“Commission Staff Working Document:Investment Needs Assessment and Funding Availabilities to Strengthen EUs Net-Zero Technology Manufacturing Capacity,”2023,p.26,https:/single-market-economy.ec.europa.eu/system/files/2023-03/SWD_2023_68_F1_STAFF_WORKING_PAPER_EN_V4_P1_2629849.PDF.INSTITUT MONTAIGNE32However,as this study suggests,the Chinese example may indicate that the success of an industrial policy could be closely tied to a firm commitment to specific key technologies,executed without wave-ring or hesitation.With this in mind,the real issue in Europe is not so much the lack of technology agnosticism but rather the lack of flexibility to adapt to technological advancements and allow new technologies to enter the market quickly enough.f.How Much Protection Is Needed?The EU has lacked the political momentum to address the crucial issue of financing.It also lacked the momentum and,perhaps,the willingness to address the broader question of what kind of industrial policy it aims to pursue.This includes determining the level of protection Europe intends to provide to its low-carbon industries during the transition period,during which carbon-intensive and low-carbon industrial practices will coexist internationally.Addressing these challenges requires a dual approach:Europe must foster innovation while ensuring that it does not cede its production capabilities.The Antwerp Declaration for a European Industrial Deal 22 starkly emphasizes the necessity of a robust and clear industrial policy that not only encourages innovation but also supports the retention and expansion of industrial production capabilities within the continent.The declaration advocates for Open Strategic Autonomy,emphasizing the need to maintain and grow Europes foundational industries both basic and energy-intensive within its borders to prevent overdepen-dence on external sources for essential goods and technologies.22 “The Antwerp Declaration for a European Industrial Deal,”February 20,2024,https:/antwerp-declaration.eu/.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA33Against this backdrop,and given the strategies implemented by indus-trial competitors and partners,the European Clean Industrial Deal should foster both decarbonization and the survival of the European industrial sector,which is no easy task.This is especially true because Europe itself is a big exporter and benefits from the open market in many segments of its economy.Balancing industrial competitiveness against security concerns presents a complex challenge,particularly when considering the need to protect strategic industries as a safeguard against disruptions in international trade.While it may be necessary to maintain certain uncompetitive plants as an“insurance”policy,the cost of sustaining these opera-tions must be acknowledged.The key question is determining the minimum number of such plants required to serve as a nucleus for scaling up production in an emergency.However,there is a significant risk that these uncompetitive foundational industries could drag down the competitiveness of downstream indus-tries,potentially undermining Europes overall competitiveness.This could lead to a scenario in which industries within the EU are protec-ted and are only competitive within the single market and struggle to compete globally.Such an outcome would be particularly detrimental to export-oriented economies in the EU,jeopardizing their ability to thrive in the global marketplace.1.2.CHINAS INDUSTRIAL POLICYa.Chinas Gigantic Industrial BaseChinas industrial policy has evolved significantly over the decades as it has transitioned from a Soviet-style planned economy to a highly strategic and technology-driven economic framework.This policy shift INSTITUT MONTAIGNE34has transformed China into the worlds largest manufacturer.However,although Chinas industrial sectors have propelled economic growth,they have also contributed heavily to environmental degradation,mar-king China as the worlds largest net exporter of embodied carbon.Chinas colossal industrial base is crucial to any discussion about decarbo-nizing industry globally.As the worlds largest producer of steel,cement,aluminum,and chemicals,China accounts for about 51percent of global cement production,23 57percent of steel production,24 and 56percent of primary aluminum production.25 Its chemicals industry also makes up about 44percent of the global total.26 These sectors are not only pivotal to the global supply chain but are also among the most carbon intensive,contributing substantially to the 28percent share of global emissions that originates from China.27Given that it is the largest global emitter of greenhouse gases,Chinas pace of decarbonization is critically important.Thus,the countrys“dual carbon”goals,which aim for a carbon peak by 2030 and carbon neu-trality by 2060,are central to global climate action.However,achieving these targets presents complex challenges.The sheer scale of Chinas industrial activity and its centrality in Chinas economic strategy compli-cate rapid transformation,and unless its pace of decarbonization can be accelerated,there is a risk that global climate objectives will be derailed.23 International Cement Review,The Global Cement Report,14th ed.(Tradeship,2023),https:/ World Steel Association,Steel Statistical Yearbook 2023(2023),https:/worldsteel.org/publications/bookshop/ssy_subscription-2023/.25 International Aluminium Institute,“Primary Aluminium Production Statistics,”accessed September 9,2024,https:/international-aluminium.org/statistics/primary-aluminium-production/.26 Cefic,“The European Chemical Industry:A Vital Part of Europes Future,Facts and Figures 2023,”December 2023,https:/cefic.org/app/uploads/2023/12/2023_Facts_and_Figures_The_Leaflet.pdf.27 International Energy Agency,“CO2 Emissions in 2022,”March 2023,https:/www.iea.org/reports/co2-emissions-in-2022.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA35b.The Architecture of Chinas Industrial PolicyChinas approach to industrial decarbonization is intricately linked to its hierarchical governance structure,which mirrors the general organi-zation of its industrial structure.The central government establishes overarching rules and objectives,while the provincial and munici-pal governments are tasked with their implementation.As a result of this multitiered arrangement,industrial policies in China,including those aimed at decarbonization,are implemented unevenly across diffe-rent regions.Variations in adherence to central directives by provincial authorities can significantly affect the consistency and effectiveness of these policies.At the national level,several key agencies play pivotal roles in shaping and enforcing Chinas industrial decarbonization efforts.The National Development and Reform Commission(NDRC),which oversees the countrys broad economic planning,takes the lead in drafting most eco-nomic policies and endorsing stringent decarbonization measures.The Ministry of Ecology and Environment(MEE)focuses on establishing and implementing environmental regulations that also target industrial emissions.It collaborates closely with the Ministry of Industry and Information Technology(MIIT),which manages the specific industrial sectors.Additionally,the Ministry of Finance and the Ministry of Com-merce indirectly influence decarbonization policies through their roles in fiscal and trade matters,respectively.Industry associations,which counterintuitively are government agencies,also play an important role in enforcing the rules in the various sectors.The national structure is mirrored at the provincial and municipal levels through local departments such as the Provincial Development and Reform Commissions and local environmental and industry agen-cies.However,these local bodies often reflect the unique economic and industrial landscapes of their respective regions,along with differing local interests that may not always align with central directives.Each provincial INSTITUT MONTAIGNE36government strives to attract economic growth,a priority that has his-torically overshadowed environmental concerns despite recent shifts in policy emphasis.This pursuit of growth is coupled with the imperative to maintain energy security,which in China often means continued reliance on abundant coal resources.Despite the increasing importance attached to environmental policies and decarbonization among local officials,there is a noticeable disparity between Beijings ambitions and those of some local governments and companies.Nonetheless,some provinces,leveraging competi-tive advantages such as renewable energy production or technological advancements,exhibit higher levels of ambition in this regard.This dynamic creates a competitive economic landscape among pro-vinces,significantly influencing the manner and capacity of both central and provincial governments to enact effective industrial decarbonization policies.Understanding this complex interplay is crucial for assessing Chi-nas overall strategy toward reducing industrial carbon emissions and its implications for global environmental goals.SectorSpecialized Province Steel IndustryHebei,Jiangsu,Shandong Buildings Material Industry(including cement)Fujian,Guangdong,Jiangsu,Anhui,ShandongTextile IndustryZhejiang,Jiangsu,Shandong,HenanPetrochemical and chemical industry Shandong,Jiangsu,Hebei,TianjinTable 4:Example of“decarbonization specialization”between Chinese provincesFORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA37c.Chinas Strategic Planning and Government InterventionTo discuss Chinese industrial policy,it is necessary to acknowledge the extensive role of government intervention in industrial affairs,a feature that markedly distinguishes the Chinese system from those of liberal democracies.In China,both national and local governments(provinces and municipalities)play pivotal roles in industrial affairs and make interventions that are far more pronounced than in any other major economy.However,due to the sensitive nature of the topic for the Chinese regime,it is very difficult to know how much actual support China is providing to industries.Such numbers as are available are massive.In 2020,the financial sup-port provided to industries through subsidies,tax credits,and other mechanisms such as government procurement and various forms of indi-rect support may have been as high as RMB 6,402billion(813billion),constituting about 5percent of Chinas GDP.28 The total financial com-mitment to industry indicates a level of state involvement in the economy that is deeply woven into the fabric of national economic strategies.These financial commitments are aimed at fostering domestic innova-tion and self-sufficiency,a goal that has become increasingly pronounced under the leadership of Xi Jinping.The“Made in China 2025”initiative and the recent emphasis on the“dual circulation”strategy reflect a deliberate focus on reducing dependency on foreign technology and enhancing internal capacity in strategic sectors.29 This strategy also encompasses the greening of Chinas industry,which is perceived as a substrategy of both Chinas economic independence and Chinas 28 OECD,“Measuring Distortions in International Markets:Below-Market Finance,”OECD Trade Policy Papers,no.247(2021),https:/www.oecd.org/publications/measuring-distortions-in-international-markets-below-market-finance-a1a5aa8a-en.htm.29 State Council of the Peoples Republic of China,“Made in China 2025 Plan,”2016,accessed September 9,2024,https:/ MONTAIGNE38strategy for future growth.Furthermore,the expansive scale of govern-ment intervention underscores the Chinese authorities capacity to steer industrial sectors toward major policy goals,including those related to decarbonization.d.The“Dual Carbon”Objectives:Greening Chinas IndustryThe introduction of the 14thFive-Year Plan underscored a strategic pivot toward prioritizing technological innovation across a broad spec-trum of industries in China.30 This plan is the first to prioritize green and environmentally friendly products,at least on paper.This aligns with the broader vision encapsulated in the“1 N”policy framework,Chinas flagship climate objective,which was established to find a pathway for the country to peak its emissions in 2030.31 While the“1 N”framework sets overarching climate goals,it lacks specific emissions reduction tar-gets for individual industrial sectors.Regarding industry decarbonization,the 14thFive-Year Plan yielded broader strategic initiatives to optimize and adjust the industrial struc-ture,notably aiming to address issues of overcapacity and enhance energy efficiency.These initiatives notably promote recycling,improve energy conservation measures,and establish a robust green manufac-turing system through diverse policy instruments from the national to the provincial and local levels.Additionally,this set of policies intro-duces benchmarks that industries are expected to meet by 2025 and 2030,with the goal of aligning with international efforts for energy 30 State Council of the Peoples Republic of China,中华人民共和国国民经济和社会发展第十四个五年规划和2035年远景目标纲要 Outline of the 14th Five-Year Plan for National Economic and Social Development of the Peoples Republic of China and the Long-Range Objectives for 2035,March 13,2021,https:/ “Working Guidance for Carbon Dioxide Peaking and Carbon Neutrality in Full and Faithful Implementation of the New Development Philosophy,”Xinhua News Agency,October 24,2021,http:/ A POST-CARBON INDUSTRYINSIGHTS FROM ASIA39conservation and carbon intensity.The approach includes promoting“pioneers”(industry leaders)and gradually expanding these standards to other sectors as technological maturity and economic viability evolve.The Chinese government,through the Ministry of Ecology and Environ-ment,classifies steel,nonferrous metal smelting(aluminum),and chemicals and petrochemicals as“dual-high”industries due to their high energy consumption and high emissions.Local environmental authorities are instructed to tighten the approval,pollution control,and monitoring of these projects.Since 2021,key environmental and climate authorities,including the NDRC,MEE,MIIT,and China Energy Enginee-ring Corporation(CEEC),have been directed to“strictly contain the blind development of the dual-high industries.”Chinas Nascent Clean Industrial StrategyDespite this set of policies,Chinas path to industrial decarbonization is still in its infancy.The countrys heavy industries are not only mas-sive in scale but also among the most carbon intensive globally.In 2020,Chinas CO2 emissions per unit of GDP were more than double the global average,with profound disparities across provinces.This is exacerbated by the ongoing issue of overcapacity in industries such as steel and che-micals,which threatens to undermine efforts to reduce carbon intensity by creating economic incentives to maintain high levels of production.Nevertheless,recent developments have seen a tightening of poli-cies around high-emissions and high-energy-consumption industries.Since 2021,China has been more assertive in containing what are ter-med“dual-high”projects,with stringent controls over new projects and enhanced monitoring of existing ones.This included suspending numerous projects that failed to meet dual-energy control targets and initiating provincial pilots for carbon impact assessments in 2023.32 INSTITUT MONTAIGNE40The national government also leverages interprovincial competition by fiscally rewarding local administrations that have good results in terms of decarbonization.33Although Chinas manufacturing strength is declining relative to its GDP,it remains a critical driver of both economic growth and environmental impact.34 The tension between industrial growth and environmental sustainability is a significant policy challenge for China,reflecting the broader dilemmas faced globally.The shift toward electrification in indus-try and increasing demand for energy,particularly from coal-fired power generation,highlight the complex dynamics at play in Chinas industrial and environmental policies.As such,Chinas decarbonization strategy is not just a national issue but a critical component of global efforts to com-bat climate change.When analyzing Chinas prospects for a turn toward clean industrial policy,it is essential to maintain a speculative outlook for key industries,as they face significant shifts in terms of both domestic demand and glo-bal competition.In sectors such as steel and cement,which have histori-cally catered to a robust domestic construction industry,the recent real estate slump has led to a sharp decline in demand.This oversupply has already prompted a moratorium on new steel plants,highlighting the challenges of excess capacity.3532 Ministry of Ecology and Environment of the Peoples Republic of China,关于加强高耗能、高排放建设项目生态环境源头防控的指导意见 Guiding Opinions on Strengthening Source Control of Ecological and Environmental Protection for High Energy Consumption and High Emission Construction Projects,May 31,2021,https:/ State Council of the Peoples Republic of China,财政支持做好碳达峰碳中和工作的意见 Opinions on Financial Support for Achieving Carbon Peak and Carbon Neutrality,May 31,2022,https:/ Qing Na,“Chinas Manufacturing Growth Hits Three-Year Peak,Caixin PMI Shows,”Caixin Global,July 1,2024,https:/ Bank,“Manufacturing,Value Added(%of GDP)China,”accessed September 9,2024,https:/data.worldbank.org/indicator/NV.IND.MANF.ZS?locations=CN.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA41Similarly,overcapacity looms large in many of the countrys green tech industries,such as the solar photovoltaic and battery industries.36 This could result in falling prices,followed by a wave of cancellations,mergers,and potentially bankruptcies in Chinas industrial sector.The global res-ponse to overcapacity,particularly from China,will be critical.China cur-rently seems to engage in aggressive market dumping rather than taking steps to retire some of its excess capacity.How these deve-lopments unfold will be pivotal in shaping the future landscape of industries in the country and setting an ambitious industrial decar-bonization agenda.1.3.JAPANS INDUSTRIAL POLICYJapan has a rich history of industrial policy that facilitated its status as the first Asian country to industrialize.Historically,this policy has supported the maintenance of robust capacities in energy-intensive sectors,despite geographic and energetic constraints that are generally unfavorable for industrial manufacturing.Japans traditional industrial policy has been closely linked to providing cheap energy which is highly valued by industrial producers and a long-standing focus on innovation.However,sectors requiring high energy density,such as primary aluminum,have needed to relocate overseas to regions with accessible low-cost energy.35 Ministry of Industry and Information Technology of the Peoples Republic of China,工业和信息化部办公厅关于暂停钢铁产能置换工作的通知 Notice from the General Office of the Ministry of Industry and Information Technology on Suspending Steel Capacity Replacement Work,August 22,2024,https:/ Recent data,such as those from Bloomberg New Energy Finance,suggest that the planned gigafactory expansions far surpass even the most optimistic demand projections.See:Yayoi Sekine,“Energy Storage:10 Things to Watch in 2024,”BloombergNEF,January 25,2024,https:/ MONTAIGNE42Japan emits approximately 1billion tons of greenhouse gases annually,37 with the industrial sector accounting for about 36.5percent of these emissions.The steel industry alone contributes around 55percent of these industrial emissions,followed by the chemi-cals industry at 14.6percent and the cement industry at about 8percent.38 Despite a globally competitive market that sometimes surpasses the competitiveness of local production,Japan maintains a significant steel industry,which supports its automotive and machinery sectors.It also boasts major players in the chemicals industry and produces cement for both domestic use and export within the Pacific region.Since the 1990s,Japanese industrial policy has been protective and sup-portive but much less intrusive than that of its neighbor,China.Japan is implementing various strategies to test its options for decarboniza-tion,and the countrys industrial future will be strongly impacted by the turn to a post-carbon world.The Japanese government establishes guidelines and coordinates policies with industrialists who co-construct the rules imposed or sometimes voluntarily adopted to encourage compliance without coercion.As Japan prepares to unveil a new natio-nal decarbonization strategy by the end of 2024,this paper will provide insights into the potential pathways and challenges facing the country in an increasingly diverse global landscape of industrial decarbonization.37 Ministry of the Environment,Japan,“Japans National Greenhouse Gas Emissions and Removals in Fiscal Year 2022,”April 12,2024,https:/www.env.go.jp/en/press/press_02707.html#:text=Greenhouse gas (GHG) emissions of,is the reduced energy consumption.38 Ministry of the Environment,Japan,“Japans National Greenhouse Gas Emissions and Removals in Fiscal Year 2022:Executive Summary,”2022,https:/www.env.go.jp/content/000216745.pdf.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA43a.The Shift toward Decarbonization:Policies and InnovationsLike other developed nations with energy-intensive industries,Japan needs to make low-carbon products competitive against their carbon-in-tensive alternatives.It must also foster research and development and implement innovations that achieve industrial decarbonization at the national level.Until recently,Japanese industrialists viewed decarbonization as a bur-den.This perspective is slowly shifting as the countrys energy security becomes increasingly fragile due to unstable fossil resources.The tran-sition to less energy-intensive or decarbonized processes is increasingly seen by some industry leaders as a policy of good management.Howe-ver,the pace of the decarbonization of energy-intensive industry,particu-larly if triggered by international pressure(such as the EU CBAM),is often considered too fast by Japanese stakeholders.Despite its claim to have an industry that is less carbon intensive than that of some of its competitors,particularly China,Japan was relatively late among developed nations in deploying decarbonization tools.It only implemented binding climate policies on its industry very recently.The timeline of Japans industrial decarbonization strategy started around 2017,notably with work on the Basic Hydrogen Strategy,which was com-pleted in 2023.39 This was followed by a pledge from the Cabinet for Car-bon Neutrality by 2050,40 the Green Growth Strategy in December 2020,41 39 Ministry of Economy,Trade and Industry,Japan,“Basic Hydrogen Strategy,”June 6,2023,https:/www.meti.go.jp/shingikai/enecho/shoene_shinene/suiso_seisaku/pdf/20230606_5.pdf.40 Prime Minister of Japan and His Cabinet.“Policy Speech by the Prime Minister to the 203rd Session of the Diet,”October 28,2020,https:/japan.kantei.go.jp/99_suga/statement/202010/_00006.html.41 Ministry of Economy,Trade and Industry,Japan,“Green Growth Strategy through Achieving Carbon Neutrality in 2050,”updated October 17,2022,https:/www.meti.go.jp/english/policy/energy_environment/global_warming/ggs2050/index.html.INSTITUT MONTAIGNE44the Green Innovation Fund 42 and the 6thBasic Energy Plan in 2021,43 and the Basic Hydrogen Strategy in 2023.44 The Green Innovation Fund,handled by the New Energy and Development Organization(Japans industrial funding agency),is the centerpiece of the Japanese Research and Innovation architecture;it manages JPY 2.9billion(18billion)to support industrial decarbonization R&D projects in the country.45b.The GX StrategyThe first comprehensive decarbonization strategy for the industrial sec-tor in Japan,the GX League,46 was announced in 2022.It combines“growth-oriented”carbon pricing with industry support to enhance the competitiveness of the Japanese economy.This policy aims to drive the countrys transition to carbon neutrality by fostering a collabo-rative framework among businesses.Initially,the GX League included 568 companies that account for over 50percent of Japans greenhouse gas emissions.These companies have set voluntary emissions reduction targets for 2025 and 2030,aiming to reduce emissions by 620million tons and 480million tons,respectively.In 2024,a decision was made to establish a mandatory national Emis-sions Trading Scheme to be implemented by 202628,aligning with the official EU CBAM implementation.42 Ministry of Economy,Trade and Industry,Japan,“Green Innovation Fund,”updated February 3,2023,https:/www.meti.go.jp/english/policy/energy_environment/global_warming/gifund/index.html.43 Ministry of Economy,Trade and Industry,Japan,“Outline of Strategic Energy Plan,”October 2021,https:/www.enecho.meti.go.jp/en/category/others/basic_plan/pdf/6th_outline.pdf.44 Ministry of Economy,Trade and Industry,Japan,“Basic Hydrogen Strategy.”45 Ministry of Economy,Trade and Industry,Japan.(n.d.).“Basic Policies for Green Innovation Fund(Summary),”https:/www.meti.go.jp/english/policy/energy_environment/global_warming/gifund/pdf/20230111_000.pdf.46 Ministry of Economy,Trade and Industry,Japan,運営事業費 Green Transformation League Operational Project Costs,March 22,2024,https:/www.meti.go.jp/policy/energy_environment/global_warming/GX-league/legalissuesofets.pdf.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA45A substantial financial component of the GX policy is the issuance of GX Transition Bonds.47 Japan plans to invest approximately JPY 150bil-lion(995billion)over the next decade,funded by issuing around JPY 20billion(136billion)in GX bonds.This approach leverages one yen of public money to generate seven yen in private investment.The GX bonds will be reimbursed using revenues from the carbon pricing mechanisms implemented in the country.This investment plan will support various initiatives,including the deve-lopment of hydrogen,renewable energy,and industrial decarbonization.The industrial strategy involves the initial funding of R&D projects,followed by financing deployment projects later in the decade using GX funds.In June 2024,the first GX bonds were issued,raising JPY 700billion(4.4billion),with the majority two-thirds earmarked for industrial R&D projects.This legislative act came alongside the Basic Policy for the Realization of GX,which aims to promote thorough energy efficiency and to make renewable energy a major power source,with the target of achieving 3638percent of renewables in the power generation mix by 2030.The Japanese government also updated its Basic Hydrogen Strategy in June 2023.This strategy seeks to cultivate Japans industrial technological advantage on hydrogen,allowing it to reach 3million tons per year of hydrogen consumption by 2030,12million tons per year(including ammonia)by 2040,and 20million tons per year by 2050.The government has pledged to support the launch of CCS projects by 2030 and to achieve 612million tons of annual CO2 storage by 2030.47 Ministry of Economy,Trade and Industry,Japan,“Japan Climate Transition Bond Framework,”November 2023,https:/www.meti.go.jp/policy/energy_environment/global_warming/transition/climate_transition_bond_framework_eng.pdf.INSTITUT MONTAIGNE46c.The Reality of Decarbonization and Economic SecurityJapan is implementing supportive policies and innovations aimed at decarbonization,influenced by policies in Europe and the Inflation Reduc-tion Act in the United States.The GX League,in particular,represents a dual approach of carbon pricing and support for innovation and industry decarbonization.The Japanese industrial policy is also closely linked to its energy policy,framed by the“3 Es”:energy security,economic secu-rity,and environmental sustainability.The key government players in decarbonization include the Ministry of Economy,Trade,and Industry(METI)and the Ministry of the Environment(MOEJ),along with other ministries such as the Ministry of Finance and the Ministry of Information,which manage the decarbonization of the Japanese economy.Japans path to industry decarbonization is particularly complex,given the current technologies available.Consequently,Tokyo is adopting a highly technology-agnostic approach,which is prudent but may not always align with the goal of achieving carbon neutrality by 2050.Japans policy approach allows the use of gas to replace more polluting activities that rely on resources such as coal and heavy oil,with ongoing evalua-tions of when these transitional policies will shift toward effective car-bon neutrality.Crucially,Japans ambitious hydrogen policy is not only focused on domestic production but also,significantly,on importing decarbonized hydrogen,48 which is essential given Japans insular nature and lack of sufficient local production potential.48 It is important to note that Japans vision for clean hydrogen entails blue hydrogen and even non-clean hydrogen options to“launch the market.”FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA471.4.SOUTH KOREAS INDUSTRIAL POLICYThe Republic of Korea is an industrial behemoth,hosting major corpora-tions in sectors including steel(POSCO)and chemicals(SK)that compete on the global stage alongside other prominent technology and machinery corporations(Samsung and LG).The South Korean industrial sector is cha-racterized by its high energy intensity,with a substantial dependence on coal for both industrial processes and electricity production.Similar to Japan,the principal architects of South Koreas industrial decar-bonization policy are the Ministry of Trade,Industry,and Economy(MOTIE)and the Ministry of the Environment(MOEK).In addition,the Korean Presidential Committee on Net Zero plays a pivotal role,functio-ning as a consultative and coordinating body for the presidential action.Industrial conglomerates in South Korea,known as chaebols which are perceived as controlling greater wealth than the state itself have intricate connections with the government.This relationship enables them to exert considerable influence on industrial policies.Politically,advocating for substantial industrial strategies that would provide financial support for decarbonization efforts within these corporations has proven difficult.The South Korean economy is notably driven by exports,with significant steel exports distributed among Europe(approximately 10percent),the United States(approximately 10percent),and Southeast Asia(20percent).49 Consequently,international demand significantly influences South Koreas industrial activities.The development of a global market for decarbonized products is considered crucial for South Korea.Rapid progression or inadequate adaptation to global market demands could lead to a substantial decrease in its industrial market share.49 Korea Institute for Industrial Economics&Trade,Strategies and Policy Tasks for Promoting Carbon Neutrality in the Steel Industry,April 12,2022,https:/www.kiet.re.kr/research/paperView?paper_no=774.INSTITUT MONTAIGNE48a.A Slow Shift toward DecarbonizationOverall,the government of South Korea remains disorganized in its approach to industry decarbonization,lacking comprehensive flagship legislation and integrated strategies for each sector.Additionally,much of the impetus for industry decarbonization comes from abroad,with the EUs Carbon Border Adjustment Mechanism being a key incentive driving the government toward more action.Historically,South Koreas primary industrial policy has focused on provi-ding low-cost energy to support its export sectors.Industrial decarboni-zation policy is still a very new concept in the country.To date,support for decarbonization has largely been confined to research and deve-lopment,with comprehensive policies that mandate decarbonization remaining under deliberation.South Koreas approach to industrial decarbonization is trailing behind comparable initiatives in countries such as Japan and,to an even great extent,the EU.In 2012,South Korea introduced the Emission Trading System(SK ETS),inspired by the European model and established with assistance from the European Union.Despite the system encompassing over 88.5percent of national emissions,its efficacy in reducing these emissions has been limited.50 This limitation can be attributed to its foundational design around a“business as usual”trajectory,compoun-ded by the ineffectual internalization of carbon costs by the industries it covers.A significant challenge identified within South Korea involves the reform of the electricity sector.Similar to Japan,securing an adequate sup-ply of decarbonized energy whether through increased reliance on 50 International Carbon Action Partnership(ICAP),“Korea Emissions Trading Scheme,”accessed September 9,2024,https:/ A POST-CARBON INDUSTRYINSIGHTS FROM ASIA49nuclear and renewable energy sources,or even through hydrogen remains a critical concern.In this respect,the two last administrations have established hydrogen strategies that seek to stimulate demand for decarbonized hydrogen and facilitate policies concerning its production and importation,with prospective imports from Australia and the Gulf countries.During the administration of President Moon(20172022),South Korea initiated a renewable energy strategy 51 and a national plan to reduce greenhouse gas emissions by 99million tons through innovation and technology by 2030 compared to the 2019 level.52 In 2019,a comprehen-sive roadmap for the hydrogen economy was launched,underscoring the role of hydrogen in industrial decarbonization.53 This policy sup-ported the utilization,importation,and production of hydrogen,irres-pective of its source,aiming to establish a supply chain that would later be decarbonized.In 2020,South Korea pledged to achieve carbon neutrality by 2050.54 In the wake of the COVID-19 pandemic,a Green New Deal and green finance initiatives were introduced to support business transitions across various sectors.55 In March 2022,the Carbon Neutrality Act was enacted to pro-mote green growth.56 This legislation aimed to reduce carbon emissions 51 Ministry of Trade,Industry and Energy,South Korea,“Koreas Renewable Energy 3020 Plan,”October 2018,https:/gggi.org/site/assets/uploads/2018/10/Presentation-by-Mr.-Kyung-ho-Lee-Director-of-the-New-and-Renewable-Energy-Policy-Division-MOTIE.pdf.52 Ministry of Environment,Republic of Korea,2030 20182020 Revised 2030 Greenhouse Gas Reduction Roadmap and Finalization of the Emissions Allowance Allocation Plan for 20182020,July 24,2018,http:/www.me.go.kr/home/web/board/read.do?menuId=286&boardMasterId=1&boardCategoryId=39&boardId=886420.53 Netherlands Enterprise Agency(RVO),“Hydrogen Economy Plan in Korea,”January 18,2019,https:/www.rvo.nl/sites/default/files/2019/03/Hydrogen-economy-plan-in-Korea.pdf.54 Sohn Ji-ae,“Net Zero by 2050,”Korean Culture and Information Service(KOCIS),December 2020,https:/www.kocis.go.kr/eng/webzine/202012/sub08.html.55 Government of South Korea,“The Korean New Deal:National Strategy for a Great Transformation,”July 2020,https:/content.gihub.org/dev/media/1192/korea_korean-new-deal.pdf.INSTITUT MONTAIGNE50by 35percent by 2030 relative to 2018 levels and to enhance the natio-nal ETS,which had been operational since 2012 and covered 73percent of national emissions.Following the election of the conservative President Yoon,there was a notable pivot in decarbonization policy,especially with an expanded endorsement of nuclear energy.The inaugural National Plan for Carbon Neutrality and Green Growth was adopted,revising down the green-house gas reduction targets to an 11.4percent decrease by 2030 com-pared to 2018.57 Nevertheless,financial incentives for growth,particularly within green industries,have continued under the new administration.Finally,in response to the European Unions Carbon Border Adjustment Mechanism(EU CBAM),Korea has committed to reforming its national carbon market to enhance the rigorousness and effectiveness of its industrial decarbonization efforts,aligning with European CBAM policies.56 Korea Legislation Research Institute,“Framework Act on Carbon Neutrality and Green Growth for Coping with Climate Crisis,”September 24,2021,https:/elaw.klri.re.kr/eng_mobile/viewer.do?hseq=59958&type=part&key=39.57 2050 Carbon Neutrality Commission,Republic of Korea,()National Carbon Neutrality and Green Growth Basic Plan(Draft),March 2023,https:/www.2050cnc.go.kr/download/BOARD_ATTACH?storageNo=1936.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA512 How to Decarbonize Industry Globally?2.1.A VERY UNEVEN INDUSTRY GEOGRAPHY TO DECARBONIZEChinaJapanSouth KoreaEuropean UnionSourcesProduction1,019,080 kt86,999 kt66,683 kt126,316 kt All(2023)Carbon Emissions2,100 Mt150 Mt221 MtChina(2020),Japan(2019),EU(2021)Carbon IntensityBF-BOF 2.1 t-CO2/t,EAF 1.3 t-CO2/t1.796 t-CO2/t crude steel1.15 t-CO2/tChina(2023),Japan(2019),EU(2022)Production2,390billion 227billion 139billion 760billion All(2022)Carbon Emissions500 Mt of CO2CO2,CH4,and N20:3,709(2020),4,236(2021),3,786(2022)kt-CO2 eq.;F-gases:322(2020),361(2021),186(2022)kt-CO2 eq.121 Mt(2020),124Mt(2021)China(2020),Japan(2020-2022);EU(2020-2021)Carbon Intensity/32.9(2020),31.8(2021)GHG emissions per unit of chemicals productionEU(2020-2021)Table 5:Industrial emissions In Europe and AsiaSteelChemicalsINSTITUT MONTAIGNE52ChinaJapanSouth KoreaEuropean UnionSourcesProduction38.5 Mt(2021),40.21 Mt(2022),41.59 Mt(2023)of primary aluminum0t(2015 onwards)1.094 Mt of aluminum plates1.226 Mt of primary aluminiumChina(2021-2023)Japan(2024),Korea(2022),EU(2022)Carbon Emissions550 Mt of CO2N/A(2015 onwards)24 Mt CO2 equivalentChina(2022),Japan(2024),EU(2021)Carbon Intensity12.5 to 13 tCO2/tN/A(2015 onwards)5.5 tCO2/tChina,EU(2019),Japan(2024)Production2,110 Mt53.2 Mt51.06 Mt182.1 MtChina(2022),Japan(2022),Korea(2022),EU(2019)Carbon Emissions763.4 Mt of CO223.2 Mt of CO2104 Mt of CO2China,Japan,South Korea(2022),EU(2023)Carbon Intensity0.58 t-CO2/t0.515 t-CO2/t(2020,2021,2022)667 k-CO2/t of cementChina(2022),Japan(2020-2022),EU(2017)AluminumCementFORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA53ChinaJapanSouth KoreaEuropean UnionSourcesSteelChina Baowu Group Nippon Steel CorporationPosco HoldingsArcelorMittalProduction131.84 Mt44.37 Mt38.64 Mt68.89 Mt(2022)Carbon Emissions63,397 kt CO2 78.8 Mt(average between 2017 and 2019)124.4 Mt CO2e(scope 1&2)Nippon Steel(2022),Posco,ArcelorMittal(2020)Carbon Intensity1.87(2019)1.92 t-CO2/t(scope 1&2)/2.06 t-CO2/t-steel(scope 1&2)Nippon Steel(2022),ArcelorMittal(2018)ChemicalsSINOPEC GroupSumitomo ChemicalLotte ChemicalsBASFProduction45.291 Mt(2023)2,895,283million yens18.066 Mt(2022)(capacity)14,895mil-lionSumitomo(2023),BASF(2022)Carbon Emissions172.56 Mt CO2e,of which 148 Mt CO2e in direct emissions(2021),161.69 Mt CO2e,of which 137.72 Mt CO2e in direct emissions(2022),168.64 Mt CO2e,of which 142.28 Mt CO2e in direct emissions(2023),2.696 Mt CO2e3.896 Mt CO2e14,635 Mt CO2e(2023),15,797 Mt CO2e(2022)SINOPEC,Sumitomo(2022),Lotte(2023),BASFCarbon Intensity62.96(2021),48.76(2022),52.50(2023)t-CO2/RMBmillion(GHG emissions/revenue)/304 t-CO2e/KRW Billion(Scope 1&2)/SINOPEC,Lotte(2023)Table 6:Emissions and Production Data for Key Industries in Europe and Asia INSTITUT MONTAIGNE54ChinaJapanSouth KoreaEuropean UnionSourcesAluminumChinalcoN/ALotte AluminiumNorsk HydroProduction6,700,000 t(2023)N/A2,030 kmt Norsk Hydro(2023)Carbon Emissions61.3816 Mt of CO 2 eN/A1,084 t CO2e2.70 Mt CO2eChinalco(2019),Lotte(2022),Norsk Hydro(2023)Carbon Intensity6.60 t-CO2e/RMB10,000N/A/41.1 t-CO2e/NOKmillion Chinalco(2019),Norsk Hydro(2023)CementAnhui ConchTaiheiyo Cement CorporationSsangyong C&EHeidelberg MaterialsProduction395 Mt(capacity)27,228 kt(of which 17,229 kt produced in Japan)15 Mt(capacity)176 Mt(capacity)Anhui(2023),Taiheiyo(2023),SsangyongCarbon Emissions175,889,434 t CO220,065 Mt(of which 13,036 Mt in Japan)of CO29.9 Mt(2020)61.2 Mt CO2Anhui(2023),Taiheiyo(2023),Heidelberg(2022)Carbon Intensity0.8270 t-CO2/t-clinker0.698 t-CO2/t-cementitious0.551 t-CO2/t-cementitious materiaAnhui(2023),Taiheiyo(2023),Heidelberg(2022)FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA552.2.TRANSITION TECHNOLOGIES AND PROCESSESThe concept of decarbonizing energy-intensive industries is well understood within the scientific community,and although it is challen-ging,it is far from unachievable.However,two main challenges remain:First,there are engineering hurdles that need to be resolved for cer-tain technologies,as some necessary technologies are known but not yet mature enough for deployment or even demonstration.This creates significant technology uncertainty,complicating invest-ments and strategizing by industrials and policymakers.Second,and most importantly,the economic complexities asso-ciated with technological adoption present significant obstacles that need to be resolved through policy and regulations.These obs-tacles originate in the cost gap between decarbonized and car-bon-intensive goods that is present during the transition phase,giving rise to the question:How can customers be encouraged to choose the green alternative?These two factors create substantial uncertainty in industrial decarbo-nization policy.A technology that seems suitable today might become obsolete in a few years,complicating policy decisions that must encou-rage risk-taking while remaining open to the most appropriate future technologies.Fossil fuel use in industry can be categorized into two main areas:heating and processes.Heating typically involves boilers and furnaces powered by natural gas,coal,or oil,whereas processes use fossil fuels as feedstocks for chemical reactions and material production.Substitution strategies for decarbonization include transitioning to electric and clean hydrogen-based heating systems for heating needs.For industrial processes,replacing fossil-derived feedstocks INSTITUT MONTAIGNE56with green hydrogen and bio-based alternatives presents a viable pathway.Additionally,using alternative low-carbon raw materials or recycled materials instead of those heavily reliant on fossil fuels is a cru-cial strategy for achieving decarbonization goals.Beyond the substitution strategy,two additional decarbonization approaches are being considered by industries and governments to achieve carbon neutrality goals.The first strategy focuses on improving energy efficiency through process optimizations,policy implementations,and technological advancements.The second strategy involves carbon capture,utilization,and storage(CCUS),which allows for the conti-nued use of fossil fuels in processes that are difficult to decarbonize in the short term by capturing and storing the resulting carbon emissions.CategoryCurrent useDecarbonization StrategiesHeatingUses boilers and furnaces powered by natural gas,coal,or oil.Transition to electric heating systemsorUse clean hydrogen-based heating systemsProcessesUses fossil fuels as feedstocks for chemical reactions and raw material production.Replace fossil-derived feedstocks with green hydrogenorUse bio-based alternativesorUtilize low-carbon or recycled materialsEnergy EfficiencyEnergy efficiency improvement through process optimizations,policy implementations,and technological advancements.Carbon Capture,Utilization,and Storage(CCUS)Allows for continued use of fossil fuels in difficult-to-decarbonize processes by capturing and storing carbon emissions.It may be useful in some countries to avoid stranded assets.Table 7:Substitution Strategies for DecarbonizationFORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA572.3.ELECTRIFICATIONElectrification is a crucial component of industrial decarbonization.Direct electrification offers many benefits,primarily regarding its efficiency in energy use,which surpasses alternatives such as fossil fuels,hydrogen,or ammonia.This approach involves replacing fossil-fuel-based systems with electric systems,thus leveraging clean energy sources to achieve decarbonization.In practice,this means transitioning from fossil-fuel-based heating to electric heating methods.For low-temperature applications(below 100C),industrial heat pumps,which utilize ambient or recycled waste heat efficiently,are highly effective.High-temperature heat pumps can handle output temperatures up to 160180C,with some innovative pro-jects pushing this limit to around 200260C.58For higher temperature requirements(above 200C),electric boilers are efficient,converting electricity directly into heat at temperatures up to 500C.Electric arc furnaces(EAF)are essential for applications requi-ring extremely high temperatures,such as steel production,where they can reach temperatures up to 3,500C.59Furthermore,electrification extends to industrial processes.For exa-mple,the steel industry can utilize EAFs powered by clean electricity to replace traditional coal-based blast furnaces in metallurgy processes.Finally,electrolytic-process power,which is common in the aluminum industry,is increasingly being considered as a solution to electrify other sectors such as steel and even the cement sector.If powered with clean electricity,the electrolytic process could become a key element of many future low-carbon industrial processes.58 Agora Energiewende,“Breaking Free from Fossil Gas:A New Path to a Climate-Neutral Europe,”May 4,2023,https:/www.agora-energiewende.org/publications/breaking-free-from-fossil-gas#downloads.59 Agora Energiewende,“Breaking Free from Fossil Gas.”INSTITUT MONTAIGNE58The increasing substitution of fossil fuels with low-carbon energy sources,mainly for electrification of usages such as low to mid-level heat,if essential to industrial decarbonization,still suffers from lack of access to enough affordable clean electricity due to the restricted resource availability.Challenges for Industrial Electrification:60 Economic:-high capital costs-process modification-long payback periods-high electricity-to-fossil-fuel price ratio-uncertain boundary conditions Technological:-limited number of manufacturers-long lifespan of existing equipment-limited number of examples-lack of compressors for high temperatures-lack of“plug and play”solutions 61-bespoke designs instead of standardization and replication-significant capital investment required for new infrastructure and retrofitting induces high initial costs60 Table compiled by the author and Dr.Lukas Hermwille,based on various sources cited in an X(Twitter)thread by Jan Rosenow(janrosenow),March 10,2024,https:/ This refers to the absence of easy-to-install,standardized,and ready-to-use technologies or systems that can be seamlessly integrated into existing industrial processes.SectorCurrent UseElectrification SolutionBenefitsCementFossil-fueled kilnsElectric kilnsReduced emissions,efficiencySteelCoal-based blast furnacesElectric Arc FurnacesLower emissions,renewables useAluminumElectrolysis with fossil fuels-based electricityRenewable-powered electrolysisEmissions-free productionChemicalsFossil boilersElectric boilers,heat pumpsEfficiency,lower emissionsTable 8:Summary Table of electricity applications for industry decarbonizationFORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA59 Infrastructure:-potential requirement for upgraded grid connection-long wait times for connections-need for robust electrical infrastructure to handle increased loads-increased vulnerability to power outages Knowledge:-Lack of capacity to manage energy consumption(particu-larly in SMEs)-Need for combined knowledge of both process and electrical technology-Lack of awareness of heat consumption in companies-Insufficient knowledge regarding available technologies and their capabilitiesINSTITUT MONTAIGNE60China,the Future Electrostate?Most countries that are genuinely committed to decarbonization tend to implement policy instruments that favor electrification where necessary.However,China lags behind Europe in elec-trifying its industry and remains heavily reliant on coal processes,despite the surge in clean electricity generation in China.Simul-taneously,China is undergoing a renewable energy revolution,with massive installations of renewable capacity accounting for over 50percent of the global total.This has led to a significant surplus of clean electricity generation at peak loads in some pro-vinces,which the country still struggles to store or transfer to pro-vinces with high demand.To address these challenges,China is increasingly taking mea-sures to promote the electrification of industrial processes.These efforts aim to support decarbonization and prevent the waste of renewable electricity in the future.Although these measures are not specifically targeted at the use of clean electricity,they encou-rage the adoption of electrification technologies.Relevant initia-tives include promoting electric boilers,electric kilns,and electric heating and implementing high-temperature heat pumps,high-power electric storage boilers,and other electric energy substi-tutes in key industries.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA6102,0004,0006,0008,00010,00012,000Figure 1:Electricity Demand in Selected Regions,199120256219911992199319941995199619971998199920002001200220032004200520062007200820092010201120122013201420152016201720182019202020212022202320242025ChinaIndiaUnited-StatesEuropean UnionTWh62 International Energy Agency,“Electricity Mid-Year Update,”July 2024,https:/ MONTAIGNE622.4.CLEAN HYDROGENHydrogen is poised to be a pivotal element in the strategy to decarbo-nize industry,sometimes accounting for approximately 40percent of anticipated emission reductions,complementing efficiency improve-ments and electrification efforts.Currently,the global industrial sector utilizes around 90million tons of hydrogen,primarily derived from gray hydrogen processes that emit significant carbon dioxide.To achieve comprehensive decarbonization,IRENA projects that global demand for hydrogen will need to rise dramatically to 530million tons.This surge would necessitate a substantial increase in electrolyzer capacity,estimated at 5,700GW based on current technologies.63 Howe-ver,rapid advancements in direct electrification technologies may alter these forecasts,potentially reducing future reliance on hydrogen.Clean hydrogen,generated through electrolysis using renewable energy or nuclear power,plays a crucial role in industry decarbonization for industrial processes and high-temperature heating.Alongside this,blue hydrogen produced from traditional fossil fuels with carbon capture,utilization,and storage technologies also provides a viable alternative to the direct utilization of fossil fuels.The positive aspect of hydrogen usage in industry is its relative versatility.Hydrogen can both serve as an energy vector that emits no greenhouse gases and be used in various processes.It can function as a reducing agent or combine with CO2 to manufacture low-carbon chemicals.Addi-tionally,its storage capacity provides flexibility.An additional advantage from a political economy perspective is the potential to repurpose existing natural gas infrastructure,thereby 63 International Renewable Energy Agency(IRENA),“Green Hydrogen for Industry:A Guide to Policy Making,”March 2022,https:/www.irena.org/publications/2022/Mar/Green-Hydrogen-for-Industry.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA63enhancing the value of current assets;however,this approach has cer-tain limitations.These include material compatibility issues,increased leakage risks due to hydrogens smaller molecular size,and the need for substantial modifications to existing storage facilities.64A key challenge in this transition is access to renewable electricity.The production of green hydrogen by 2050 will require an amount of electricity equivalent to current global electricity demand,highligh-ting a significant infrastructural and logistic hurdle.Currently,Europe,South Korea,and Japan represent the most significant markets for hydrogen,reflecting strategic investments and policy frameworks aimed at fostering hydrogen adoption.Hydrogen will be a central component of industrial decarbonization.However,clean hydrogen production is expensive in many regions due to the high costs associated with electrolysis and renewable energy sto-rage.Electrolyzers are still in the process of being improved to scale up the hydrogen economy effectively.This presents a significant competi-tiveness challenge due to the high cost of clean hydrogen,which will directly impact the competitiveness of industries.Regions that suc-cessfully reduce the cost of low-carbon hydrogen will be in the strongest position to attract industrial investments and facilities.Second,the infrastructure needed for hydrogen production,storage,and distribution is either lacking or underdeveloped,necessitating subs-tantial investments and time to build an adequate support system.Last,there is a mismatch between demand and supply ensuring consistent and sufficient access to clean hydrogen to meet industrial needs is one of the most uncertain aspects of integrating hydrogen as an industry decar-bonization strategy nowadays.64 Kornl Tlessy,Lukas Barner,and Franziska Holz,“Repurposing Natural Gas Pipelines for Hydrogen:Limits and Options from a Case Study in Germany,”International Journal of Hydrogen Energy 80(2024):821831,https:/doi.org/10.1016/j.ijhydene.2024.07.110.INSTITUT MONTAIGNE64a.Consequences of the Future Hydrogen Economy for the Post-Carbon Industrial LandscapeThe emerging hydrogen market is set to diverge markedly from traditio-nal oil market dynamics.Unlike the oil market,which is dominated by a few sellers and many buyers,the hydrogen market will likely feature a few buyers primarily in energy-intensive industrial sectors but numerous potential sellers.This inversion necessitates the develop-ment of a robust and coordinated infrastructure for hydrogen transport and distribution.This will have consequences.Access to abundant and affordable clean electricity is crucial for cost-efficient clean hydrogen production.Access to a cheap hydrogen supply will be instrumental for many industrial sec-tors if they transition to hydrogen for their processes or heating.Conse-quently,developing a clean hydrogen supply in traditional industrial regions will not be easy.If industries rely heavily on affordable access to clean hydrogen,it may significantly impact the future geography of industry in the post-carbon economy.Hydrogen will always be a valuable resource.Nevertheless,if an indus-trial process can be electrified,it will likely transition to electrification for efficiency gains.This means that as technology evolves,decarboni-zing heating below certain temperatures may become more feasible with electricity than with hydrogen(depending on technological inno-vation,above 600C).This underscores that while hydrogen will be cen-tral to industrial decarbonization,it may not always be as central for all applications as initially envisioned,highlighting the crucial uncertainty in technological developments and their impact on global industrial decarbonization strategies.That said,in many processes,hydrogen will remain essential as a reducing agent such as in the steel industry and some aluminum processes or as a feedstock in the chemicals sector to achieve decarbonization.FORGING A POST-CARBON INDUSTRYINSIGHTS FROM ASIA65The Real Challenge for Hydrogen Use in the Industrial SectorThe large-scale commercialization of green hydrogen will require significantly increasing the energy efficiency of infrastructure(electrolyzers and hydrogen uses)and securing large volumes of low-carbon electricity from renewable energies.Consi-dering that few countries have access to low-carbon electricity supplies,and even fewer have established low-carbon electricity markets,the feasibility of the large-scale commercialization of green hydrogen will be limited by the low level of available low-carbon electricity generation capacity.The deployment of green hydrogen must therefore be promoted strategically,using a flexible approach,with priority given to sectors where there is no alternative,such as in the steel sector and some sections of the chemical sector.SectorCurrent UseGreen Hydrogen SolutionBenefitsCementNatural gas for heatHydrogen-fired kilnsZero emissions,high efficiencySteelCoal for reductionHydrogen-based Direct Reduction of IronEmissions-free primary steel productionAluminumFossil fuel combustionHydrogen for high-temp processes,potentially as a reducing agent in the future(R&D)Cleaner energy sourceChemicalsFossil-derived hydrogenGreen hydrogen for feedstock,utilizing CO2Carbon-neutral chemical productionTable 8:Summary of Green Hydrogen Applications for Industry DecarbonizationINSTITUT MONTAIGNE66In Europe,the establishment of such infrastructure will require harmonized policies at the European Union level and beyond,fostering collaboration between governments and industry stakeholders.The Hydrogen Bank 65 is emerging as particularly crucial in this context,serving
2024-12-04
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WHITEPAPERThe Mechnical Engineers DilemmaThree levers to drive innovative strength in Germanys mechanical engineering sector02IntroductionContent04Executive summary05I.Mechanical engineering in Germany:An analysis of the current situation08II.What to do?Three levers for a German mechanical engineering sector fit for the future15III.Bridging the gap:Turn knowing into doing with MHP20ConclusionExecutive summaryAnalysis3 LeversTurn knowing into doingConclusionContent2IntroductionIntroductionAt the end of the 1990s,Harvard Professor Clay-ton Christensen coined the idea of the“Innova-tors Dilemma”.In his book of the same name,he described how large companies in particular can fall behind much smaller competitors due to the arrival of new,innovative technologies.Now,around 25 years after the book was published,the German mechan-ical engineering sector is facing a similar situation.Mechanical and plant engineering have been the pride of the German economy for decades.The sec-tor achieved 269 billion euros in sales in 2022,mak-ing it the second most important industrial sector in Germany only the automotive sector is larger(with 509 billion euros in sales in 2022).1 So the regular negative headlines about falling levels of incoming orders2 and massive reductions in headcount3 seem perplexing at first glance:Is mechanical engineering in Germany truly struggling after all?The short answer is yes,it is.A lack of competitive-ness,as well as strong market pressure from com-peting machine and plant manufacturers in Asia is making it more difficult for German companies to hold their position.The outlook of the Association of German Mechanical and Plant Engineering(Verband Deutscher Maschinen-und Anlagenbau,VDMA),which represents 3,600 German and European companies in the industry,is pessimistic.“The envi-ronment here in Germany is shaped by a particular uncertainty paired with dissatisfaction.That is why the mood here is also worse than in other countries,”comments Dr.Ralph Wiechers,member of the Exec-utive Board at the VDMA.“Many customer sectors relevant to mechanical and plant engineering are under significant transformation pressure triggered by energy costs that are comparatively very high in international terms.This also impacts us unfortu-nately.We cannot escape that.”4 Overall,orders for the completed 2023 year came in at twelve percent below the previous years value in real terms.5High energy prices are just one factor here.In general the sector suffers from a lack of innovative strength or rather,lack of will to innovate.Longstanding processes and mindsets,plus rigid bureaucratic struc-tures,are preventing German mechanical engineering from becoming competitive again.Meanwhile,the influence of Asian,predominantly Chinese,manu-facturers is continually growing,and even the USA is specifically supporting rapid growth of the sector with subsidy programs.This whitepaper sheds light on what actions German mechanical engineers should now take to meet the growing requirements of their customers and for long-term survival in a highly competitive global mar-ket.There is good news:The positive changes needed do not require huge amounts of investment what is needed above all else is a sector-wide change of men-tality.The details of this change are set out below.In urgent search of innovation:Is German mechanical engineering still competitive?3Contentfor a German mechanical engineering sector fit for the futureFocus on the customerLever 1Lever 3Lever 2Digital skillsCollaborative mindset InnovationThree leversExecutive summaryAnalysis3 LeversTurn knowing into doingConclusionIntroduction4ContentExecutive summaryGerman mechanical engineering is at risk of losing the race against inter-national competitors.While the shortage of skilled workers contributes to this,another important factor is the fact that German mechanical engineers are often simply unwilling to scrutinize outdated production portfolios,work processes and company structures.While many companies are aware of their problems,they do nothing about it.In this whitepaper,we identify three levers to strengthen innovation capabilities in German mechanical engineering and explain how companies can overcome their Knowing-Doing Gap.The first lever puts the customer at the center.What sounds pretty straightfor-ward is actually highly neglected in the everyday life of many mechanical engineers;many developments miss the actual needs of the customer.The Jobs-to-be-Done concept provides valuable assistance on the path towards greater customer-cen-tricity.This whitepaper demonstrates how this works in practice,using the cases of Bosch Manufacturing Solutions GmbH and Liebherr as examples.The second lever lies in strengthening the digital core competences within the workforce.There is a considerable need to catch up,especially when it comes to future technologies such as machine learning or AI.In order to close this gap to the international competition,mechanical engineering companies should invest more in upskilling and reskilling measures for their employees.The era of garage tinkerers is definitely over:major innovations are no longer cre-ated solo but are developed collaboratively in teams.Consequently,the third lever focuses on fostering a collaborative mindset within the workforce.Method-ological,social,and communicative skills should play just as significant a role as technical expertise in the selection and development of employees.For long-term reinforcement of innovative strength in mechanical engineering,MHP relies on an integrated advisory approach.In a framework of system decomposition,we examine strategies,processes,methods and tools for product development(technical side),alongside business values and culture,management principles and the type of collaboration(people side).It is not sufficient to just implement advanced software tools,digitize supply chains or restructure product portfolios.A change of mentality that puts the focus on customer needs must also be pursued.Why mechanical engineering businesses need to act now and how.Executive summaryIntroductionAnalysis3 LeversTurn knowing into doingConclusion5Executive summaryAnalysisIntroduction3 LeversTurn knowing into doingConclusionContentThere are around 6,700 mechanical engineering companies in Germany.Several well-known names dominate the ranking of the mechanical and plant engineering companies in Germany,but Siemens Energy leads the pack:The Groups energy division generated 29 billion euros of sales in 2022.Siemens itself came in second,with around 23 bil-lion euros of sales.Rather a long way behind are forklift and storage technology expert Kion(11 billion),plant specialist Exyte(7.4 billion)and the long-established company Bosch(7 billion).6I.Mechanical engineering in Germany:An analysis of the current situationFrance 16%Italy 11%Poland 10%Netherlands 10%Austria 9,5%7%Czech Republic 6%Spain5lgium5%Hungary4%Sweden984%of machinery exports from Germany are exported to the EUMechanical engineering in Germany:The key factsExport strengthAccounting for a share of around 16 percent of total German exports,mechanical and plant engi-neering is one of the strongest industrial export sectors in Germany.7 In 2022,the export rate in German mechanical engineering was around 80.9 percent.8 The most important export markets are the European Union,the United States,China and other Asian countries.Ten EU countries account for around 84 percent of machine exports from Ger-many into the EU:Image:Export quotas for machinery from Germany to the EU 200820226Executive summaryAnalysisIntroduction3 LeversTurn knowing into doingConclusionContentAn important employerA high number of jobs in Germany fall within the mechanical engineer-ing sector:There are more than 1.2 billion employees at work in areas such as construction,production,sales and service.The federal state of Baden-Wrttemberg has the highest number of German mechanical engineers.10 In the EU 27,a total of around three million people work in mechanical and plant engineering.11 Shortage of skilled workersOf 801 professional categories in Germany,352 experienced shortages of skilled workers in 2022.12 Mechanical and plant engineering is not excluded from this.Around 60 percent of employees in the sector are skilled workers.In June 2022,around 80 percent of companies in mechanical and plant engineering reported serious or significant short-ages of skilled workers.There were negative reports from 43 percent of mechanical engineering companies about production being hindered by a shortage of skilled workers a record high for the country.13 1,2 m.80%employees in the mechanical engineering sector of companies report a shortage of skilled workers in 2022fewer enrolments for mechanical engineering studies since 2015fewer apprentices in mechanical engineering in Germany since 2012 More thanFewer mechanical engineering studentsSince the number of mechanical engineering students hit a record high of around 120,000 in the 2015/2016 winter semester,fewer and fewer people have been enrolling at German universities for a degree in mechanical engineering.In the 2019/2020 winter semester,student numbers were still at around 104,000;in 2022/2023 they had fallen to 88,000.14 Lack of traineesThe number of trainees in mechanical engineering in Germany has been slightly declining for years.In 2022,there were around 46,000 trainees in mechanical engineering and maintenance professions.This was down from a figure of 57,000 in 2012.157Executive summaryAnalysisIntroduction3 LeversTurn knowing into doingConclusionContentDeclining numbers of patents:A sign of waning innovative strength?While Germany is keen to brand itself as a country of inventors,proudly making reference to innova-tions such as the printing press(Johannes Gutenberg,1440),television(Manfred von Ardenne,1930)and computers(Konrad Zuse,1941),the reality is that fewer and fewer German patents are being registered.Though the reviewers of the German Patent and Trade Mark Office(Deutsches Patent-und Mark-enamt,DPMA)issued patents for 23,592 inventions in 2022,the number of submissions from Germany reduced by 6.6 percent year on year,while foreign submissions increased by almost 7 percent.Plus:The number of patent registrations specifically from mechanical engineering and the automotive industry is falling.In 2022 a notably dramatic decline was seen in registrations concerning“motors,pumps and turbines”(17.9 percent decrease).In relation to the technological field of“machine elements”,which traditionally has a high number of registrations,there was also a lower number of patent registrations received(minus 11.9 percent);this was also the case in medical engineering(minus 11.2 percent).16The German Economic Institute has identified another factor that contributes to the declining numbers of patents:Demographic change has for some years been fueling a decrease in the number of inventors with German roots.It is only because of the presence of smart thinkers with foreign heritage that the decline in the number of patents in the pre-vious five years has been balanced out otherwise patent registrations would have already been down as long ago as in 2018.178Analysis3 LeversExecutive summaryIntroductionTurn knowing into doingConclusionContentThe current state of play makes it clear that a great deal needs to be done.And the automotive industry can serve as a cautionary example of what will hap-pen if the mechanical engineering sector doesnt act now:Traditional car builders are giving up the lead to Asian competitors,which have already been focused for some time on digitalization and electromobility.The result is massive competitive pressure,huge reductions in headcount,primarily at suppliers,18 and undisguised fighting talk from competitors,primarily in China.In November 2023,the Chinese automotive group BYD opened a store in Stuttgart of all places Mercedes-Benzs own hallowed ground.The Chinese government had previously already drawn up a five-year plan for opening up the international car market.19Many different factors are fueling the negative development in German mechanical engineering:Bureaucratic hurdles,a persistent lack of skilled workers,as well as a stubborn adherence to work-ing methods and convictions that have long out-lived their usefulness.German mechanical engi-neering companies cannot do much about the first two problems but the last is in their hands.It is time to change.The following three suggestions are intended to help with this challenge.II.What to do?Three levers for a German mechanical engineering sector which is fit for the futureFocus on the customerDigital skillsCollaborative mindsetLever 1Lever 2Lever 39Analysis3 LeversExecutive summaryIntroductionTurn knowing into doingConclusionContentJobs-to-be-Done is a perspectivePeople buy products and services to help them get a job doneThe job not the product or the customer is the unit of analysisA job lens brings a new perspective to strategy and innovationLever 1 Focus on the customerTodays customers have completely different needs from those of 20 years ago.For this reason,strategies must be updated so that it is possible not only to meet customer needs,but ideally to exceed them and to do so on a regular basis.This approach is already well-familiar to some,particularly in sectors that serve end-consumers as their customer base.However,in mechanical engineering very little has been done so far in terms of considering a customer focus shaped in this way.This is partly because the mechanical engineering sector brings together a number of businesses which have very different customers and as such also hugely diverse customer needs.So the ideal customer relationship will look different for each individual mechanical engineering company.Whats more,within mechanical engineer-ing knowledge about customer needs is often heavily segmented:An engineer knows the customer in a different way from the service technician,and the Managing Director knows different things about the customer than the developer does.20 There is often a failure to centralize this valuable expertise,for exam-ple by means of a customer database to which all employees have access from the designer to the salesperson,and including recent recruits.Knowing what customers want is key for prod-uct development and all the way through to sales.Mechanical engineering companies that seek to main-tain their market position in future must ask them-selves:Which customer needs can be covered with our current product portfolio and which cannot?To answer this question,mechanical engineering businesses need to become familiar with the Jobs-to-be-Done framework.This approach puts the cus-tomer at the center,with all their complex needs and preferences.The customer determines what products and services are offered;they have a job,i.e.the task that a product should do for them.But only rarely does the customer have a precise idea of precisely what product they need to meet this need.Theodore Levitt,the economist and Harvard Business School Professor who coined the term globalization in 1983,summarized the matter concisely:People dont want a quarter-inch drill.They want a quarter-inch hole!21In other words,it is not about asking the customer what product they need,but about finding out what Job they want to be done.Image:The Jobs-to-be-Done framework in a nutshell10ContentPeople dont want a quarter-inch drill.They want a quarter-inch hole!Theodore Levitt10Analysis3 LeversExecutive summaryIntroductionTurn knowing into doingConclusion11Analysis3 LeversExecutive summaryIntroductionTurn knowing into doingConclusionContentHow Bosch Manufacturing Solutions places the focus on its customersThe mechanical engineering market is currently facing a subdued situation in terms of invest-ment.Nonetheless,we still see considerable opportunities,particularly in the energy sector and battery production these areas still have high demand for product advancements and so in particular for customized,fully automatic pro-duction solutions.For me,the decisive success factor for participation in this growing market is understanding the customer and the product,and establishing long-term development and production partnerships.That is why at BMG we put the customer at the heart of our strategy.Our primary goal is to understand the long-term goals and technical needs of our customers,so that together we can manage advancing product development and product maturity with the most suitable production processes,and bring these into harmony with sustainable investment management.This approach ena-bles us to position our customers competitively on the market and create something which is optimal for both parties.Thanks to our cus-tomers outside-in perspective,we are able to work in this way to generate added value along the entire product development process,and moreover along the entire product lifecycle.A decisive factor for a complete outside-in perspective is the additional viewpoint of our long-term partner MHP.Currently in German mechanical engineering,there is often a failure to ask customers what actual job they have which needs to be done,i.e.what has to happen for the customers task to be completed.This prob-lem is exacerbated by the fact that product portfolios are not regularly analyzed and updated,and estab-lished methods and processes are often insufficiently scrutinized.It is even more of a rarity for innovative products to be developed together with new target customers and then tested iteratively.But this is exactly where we find the key to making German mechanical engineering companies fit for the future:With knowledge,as detailed as possible,about what the existing pain points are,and which problems customers would most like to be solved.It is essentially a 360-degree view of the customer,which makes it possible to develop solutions for their specific problems which can then and this is where the real mastery is needed also make an impact on the market as a whole.22It requires the courage to change.The most innova-tive products are often not those with a particularly high margin or a very low cost of sale these features can deter many people,particularly at times of higher inflation and falling order entry.However,anyone who is not ready to reinvent(themselves)and move from a reactive to an active mindset must expect to be displaced by a competitor and for that to happen very soon.Insights from Gnter Krenz,Managing Director of Bosch Manufacturing Solutions GmbH(BMG)12Analysis3 LeversExecutive summaryIntroductionTurn knowing into doingConclusionContentLever 2 Catch up on necessary digital skillsDigitalization is the basis for the mechanical engi-neering sectors future competitiveness.Above all,Internet of Things(IoT),Machine Learning(ML)and Artificial Intelligence(AI)are revolutionizing how mechanical engineers work.Four companies,all of which are among the highest-selling mechanical and plant engineering companies in Germany,are specifically demonstrating what this could look like:The future of mechanical engineering is automated,connected and extremely fast.The resulting advan-tages are clear:More efficient processes,proactive maintenance strategies and agile product develop-ments all of which ultimately also results in a long-term cost reduction in the value chain as a whole.To achieve this,it is not sufficient to simply imple-ment new software solutions or install smart sensors in machines:The further training or even retraining of many skilled workers in the sector is also decisive for being able to successfully make the necessary evolutionary leap.However at present there is still a major skills gap.Only one in ten mechanical engineering compa-nies has defined its future skills critical to success.Meanwhile 78 percent report that the current skillset within their businesses does not(fully)cover what is needed for the business to be successful and com-petitive in the next five to ten years.When asked which personnel-related measures the companies are using to respond to the skills gap,recruitment and upskilling are reported as the measures of choice in four out of five companies.Reskilling is cited by around half of companies.23 SiemensBOSCH RexrothKUKA Roboter GmbHFestoDigitization measureResultUse of a digital copy Networking and machine learning Development of intelligent robots using AI Digitalized supply chainsReducing time-to-market and increasing efficiency Optimization of preventive maintenance Automation of complex manufacturing processes Improving logistics and reducing inventoriesImage:Practical examples of successful digitization measures13Analysis3 LeversExecutive summaryIntroductionTurn knowing into doingConclusionContentRelevant specialist knowledge and digital expertise will have to go hand-in-hand in future.Companies which offer their employees comprehensive further training opportunities with this in mind,maintain lifelong learning and,not least,establish active,emp-athetic change management,can secure a key com-petitive advantage compared to businesses which are stuck in a we have always done it this way mindset.Businesses in the first category can find support from training companies,Industry 4.0 centers of expertise and association-based training and trans-fer services.Many mechanical engineering com-panies are already using such offerings to address the skills gap.Training companiesAssociation qualification/transfer offersManufacturing companiesInnovation and transfer networksI 4.0 competence centersI 4.0 learning factoriesUpskilling and reskillingUpskilling can also be referred to as“further training”.It describes the acquisition of posi-tion-specific specialist knowledge and new com-petencies.The intention of this is to close gaps in training.Reskilling refers to learning new competencies in order to be able to fill an open position in other words,retraining.Particularly with respect to the shortage of skilled workers and the high cost of vacancy,the best option for companies is often to retrain employees instead of finding new candidates for open positions.Training/qualification offersBut internal company programs are also contributing to conveying important skills for the digital future to employees,for instance through individual coaching,mentoring and reverse mentoring.Digital skills related to cybersecurity should also not be overlooked.As the digitalization of mechanical engineering advances,the risk of threats such as data leaks,DDoS attacks,malware,exploits and much more also increases.Many German companies have already had to learn the hard way how real this threat is.According to statistics from the Federal Criminal Police Office(Bundeskriminalamt,BKA),the damage from cyber-crime in 2022 came to around 203 billion euros24.It is therefore essential that specialists in mechanical engineering are trained in these risks,comply with security guidelines,and use encryption technolo-gies for the protection of sensitive data as standard.Digitalization and investment in cybersecurity must be combined with one another if companies are to persist as trustworthy partners on the international market.Source:Kienbaum,Future Skills in plant and mechanical engineering10203040506064F0Analysis3 LeversExecutive summaryIntroductionTurn knowing into doingConclusionContentLever 3 Mechanical engineering skilled workers need a collaborative mindsetThe days when it was possible to do a good job with a skillset limited to one relevant field of expertise are long gone.The above-mentioned digital skills that mechanical engineering skilled workers need to have should be supplemented with behavioral skills such as self-organization,interdisciplinary work and system thinking.More than half of German mechanical engineer-ing companies are convinced that a willingness to change and learn,as well as innovation-readiness and agility,will become more important in their companies in the next five to ten years.They also see the greatest need for development in these four elements:Willingness to changeWillingness to learnWillingness to innovateAgilityDealing with complexityMindset(increase in importance)When screening candidates for vacancies in mecha-nical engineering,the people responsible for HR should in future give more weight to significant methodological,social,personal and communica-tive skills than they have previously.That said,these skills can also be learned to a certain extent:Special training and upskilling should support the acquisition of such skills and therefore promote the establish-ment and maintenance of a strong innovation culture in companies.Clear,regular internal communication is no minor factor in enabling a strong innovation culture:If emp-loyees comprehend the vision and mission pursued in the company,and know what future plans are in the pipeline,they are happy to let themselves be inspired by the joy of innovation.If a company makes specific efforts to ensure employees feel they are working in an environment which values their ideas and suggestions and wishes to make them into a reality,that company can expect increased innovative strength and new impetus to meet the challenges of the future.Source:Kienbaum,Future Skills in plant and mechanical engineering10203040506061XVRC3 LeversTurn knowing into doingAnalysisExecutive summaryIntroductionConclusionContentThe MHP approach:Systematically create customer-centered innovationThe good news:Mechanical engineering companies need not sit back awaiting a visit from the muse to stoke the fires of innovative strength in their organ-izations.The strategic promotion of innovation,as represented in the MHP advisory approach,consid-ers organizations in an integrated way and brings together all of the three levers specified above.But what does that mean in concrete terms?At MHP,we examine a companys innovative capa-bility from two sides.The technical side consists of all topics that specifically relate to the strategy,processes,methods and tools for product develop-ment.Meanwhile the people side focuses on the corporate culture,the type of collaboration,as well as management principles and business values.III.Bridging the gap:Turn knowing into doing with MHPThe companyStrategy&GoalsCulture DesignDevelopDeliverEmbraceAdoptUseOrganizationLeadershipCustomersValues&value propositionProducts&ServicesLoyalty&TrustProcesses&MethodsMindset&CollaborationTechnology&ToolsKnowledge&SkillsPeople SideTechnical SideImage:The MHP consulting approach:Combining the technical side and the people side163 LeversTurn knowing into doingAnalysisExecutive summaryIntroductionConclusionContentThe path to customer-centered innovation starts with understanding the companys standpoints within the value chain.Or to put it more precisely:It starts by defining the problem space.This includes,for example,the global ecosystem and production system in which a company moves which in some cases are all factors that the company cannot itself influence.Contrary to that is the solution space,which subsumes all factors that the company is able to directly influence.This includes everything from the organization of production lines down to C-parts management.Once these definitions are done,the real challenge begins:Finding the right starting point for innova-tive products and/or respective technologies.Three guiding questions can help with this:System decomposition:mechanical and plant engineeringSum of the manufacturing industryHighly automated plantsGearboxes,motors,control systemsInterlinking of all sectors(automotive,transportation,electronics,agriculture.)Machines&servicesCables,shafts,bearings,screws Global ecosystemSolutionsSystems&subsystemsProduction systemProducts&servicesModules&components010203Where do you want to play and how do you want to win?What capabilities must be in place to be able to deliver winning solutions?What tools and support systems are needed to deliver winning solutions?Image:System decomposition in mechanical and plant engineering17ContentWhere do you want to play and how do you want to win?The innovation process starts with an inventory-taking of the current service portfolio.In doing this we examine the entire production development process,product architectures,processes and collaboration within the company.The focus is on understanding possible opportunities to generate value from the customer perspective and corresponding implementation options on the engineering side.As such it is in this step that companies select their arena for example at solution,product or system level and set out a strat-egy to outstrip the competition in this area.What capabilities must be in place to be able to deliver winning solutions?Once the strategy is defined,it is time to examine the existing product infrastructure.Which of the currently offered products,services and technologies contribute to the new strategy?Which can possibly be eliminated?And what does the new technological infrastructure need to look like if it is to facilitate maximally efficient processes?Corresponding changes also need to be triggered on the people side.Structures,pro-cesses and roles within the company must fit into the companys new,customer-cen-tered innovation strategy to enable that strategy to be effectively implemented.Typical questions that companies ask themselves at this point include,for example:What role do managers currently play in promoting or impeding innovations?How can we create a work environment that promotes an innovation mindset,day after day?What tools and support systems are needed to deliver winning solutions?In a final step,the skills which have been developed and expanded in the company,as well as the new customer-centered culture,must be anchored in the organizations IT infra-structure.This is because a consistent tool chain is what makes many of the advantages of customer-centered product innovation possible in the first place.That means,for example,IT tools for creating and tracking customer needs and requirements,architecture tools,verification and validation support,and simulation tools.having the right components in place enables requirements to be consistently tracked,architectures optimized early in the development process,and products to be tested virtually,even before the first prototypes.3 LeversTurn knowing into doingAnalysisExecutive summaryIntroductionConclusion183 LeversTurn knowing into doingAnalysisExecutive summaryIntroductionConclusionContentAs a first step,Liebherr analyzed various value cre-ation stages in the customer ecosystem,for exam-ple dealers and lessors of construction equipment such as construction companies.The selected target market was defined as“builders who want to move materials on a construction site”.All steps from planning through preparation,performance and monitoring to completion of this job were recorded,including the desired outcomes for the responsible executing parties.In the subsequent quantitative study,over 200 customers assessed how important the respective outcome was to them,and how sat-isfied they were with its fulfillment in the context of the solution currently in use.The results were set out in an“Opportunity Land-scape”.This process revealed that many customer needs fall into an area where importance and satis-faction are in balance,and improvements are barely able to create additional value.However,Liebherr also recognized that,in connection with fulfillment of the“moving materials on a construction site”job there are many overserved and underserved outcomes that would not have been recognized if customers had only been asked about the existing wheel loader product.To cope with massive competition and generate new growth,Liebherr planned a new product generation of wheel loaders.The two core ques-tions that the development team considered were:Where can savings usefully be made in comparison to existing wheel loaders?Plus:How can unique selling points for Liebherr be generated at the same time?To answer these questions,Liebherr used the Outcome-Driven Innovation(ODI)method.Case study:The development of new wheel loaders at LiebherrThe Outcome-Driven Innovation method is based on the Jobs to be done mode of thinking,which starts from the understanding that cus-tomers use products to complete certain tasks,or jobs.A job map is created,which fully records what measurement criteria(outcomes)custom-ers apply to assess job completion.Outcomes are measurable,solution-independent and as such have long-term validity.Jobs and their outcomes are recorded in full and then quantified together with a representative number of customers.This process makes hidden potential for value cre-ation discernible from a customer perspective.Overserved outcomes enable identification of cost-reduction potential,while underserved outcomes are reliable levers for performance enhancement for which customers are also willing to pay.25A sneak peek into the world of the Jobs-to-be-Done concept by Martin Pattera(MYLES Innovation)193 LeversTurn knowing into doingAnalysisExecutive summaryIntroductionConclusionContentAs a first response,Liebherr changed its communi-cation concept.The product marketing was adapted to focus more on the themes identified in the ODI process.Trade fair presentations,product docu-mentation and employee trainings were adjusted accordingly.The identified underserved and overserved customer needs were also used as input for the requirements specification relating to development of two entirely new wheel loader models.With these actions Lieb-herr achieved a double-digit percentage saving in production costs while simultaneously increasing functionality and safety.The newly developed wheel loaders also offered an expanded scope of use and were an ideal expansion to the existing portfolio.It also became clear which parts of the“moving materials on a construction site”job could not be addressed by means of a hardware solution,such as planning,monitoring,etc.This meant Liebherr was able to derive a long-term development roadmap,validated by customers,not only for existing prod-uct categories but also the design of new digital services.The two wheel loaders that emerged from this pro-ject were nominated for the BAUMA(trade fair)innovation prize and won the Red Dot Design Award for Product Design.Following market launch,a year-on-year sales increase of 20 percent was achieved in this product category.SatisfactionImportance001122334455667788991010over-servedappropriately servedOpp15 Extreme OpportunityOpp12 High OpportunityOpp10 Solid Opportunityunder-servedLimited OpportunityTable StakesImage:Opportunity Landscape,exemplary evaluation20Turn knowing into doingConclusion3 LeversAnalysisExecutive summaryIntroductionContentWhere the German mechanical engineering sector will stand in the international field in five,ten or twenty years,depends to a significant extent on how intensively companies strive to resolve the innova-tion rut.It is by no means only the titans in the sector which have plenty of leeway.TRUMPF shows how it is done:This mid-sized mechanical engineering firm from near Stuttgart invests one in every ten euros of its annual sales into research and development.Thanks to the resulting innovation budget of around half a billion euros,300 new inventions are being added to the companys patent portfolio every year.26 Whats more,TRUMPF is also experimenting with new business models such as equipment-as-a-service.Is it successful?Time will tell.But the very fact of exploring new business models within an appropriate framework is an asset for any company,and a true mark of entrepreneurship in action.So far,TRUMPF is the exception.And the risk aver-sion of many German mechanical engineering com-panies that keeps them only on well-trodden paths,stopping them from understanding and overcom-ing the changed and changing market requirements this could soon be their undoing.In contrast,mechanical engineering companies that increasingly place their focus on research and innovation will be successful.Here is how it goes:Reinvent or disap-pear from the market.This can be done by means of an absolute focus on customers:What problems do they have,what jobs should be done for them,what can a German mechanical engineering busi-ness offer them that the competition in China and elsewhere cannot?Notwithstanding intricate bureaucracy and a lack of skilled workers,there are still plenty of opportunities for mechanical engineering companies to make their business fit for the future.Now they just need to get on with it.ConclusionWhen mechanical engineering companies move the focus onto their customers,the innovation problem is also solved21ContentPublished byMHP Management-und IT-Beratung GmbH ENABLING YOU TO SHAPE A BETTER TOMORROWAs a technology and business partner,MHP has been digitizing the processes and products of its around 300 mobility and manufacturing sector customers worldwide for 27 years and providing support for their IT transformations along the entire value chain.For the management and IT consultancy,one thing is certain:digitization is one of the biggest levers on the path to a better tomorrow.This is why the Porsche AG subsidiary provides both operational and strategic consulting in areas such as customer experience and workforce transformation,supply chain and cloud solutions,platforms and ecosys-tems,big data and AI,as well as Industry 4.0 and intelligent products.Headquartered in Germany,the consultancy operates internationally with subsidiar-ies in the USA,the UK,Romania and China.Around 5,000 MHP employees are united by their pursuit of excellence and sustainable success.It is this aspira-tion that will continue to drive MHP-today and in the Michael Hasslbeck Senior Manager Practice Lead-Product&Innovation Excellence Mechanical Engineering&Agriculture Michael.HAuthorsTobias Riedel Associated Partner Co-Practice Lead-Product&Innovation Excellence Mechanical Engineering&Agriculture Tobias.RNina Gall Senior Consultant Innovation Expert Martin Pattera Managing Partner MYLES Strategy&Innovation GmbH martin.patteramyles-22Content1 The most important industrial sectors in Germany in 2022 by sales|Statista2 Incoming orders in mechanical engineering reduce drastically|tagesschau.de3 Headcount reduction in mechanical engineer-ing:Is the end approaching?|ZEIT ONLINE4 Orders for German mechanical engineering reduced by twelve percent in 2023|tagesschau.de5 Industry:Low spirits in mechanical engineering|nd-aktuell.de6 Germanys largest mechanical and plant engineering companies7 German competitive position in mechanical engineering|GTAI Special8 Export rate in German mechanical engineering up to 2022|Statista9 84%of machine exports from Germany into the EU go to ten EU countries|Quest Trend Magazin10 Number of employees in mechanical engineer-ing in Germany by state in 2022|Statista11 Mechanical engineering in numbers&images|vdma.org12 Specialists for Germany|Bundesministe-rium fr Wirtschaft und Klimaschutz13 Shortage of skilled workers is perceived as greatest risk“|VDMA14 Number of students in mechanical engineering in Germany up to 2023|Statista15 Number of trainees in mechanical engineering in Germany up to 2022|Statista16 Patent issuances reach record level again|Deutsches Patent-und Markenamt17 Patent registrations:The inventive spirit in Germany is foundering|Institut der deutschen Wirtschaft(IW)18 Prospects for the German car industry in the new year|tagesschau.de19 Automotive groups from China:BYD opens a store in Stuttgart|SWR Aktuell20 Customer excellence in mechanical engineering:Sustainable growth through customer focus|Deloitte21 A refresher on marketing myopia|Harvard Business Review22 The right way to develop innovations:Avoiding errors and increasing potential for success|MM Maschinenmarkt23 Future skills in mechanical and plant engineering|Kienbaum24 Publication,overview of the situation in Ger-many:Over 130,000 cases of cyber-crime in 2022|Federal Criminal Police Office25 More information is available at www.myles- and jobs-to-be-26 The country of inventors:Is Germany lagging behind?|tagesschau.deList of sourcesPublishing InformationMHP Management-und IT-Beratung GmbHFilm-und Medienzentrum Knigsallee 49 71638 Ludwigsburg l GermanyTel. 49(0)7141 7856-0 Fax 49(0)7141 7856-199 E-Mail:
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INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTITLETHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 1This report has been compiled by the Ellen MacArthur Foundation,with input from the UN Environment Programme in relation to the government signatories.The Global Commitment 2024Progress ReportProgress Report201920202021202220232024CONTENTSIntroduction 3 Ambition drives action 8 Spotlight on impact 4Perspective on progress 5 Key progress metrics 10Top FMCG performance 15 Government progress 17 Collective efforts on pivotal hurdles 18 About this report 23 Transparency 24 Explore the data 25 Endnotes 28 Appendix 26 AMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 3INTRODUCTIONOver 1,000 organisations from across the world,including businesses representing 20%of all plastic packaging produced globally and over 50 government signatories,have mobilised behind the Global Commitments common vision of a circular economy for plastic,in which it never becomes waste.Signatories set ambitious 2025 targets to help realise that common vision.This sixth annual progress report looks at how the signatories are faring against these targets and key lessons learned along the way.Three major insights emerge:INTRODUCTION1The collective ambition of the Global Commitment signatories has driven substantial progress.2The job is far from done.Plastic pollution is still growing and demands bold action.3The road ahead is clear:binding global policy and accelerated business action are both essential to get the job done.INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTITLETHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 4SPOTLIGHT ON IMPACTTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 4SPOTLIGHT ON IMPACT:GLOBAL COMMITMENT SIGNATORIES HAVE SHOWN PROGRESS IS POSSIBLEKeeping 1 barrel of oil in the ground every 2 secondsAvoiding 3.4 million tonnes of CO2 per year,equivalent to eliminating the carbon emissions of a city of 750,000 peopleAvoiding9.6 million tonnes of virgin plastic since 2018,equivalent to 1 trillion*single-use plastic bags*Calculation based on a plastic bag weighing 8 gThanks to their efforts as part of the Global Commitment,business signatories have had substantial,collective material and climate impact,by:INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 5PERSPECTIVE ON PROGRESS1 The collective ambition of the Global Commitment signatories has driven substantial progress.Over the six years since the Global Commitment launched,signatories have significantly outperformed their peers in tackling plastic waste.This shows that substantial change is possible and that businesses who havent signed up can do,on average,much more than they are doing today.Business signatories have outperformed the market in all key progress metrics where comparable data exist,for example:Brand and retail signatories have reduced their virgin plastics use by 3%since 2018,1,2 while the plastic packaging market as a whole has increased virgin plastic use by 8%over that same time period.3 Signatories have significantly reduced their use of some packaging items and materials commonly identified as problematic or unnecessary.Since 2020,the top quartile of brand and retail signatories have completely eliminated their use of polyvinyl chloride(PVC)and expanded polystyrene(EPS)/extruded polystyrene(XPS)in business-to-consumer packaging for FMCGs,4 compared with a global market 6%increase and 4%reduction respectively.Brand and retail signatories almost tripled the share of post-consumer recycled(PCR)content in their plastic packaging,increasing it by 9 percentage points to 14%in 2023,compared to a 1 percentage point increase for the market as a whole.Global Commitment business signatories strong collective growth in recycled plastics use,by nearly 2 million tonnes per annum,combined with keeping the overall growth in plastic packaging use below market average,has resulted in avoiding 3.2 million tonnes of virgin plastics production in 2023 equivalent to more than the UKs annual plastic packaging use.The total cumulative impact since 2018 is 9.6 million tonnes of virgin plastics production avoided compared to business as usual.The Global Commitment business signatories have collectively had a substantial impact on fossil fuel consumption and climate.The increase in recycled content alone keeps one barrel of oil in the ground every two seconds,or more than 23 million barrels of oil a year.5 It also avoids 3.4 million tonnes of CO2 per year equivalent to eliminating the carbon emissions of a city of nearly 750,000 people.6 Government signatories have also driven progress by introducing mandatory targets,such as those intended to stimulate the demand for recycled plastics,and implementing bans on problematic items.They have also increased the volumes of plastic collected,sorted,and recycled by investing in infrastructure,by promoting collection,sorting,and reuse and/or recycling schemes(e.g.deposit return schemes),and by establishing or revising Extended Producer Responsibility(EPR)schemes.The Global Commitment has provided unprecedented transparency on plastic usage and progress towards targets.The Global Commitments framework has provided standardised metrics and definitions across the plastic packaging industry,as well as formalised annual reporting.These have enabled both greater progress on effective solutions and a fuller understanding of the hurdles to scaling those solutions.The Global Commitment is the largest-scale initiative of its kind.Businesses representing around 20%of all plastic packaging produced globally have signed up and have now been reporting annually for six years.Over that time,signatories data systems have continued to improve and as signatories data quality gets better,reporting accuracy continues to improve.The reach of the Global Commitment goes far beyond its signatories,with its metrics and definitions being deployed,for example,to thousands of organisations in CDPs plastic packaging disclosure.The Global Commitment also laid key foundations for the Business Coalition for a Global Plastics Treaty and 13 national and regional Plastics Pacts are working towards the same vision and aligned targets.This years data7 shows continued progress by signatories on virgin plastic production,PCR content,and recyclability.Signatories decreased their total and virgin plastic packaging weight,with the virgin weight decrease being the greatest yearly reduction since 2018.For the sixth consecutive year,signatories continued to increase their use of PCR content.Between 2022 and 2023,signatories recyclability in practice and at scale went up 4 percentage points,mostly because the packaging category PP other rigids(pots,tubes,cups,etc.)is now recognised as recyclable.8 There is sufficient evidence that recycling rates have grown for this packaging type in multiple regions.PERSPECTIVE ON PROGRESSIn this section,the Ellen MacArthur Foundation and UNEP offer a perspective on the progress seen over the reporting period.INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 6PERSPECTIVE ON PROGRESS2 The job is far from done.Plastic pollution is still growing and demands bold action.With a large part of the plastic packaging industry not yet taking action,and signatories likely to miss key 2025 targets,the world is off track to eliminate plastic waste and pollution.There are now more single-use plastics than ever before.The vast majority of plastic is fossil-fuel derived,and greenhouse gas emissions from plastic production are expected to more than double by 2060.9 Currently,80%of the global plastic packaging market is not covered by the Global Commitment and performing,on average,much worse than the 20%which are participating.Just as it is important to acknowledge the progress made in the Global Commitment,it is important to acknowledge that its signatories will not realise all of their ambitions by 2025.Achieving 100%reusable,recyclable,or compostable plastic packaging has proved particularly challenging,requiring the most collaboration across the value chain.While a third of signatories are already on track to achieve their virgin plastic reduction target,accelerating virgin plastic reduction for the whole group will require complementing a continued increase in PCR content with an extensive reduction in total plastic packaging use.Some companies have already adjusted their targets based on actual progress,such as extending the ambition to reach 100%recyclable to 2030 instead of 2025,reflecting the difficulties in tackling key hurdles.This report reflects the 2025 targets that businesses signed up to as part of the Global Commitment.The key hurdles are discussed in the following section.Data and learnings from the last six years show where more collective action is needed.The transparency and structure the Global Commitment created points to three main,pivotal hurdles standing in the way of further progress:(1)scaling reuse,(2)flexible plastic packaging in high-leakage countries,and (3)lack of infrastructure to collect and circulate packaging.A combination of bold business and government action will be needed to overcome these hurdles.Businesses can drive progress on overcoming each hurdle:Reuse Businesses should scale refill solutions and concentrate products,collaborate at scale on return models,and advocate for reuse policy in the key markets in which they operate;Flexible packaging Businesses should continue exploring alternative solutions for flexible plastic packaging in high-leakage markets where feasible,innovate where viable alternative solutions do not yet exist,and partner with governments and other stakeholders to ensure the flexible packaging that is still used is collected and circulated;Infrastructure Businesses should support and accelerate infrastructure improvements by,for example,actively advocating for well-designed,mandatory,and fee-based EPR schemes,and do so consistently across geographies,including at the international level through the Business Coalition for a Global Plastics Treaty.Alongside business action,strong policy measures will be crucial to tackling these three key hurdles.Reuse Policies such as timebound,sectorial reuse targets;harmonised reuse definitions,metrics,and standards;measures to facilitate the development of shared infrastructure;and economic measures that incentivise reuse(e.g.EPR,taxes,subsidies)can play a major role in mobilising this transition.Flexible packaging The lack of alignment on which of the potential solutions alternative delivery models,material substitution,recycling will be accepted across the industry and in policy,is a key hurdle for making the major investments these solutions require.Policymakers can provide direction and supporting conditions.They can clarify what outcomes will be incentivised and how the enabling systems for those solutions will be developed together with industry.Infrastructure EPR remains a particularly high-priority policy measure around the world.It is crucial for EPR schemes to be well-designed and inclusive.Governments can also implement measures to incentivise or mandate better design(including reduction,reuse,and recycling);measures to mobilise financing and investments in waste management infrastructure;and set targets and standards for the collection,sorting,reuse,and recycling of all packaging.INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 7PERSPECTIVE ON PROGRESS3 The road ahead is clear:binding global policy and accelerated business action are both essential to get the job done.Global policy is necessary:with 80%of the global plastic packaging market not covered by the Global Commitment and performing,on average,much worse than the 20%who are participating,global policy is crucial to move 100%of the market towards solutions.Over the past six years,Global Commitment business signatories have made real progress,despite not meeting all the targets.If the entire plastic packaging market had followed the example of the signatory group with regards to virgin plastic reduction,virgin plastic production would be 10%,10 or 35 million tonnes,lower than it is today.Global policy can create conditions to help the leading 20%overcome the key hurdles to meeting their targets while simultaneously moving towards industry-wide participation,allowing proven solutions to scale much faster.The international,legally binding instrument on plastic pollution currently being negotiated presents a once-in-a-generation opportunity to address plastic pollution at a global level.By putting in place global rules and measures,the international,legally binding instrument can ensure that all countries act in concert to unlock circular economy solutions and tackle plastic waste and pollution.Scaling reuse,tackling flexible plastic packaging waste,and establishing infrastructure require a globally coordinated approach to create the system and market conditions for value chain cooperation,infrastructure harmonisation,and economic viability.The fastest way forward is through an ambition loop in which government policy and business action mutually reinforce each other.Regulation will not solve everything,given the highly complex nature of plastic and packaging waste.Voluntary business action will continue to play a crucial role in innovating,showing whats possible,and creating demand for solutions.Waiting for regulation cannot be an excuse for inaction and companies leading the way will reap the rewards.Equally,businesses can play an active role in advocating for regulation that will enable change.We have learnt from the last six years that a concerted effort like the Global Commitment can help catalyse the ambition loop needed to tackle plastic waste and pollution.Looking ahead,the Global Commitment will continue to serve as a key force in driving voluntary action and openly sharing both successes and obstacles with the world to inform and complement the global policy.80%Rest of packaging market20%Global Commitment SignatoriesINTRODUCTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 8AMBITION DRIVES ACTIONFIGURE 1Virgin plastic use (%change by weight vs 2018)Production of recycled plastics(in%increase vs 2018)Items commonly identified as problematic and unnecessary 4(%change by weight vs 2020)EPS/XPS 5,6 (B2C packaging for FMCG)Reusable,Recyclable,or Compostable 7 (percentage point change vs 2018)Post-consumer recycled content (percentage point change vs 2018)PVC6 Target areas(brands and retailers) 8% 16%n/a 1pp-4% 6%Reuse (change vs 2018)Roughly flatRoughly flatMinor increaseIncrease-3% 74% 7pp 9pp-1%-27% 136% 23pp 21pp-100%-100%-18% 290% 37pp(to 100%) 21pp(to 26%)-100%-100%Global MarketGlobal Commitment signatoriesTop quartile Global Commitment signatoriesGlobal Commitment targetGlobal Commitment business signatories,and particularly the top quartile,have outperformed the market across nearly all target areas where comparable data exists,even if not all targets will be met202320251 Source:WoodMacKenzie market data2 Based on the weighted average of Global Commitment Brand and Retail signatories reporting all years of analysis3 Quartiles selected by greatest percentage change or percentage point change(where applicable)4 These are items and materials that a significant number of Global Commitment signatories have identified as problematic or unnecesary19822,3105 This category includes EPS and XPS such as for takeaway and retail food packaging as well as packaging peanuts.EPS for transport packaging has been excluded from this analysis.6 Numbers evolved with those published in 2023 Five Years In report because of the inclusion of six signatories who did not report item in 2020 but subsequently reported it as part of their portfolio and with sufficient historical data7 Metric is significantly influenced by portfolio composition and sector8 The Global Commitment developed its own definition of recyclability,demanding recyclability in practice and at scale.Therefore no comparable market data is available.While there are indications the signatory group might be outperforming the market(e.g.signatories substantial investments in technical recyclability and outperformance on the elimination of non-recyclable items such as PVC),there is no robust data available to validate this.9 Numbers evolved from those published in 2023 Five Years In report due to updated data source from WoodMackenzie 10 Calculated based on the weighted average of the signatories individual targets-29%AMBITION DRIVES ACTIONThe latest data reinforces the knowledge that setting ambitious targets can drive accelerated action.Figure 1 shows signatory companies working towards robust goals have outperformed the rest of the market.Figure 2 shows the same holds true in the US Food and Beverage sector,with Global Commitment signatories achieving greater progress in reduction and recycling than non-signatories.INTRODUCTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTITLETHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 9AMBITION DRIVES ACTIONReductionRecyclabilityPlastic packaging scoreGlobal Commitment signatoriesNon-Global Commitment signatoriesFIGURE 2As You Sow plastic packaging scores US Food and BeverageGlobal Commitment Food and Beverage business signatories headquartered in the US are achieving greater progress in virgin plastic packaging reduction and recycling than non-signatories,further demonstrating ambitious targets drive action.Figure 2 is derived from the data in the As You Sows 2024 Plastic Promises Scorecard report,11 which,in partnership with Ubuntoo,analysed US headquartered companies performance on plastic packaging from publicly available data.The Plastic Promises Scorecard measures corporate ambition and action on plastic packaging and combines into an overall plastic packaging score.0.62.02.62.802.55INTRODUCTIONAMBITION DRIVES ACTIONGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 10KEY PROGRESS METRICSAs of 2021,brand and retail signatories have set targets to reduce plastic or virgin plastic use in packaging Brand and retail signatories virgin plastic use decreased more notably than in other years(4tween 2023 and 2022),driven by a continued increase in PCR and a decrease in total plastic used due to market conditions.Virgin plastic packaging demand decreased globally by 3%in 2023,driven by inflation and compounded by overstocking in 2022.12 Collectively,brand and retail signatories have reduced their virgin plastics use since 2018 by 3%,performing better than the plastic packaging market as a whole,which has increased virgin plastic use by 8%over that same time.13 Although brand and retail signatories total plastic packaging use has decreased this year,it has increased since 2018 by 7%.PCR remains the key driver of virgin plastic packaging reduction.The majority of brand,retail,and packaging producer signatories(60%)reduced their virgin plastic use between 2018 and 2023,but only 32%of signatories with a virgin plastic reduction target have either achieved or are on track to meet their target.While significant progress has been made,accelerating virgin plastic reduction will require complementing a continued increase in PCR content with an extensive reduction in total plastic packaging use.FIGURE 4*Percentage and number of brand and retail signatories in each categoryTOTAL PLASTIC PACKAGING USEVIRGIN PLASTIC PACKAGING USEDecreasingIncreasingDecreasing50%Increasing 80%FIGURE 3*201820192020202120222023Weight of brand and retail signatories virgin plastic packaging in million metric tonnes(MMT)*Virgin plasticRecycled content(pre-and post-consumer)Total plastic packaging-1.4%-1.9% 0.9%-3.6% 2.7.2 MMT12.3 MMT0.8 MMT11.4 MMT12.3 MMT1.0 MMT11.2 MMT12.8 MMT11.5 MMT1.3 MMT13 MMT13.2 MMT11.7 MMT1.6 MMT11.2 MMT1.8 MMT0.6 MMT11.6 MMT*The values in the visuals are rounded to a single decimal point or unit.As a result,the sum of the shares may not always match the total values shown.*Every year,signatories have the option to update their previous years data.Reasons for updating include acquisitions,divestments,and improving data quality.This can result in variation in data published in each annual progress report.1 Decrease the use of virgin plastic in packagingKEY PROGRESS METRICSINTRODUCTIONAMBITION DRIVES ACTIONGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 11KEY PROGRESS METRICSPlastics producer,packaging producer,brand,and retail signatories set PCR content targets ranging from 2%to 100%PCR has shown consistent growth.Brand and retail signatories grew by 2 percentage points(from 12%in 2022 to 14%in 2023),driven by business commitments,significant investments in recycling facilities coming to fruition,and legislative changes in some geographies.Brand and retail signatories have made significant progress,collectively almost tripling their use of PCR content since 2018(from 5%to 14%),with the top quartile increasing their use of PCR content by 5 percentage points compared to 2022.Despite signatories reporting barriers of supply,cost,and regulation,as a group,brand and retail signatories progress remains steady,increasing by 2 percentage points per year,but are off track to reach their aggregate target of 26%on average.There are major sectoral differences between PCR use amongst brand and retail signatories(see Figure 6).Cosmetic sector signatories are leading with 31%PCR use on average in 2023,whilst food sector signatories use of PCR is much lower at 10%on average in 2023.Regulations on the use of recycled content significantly impact sectors performance,with the food sector facing strict food-contact regulations.14 Recycler signatories continue to increase volumes of plastics recycled with a 14%increase compared to 2022,bringing their recycled content production to nearly 2 million metric tonnes(MMT)this year.FIGURE 6*Change between years(percentage points)8%6%5 1820192020202126 222023 1pp 2pp 2pp 2pp 2pp2025 target FIGURE 5*80pP%Sector%target achievedSector weight PCR0 %FoodBeveragesRetailApparel,footwear&accessoriesCosmeticsHousehold and personal care200%Percentage(of total weight)of PCR content in brand and retail signatories plastic packagingBrand and retail signatories recycled content targets vs PCR content in plastic packaging across sectors2 Increase the share of post-consumer recycled content target across all plastic packaging used*The values in the visuals are rounded to a single decimal point or unit.As a result,the sum of the shares may not always match the total values shown.*The size of each bubble is relative to the collective PCR volume of each sectorINTRODUCTIONAMBITION DRIVES ACTIONGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 12KEY PROGRESS METRICSQualitative target committed to by packaging producer,brand,and retail signatories In 2023,signatories have continued to eliminate plastic packaging types that are most commonly identified as problematic or unnecessary,with 380 examples,totalling 131,000 tonnes of plastic reported.15 The examples were mostly material change(68%),such as substituting another material or lightweighting.Other changes,such as direct elimination and switching to reuse models,remain less popular as they require fundamental changes to customer experience and business models.16 Since 2020,polyvinyl chloride(PVC)and expanded polystrene(EPS)/extruded polystrene(XPS)in business-to-consumer packaging for FMCGs has been reduced by brand and retail signatories by 1%and 29%respectively,outpacing global market progress,as shown in Figure 1.Along with innovation,regulation plays a role:PVC has not been eliminated to the same extent as EPS/XPS in business-to-consumer packaging for FMCGs due to regulatory barriers on blister packs for medical use limiting alternative materials.DecreasingIncreasingPVC39q)%EPS 57%7%FIGURE 7Percentage of brand and retail signatories having decreased,increased or fully eliminated their use of EPS and PVCPercentage of signatories decreasing or increasing PVC or EPS usePercentage of signatories who have eliminated PVC or EPS use3 Eliminate problematic or unnecessary plastic packagingINTRODUCTIONAMBITION DRIVES ACTIONGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 13KEY PROGRESS METRICS1.6%1.3%Qualitative target committed to by packaging producer,brand,and retail signatories The implementation of reusable plastic packaging remains niche,with brand and retail signatories share of reusable plastic packaging constituting 1.3%of their total packaging.17 Some signatories have grown their use of reuse models,with top quartile signatories increasing their share of reusable packaging from 1.4%in 2020 to 3.1%in 2023.Since 2020,64%of brand,retail,and packaging producer signatories have launched reuse pilots,however this has not translated into scaled use of reuse models.The reasons for this vary by context and reuse type.For some models,achieving favourable economics and a satisfactory customer experience hinges on a critical mass of companies embracing reuse and working together,as well as a supportive policy environment.In addition,the current reuse metric does not show the full picture of reusable packaging.A more comprehensive reuse metric to better reflect the successes and challenges is currently being developed.-0.3pp2023 2019 Change between years(percentage points)FIGURE 8Percentage(of total weight)of brand and retail signatories plastic packaging that is reusable4 Take action to move from single use towards reuse models where relevantINTRODUCTIONAMBITION DRIVES ACTIONGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 14KEY PROGRESS METRICSCommitted by all packaging producer,brand,and retail signatories Brand and retail signatories increased their share of reusable,recyclable,or compostable plastic packaging by nearly 4 percentage points in 2023,to 70%.The growth was driven by recyclability,which increased by 4 percentage points,with polypropylene(PP)other rigid18 packaging being reclassified as recyclable in practice and at scale as the key lever.There is now sufficient evidence that the PP other rigid recycling rate has grown and is being recycled in the same stream as PP bottles in multiple regions.19 The use of reusable(1.3%in 2022 and 2023)and compostable plastic packaging(0.1%in 2022 and 2023)remained relatively unchanged and niche.20 Signatories share of packaging that is designed for recycling21 has continued to increase(by 1 percentage point,from 82%in 2022 to 83%in 2023),but at a decreasing rate(see Figure 9)as businesses now face the most challenging materials and formats.Relatively minor design enhancements,such as removing undetectable carbon black pigment,and removing or redesigning components such as caps,lids,pumps,and trigger sprays,could improve the overall recyclability in practice and at scale of the signatory group by up to 4 percentage points,from 70%currently to 74%.Increasing the other 26 percentage points will require significant improvements in infrastructure and/or major packaging portfolio shifts.Signatories recyclability is hampered by small format flexible packaging,such as wrappers,pouches,and sachets.Brand and retail signatories use of small-format(A4)flexibles has increased by 17%since 2020,accounting for 13%of their total portfolio.Without tackling small format flexible packaging,the target of 100%reusable,recyclable,or compostable cannot be reached.FIGURE 977R2021 2022 2023 2025 target 202063efp%IPAS%RRC63fgp0%Percentage(of total weight)of brand and retail signatories plastic packaging that is designed for recycling(D4R),recyclable in practice and at scale(IPAS)or reusable,recyclable,or compostable(RRC)5 Ensure 100%of plastic packaging is reusable,recyclable,or compostableFIGURE 10Top 10 FMCG companies by revenue:key progress metrics on plastic packaging,20182023Notes:a)Signatories are ranked according to their revenues as of the beginning of the Global Commitment in 2018 b)Where applicable,2018 data and other prior year data have been restated to reflect the current business portfolio(following divestments and acquisitions),allowing comparison with todays data.Original data for these years can be found in prior year progress reports c)Year-on-year growth is calculated in percentage for virgin weight and using percentage points for all other metrics d)All quantitative data are provided for the latest year reported,in most cases for the relevant companys financial year ending 2022.Details of the reporting timeframe for each signatory are provided in their individual reports online.e)To find more information about individual plastic reduction targets,baseline years,and baseline weight,please look at the online reports*Designed for recycling is one of the two recyclability metrics tracked in the Global Commitment.An overview of recyclability metrics can be found on page 26 of the report*Unilevers reporting scope is limited to primary and secondary plastic packaging in 27 markets,representing approximately 84%of the plastic footprint*The Coca-Cola Companys reporting scope is limited to consumer-facing primary plastic packaging,which covers approximately 90%of total plastic usage2018(restated)b20232025 targetTOTAL WEIGHTTotal weight of plastic packaging in metric tonnes in 2023VIRGIN PLASTIC USEcrease of virgin plastic from baseline year to 2023PCR CONTENT%of total plastic packaging weight which is PCRREUSE MODELS%of total plastic packaging weight that is reusable in 2023,and pp change from 2018DESIGNED FOR RECYCLING*%of total plastic packaging weight designed for recyclingREUSABLE,RECYCLABLE,&COMPOSTABLE(RRC)%of total plastic packaging weight that is reusable,recyclable,or compostableNestl Food897k-33%0%-15seline (b):2018 30%0.2%9% 9pp0.8%-1pp20212023790c% 6pp57%Procter&GambleNot a Global Commitment SignatoryPepsiCo Food and Beverages2,554k-5% 6%b:2020 25%3% 7ppN/A20212023890w%=0pp77 InBevNot a Global Commitment SignatoryUnilever*Household and Personal Care670k-50%-18%b:2019 25%1% 21pp0.1%=N/A2020202365r0S% 3pp50%JBSNot a Global Commitment SignatoryTyson FoodsNot a Global Commitment SignatoryThe Coca-Cola Company*Beverages3,446k-20% 6%b:2019 25%9% 8pp1.2%-3pp20212023100000% 1pp99%Mars,Incorporated Food210k-25% 5%b:2019 30%0%2% 2pp0%=0pp2020202343F0%=0pp22%LOral Cosmetics154k-33%-13%b:2019 50%52% 27pp5% 5pp2020202350Q0H% 18pp30%THE GLOBAL COMMITMENT 2024 PROGRESS REPORT 15FIGURE 11Other large FMCG companies by revenue:key progress metrics on plastic packaging,201820232018(restated)b20232025 targetTOTAL WEIGHTTotal weight of plastic packaging in metric tonnes in 2023VIRGIN PLASTIC USEcrease of virgin plastic from baseline year to 2023PCR CONTENT%of total plastic packaging weight which is PCRREUSE MODELS%of total plastic packaging weight that is reusable in 2023,and pp change from 2018DESIGNED FOR RECYCLING%of total plastic packaging weight designed for recyclingREUSABLE,RECYCLABLE,&COMPOSTABLE(RRC)%of total plastic packaging weight that is reusable,recyclable,or compostableDanone Food693k-33%0%-13%b:201950%7% 8pp15%4.5% 1pp20222023830t% 8pp66%Mondelez Food187k-5%-2%b:2020 5% 1pp1%0%0.0%=0pp20202023730% 14pp5%Henkel Household and Personal Care268k-33%-24%b:201830%9% 11pp20%0.0%=0pp2021202368p0i%-5pp74%Colgate-Palmolive Household and Personal Care256k-33%-20%b:201925%6% 12pp2.5% 2.5pp20202023690t% 17pp57%Diageo*Beverages44k-5%-7%b:2020 40%0% 22pp22%0.0%=0ppNOT REPORTED20202023670% 5pp81%Reckitt Household and Personal Care177k-30%-16%b:2020 25%3% 5pp8%1.9%-3pp2020202370v0u% 16pp59%SC Johnson Household and Personal Care68k-30%-32%b:2018 25%5% 20pp25% 9ppNOT REPORTED20212023620e% 16pp49%Kellogg Food51k-5% 3%b:202110%0%0%=0pp0.0%=0pp2020202373d0% 9pp16%Essity Household and Personal Care46k-5%-11%b:201825%0% 10pp10%0.0%=0pp2020202377r0% 9pp18%FrieslandCampina*Food36k-7%-41%b:2019 15%0% 10pp10%0.5%-2ppNOT REPORTEDNOT REPORTED20202023100%-1pp26%Notes:a)Other large FMCGs refers here to those with the highest revenues after the Top 10 displayed on page 15,as of beginning of the Global Commitment in 2018 b)Where applicable,2018 data and other prior year data have been restated to reflect the current business portfolio(following divestments and acquisitions),allowing comparison with todays data.Original data for these years can be found in prior year progress reports.c)Year-on-year growth is calculated in percentage for virgin weight and using percentage points for all other metrics d)All quantitative data are provided for the latest year reported,in most cases for the relevant companys financial year ending 2023.Details of the reporting timeframe for each signatory are provided in their individual reports online.e)To find more information about individual plastic reduction targets,baseline years,and baseline weight,please look at the online reports*Diageo has a reduced PCR scope and target,reported figure refers to PET bottles which cover 50%of total plastics portfolio THE GLOBAL COMMITMENT 2024 PROGRESS REPORT 16INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 17GOVERNMENT PROGRESS30 national,sub-national,and local governments across four continents participate in the Global Commitment,with 26 additional governments expressing interest in joining.Between 2023 and 2024,the Government of the Rocha Department(Uruguay)officially joined the Global Commitment.With concrete policy efforts such as bans on plastic packaging types that are most commonly identified as problematic or unnecessary,economic incentives,changes to public procurement,and the establishment of EPR schemes,governments are working alongside businesses to maintain momentum for lasting solutions to the plastic pollution crisis.This section provides insights from the 16 governments that reported in 2024.Significant progress is being made by governments to eliminate problematic and unnecessary plastic packaging.63%of reporting governments established or revised economic incentives(e.g.subsidies,funding schemes to encourage innovation and research into alternative materials or designs)or disincentives(e.g.tax,charges)while 63%have introduced legal measures to drive the elimination of problematic packaging formats.Scotland has rolled out economic incentives to promote reusable alternatives and discourage the use of single-use beverage cups.In the Netherlands,a surcharge has been applied for take-away single-use food packaging since 1 July 2023.To stimulate the demand for recycled plastics,75%of governments reporting in 2024 have set quantitative targets to achieve a minimum threshold of recycled content in specific packaging(e.g.all PET bottles should contain at least 25%recycled plastic by 2025).A quarter of reporting governments have also introduced economic incentives or disincentives,such as the UKs Plastic Packaging Tax,22 on packaging that does not contain at least 30%of recycled plastic or stimulated demand for products containing recycled plastics through public procurement.In the City of Ljubljana,public procurement officials at the public water and waste management company,JP VOKA SNAGA,can only purchase waste collection bags and containers made of recycled plastic.Governments are encouraging reuse models with around half promoting collaboration with the private sector and delivering awareness campaigns.In Australia,the Australian Packaging Covenant Organisation(APCO)published a report Scaling Up Reusable Packaging which outlines the importance of reuse and how businesses and users can benefit from reusable packaging models.About 40%of government signatories reported establishing economic incentives or piloting reuse models.The Basque Country,in collaboration with The Basque Culinary Center Foundation,launched a pilot to test a technological solution(vending machine and app)for the distribution of reusable containers in catering establishments.Governments have been increasing collection,sorting,and recycling rates with more than half of government signatories reporting infrastructure investments in 2023.Almost half of governments have also been promoting collection,sorting,reuse,and recycling schemes(e.g.deposit return schemes)while a third have established or are revisiting economic incentives(e.g.subsidies)or disincentives(e.g.taxes,charges)to encourage the circulation of plastics.In Chile,The Ministry of the Environment developed a Recycling Fund23 to finance projects carried out by local governments to prevent waste generation and promote its reuse,recycling,or recovery.GOVERNMENT PROGRESSGOVERNMENTS REPORTING IN 2024The Ministry of Infrastructure and Water Management,the NetherlandsCity of Austin,Texas,USCity of Buenos Aires(Gobierno de la Ciudad de Buenos Aires),ArgentinaMinistry for the Environment,New ZealandThe City of Ljubljana,SloveniaGovernment of the United KingdomMinistry of Environment and Climate Action,PortugalScottish Government,United KingdomMexico City Government,MexicoNorwegian Ministry of Climate and EnvironmentThe Australian GovernmentHellenic Ministry of Environment and EnergyCity of San Miguel de Allende,MexicoBasque Government,Kingdom of SpainGovernment of ChileThe Government of FranceINTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCESPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 18COLLECTIVE EFFORTS ON PIVOTAL HURDLESCOLLECTIVE EFFORTS ON PIVOTAL HURDLESREUSE:Moving from single use to reuse models presents one of the biggest opportunities to reduce plastic pollution and is crucial to reducing virgin plastic use.While certain refill models can be scaled by individual companies,scaling returnable packaging requires new,shared infrastructure and systems to be designed and built.The projects below are key efforts in developing such shared infrastructure or enabling standards.PR3:Advancing reuse standards to empower the move away from single-use packaging Launched in 2019 by Resolve,an environmental NGO,PR3 aims to promote reuse solutions by developing reuse standards to support the shift away from single-use packaging,unlocking investment and consumer confidence.Reuse standards are necessary to align returnable packaging regardless of producer with shared infrastructure for collection,washing,and transport.PR3 builds partnerships to activate reuse ecosystems using the standards as an economic development tool.It also catalyses critical relationships between unlikely allies in government,FMCG companies,small reuse service providers,health and environmental advocates,and social justice activists.In 2021,early drafts were published for extensive review with global stakeholders and PR3s Reusable Packaging System Standards Panel began formalising the standards in 2023.By 2026,PR3 aims to publish and deploy seven standards around the world,with the first four due in 2025.At the same time,PR3 will run a global design contest to select a global reuse symbol.PR3 has also partnered with the Green Sports Alliance and Upstream to bring reuse to stadiums during the 2026 World Cup.Global Commitment organisations involved:Organisations represented on the Standards Panel:Ahold Delhaize,Australian Packaging Covenant Organization,Mars,Incorporated,Nestl,PAC worldwide,Target Corporation,The Clorox Company,Tomra,Unilever Learnings from the past six years of the Global Commitment point to three pivotal hurdles that are crucial to overcome to address plastic packaging waste and pollution:scaling reuse,flexible plastic packaging in high-leakage countries,and lack of infrastructure to collect and circulate packaging.Overcoming these requires bold collective business action and policy changes.Several Global Commitment signatories are already driving collaborative action on these.This section highlights some of the initiatives.Many more actors need to get behind initiatives like this and more,larger-scale collaborative action and advocacy are needed to truly overcome these pivotal hurdles.Image:ResolveINTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 19The ReUse Initiative:Brands and retailers aim at scaling up reusable packaging for food products in France Launched in May 2023,Citeos ReUse initiative aims to establish a functional national reuse system for food packaging.The project is currently focused on developing the key operational components to establish a regional pilot,including product selection,customer experience,logistics(both forward and reverse),traceability through IT solutions,and overall cost management.By May 2025,Citeo and its partners will begin the pilot programme across four regions in France,collaborating with 25 brands and four retailers to roll out the system in over 1,000 stores.The insights gained from this pilot will pave the way for the national implementation of a reuse system for food packaging in 2026.Global Commitment organisations involved:Carrefour,Nestl23 ReUse City Canada:Facilitating retailer-manufacturer collaboration for reuse systems ReUse City Canada,launched in 2024 by the Consumer Goods Forum,is an on-the-ground initiative to design and implement a scalable multi-brand/multi-retailer reuse system tailored to consumer and industry needs.The project,which is currently being designed and will launch in 2025,is expected to include home care,personal care,and packaged food categories.Eight brands and retailers will participate in the first city pilot in Ottawa.Learnings and blueprints from the pilot could eventually support the extension of the project to other markets,including essential insights for achieving consumer uptake.Global Commitment organisations involved:Colgate-Palmolive,LOral,Mars,Incorporated,SC Johnson24 Image:Consumer Goods ForumImage:CiteoCOLLECTIVE EFFORTS ON PIVOTAL HURDLESINTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 20INFRASTRUCTURE:Infrastructure to collect,sort,and reuse or recycle packaging is fundamental to safely circulate materials in our economy and keep them out of the environment.Several signatories of the Global Commitment are involved in,and are voluntarily funding,various initiatives to improve infrastructure,especially in high-leakage regions.These projects help keep some packaging out of the environment,demonstrate whats possible,and generate valuable learnings.The level of voluntary funding is insufficient compared to the necessary investments for a financially sustainable system,which must be significantly larger and paired with the establishment of EPR policy the only proven method to secure dedicated and ongoing funding for effective packaging collection and recycling.Project STOP:Tackling plastic leakage in Indonesia Project STOP,co-founded by Borealis and Systemiq in 2017,tackles mismanaged waste in Indonesia.The project collaborates with national and local governments to implement affordable circular waste systems accessible to all households and institutions.The programme keeps plastics out of the environment and fosters their recycling.Since its inception,Project STOP has provided waste collection services to nearly 450,000 people in Indonesia,created close to 300 full-time jobs in the waste management sector,and collected over 72,000 metric tonnes of waste,including nearly 10,000 metric tonnes of plastic,creating socio-economic benefits for local communities.Three city projects have been successfully transferred to local governments,and Project STOP is now expanding its efforts across the entire Regency of Banyuwangi,East Java.Ultimately,Project STOP aims to provide a blueprint that can be further replicated across Indonesia and beyond.Global Commitment organisations involved:Governments:Norway.Private sector:Borealis,Nestl,Schwarz Group,SystemiqImage:Borealis and SystemiqCOLLECTIVE EFFORTS ON PIVOTAL HURDLESINTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 21Delterra:Developing circular economies in the Global South Launched in May 2023,this Delterra partnership aims to reduce environmental impacts from waste by implementing scalable,sustainable waste management and recycling systems in the Global South.Over five years(2023-2028),the initiative seeks to demonstrate that effective circular economies can be developed,putting waste materials back into productive use.Key achievements to date or near term across Delterras projects include:establishing self-sustaining circular waste systems in seven cities across Argentina,Brazil,and Indonesia;creating new markets for low-value plastics in Argentina;lowering methane emissions from organic waste;and connecting 8 million people to improved waste and recycling systems.The project has also enhanced the livelihoods of and improved working conditions for over 900 waste workers,many of whom are marginalised women.In the coming year,the initiative plans to scale efforts to more cities in Argentina and Brazil,expand an integrated waste management approach in Indonesia,and enhance plastics traceability and recycling market development.Global Commitment organisations involved:AMCOR,Mars,IncorporatedCleanStream:Turning PP packaging waste into new products using innovative technology Polypropylene(PP)other rigids was recognised as recyclable in practice and at scale this year.An example of progress is Berry Globals CleanStream project,which set out to provide a fully closed loop route for post-consumer,rigid PP packaging using mechanical recycling technologies to turn this into new packaging,even for food products.With the capacity to recycle nearly 40%of all PP waste collected from domestic recycling bins in the United Kingdom,the innovative CleanStream technology offers the UKs first domestically collected,mechanically recycled,contact-sensitive,recycled PP at scale.The output products have been developed in close partnership with signatory brands to the Global Commitment,including LOral who conducted materials trials and testing throughout the development and are now using recycled PP in a range of their products.The project has been in development for three years and operations started in 2023.To date,30,000 tonnes of kerbside-collected,PP packaging has been recycled,or an estimated 600 million pieces of packaging.Global Commitment organisations involved:Berry Global,LOralImage:Berry GlobalImage:DelterraCOLLECTIVE EFFORTS ON PIVOTAL HURDLESINTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 22The Fair Circularity Initiative:Respecting human rights in the informal waste sector Support for the informal sector must be a key consideration when scaling and formalising the infrastructure for a circular economy.The Fair Circularity Initiative was convened in 2022 by Tearfund to help ensure the human rights of workers within the informal waste sector are respected and their critical role in circular value chains is recognised.Founding members of the initiative include The Coca-Cola Company,Nestl,PepsiCo,and Unilever.The initiative agreed to the Fair Circularity Principles in 2022 with an initial core focus on plastics,and developed in partnership with Systemiq the Living Income Study.The study calls for a living income for informal waste pickers in Brazil,Ghana,and India,highlighting the gap between their current earnings and a decent local standard of living.It also offers a practical method to assess waste workers living income in the context of the International,legally binding instrument on plastic pollution.Global Commitment organisations involved:The Coca-Cola Company,Nestl,PepsiCo,Systemiq,UnileverFLEXIBLE PACKAGING IN HIGH LEAKAGE COUNTRIES:Flexible plastic packaging,such as wrappers,pouches,and sachets,are the most challenging plastic packaging category from a waste and pollution perspective,particularly in high-leakage regions.To date,broad stakeholder alignment on the direction forward is lacking,and large-scale collaboration is limited.As such this section doesnt include specific collaborative effort examples.It will be important to see stakeholders across industry,government,and civil society align on a common direction and mobilise collective action and advocacy in order to address this pivotal hurdle at scale.Image:The Fair Circularity InitiativeCOLLECTIVE EFFORTS ON PIVOTAL HURDLESINTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 23ABOUT THIS REPORTThis document is the sixth in a series of annual Global Commitment progress reports.It provides insight into the trajectory of progress being made by leading businesses and governments to tackle plastic waste and pollution.REPORTING SIGNATORIESIn this report,124 businesses that produce,use,and recycle large volumes of plastic packaging(representing 95%of the business signatories eligible to report through the Ellen MacArthur Foundation)and 16 governments across four continents have reported on progress against public targets to align to a circular economy vision for plastics.They have all been asked to report against a common set of commitments,using the same definitions,with the aim of driving transparency and consistency in data sharing on plastics across a significant group of businesses and governments.REPORTED DATAThis report should be read alongside the individual progress reports submitted by business and government signatories.These are available via an online platform which allows users to browse individual signatory data and offers a downloadable version of the full set of data.Data accessibility is vital to maximise transparency on the progress of individual signatories via the reporting process.This report provides a quantitative and qualitative assessment of progress made by signatories towards their 2025 commitments and targets over the last year.Due to the timing of reporting cycles,most quantitative data provided by business signatories in this reporting cycle is for 2023.Aggregated statistics are therefore referred to throughout the report as 2023 data,with data submitted in the 2023 reporting cycle referred to as 2022 data,and so on;any notable exceptions are clearly marked as such.References throughout the report to“%of signatories”refer to the percentage of reporting signatories.EXITING SIGNATORIESIn the last year,three businesses left the Global Commitment signatory group.This was as a result of being unwilling to fulfil mandatory requirements for participation,which include setting quantitative targets in line with the Global Commitment framework and common definitions and publicly reporting progress on them annually through the Ellen MacArthur Foundation.THESE BUSINESSES ARE:Suppliers to the packaging industry:Sidel Packaged goods companies:TupperwareRetailers:El Corte Ingls,S.A.ABOUT THIS REPORTSuppliers to the plastic packaging industryRaw material producers non-compostable plasticsRaw material producers compostable plastics883Other2Cosmetics3FIGURE 12Breakdown of reporting signatories,by commitment categoryPackagingRetailFoodApparel,footwear,and accessories*Some signatories have committed in two different categories.As a result,the sum of signatories in the left pie chart is higher than 124 businesses.BeveragesHousehold&personal care3314131286Collecting,sorting,and recycling companiesGovernments2291Packaged goods companies,packaging producers,and retailers16INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 24TRANSPARENCYProviding transparency on signatories commitments,as well as the actions they take and their progress towards achieving them,sits at the heart of the Global Commitment.This transparency is crucial for signatories to take more informed and targeted actions,for investors and societal organisations to hold signatories accountable,and to drive the transition to a circular economy.Transparency is achieved not just through the public disclosure of targets both qualitative and quantitative and progress towards them,but also through providing common definitions and clear and consistent presentations of data.In 2023,transparency continued to sit at the heart of the Global Commitment:The vast majority(87%)of original signatories have consistently reported progress against the targets over six years,bringing greater transparency to the overall trends.Across all signatories,significant progress in third-party verification of data was made over the last two years,with nearly half(45%)now having third-party data verification measures in place.The number of signatories publicly disclosing their portfolio breakdowns a key metric to foster transparency has continued to increase slightly,with 82%of brands,retailers,and packaging producers now providing public details of which categories of plastics are present in their portfolios.The public data provided by these signatories offers valuable information on the types of packaging being used today,helping to shed light on the lessons learned,pivotal hurdles to be overcome,and potential solutions as signatories work towards the Global Commitments common vision to stop plastic becoming waste.TRANSPARENCYFIGURE 13Reporting and transparencyReportingReporting for six yearsReporting full scopeDisclosing Portfolio splitPart/all 3rd party verification25Pu0%0%INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTENDNOTESAPPENDIXTRANSPARENCYTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 25EXPLORE THE DATAEXPLORE THE INSIGHTS AND DATABY INDIVIDUAL SIGNATORYAccess the progress of Global Commitment signatories,grouped into the following categories,via the online data platform.Plastics producersPackaging producers and usersCollecting,sorting,and recycling companiesSuppliers to the plastic packaging industryGovernmentsAccess hereAccess the individual progress reports submitted by the signatories whose data is used in this report,sort and filter by key metrics in summary tables,or download the full dataset.LOOKING FOR RESOURCES TO SUPPORT YOU WITH DRIVING CHANGE IN YOUR ORGANISATION?Access our Upstream Innovation Guide and workshop resources.This annual progress report provides an overview of signatories progress based on the latest(2023)reported data at aggregate level.Further information is available:THE GLOBAL COMMITMENT 2024 PROGRESS REPORT 26INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESTRANSPARENCYAPPENDIXAPPENDIXWHAT THE METRICS MEAN:RECYCLABILITY IN THE GLOBAL COMMITMENTDesigned for recyclingRecyclable in practice and at scaleDefinitionPackaging that meets technical guidelines so that it can be recycled with current technologies.Does not consider the scale at which these technologies and broader systems for collection and recycling exist.Packaging that is designed for recycling AND for which there is real-world proof of recycling“in practice and at scale.”This is currently defined as a 30%recycling rate achieved across multiple regions,collectively representing at least 400 million inhabitants.1 ResponsibilityIn direct control of packaging producers,FMCGs,and retailers.Shared responsibility across value chain:plastic producers,packaging producers,FMCGs,retailers as well as goverments,citizens,and waste management companies.Those who put packaging on the market can influence this metric through(a)design for recycling;(b)moving away from unrecyclable formats;(c)advocating for EPR and other key policies,and(d)investing in infrastructure.Current average%rate across signatories83p%1 These thresholds were defined in 2019,based on what was thought to be an ambitious yet realistic target to reach by 2025THE GLOBAL COMMITMENT 2024 PROGRESS REPORT 27INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESTRANSPARENCYAPPENDIXAPPENDIXAccepted in the Global CommitmentNot accepted in the Global CommitmentWhat is being reduced?Total weight of plastic packaging or virgin plastic in packaging Signatories are permitted to express targets either as a reduction of total plastic packaging weight,or as reduction of total virgin plastic(from both finite and renewable sources)in packaging.Given the need for reduction in the overall amount of plastic packaging,as well as the amount of virgin plastic in packaging,virgin reduction targets are expected to be underpinned by efforts on reuse and elimination,and not exclusively based on increasing recycled content.X Virgin fossil-based plastic in packaging Targets to reduce virgin fossil-based plastic include efforts to increase renewable content as well as those on recycled content and reducing plastic packaging volumes overall.These types of targets are not accepted to avoid shifting focus from efforts on overall reduction delivered through elimination and reuse by incorporating an overly broad set of contributing measures.X Reduction of packaging made from other materials and other products There is a need to reduce overall packaging volumes,regardless of material.However,the focus of the Global Commitment is specifically on plastic packaging.How is the reduction calculated?Absolute reduction To build an economy that can thrive long term,there is a need for absolute not relative decoupling from fossil fuels,and an absolute reduction in the negative impacts on the worlds natural systems.As a result,reduction targets in the Global Commitment must be calculated in absolute terms against the total amount of plastic packaging(or virgin plastic in packaging)in the baseline year.X Relative reduction Reduction targets measured relative to sales(e.g.intensity per dollar of revenue or units sold),or a future estimated scenario(e.g.versus a projected total for a year under BAU)or any other relative benchmark are not accepted.Dependent on levels of actual or assumed organic growth,these types of targets can result in widely varying levels of actual reduction and,in some cases,growth in absolute levels of plastic packaging or virgin plastic use.What baseline is used?Published total weight for a recent year(2017 or later)Reduction should be calculated against a recent,historical base year for which the total weight of plastic packaging has been calculated.This baseline weight must be reported publicly to ensure transparent measurement of progress,and will be used to show how much progress has been made against targets through annual progress reporting as part of the Global Commitment.X Baselines that arent published Transparency on the baseline weight is critical to measure progress against the target set,and as such ensure credibility of the commitment.X Baselines for any year before 2017 This is aimed at ensuring similar timelines across signatories and focusing measurement on recent efforts and progress achieved since the launch of the Global Commitment,in line with other commitments made.What is the timeline for achievement?2025 Reduction targets must be set to be delivered by 31 December 2025.This reflects the need to start acting now,and is aligned with all other commitments signatories have made as part of the Global Commitment.X Any timeline beyond 2025 While some signatories may have separately set 2030 targets and communicated these elsewhere,the Global Commitment requires that at least an intermediary 2025 milestone is set.In 2020,it became mandatory for brand and retail signatories to set targets to reduce total plastic packaging or use of virgin plastic in packaging by 2025.Plastic packaging reduction targets can manifest in a variety of ways.Below is an overview of different types of reduction targets that can be set,and the specific requirements for reduction targets to be accepted within the Global Commitment,aimed at maximising their transparency and consistency.To be accepted in the Global Commitment,targets must be formulated as an absolute reduction in the total weight of plastic packaging or in the total weight of virgin plastic in packaging by 2025.They should be set against a recent,historical baseline and expressed in line with the following structure:“By 2025,we will reduce our total annual plastic packaging/virgin plastic in packaging by xx%compared to xx million tonnes in 20 xx.”PLASTIC PACKAGING REDUCTION TARGETS IN THE GLOBAL COMMITMENTTHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 28INTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAAPPENDIXTRANSPARENCYENDNOTESENDNOTES1 All aggregated data presented in this report pertains exclusively to signatories who submitted data in the current reporting cycle2 For signatories where data on key metrics was lacking for 2018,2019,2020,2021,or 2022,data was extrapolated based on the metric average for the group3 Source:WoodMacKenzie market data4 Based on comparing the amount of fossil resources(in oil equivalent)for the production of virgin plastics(feedstock material and energy in production process)with the amount for producing recycled plastics(energy in collection,sorting,recycling processes)5 Based on comparing the amount of fossil resources(in oil equivalent)for the production of virgin plastics(feedstock material and energy in production process)with the amount for producing recycled plastics(energy in collection,sorting,recycling processes)6 Based on a global average CO2 emissions of 4.6 tonnes per person per year7 Due to the timing of reporting cycles,quantitative data provided by business signatories in this reporting cycle is for 20238 More information about the 2024 recycling rate survey can be found here9 OECD,Global Plastics Outlook:Policy Scenarios to 2060(2022)10 Based on all total virgin fossil-based plastics production of 352 million tonnes(PlasticEurope,Plastics The Facts 2022(2022)11 As You Sow,2024 Plastic Promises Scorecard 12 Source:WoodMacKenzie market data13 Source:WoodMacKenzie market data14 For example:Regulation(EU)No 2022/1616 Regulating recycled plastics for food contact15 The full tonnage of eliminated plastic packaging is likely to be significantly higher as elimination questions in the Global Commitments reporting framework are optional16 More information about eliminating plastic packaging,including inspiring case studies and actionable frameworks for approaching packaging design decisions,can be found in the Ellen MacArthur Foundations Upstream Innovation Guide17 Previous progress reports showed a small variation between years(from 1.2%-1.5%).Revised data for previous years now more accurately reflect that the use of reusable packaging has remained flat at 1.3%since 2020.18 PP other rigids include packaging such as pots,tubes,cups,etc.19 More information about the 2024 recycling rate survey can be found here20 Individual percentages for reusable,recyclable,compostable,and not reusable,recyclable,or compostable will not sum to 100%for all individual signatories or the group as a whole,as a large proportion of reusable packaging is also recyclable21 Designed for recycling is one of the two recyclability metrics tracked in the Global Commitment.An overview of recyclability metrics can be found on page 28 of the report.22 GOV.UK,Plastic Packaging Tax:steps to take23 ECONOMA CIRCULAR,Fondo para el Reciclaje(FPR)24 More signatories are involved,but the project is in early stage discussionsINTRODUCTIONAMBITION DRIVES ACTIONKEY PROGRESS METRICSGOVERNMENT PROGRESSTOP FMCG PERFORMANCECOLLECTIVE EFFORTS ON PIVOTAL HURDLESSPOTLIGHT ON IMPACTPERSPECTIVE ON PROGRESSABOUT THIS REPORTEXPLORE THE DATAENDNOTESAPPENDIXTRANSPARENCYTITLETHE GLOBAL COMMITMENT 2024 PROGRESS REPORT 29DISCLAIMERThis report has been produced by the Ellen MacArthur Foundation(Foundation).The Foundation has exercised care and diligence in preparing this report,based on information it believes to be reliable,but makes no representations and gives no warranties,assurances,or undertakings(express or implied)in connection with it or any of its content(as to its accuracy,completeness,quality,fitness for any purpose,compliance with law,or otherwise).The Foundation does not monitor or moderate any external websites or resources linked or referred to in this report.This report does not purport to be comprehensive and none of its contents shall be construed as advice of any kind.Any reliance on it is at readers own discretion and risk.All information on signatories progress in this report has been provided by the relevant signatories and has not been audited or verified by the Foundation or UN Environment Programme(UNEP).Each signatory is responsible for the information it submitted.The Foundation and UNEP do not warrant that all information submitted by individual signatories is contained or represented in this report and,without limiting the generality of the foregoing,the Foundation may:(i)have excluded data which it believes to be inaccurate;(ii)have excluded from year-on-year calculations data from signatories which have not reported data in both years;and(iii)have normalised information to produce the aggregated and averaged statistics featured in this report.Further,if a signatory did not report by the relevant deadline(s),its data has not been included in this report.If you are a signatory and you believe there has been an error in the reproduction of the information provided to us by your organisation,please contact us as soon as possible at reportingGCellenmacarthurfoundation.org,or through your contact at UNEP.To the maximum extent permitted by any applicable law,the Foundation,each entity within its group,and each of its associated charities and their respective employees,workers,officers,agents,and representatives disclaim in full all liability for any loss or damage of any kind(whether direct or indirect and whether under contract,tort,breach of statutory duty,or otherwise)arising under or in connection with this report or any of its contents.Contributions to this report by any third party do not indicate any partnership or agency relationship between that contributor and the Foundation,nor the endorsement by the Foundation of that contributor or the endorsement by that contributor of this reports conclusions and recommendations.The Foundation is not a supplier of,or otherwise affiliated with,and does not recommend or endorse,any third party or the products or services referred to in this report.COPYRIGHT 2024 ELLEN MACARTHUR FOUNDATIONCharity Registration No.:1130306 OSCR Registration No.:SC043120 Company No.:6897785
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From Efficiency to Expansion:The Evolution of E-Commerce in ManufacturingWHITE PAPERContentsThe evolving landscape of e-commerce in manufacturing3Chapter 1Strategic ownership and leadership in digital commerce8Chapter 2Achieve growth through strategic e-commerce initiatives15Chapter 3Digital commerce in the future of manufacturing19Chapter 4About23Digital commerce is now a core component of business strategy encompassing product showcasing,self-service facilitation,and brand reinforcement.“COPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURINGDigital commerce is now a core component of business strategy encompassing product showcasing,self-service facilitation,and brand reinforcement.Moving forward,e-commerce,digital com-merce,or digital sales should no longer be viewed as simplistic transactional platforms but as comprehensive strategies for mar-ket engagement and growth.Growth projections The manufacturing sector is poised for significant growth in its dig-ital sales channels,with many companies expecting double-digit expansion over the next three years.This positive outlook is driven by increased investments in digital technologies that revolutionize legacy sales processes and unlock new revenue streams.Initially perceived as a tool for enhancing operational efficiency,digital commerce within the manufacturing sector has transcended its transactional origins.Chapter 1The evolving landscape of e-commerce in manufacturingWhat is the forecast for your companys B2B digital sales in the next 3 years?Expect growth71%Dont know9%Expect decrease1%Remain same19%FROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING4THE EVOLVING LANDSCAPE OF E-COMMERCE IN MANUFACTURINGWhile the manufacturing sector currently reports a lower pro-portion of total sales from digital channels compared to other sectors,this gap is expected to narrow as organizations continue to invest in their digital platforms.Their continuous development and enhancement with new capabilities and features,such as automated order processing,real-time inventory management,and customized product recommendations,can elevate the cus-tomer experience.Furthermore,effectively leveraging digital channels will help man-ufacturers boost sales performance whilst simultaneously enabling them to explore new business models,such as direct-to-consumer sales,subscription-based services,and digital marketplaces.Shift in focus Until recently,manufacturers have primarily focused on using digital to improve operational efficiency by optimizing supply chains,reducing costs,and streamlining production processes.However,the perception around digital commerce has evolved due to changing customer expectations and the new potential for revenue generation.For many manufacturers,shifting towards digital sales channels is a strategic move to meet evolving customer expectations.Dig-ital platforms are better suited to address the demand for online convenience and personalized service,with self-service portals allowing customers to independently browse product catalogs,configure orders,and manage their accounts,which reduces the need for direct sales interactions and expedites the purchasing process.The previous notion that digital commerce is not for us,that customers dont want to handle procurement digitally or that products are too complex,are no longer valid arguments.However,digital commerce is now viewed as a strategic driver of revenue growth and market expansion,essential in creating seamless and engaging interactions with customers throughout their journey.Manufacturers achieve these goals with the help of client portals and more comprehensive data solutions.Unlike traditional e-commerce platforms that primarily focus on transactions,client portals nurture the entire customer journey,providing services ranging from initial product inquiry to after-sales support.Manufacturers can cultivate long-term customer relation-ships and improve customer satisfaction by offering a centralized hub for information and services.Manufacturers leveraging digital commerce can differentiate themselves on the market by offering unique digital experiences and personalized services much quicker than their peers.COPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING56CHAPTER 1THE EVOLVING LANDSCAPE OF E-COMMERCE IN MANUFACTURINGImpact on market dynamics Manufacturers leveraging digital commerce can differentiate themselves on the market by offering unique digital experiences,personalized services,and seamless transactions much quicker than their peers.They view digital solutions as a way to support otherwise intricate sales processes.For example,they are more inclined to deploy online catalogs without purchase options and client portals,as opposed to the conventional e-commerce solutions favored by distributors and wholesalers.This cautious approach toward fully embracing transactional e-commerce reflects the importance of direct human involvement in many manufacturing solutions.E-commerce is thus used to transform the buyers journey and facilitate meaningful interactions,providing valuable product infor-mation,support,and assistance in the process.Likewise,the data derived from the buyers journey through digital platforms enables companies to adapt swiftly to changing market dynamics and customer preferences,securing a more competitive position.Manufacturers can cultivate long-term customer relationships and improve customer satisfaction by offering a centralized hub for information and services.Chapter 2Strategic ownership and leadership in digital commerceCOPPERBERG&LITIUM WHITE PAPER7CHAPTER 1Traditionally managed by IT departments,these initiatives are now increasingly led by strategic commercial roles such as heads of sales,CEOs,and CMOs.As digital commerce continues to evolve,so does its strategic importance.Manufacturers that embrace this evolution and invest in strategic leadership for their digital initiatives will be better positioned to drive revenue growth,enhance customer satis-faction,and strengthen their market position in an increasingly competitive landscape.Successful companies have embraced a cross-functional approach,where leaders from across the orga-The growing importance of digital commerce and its multifaceted roles within manufacturing organizations has led to a reevaluation of ownership of e-commerce initiatives.As digital commerce continues to evolve,so does its strategic importance.nization recognize and leverage the benefits of digital commerce.This collaborative strategy ensures that digital initiatives are inte-grated seamlessly into all aspects of the business,maximizing their impact and driving sustained growth.Evolution of leadership roles On the way toward digital maturity,e-commerce in manufactur-ing was managed by the same IT departments that oversaw dig-ital transformation due to the technical nature of setting up and maintaining digital platforms.However,as digital commerce has become a strategic driver for business growth,it transcended its traditional role as a standalone technical function managed solely by IT departments.As such,management is now transitioning from IT to leadership roles.More executives in leadership roles,such as heads of sales,CEOs,and CMOs,are managing digital commerce initiatives today.Their broader perspective on business focuses on aligning digital com-merce efforts with the companys objectives and market strategies.They prioritize a customer-centric approach,emphasizing the cus-tomer experience across all touchpoints.Likewise,they have greater influence in decision-making pro-cesses,and can thus support further digital commerce initiatives such as investing in AI and data analytics to enhance customer experiences and secure a competitive position on the market.Role of top management High-level executives are pivotal in integrating e-commerce with other business functions for a holistic approach to digital com-merce.Sales leaders focus on using digital platforms to enhance customer engagement and drive sales.Meanwhile,CEOs and CMOs play a crucial role in integrating digital commerce into the overarching business strategy.The responsibility of chief exec-utives and sales leaders includes ensuring that digital initiatives COPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING910CHAPTER 2STRATEGIC OWNERSHIP AND LEADERSHIP IN DIGITAL COMMERCEalign with the companys long-term objectives and contribute to its competitive advantage by:Bringing a strategic vision with clear direction and leadership to ensure that digital efforts drive business growth,expand market reach,and foster long-term success.Prioritizing exceptional customer experiences across all touchpoints based on their informed understanding of customer needs,preferences,and behaviors.Integrating digital strategies with sales,marketing,opera-tions,and other functions to maximize the impact on overall business performance.Harnessing the expertise and resources of teams from various departments,such as sales,marketing,IT,and finance,to foster alignment and collaboration.Establishing clear metrics,KPIs,and accountability frame-works for measuring the efficacy of digital strategies and adjusting to market dynamics.Sales leaders and chief executives have the business-oriented perspective needed to identify opportunities for digital commerce to evolve and thus help the company grow.Bringing together cross-departmental teams and shifting the focus from the techni-cal to the strategic aspect of e-commerce will help manufacturers get ahead of the curve.Our data shows that some CEOs and CMOs in manufacturing com-panies prioritize digital commerce as a means to win customers from competitors and enhance customer satisfaction.This strate-gic focus is crucial for driving the adoption of digital solutions that meet customer needs and improve the purchasing experience.Moreover,top management can allocate the necessary resources,such as budget and staff,to support these initiatives effectively.Integration and management A key aspect of digital commerces integration with management roles involves aligning e-commerce with sales and marketing B2B digital commerce is a very important priority for us in our efforts to get more satisfied customers.We are winning customers over from competitors.CMO at a manufacturer“COPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING11CHAPTER 212STRATEGIC OWNERSHIP AND LEADERSHIP IN DIGITAL COMMERCEefforts.By establishing a clear and compelling vision for how it fits into the overall strategy,leaders promote alignment across various business functions.And by closely coordinating these functions,they can deliver a seamless customer experience.Strategic leadership is also essential in ensuring comprehensive support for digital platforms and driving continuous improvement and innovation.They can better allocate resources to support initiatives and prioritize investments in technology,talent,and infrastructure to not only enhance the effectiveness of operations but also provide customers with an experience that expedites their decision-making process.The data shows that manufacturing companies often seek client portals that support the full customer journey.Such portals facili-tate more than simple transactions,offering features like product catalogs,past order access,and service management.This holistic view is more likely to be realized under the guidance of strate-gic leaders who understand the importance of customer-centric solutions.Furthermore,strategic leaders oversee the integration of e-com-merce processes with existing business workflows,such as order fulfillment,inventory management,and customer service,which is likewise necessary for streamlining operations.As the perception around digital commerce continues to evolve,sales leaders and high-level executives will be instrumental in guiding change management efforts to navigate organizational shifts created by e-commerce integration.They can help their teams adapt to changes and shift their mindset around digital commerce by providing guidance,support,and vision.Its not the sales itself thats prioritized.Its the service and simplicity we can provide to customers digitally.Sales Director at a manufacturer“COPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING1314CHAPTER 2STRATEGIC OWNERSHIP AND LEADERSHIP IN DIGITAL COMMERCEE-commerce platforms extend global reach and provide valuable data-driven insights into emerging market trends and consumer preferences,enabling manufacturers to tailor their marketing strategies for diverse regional demands.With a diverse customer base,manufacturers also mitigate risks created by competitive pressures and market saturation.Enhancing customer serviceE-commerce platforms and client portals enable manufactur-ers to deliver comprehensive,efficient,and personalized service experiences that boost customer satisfaction and foster long-term loyalty.Unlike traditional e-commerce platforms,client portals set new service standards by offering a variety of features such as online product catalogs and detailed product information for quick customer research,or order management tools to help custom-ers track orders,manage returns,and access their order history.Additionally,service management capabilities facilitate after-sales support,including maintenance and troubleshooting.Customer service directly impacts customer satisfaction.The better the service,the higher the satisfaction.To enhance the customer experience,manufacturers can implement advanced digital tools,such as AI chatbots and personalized recommen-dations.AI chatbots offer instant,precise responses to customer inquiries.Personalized recommendations,based on customer behavior analysis,offer relevant product suggestions.This type of timely and personalized support nurtures constant engagement with the brand.Manufacturers use these digital tools to streamline the purchase process for spare parts and consumables.Ensuring timely and accurate delivery of these componentswhich are essential for Strategic e-commerce initiatives empower manufacturers to explore new markets and tap into new customer segments.Chapter 3Achieve growth through strategic e-commerce initiativesFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING16ACHIEVE GROWTH THROUGH STRATEGIC E-COMMERCE INITIATIVESpreventing mission-critical impacts on customers operationscan help manufacturers significantly improve customer satisfaction and loyalty.Market expansion and new opportunitiesData indicates that manufacturing companies are increasingly focusing on e-commerce to enhance their market presence and capture new opportunities.For instance,while only 23%of their total sales come from digital channels currently,there is significant potential for growth.E-commerce platforms provide manufacturers with global out-reach and invaluable data-driven insights which they can use for comprehensive market research and segmentation to identify promising new markets and tailor product offerings to meet spe-cific needs.Localization and adaptation efforts,including transla-tions and local regulations,make this process even more granular in order to ensure relevancy for potential customers across the globe.Strategic partnerships with local distributors can further enhance the brands visibility and expedite efforts when entering new mar-kets,especially if accompanied by content marketing initiatives and promotional offers to drive engagement.Engaging new customer segments,particularly small and medium enterprises(SMEs),is likewise important for sustained growth.Tailored solutions and personalized recommendations for the unique needs of these businesses are invaluable.Coupled with outstanding customer support and after-sales service through multilingual support channels and interactive chatbots,this can help manufacturers secure new customers in growing markets.Additionally,digital channels offer a unique advantage by allow-ing manufacturers to showcase their full product range more efficiently than traditional sales methods.This enables sellers to promote a broader array of products,including those that are less known,have higher margins,or are complementary.By lever-aging digital platforms,manufacturers can drive awareness and sales of these products,ultimately increasing their overall market presence.Technological innovation in e-commerceManufacturing companies that have invested in e-commerce solu-tions are more likely to prioritize digital innovations that improve the overall customer experience.For instance,client portals that support complex B2B transactions and provide a unified point of information are becoming increasingly popular among manufac-turers.Customized client portals offer a frictionless and enhanced customer experience by integrating various digital tools and re-sources into one platform.They enable customers to easily config-ure products,request quotes,access image archives,and manage their accounts.Likewise,manufacturers leverage AI to provide personalized cus-tomer experiences,alongside aftermarket services such as pre-dictive maintenance and intelligent supply chain management.For example,AI-powered chatbots can handle customer inquiries efficiently,providing quick and precise responses to the customers delight and convenience.Yet,the successful implementation of these solutions greatly depends on strategic leadership.Leaders who align digital initia-tives with business goals and get cross-functional teams work-ing together can ensure the seamless integration and optimal utilization of organizational resources for transformative digital commerce.COPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING1718CHAPTER 3ACHIEVE GROWTH THROUGH STRATEGIC E-COMMERCE INITIATIVESChapter 4Digital commerce in the future of manufacturingThe responsibility for managing digital initiatives has shifted to top executives like CEOs,CMOs,and sales leaders,showing that dig-ital commerce has become an integral part of business strategy,driving revenue growth,and expanding market share.Digital commerce significantly enhances customer service lev-els,which in turn boosts customer satisfaction and loyalty.Client portals that support the entire customer journey are now seeing widespread adoption as they provide comprehensive support from product inquiry to after-sales service.E-commerce platforms enable manufacturers to enter new mar-kets and reach a broader customer base.Digital channels break down geographical barriers,allowing manufacturers to tap into new revenue streams,whilst also capturing and analyzing valuable customer data.The adoption of advanced technologies,such as AI and customized client portals,is enabling manufacturers to further personalize customer interactions and provide integrated customer experi-ences,playing a key role in enhancing customer engagement and driving sales.Future outlookThe future of digital commerce in manufacturing looks promising,with several key trends likely to shape its trajectory:Continued growth and investment:Manufacturing firms are expected to continue investing significantly in digital commerce,with many anticipating double-digit growth in their digital sales channels over the next few years.This growth will be driven by the increasing importance of digital platforms in reaching and engaging customers.Digital commerce has transitioned from an IT-centric function to a strategic business imperative.FROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING20DIGITAL COMMERCE IN THE FUTURE OF MANUFACTURING Integration and collaboration:As digital commerce becomes more integrated with other business functions,we can expect greater collaboration between departments such as sales,marketing,and IT.This integration will result in a holistic approach to customer engagement and streamline operations across the organization.Frictionless customer experiences:AI-powered technolo-gies will further enhance the customer experience,offering more personalized and interactive interactions.Manufactur-ers will continue to develop and refine client portals,making them even more user-friendly and comprehensive.Focus on data-driven strategies:Manufacturers will con-tinue leveraging data to gain insights into customer behavior,optimize their product offerings,and improve their marketing strategies,making them more responsive to market trends and customer needs.Environmental opportunities:Digital commerce will also play a role in promoting sustainability within the manufacturing sector.By optimizing supply chains and reducing waste through better demand forecasting and inventory management,manufacturers can reduce their environmental footprint.As manufacturers continue to invest in and evolve their digital commerce strategies,they will continue to unlock new growth opportunities and remain competitive in an increasingly digital marketplace.AI-powered technologies will further enhance the customer experience,offering more personalized and interactive interactions.COPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING2122CHAPTER 4DIGITAL COMMERCE IN THE FUTURE OF MANUFACTURINGCopperberg is an expert original content creation company spe-cialising in the manufacturing sector.With years of experience,we have cultivated a robust global busi-ness network,supported by continuous research and relationships with key stakeholders in the manufacturing industry.Our reputa-tion for reliability and success is built on delivering outstanding platforms that provide key insights into industry challenges,future trends,and market developments.Our business platforms serve as catalysts for growth and global relationship-building within the industry.Litium AB is one of the Nordic regions leading companies in digi-tal commerce.We help businesses in B2B and B2C to accelerate their sales,quickly scale up their business,reach new markets and create market-leading customer experiences online.We do this by offering a scalable and cloud-based e-commerce platform that is built for growth.Our customers such as Lindex,Tingstad,BE Group and Jollyroom have an annual turnover of more than SEK 20 billion.Litium oper-ates together with its partner network in the global market and is listed on the Nasdaq First North Growth MAboutLitium About CCOPPERBERG&LITIUM WHITE PAPERFROM EFFICIENCY TO EXPANSION:THE EVOLUTION OF E-COMMERCE IN MANUFACTURING2324ABOUTABOUT
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Carbon Dioxide outputParts longevityEmissions analysisParts re-useMONTUEWEDTHUFRISATSUNAll emissions.
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November 2024WHITEPAPERALTERNATIVES TO PERFLUOROALKYL AND POLYFLUOROALKYL SUBSTANCES(PFAS):SUSTAINAB.
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makeuk.orgfrom concept to implementationIndustrial Strategy INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 2FOREWORD Those were the words of Rachel Reeves,just over three months ago,in her first speech as Chancellor following the Labour Partys landslide 2024 General Election victory.Words that felt like the first glimmers of light at the end of a long tunnel,which Make UK and manufacturers have steadily moved through over the previous decade.A journey upon which weve repeatedly led the calls for successive governments to introduce an industrial strategy to help correct the slow decline of our stagnating economy and dwindling skills capacity,and to keep us on track to meet the impending challenges around net zero and technological advancement.When the Chancellor announced at Labour Party Conference 2024 that the Government would soon unveil some initial details around the industrial strategy ahead of Octobers Autumn Statement,the end of that tunnel soon started to come into view.Finally,the many years of relentless campaigning by Make UK,both publicly and within the meeting rooms of Whitehall,started to feel like they may soon pay off.It is true that we are yet to see the minutiae of the plans.But for the 87%of manufacturers who told us that an industrial strategy would give their business a long-term vision,rest assured,myself and my Make UK colleagues will be the first to highlight where the new industrial strategy meets the needs of our members and sector,and,most importantly,where more work needs to be done.“We will introduce a modern industrial strategy,to create good work and drive investment in all of our communities.”1forewordThis report aims to address this opportunity in advance,setting out our vision for the foundations of a successful industrial strategy.An industrial strategy with skills and infrastructure at its heart,bringing investment and jobs to the UK,enhancing productivity and living standards,helping us to meet our net zero targets,and delivering much-needed growth not only for our sector,but,as a result,the entire economy.While we should take some lessons from other countries approaches,this report outlines how we must also be ready to forge our own path,building on our own strengths and addressing our own weaknesses through a comprehensive,long-term strategy that prioritises a vision,sets sensible targets,and tackles the complex challenges that we face.We are realistic and we know that the Government faces some difficult decisions.Make UK nonetheless stands ready to continue working with them every step of the way,including on the Industrial Strategy Green Paper and as part of any Industrial Strategy Council,to ensure that the new UK industrial strategy hits the ground running and remains roadworthy.Stephen Phipson CBE,CEO,Make UKINDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 21Chancellor Rachel Reeves is taking immediate action to fix the foundations of our economy-GOV.UK(www.gov.uk)3 A HEALTHIER MANUFACTURING WORKFORCE WELLBEING AND WORK IN UK MANUFACTURINGVISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYVISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYINDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 3In our complex geopolitical landscape,it has never been harder for individual countries to economically succeed.There is a strong case for every nation to have a shared purpose that serves as a guiding principle for steering its economy toward sustained growth and enhanced productivity.The UK is no exception to this rule.From our extensive research and consultation with manufacturers,we have concluded that a robust and forward-looking vision,coupled with ambitious goals,form the bedrock of an effective industrial strategy.Such a strategy not only influences decision-making but also ignites a culture of innovation and bolsters long-term economic progress.The UK has grappled with the absence of a clear and unifying direction across its industries,leading to challenges in achieving industry success.Manufacturers saw these key areas as fundamental to creating a strong vision for the UKs industrial strategy:87%OF COMPANIES SAY AN INDUSTRIAL STRATEGY WOULD GIVE THEIR BUSINESS A LONG-TERM VISIONClear strategic directionShared sense of purpose across regions,industry and publicDetailed focus on investment and fundingPrecise understanding of innovation and strengthsStrong emphasis on talent and skills4 A HEALTHIER MANUFACTURING WORKFORCE WELLBEING AND WORK IN UK MANUFACTURINGIt is clear that the UK has grappled with multi-faceted and mutually reinforcing challenges for some time.Our future industrial strategy should therefore view industry and the economy as one system and adopt a joined-up approach to current and future challenges,such as achieving net zero,enhancing the UKs resilience to economic and social shocks,and strengthening supply chains.This alignment can help guide subsequent decision-making.Imagine a world where the UKs policies and initiatives are in harmony with the overarching goals of the industrial strategy,leading to more informed and consistent choices that drive growth and innovation.When all actors-Government,industry,investors,educators-understand the strategic direction,disagreements are less likely,with collaboration and unity in pursuit of common goals.Alignment with a vision also improves accountability across the board.With all parties invested in shared objectives,it becomes easier to hold each other responsible for progress and outcomes,creating a culture of ownership that is crucial for the success of our industrial strategy.Of course,the challenge the Government will face is aligning the various strategies,reviews and plans.We welcome initiatives like Skills England,the Migration Advisory Committees review into the engineering sector,the Steel Strategy,and the Defence Review,as well as existing commitments on net zero and devolution.There is a risk that,by the very nature of different Government departments leading each of these elements,there will be a conflict of policies which make it harder to communicate and understand the impact of interventions.It is thus positive that the Prime Minister has promised to chair mission delivery boards to help confront and solve policy and decision conflict.INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 4A CLEAR DIRECTIONVISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYInvestors,both in the UK and internationally,need to be able to easily understand the key metrics and goals of the strategy.We think three key goals,underpinned by metrics,can demonstrate the importance that the Government is placing upon the strategy:GOALS,BACKED BY METRICSINCREASE ANNUAL GROWTH%IN THE REGIONS&DEVOLVED AREAS TO MATCH LONDON AND THE SOUTH EASTINCREASE THE MANUFACTURING SECTOR FROM 10%OF UK GDP TO 15%We can add an extra 142bn of economic growth to the UK economy whilst driving a substantial uplift in long-term domestic and foreign investment.FILL MANUFACTURING SKILLS AND LABOUR MARKET GAPS,WHICH COULD UNLOCK AN ADDITIONAL 6 BILLION IN THE MANUFACTURING SECTOR INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 5VISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYThere has been a fair amount of ambition shifting over the last decade,which may have made sense for individuals in Government departments at the time,but ultimately has had negative consequences for industry planning,investment decisions and overall business strategy.The average investment cycle for UK businesses is five years,meaning the consistent change of focus,often resulting from a change of Secretary of State,has had a significant impact on the change of vision and ambition for industry.Its no surprise that the result of having ten different business secretaries of state since 2012 has been lower levels of growth.Over the last ten years,the share of manufacturing GVA relative to output for the whole economy has remained close to 10%,indicating that the manufacturing sectors contribution to UK economic output has not improved for a decade.As part of industrys quest for clarity on investment,there needs to be careful consideration of how an industrial strategy can extend beyond five-year parliamentary cycles and remain relevant in 25 years time.To do this,the Government will need to consider how to future-proof their work.Effective horizon scanning for long-term trends,along with serious cross-party collaboration on the key challenges the UK needs to address,is essential.The Government has previously sent strong signals about the importance of a stable policy environment,which we interpret as stability in business rates,taxes,and incentives.THE EFFECT OF A SHIFTING LANDSCAPEThere has been much discussion on whether an industrial strategy should be the conduit to picking winners and losers in different sectors.Whilst this has undoubtably happened in previous iterations,Make UK does not see the industrial strategy exclusively in this way.Previous approaches,such as the 2017 Industrial Strategy,focused on key sectors,and picking winners did see growth in sectors like aerospace,which should be reviewed and evaluated.However,we see the industrial strategy as the mechanism to review and be transparent about the challenges the UK faces,and how industry can help address this.In turn,Government should create an environment for businesses to thrive,foster innovation,and promote sustainable economic growth by focusing on key pillars.We asked manufacturers what they saw as the key elements of a future industrial strategy:FOUNDATIONS OF GROWTH:THE PILLARS OF A UK INDUSTRIAL STRATEGYSkillsBusiness environment and tradeInfrastructureFinanceInnovationNet zeroRegional developmentINDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 6VISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYUnsurprisingly,manufacturers feel strongly that skills are fundamental to any future strategy.Manufacturers are united in believing that talent and skills underpin the UKs industrial strategy.Skills have been a focal point for most recent governments,yet policies and initiatives have rarely borne fruit.The future of the manufacturing sector,and the UK economy,is inarguably tied to digitalisation,net zero and flexible working,amongst other factors.Last year alone,manufacturing contributed 224bn of Gross Value Added to the UK economy and 43%of R&D investment stemmed from the sector.The sector also plays a significant role in job creation,employing 2.6 million people nationwide.It is thus essential for manufacturing to thrive,given the importance of the sector to our future prosperity.As technological adoption increases,for energy or other efficiency purposes,and automation plays an ever larger role in our working lives,digital and STEM skills will be crucial for the future of the UK.Anecdotal evidence,as well as our own research,suggests that currently,digitalisation and automation largely serve to augment and complement,rather than replace,workers.While robotics can make a production line more efficient,and technology can increase the speed with which information is communicated.Made Smarter(a Government-backed digital adoption service for manufacturers)case studies demonstrate that digitalisation often creates more jobs or upskilling opportunities.The Fourth Industrial Revolution therefore presents a need for greater analysis,innovation,leadership and management skills something manufacturers are already working towards.However,to ensure that manufacturers are able to transition to net zero and make the most of the opportunities it offers,existing labour and skills shortages must be resolved quickly.In this sense,the skills that are needed for the future of the UK economy are the skills that are in shortage now,otherwise we risk falling behind other nations,reducing any productivity benefits that follow from a new industrial age.Currently,there are 61,000 vacancies in the UK manufacturing sector.Make UKs own recent analysis estimates the cost of lost prosperity of these manufacturing vacancies being unfulfilled is more than 6 billion.With manufacturers increasingly expecting to recruit for more technical roles,but failing to fill current positions,it is clear that the UK skills and training system is currently not capable of equipping increasing numbers of people with these skills.Make UK welcomes Skills England and its wider remit in working closely with other parts of the labour market system,such as immigration and pay.By combining their insights,we would expect to see an improved,more holistic and joined-up approach to labour market and skills policy development,which emphasises,for example,skills training incentives for shortage occupations and future skills demand.It is crucial,however,that Skills England is truly strategic,with genuine employer representation.It should not be too focused on the operational and delivery aspects of the skills system:strategy and delivery should be kept separate to ensure that Skills England has the capacity to focus on the significant questions of skills demand,and how policy and funding should enable this demand to be met across sectors.The industrial strategy,aligning with the potential of Skills England,should coordinate and work with institutions who are national,regional and sectoral.We must recognise the diversity of employer needs and how best to support these.One thing that should not be forgotten is that many of the initiatives that Skills England and the industrial strategy will take forward will take time to embed and show impact.Nonetheless,we must consider what can be done now to stimulate the labour market in key industries like manufacturing,where shortages are proving particularly damaging to productivity,whilst we wait the minimum of five years before policies start to improve business and economic conditions.SKILLSIN THE UK MANUFACTURING SECTORCURRENT VACANCIES61,000THERE ARE AROUNDSource:ONSINDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 7VISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYThe UK is well aware that competition for investment is intense,which only further makes the case for greater focus on investment in a UK industrial strategy.Investment plays a crucial role in creating more high-quality,skilled jobs and enhancing productivity nationwide.It helps businesses expand their capacity,improve efficiency,and foster innovation.Business investment is essential for driving economic growth,complementing public investment,and achieving key government objectives.There can be no doubt that manufacturers invest to maintain and grow their businesses.The industry accounts for 14%of total business investment and 47%of all R&D expenditure,making manufacturing one of the most investment-intensive sectors in the UK.Manufacturers invest in plant and machinery,new technologies,skills,and even new ideas,and each investment is made with the goal of improving productivity and efficiency.The determinants that impact investment activity are highly correlated to external economic conditions and,in the last several years,manufacturers have operated under extremely uncertain conditions.As a result,investment activity has been shaky,though optimism has been on the rise more recently.With more positive investment policies available,such as generous capital allowances,coupled with the most stable economic conditions experienced in recent memory,manufacturers are finally able to plan their investments to focus on growth rather than survival.Since the end of 2022,investment intentions have been positive and stable for seven back-to-back quarters,reporting a balance of 10%for the third quarter of 2024.There is a growing willingness to experiment with new digital technologies,such as AI and energy efficient plant and machinery,due to the current environment.We should capitalise on these good times by encouraging manufacturers to invest in all things that improve productivity and we see the UK industrial strategy as the vehicle for this.The commitment for the industrial strategy has been welcomed by Make UK members,with global firms in particular indicating that it is having a positive effect on investment decisions that are planned for the coming months and years.INVESTMENT AND FUNDINGThe UKs reluctance to take risks,along with the lengthy payback periods,has created a climate where there is a lack of investment in infrastructure projects.The cautious decision-making in order to safeguard government funds has resulted in slow progress.More than half of manufacturers have reported that national road infrastructure has actually worsened over the past decade.The new industrial strategy should look at the instances where infrastructure has seen a significant impact like better internet connectivity and the success of the Crossrail project.Digital infrastructure is overwhelmingly the takeaway success story of the last decade,with the previous government investing heavily in 5G connectivity and digital rollouts.Indeed,where there is investment,there is success and manufacturers across all regions of England said they had seen marked improvement in digital infrastructure which had helped them invest in digital technologies for their businesses.In turn,this helped them boost productivity alongside growth and delivery of more good quality,highly paid jobs.Transport infrastructure plays a critical role in enabling businesses to access customers and new skills.The service quality of infrastructure can also incentivise greater investment as manufacturers attempt to capitalise on high quality access to transport.INFRASTRUCTUREHAS WORSENED IN THE LAST 10 YEARSMORE THANNATIONAL ROAD INFRASTRUCTURE1/2OF MANUFACTURERS BELIEVE THATSource:Make UK,2024.Infrastructure:Enabling Growth by Connecting People and PlacesINDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 8VISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYOne of the key pillars of the industrial strategy should be the understanding that innovation is key to unlocking potential across diverse sectors,like manufacturing.By driving efficiency and fostering the creation of novel products and services,innovation empowers businesses to operate more effectively,ultimately bolstering overall economic output.In the face of a swiftly evolving global landscape,the UK must allocate resources towards pioneering technologies and processes to maintain its competitive edge.Innovation not only helps UK companies to stand out,but also positions them to attract international markets,establishing their leadership in vital industries.This competitive advantage is pivotal for the nations economic resilience.Innovation lies at the heart of tackling significant challenges such as supply chain issues,climate change,the widening skills gap,and deteriorating infrastructure.It is instrumental in devising solutions to these pressing problems.The UK strategy needs to clearly articulate the significant benefits that focusing on innovation will bring to the public,with an emphasis on sustainability and societal well-being.The UK is a leading global hub for scientific knowledge.Known for its impressive academic output,it produces more academic publications than any country except China and the US.However,the UK struggles to translate its scientific weight into commercial success.When compared to the US,the UK falls short in key areas of development and scale-up.The proportion of the workforce engaged in medium and high value-added manufacturing is lower than in competing nations,revealing a gap in the ability to harness scientific advancements for economic gain.2Addressing these challenges will be essential for the UK to maximise the potential of its rich scientific landscape and ensure that innovation translates into tangible economic benefits for the future.INNOVATION2https:/www.ciip.group.cam.ac.uk/wp-content/uploads/2024/03/UK-Innovation-Report-2024_FINAL-20.03.24.pdfManufacturers have faced unprecedented disruption in recent years,from leaving the EU and a global pandemic,to rocketing transport costs and unstable markets.The new industrial strategy must cater to a range of different types of exporters and be agile enough to support very different businesses.Trade and our future industrial plan go hand in hand,so it is paramount that a refreshed trade strategy is linked with industrial policy to maximise future trade opportunities.An important part of this coordination will be for Government to work with business on a trade agreement programme that is flexible and bespoke,incorporating FTAs(Free Trade Agreements)and bilateral sector or issue deals that support the UKs strategic industrial interests.Furthermore,we must weave a strong signal of intent for our stance on regulation throughout the strategy.For trade,industry needs Government to develop effective monitoring(through a database)of EU and UK regulatory developments,to help inform policymakers and businesses of future changes.In addition,it is crucial to establish a mechanism for ongoing and active consultation with industry to decide where it is appropriate to maintain alignment with EU regulatory changes and where opportunities for divergence might apply.There should also be a review into which regulations and standards are good for growth,and which are holding back the UKs potential,with a particular focus on the UKCA marking,REACH and PFAS.BUSINESS ENVIRONMENT AND TRADE44%OF MANUFACTURERS SAY THE CURRENT TAX AND REGULATORY REGIME IS UNFAVOURABLE FOR BUSINESSWELL BELOW THETHE UK RANKSROBOT DENSITY INDEX,24THON THEWORLD AVERAGEINDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 9VISION AND AMBITION FORM THE ESSENTIAL FOUNDATIONS OF ANY SUCCESSFUL INDUSTRIAL STRATEGYThe manufacturing sector has a key role to play in the net zero challenge.As the UKs third highest emitting industrial sector after transport and buildings,and responsible for a sixth of the UKs total emissions,the transition to net zero presents a real opportunity for the sector.It is the manufacturing sector that will be developing the technologies as well as designing and making the products and services that will help decarbonise the economy.The rest of the economy will be reliant on the low-emission technologies and products supplied by the manufacturing sector.However,over the last few years,we have consistently witnessed short term decisions which affect manufacturing,whether that be unrealistic targets without targeted support,and chopping and changing of policy,which unsettles investment decisions.The UK industrial strategy will need to be fully aligned with our national net zero commitments and the challenges the sector faces on decarbonisation,unless it wants to face UK firms backing away from innovation opportunities which will be snatched up by our neighbouring competitors.NET ZEROWhen Government policies dont align,or worse,conflict each otherIn 2020,the previous government set a policy which banned the sale of new petrol and diesel cars by 2030.This policy aimed to push the country toward its commitment to achieving net zero emissions by 2050.However,the speed at which the transition was proposed highlighted substantial challenges for the automotive industry.Manufacturers were working at pace to develop electric vehicle(EV)technologies,build new production capabilities,and establish essential infrastructure like charging networks(all whilst battling the skills and labour market gap).The 2030 deadline placed significant pressure on the sector,raising concerns about potential supply shortages and the availability of EV options for consumers.Whilst the auto industry has a reputation for its dynamism and resilience,it had to contend with how it would balance wholesale retraining and moving away from producing traditional combustion engine vehicles,which have different tech and systems,to financing new equipment and resourcing to meet this target.In 2023,the then prime minister changed the deadline to 2035.Although,on the face of it,this gave industry more time to transition,this decision once again affected investment cycles,which had long lead in times for production,affecting the whole supply chain,and many SMEs.This scenario underscores the difficulties of aligning ambitious environmental goals with the practical realities of industrial adaptation and economic stability.It also is a good reminder of why changing deadlines and targets without proper consultation can be problematic.INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 9Regional development needs to be viewed not only as a strategic component but also as a core function for delivering policy initiatives across each of the defined pillars.The Governments announcement of an English Devolution Bill in the Kings Speech will establish a standardised framework for devolution and accelerate its progress across England.While there have been pockets of success in skills and infrastructure in existing devolved regions(particularly in the North and Midlands),this presents an opportunity to leverage our mayors and regional leaders to enhance key devolved functions and empower them to help power economic growth.REGIONAL DEVELOPMENT INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 10BEYOND CHOOSING WINNERS:WHY A HOLISTIC APPROACH IS NEEDEDAn industrial strategy can be so much more than simply choosing winners;it can embrace a far more holistic vision for economic growth.Whilst previous iterations have focused on identifying and promoting specific industries and sectors,Make UKs view is that a comprehensive industrial strategy has the potential to prioritise a vision,set goals and tackle complex challenges.Beyond choosing winners:why a holistic approach is neededWe are all aware of the challenges that face us as a country:we need to decarbonise and lower our emissions whilst supporting our industry through the process,we need access to raw materials so that our supply chains are resilient,we need a robust pipeline of talent coming from our schools into industry,and we need to convert our world class universities innovation into commercial success for UK business.It should be through this lens that the Government views support and funding.The case for prioritising manufacturing processesOne of our criticisms over recent decades is that successive governments have focused on specific sectors.While this makes it easier to explain intentions to the public,it doesnt work for most of the manufacturing industry.Many manufacturers do not fit neatly into defined sectors,so this approach doesnt accurately reflect or support UK industry.If we look strategically across all of our manufacturing,there are key reasons why considering manufacturing processes is likely to yield better economic growth.Processes are much more adaptable than sectors.The application of processes across various industries allows manufacturers to pivot to meet changing market demands quickly(which is particularly useful when economic and social shocks occur,like the war in Ukraine and COVID).Manufacturers can adopt new technologies more efficiently by focusing on processes,improving competitiveness and reducing costs.Process-based optimisation,involving tech like AI,can identify bottlenecks and inefficiencies.This makes it easier to advise SME manufacturers on how to digitalise their factories.Reputation for process excellence can attract top talent.Process-based collaboration can help partnerships between manufacturers in different sectors.Drive investment in research and development.Efficiencies in relation to circular economy.INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 11ADDRESSING THE CHALLENGES WHILST PUSHING FORWARD WITH OUR STRENGTHS Like the EUs Draghi report on EU competitiveness,which addresses the strengths and challenges the EU faces,the UK must do the same.We have a dynamic,resilient industry that has proven time and again that it can react to challenges effectively.Manufacturers are increasingly agile,and continue to adapt to market shifts and consumer demands.Recognising this strength in an ever-changing global economy is key.Another key strength of the UK is its universities and research institutions,which are crucial for nurturing talent and innovation.We are known for our world class educational establishments,which produce skilled graduates and groundbreaking research that help to push our industry forward.Our intellectual capital enhances the workforce and drives innovation,propelling the UK to stand out as a leader in many fields.Addressing the challenges whilst pushing forward with our strengths As a country,we have been vocal on our commitment to reduce emissions,which has gained us recognition on the global stage.Our strong commitment to net zero has allowed pockets of excellence in adopting greener practices and investing in technologies that minimise environmental impact.Not only has this meant we are on our way to meeting interim targets,but it also signals that we are open to investment in emerging sectors that are focused on clean energy and sustainable solutions.MORE PRODUCTIVE THAN THE NATIONAL AVERAGE.24%IN VALUE PER HOUR,38.64,48MANUFACTURERS ON AVERAGE PRODUCESource:Make UK calculations of ONS productivity data(2024)COMPARED TO THE NATIONAL AVERAGE OFMAKING THE MANUFACTURING SECTORADDRESSING THE CHALLENGES WHILST PUSHING FORWARD WITH OUR STRENGTHS Despite these strengths,the UK faces several pressing weaknesses that need to be addressed to fully capitalise on its potential.One of the most significant challenges is the skills gap and future talent pipeline,which we have covered.While the country produces skilled graduates,there remains a disconnect between the skills taught and those demanded by industry.Bridging this gap is essential to ensure that the workforce is equipped to meet the evolving needs of the economy.Another critical issue is the productivity gap:the UK often lags behind other leading nations in terms of productivity.Addressing this gap is vital for enhancing economic growth and ensuring that businesses can compete effectively on a global scale.Manufacturing productivity has been consistently higher than the UK average in other sectors,even when manufacturing has suffered intense shocks and pressure from external factors.Manufacturing is vital to unlocking the productivity puzzle in the UK.Investment is another area that should be addressed.Factors such as political uncertainty,regulatory changes,and economic fluctuations have contributed to the UKs decline in investment.To reverse this trend,the UK must work to restore investor confidence by creating a stable,predictable environment that encourages both domestic and foreign investment.ADDRESSING OUR WEAKNESSES3%3Output per hour worked,UK-Office for National Statistics(ons.gov.uk)UK PRODUCTIVITY GROWTH HAS SLOWEDTO AN ANNUAL AVERAGE OF 2.4TWEEN 2008 AND 20233IN COMPARISON,UK MANUFACTURING PRODUCTIVITYIN THE SAME PERIOD WASSource:Make UK calculations of ONS productivity data,GVA per hour(2024)INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 12INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 13GLOBAL COMPARISONS:WHAT OTHER COUNTRIES ARE DOING RIGHTSWITZERLANDWhilst Switzerland does not have a formalised industrial strategy or industrial policy,and does not subsidise individual industrial firms nor industrial sectors,it has created a framework to help all of industry.Notable policy initiatives include:Flexible labour market rules.Low tax burden.Good cooperation between industry and universities-Switzerland places a strong emphasis on research and development,the country consistently ranks highly in global innovation indices,thanks in part to substantial investments in R&D.A broadly developed and anchored vocational education and training system-Switzerlands dual education system has allowed classroom learning with practical apprenticeships,allowing students to gain hands-on experience in their chosen fields.A secure and economically viable energy supply through its generous R&D investments,Switzerland actively encourages innovation in areas such as renewable energy,waste reduction,and resource efficiency.The country has an industrial value of around 20 per cent of GDP,which is significantly higher than in France,Italy,the UK and USA.Global comparisons:what other countries are doing rightFINLANDFinland is due to publish its industrial strategy in December 2024,with the following goals:To improve the competitiveness and value added of the existing strong industries.To create new export industry sectors to widen their export base.To increase domestic and foreign industrial investments in Finland and to ensure availability of skilled labour.Finland has chosen to incentivise and support industrial investments in digitalisation and sustainability with a retrospective tax deduction of 20%of costs for investments over 50M.The current assumption is that it could trigger industrial investments worth 5-10 billion.One of the key pillars of Finlands soon-to-be-launched industrial strategy is their legally binding commitment to significantly increase the countrys R&D capabilities.Finland has legislation which aims to elevate the countrys R&D intensity to 4%of GDP by 2030.A key factor that has made this possible is a cross-party consensus and shared vision to position Finland as a leader in innovation and technology.This has allowed industries and investors the confidence to invest in long-term projects,knowing that the Governments commitment to R&D will remain consistent.The law stipulates that public funding will contribute one-third of the required R&D investments,while private sector contributions will account for two-thirds.Finland strongly Unfortunately,there is no lift and shift industrial strategy that we can insert into the UK which will work.However,there are interesting takeaways that Government should consider to see if the UK could adopt similar specific interventions.GLOBAL COMPARISONS:WHAT OTHER COUNTRIES ARE DOING RIGHTbelieves that this public-private funding model not only fosters collaboration between academia,Government,and industry but also amplifies the impact of investments,driving growth,innovation,and the development of new exportable products and services.Another focus for Finland is digital infrastructure,particularly in critical technology areas such as microelectronics,quantum computing,connectivity,and high-performance computing.These fields are not only priorities for Finland but also part of larger European-wide collaborative efforts.For instance,Finland is a key participant in the EuroHPC Joint Undertaking,which includes the LUMI supercomputer,one of the most powerful in the world,hosted in the Nordic country.Such initiatives are designed to pool resources and expertise across Europe,ensuring that member states can compete globally in these critical technologies.TEXAS,USAWhilst there isnt a single,overarching plan that outlines its industrial strategy,Texas has several policies and initiatives that have helped propel it forward with a GDP of$2.4 trillion.Texas is known for its business-friendly policies,including no state income tax,low regulatory burdens,and a pro-business climate.These factors attract both domestic and foreign investment,making the state a prime destination for companies looking to establish or expand operations.Economic incentives,such as grants and tax breaks,are often used to encourage investment in areas like wind energy production and tech innovation.The state has made substantial investments in research and development,which has helped partnerships between universities,research institutions,and private companies.Initiatives like the Texas Innovation Program support startups and emerging technologies like biotechnology,artificial intelligence,and information technology.Whilst infrastructure in Texas is already seen as sufficient and efficient regarding the movement of goods,the state has committed to ongoing investments in infrastructure projects aiming to enhance connectivity and support the needs of growing industries,particularly in logistics and manufacturing.INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 14INDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 15HOW DO WE KNOW IF WE ARE ON THE RIGHT TRACK?Its all very well setting the vision and strategy,but there is little point producing a fantastic strategy if the Government and industry have no way of knowing progress is being made.Not only is it helpful to be transparent about what success looks like,but targets are critical to ensuring that the ISC can effectively do their job,steering and critiquing each milestone.To do this,the industrial strategy needs clear metrics and indicators,such as job creation rates,levels of investment,productivity improvements,and innovation outputs,which will help the Government gauge whether its industrial strategy is achieving its objectives.Regularly assessing these indicators not only highlights successes but also reveals areas that may require additional focus or adjustment.We know that the UKs industrial policy will need to be adaptable,given the landscape is constantly evolving.Defence requirements,technological advancements,market shifts,and global trends are likely to shift the dial when it comes to priorities.Conducting regular evaluations will help the Government remain agile.how do we know if we are on the right track?In summary,manufacturing is not only a vital partner for the Government in unlocking productivity and economic growth,but it also plays a crucial role in addressing the UKs broader structural challenges.From pioneering renewable energy solutions that will secure the UKs future as a clean energy superpower,to creating the next generation of medicines and medical equipment to make the NHS fit for the future,our sector is essential to innovation,progress,and prosperity for all.While Government is helping to lay the foundations for growth through their plans for a modern industrial strategy,it is businesses that must bring the ideas and investment to make success a reality.Make UK and manufacturers are working with policymakers at every level,from Whitehall to town halls,to increase productivity,accelerate adoption of new technologies,and empower local communities to realise their full potential.We look forward to working closely with the Government to achieve its missions.SUMMARYTracking the effectiveness of a UK industrial strategyHere is a list of metrics that could be used to track and measure the effectiveness of the UK industrial strategy:Increase GDP growth,create jobs,and improve living standards.Enhance productivity across all sectors.Promote balanced regional development,reducing disparities.Position the UK as a global leader in key technologies.Create a favourable business environment to attract investment.Support UK businesses in increasing exports and global competitiveness.Contribute to achieving net-zero greenhouse gas emissions by 2050.Invest in education and training for a highly skilled workforce.Attract and retain top talent.Invest in modern infrastructure and improve regional connectivity.Promote the adoption of digital technologies across all sectors.16 A HEALTHIER MANUFACTURING WORKFORCE WELLBEING AND WORK IN UK MANUFACTURINGABOUTMake UK,The Manufacturers Organisation,is the representative voice of UK manufacturing,with offices in London,every English region and Wales.Collectively we represent 20,000 companies of all sizes,from start-ups to multinationals,across engineering,manufacturing,technology and the wider industrial sector.Everything we do from providing essential business support and training to championing manufacturing industry in the UK and internationally is designed to help British manufacturers compete,innovate and grow.From HR and employment law,health and safety to environmental and productivity improvement,our advice,expertise and influence enables businesses to remain safe,compliant and future-focused.makeuk.orgMakeUKCampaigns#BackingManufacturingFor more information,please contact:Faye Skelton Head of Policy fskeltonmakeuk.orgINDUSTRIAL STRATEGY FROM CONCEPT TO IMPLEMENTATION 16makeuk.orgMake UK is a trading name of EEF Limited Registered Office:Broadway House,Tothill Street,London,SW1H 9NQ.Registered in England and Wales No.059501722024 Make UKPROCESS INNOVATION:BRINGING MANUFACTURERS TO THE FRONTIERMake UK champions and celebrates British manufacturing and manufacturers.We stimulate success for manufacturing businesses,allowing them to meet their objectives and goals.We empower individuals and we inspire the next generation.Together,we build a platform for the evolution of UK manufacturing.We are the catalyst for the evolution of UK manufacturing.We enable manufacturers to connect,share and solve problems together.We do this through regional and national meetings,groups,events and advisory boards.We are determined to create the most supportive environment for UK manufacturers to thrive,innovate and compete.We provide our members with a voice,presenting the issues that are most important,and working hard to ensure UK Manufacturing performs and grows,now and for the future.To find out more about this report,contact:Name SurnameJob Titleemailmakeuk.orgName SurnameJob Titleemailmakeuk.orgName SurnameJob Titleemailmakeuk.orgQueens Park Queens Way North Team Valley Trading Estate GatesheadTyne and Wear NE11 0NX t:0191 497 3240e:enquiriesmakeuk.org makeuk.orgMake Business is a trading name of EEF Ltd,an employers association regulated under part II of the Trade Union and Labour Relations(Consolidation)Act 1992.EEF Limited.Registered Office.Broadway House,Tothill Street,London,SW1H 9NQ.Registered in England and Wales.No.05950172.FS.14.10.24
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Unlocking Manufacturing GrowthHarnessing Accurate Sales Forecasts for Profitability and Competitive EdgeIn the ever-evolving manufacturing landscape,where innovation,efficiency,and adaptability reign supreme,the significance of accurate sales forecasting cannot be overstated.This report delves into the pivotal role that accurate sales forecasting plays in the success of manufacturing organisations.At the heart of every manufacturing operation lies the quest for efficiency,profitability,and sustainability.Accurate sales forecasting serves as the compass guiding these endeavours.It provides a roadmap for decision-makers,offering insights into future demand,market trends and customer preferences.In doing so,it empowers organisations to optimise their resources,streamline their processes and navigate the complexities of the changing marketplace with confidence.One of the foremost benefits of accurate sales forecasting lies in its ability to drive production planning and inventory management.By predicting future sales volumes with precision,manufacturers can tailor their production schedules to meet demand without excess inventory or stockouts.This not only minimises storage costs but also enhances customer satisfaction by ensuring product availability when needed.Furthermore,accurate sales forecasting facilitates efficient resource allocation and capacity planning.Whether its manpower,machinery,or production facilities,manufacturers can align their resources with projected demand,maximising utilisation and minimising wastage.This optimisation not only enhances operational efficiency but also strengthens the organisations bottom line by reducing unnecessary expenses.Timely,accurate data and intuitive systems are vital for manufacturing sales forecasting as they form the foundation for informed decision-making and strategic planning.Precise historical sales data provides insights into past performance,enabling sales teams to identify trends,seasonality,and patterns in customer behaviour.This historical context is essential for creating reliable forecasts.Moreover,accurate data allows sales teams to analyse market trends,competitor activities and economic indicators,providing a comprehensive understanding of the business environment.With this information,sales forecasts can be adjusted to reflect changing market conditions and potential risks.Finally,accurate sales forecasting strengthens relationships with suppliers and enhances procurement processes.By communicating anticipated demand to suppliers in advance,manufacturers can ensure timely delivery of materials,minimise supply chain disruptions and negotiate better terms.This collaborative approach not only fosters trust but also creates opportunities for innovation and value creation.Unlocking Manufacturing GrowthFOREWORDFOREWORD|UNLOCKING MANUFACTURING GROWTH2James DevonshireThe Manufacturer/Hennik Research Ltd.(part of Nineteen Group)Unlocking Manufacturing GrowthThis report is based on a survey of manufacturing sales professionals,conducted between March and April 2024.Researched and produced by The Manufacturer,the premier industry publication providing insights,events and research,and sponsored by SugarCRM,the#1 rated CRM platform that helps customers succeed,the survey sought to gain insights into how manufacturers forecast sales,track their customers and ensure their salespeople have everything they need to succeed.To add important context to the data,The Manufacturer conducted a series of follow-up interviews with respondents to gain deeper insights into the current state of play.The result is this manufacturing sales forecasting report,an in-depth look into how sales teams operate now and what challenges they face on their sales maturity journeys.Unlocking Manufacturing GrowthHarnessing Accurate Sales Forecasts for Profitability and Competitive EdgeRespondents by industry verticalAEROSPACE6%AUTOMATION1%METHODOLOGYAUTOMOTIVE12RAMICS1%CHEMICAL6%CONSTRUCTION6FENCE6%ELECTRONICS13%ENGINEERING15%FOOD AND BEVERAGE6%FURNITURE3%HEALTHCARE1%LEISURE1%LOGISTICS3%MARINE MATERIALS1%METROLOGY EQUIPMENT1%OIL&GAS1%OTHER5%PHARMACEUTICAL1%STEEL4%TEXTILE3%WOOD PRODUCTS1%CONTENTSCHAPTER ONE Todays Forecasting Reality The Point in Time Approach.CHAPTER TWO The Three Barriers to Modern,Dynamic Forecasting.CHAPTER THREE Intent Data with Forecasting Changes the Game.CHAPTER FOUR Become an Advisor by Understanding Customers and Mapping Buyer Journeys.GAIN A COMPETITIVE EDGE BY MAKING THE MOST OF YOUR DATA Equip your sales team with the information it needs to succeed.040608101372%MARKET DEMAND FLUCTUATIONS44%SUPPLY CHAIN DISRUPTIONS59ONOMIC CONDITIONS28%COMPETITION45%CHANGES IN CONSUMER/CUSTOMER BEHAVIOUR23%INADEQUATE FORECASTING TOOLS/SOFTWARE11%TECHNOLOGY CHANGESThe ability to accurately forecast sales is pivotal to most manufacturers as it enables them to better predict demand,tailor production schedules and manage their inventory more efficiently.But how good are manufacturers at forecasting sales?First and foremost,40%of the manufacturers we spoke with dont actually carry out any formal sales forecasting.As the sales manager of an engineering company told us:“We dont create what most people would call a traditional sales forecast,based on data and trends.And while were aware of significant events on the horizon,such as elections and the like,we dont use that information formally;it stays in our heads most of the time like its more something to be aware of,rather than part of our strategic planning.“However,proper sales forecasting is something were looking to do a lot more and have indeed started.But the biggest barrier were going to come up against is culture.Getting people to start using systems and formal processes when theyve always done it casually,is going to be a challenge.”The sales director at a precision engineering firm we spoke with said that while they dont have any tools to help with their sales forecasting,they do try to come up with predictions based on conversations with their customers.These conversations take two forms:Formal meetings to discuss possible requirements for the coming year and informal,ad hoc discussions from time to time.But while this method does provide usable insights,its a“far cry”from utilising past sales and trend data via a“bespoke solution,”which the individual did at their previous employer.“In the past,Ive used CRM systems that store customer data and interactions in a single,centralised repository.This enabled fast and efficient business-wide querying,as well as accurate targeting and personalisation,”they said.Our survey also revealed that just 10%of manufacturing organisations are very confident when it comes to forecasting sales,adding they get it consistently accurate.The vast majority(64%)said they are somewhat confident with their sales forecasting,adding it is generally reliable with some exceptions.However,25%of manufacturers indicated that they are not confident in their ability to forecast sales,adding that their forecasts often miss the mark.In other words,a quarter of manufacturing organisations lack confidence when it comes to forecasting sales.In terms of the barriers preventing manufacturers from accurately forecasting sales,the vast majority are outside of the organisations control.Indeed,72%of respondents cited market demand fluctuations as the number one factor impeding their sales forecasting abilities.Economic conditions(59%)and changes in customer behaviour(45%)were the number two and three reasons respectively.TODAYS FORECASTING REALITYThe Point in Time ApproachWhat factors do you believe most significantly impact the accuracy of your sales forecast?CHAPTER 1|UNLOCKING MANUFACTURING GROWTH4CHAPTER ONEUnlocking Manufacturing Growth3d%How confident are you in your organisations ability to accurately forecast sales?NOT CONFIDENT AT ALLOur forecasts are frequently inaccurate.VERY CONFIDENTOur sales forecasts are consistently pretty accurate.NOT VERY CONFIDENTOur forecasts often miss the mark.SOMEWHAT CONFIDENTOur forecasts are generally reliable with some exceptions.CHAPTER 1|UNLOCKING MANUFACTURING GROWTH5“Getting people to start using systems and formal processes when theyve always done it casually,is a challenge.”“If we struggle to send orders out of the door on time,our customers are going to act with their feet and go elsewhere!”Now,while forecasting sales is important,executing the sales plan for the year is arguably more of an imperative,which is why we wanted to find out a little more about whats potentially hamstringing sales teams.As one manufacturing sales leader told us,“Its been something of a rollercoaster ride over the last few years for manufacturers,starting with COVID-19.“The pandemic had a significant impact on our sales,causing disruptions across industries and reshaping customer behaviour.Initially,we experienced a significant decline in sales due to supply chain disruptions,production halts and reduced consumer spending.With lockdowns and restrictions,we faced challenges in fulfilling orders and reaching customers.”Another senior manufacturing leader explained how theyve struggled more than usual over the past year to fulfil customer orders on time because of supply chain disruption.“First it was the global chip shortage that had us scrambling to secure inventory to negate the risk of us running out.Now were seeing raw materials being delayed because of the current crisis in the Red Sea.“At the end of the day,if we struggle to send orders out of the door on time,our customers are going to act with their feet and go elsewhere,”they said.“This reality leaves our sales team scratching their heads as their targets risk not being met due to factors that are basically out of their control,”they added.CHAPTER 2|UNLOCKING MANUFACTURING GROWTH6THE THREE BARRIERS TO MODERN,DYNAMIC FORECASTINGOur survey also revealed that,despite most manufacturers not being confident in their sales forecasting,most are not taking advantage of specialised tools to help them improve.Indeed,77%of respondents said they use basic spreadsheets to assist with their sales forecasting.CRM Software is used by 40%and ERP Software is used by 34%.Dedicated sales forecasting software and AI/Machine Learning tools are used by 14%and 8%of manufacturers respectively.So,why do so many manufacturers rely on spreadsheets when there are more advanced solutions available?We discovered three main reasons.Spreadsheets have simply become the normFirst and foremost,several of the people we spoke with echoed what we hear on a regular basis when it comes to manufacturers taking advantage of digital technologies;that there is a tendency among manufacturing businesses to adopt a mindset that basically says,“if its not broke,dont fix it.”As the sales director at a precision engineering firm said:“Our salespeople are definitely set in their ways.Ive been fighting over the last eight years since I started to move away from the spreadsheet culture because I believe its hindering our capabilities,but people are reluctant to change.”“In fact,we even used to take data out of our ERP system which basically runs our business copy it into spreadsheets and reference it from there.But luckily that process has seen changes over the last 18 months.“Now,we encourage people to reference the data directly in the ERP system,which saves a significant amount of time and ensures everyone is always looking at the same,up-to-date information.”01CHAPTER TWO“Manufacturers are experts in manufacturing,not technology.”What tools does your organisation currently use to assist with sales forecasting?Unlocking Manufacturing Growth84w%AI/MACHINE LEARNING TOOLS CRM SOFTWAREDEDICATED SALES FORECASTING SOFTWARE ERP SOFTWAREBASIC SPREADSHEETS Justifying spend with ROIThe final barrier cited by our interviewees was justifying the cost of an investment in a more advanced solution.There is a perception that such projects represent a significant investment in terms of both time and money.It was also believed among the manufacturers we spoke with that such projects do not bear fruit for a long period of time.A manufaturing MD admitted that while they use spreadsheets a lot,which costs the business money in lost time,it is still considered more cost effective at present than making a significant capital expenditure on an alternative solution.“While I know spreadsheets arent the best solution,they cover probably 80%of our needs as a business.We can update them and make changes whenever we want,without needing to get an external vendor involved(which will cost us),”they said.This belief was reflected by the sales manager at an engineering company,who said:“One of the problems weve got with introducing an advanced CRM system is understanding up front what benefits well reap as a result,so we can outline the ROI of the project to the various stakeholders.”“Weve implemented new technologies before and discovered a little further down the line that they didnt quite meet our requirements.We then needed to spend more time and money tweaking them,so they better met our needs.But if wed known this from the very start,wed likely not have made the decision to implement.”03 Change requires executive support&additional trainingThe EMEA sales and marketing manager of a world-leading manufacturer voiced a similar experience.“Our salespeople tend to use spreadsheets because thats what theyve always done.Most of them also arent aware of the capabilities of bespoke solutions,”they said.“To drive change and switch to a solution thats designed for this specific purpose,would require someone with significant standing in our organisation to champion the project.Wed also need to get everyone whos going to be using the system to buy-into the project from the start,by including them at every stage and actively seeking their input,”they added.The issue of skills also came up in our follow-up interviews,with several different manufacturers outlining how they believe modern digital solutions,like CRM systems,offer too much functionality which most manufacturers wont take full advantage of.As the managing director of an international engineering business said:“The reason why many manufacturers continue to rely on spreadsheets is because manufacturers are experts in manufacturing,not technology.“Theres a belief among us manufacturers that CRM systems,with their AI capabilities and other advanced features,are slowly moving outside a lot of our comfort zones.Unless the vendors of such solutions can talk with us on a level and explain very explicitly how they can help us,were unlikely to invest.”Another sales director said their salespeople know how to use spreadsheets and have become very proficient at getting them working exactly how they need them to.“Our salespeople now have pretty advanced spreadsheet skills.This makes manipulating them a lot quicker and we can make changes on the fly,”they said.“If we were to implement a new solution,wed have to train all of our salespeople so they could use it to its fullest.Even then,they likely wont reach the same skill level as they have now with spreadsheets,”they added.02CHAPTER 2|UNLOCKING MANUFACTURING GROWTH7“Our salespeople tend to use spreadsheets because thats what theyve always done.”INTENT DATA WITH FORECASTING CHANGES THE GAMECHAPTER 3|UNLOCKING MANUFACTURING GROWTH8While most manufacturers arent using bespoke solutions for their sales forecasting,the majority do appreciate the power of data when it comes to predicting sales.Positively,manufacturers do understand the crucial role that data plays in empowering sales teams to make informed decisions and drive business growth even if theyre not using it to its fullest potential yet.The sales director of an engineering company told us that his sales team frequently request more data relating to customer behaviour,preferences,and buying patterns.“By analysing this data,our salespeople can better understand their customers,anticipate their needs and tailor their approach accordingly.This leads to more targeted and effective sales strategies,ultimately increasing sales performance and revenue”they said.“Moreover,in my experience data helps in identifying new opportunities and market trends.By analysing market data,sales teams can uncover emerging trends,identify potential new markets,and capitalise on untapped opportunities.This allows manufacturers to stay ahead of the competition and adapt their product offerings to meet changing customer demands,”they added.The role of data was also elaborated on by the sales director of an electronics manufacturer,who said:“We use data to accurately measure and track our sales teams performance.“By monitoring key performance indicators(KPIs)such as sales conversion rates,customer acquisition costs and customer retention rates,we can assess our sales teams effectiveness and identify areas for improvement.This data-driven approach to performance evaluation enables our sales team to optimise their strategies and allocate resources more effectively.“In todays competitive market landscape,utilising data effectively is essential for driving success and achieving sustainable growth.”CHAPTER THREE“In todays competitive market landscape,utilising data effectively is essential fordriving success and achieving sustainable growth.”What are the biggest challenges you face in sales forecasting?Lack of accurate data.Lack of skilled personnel to analyse the data.Difficulty in integrating data from multiple sources.Inability to adapt to market changes.High costs of technology/tools.59$7%60%In fact,our survey found that a lack of accurate data was the number one challenge manufacturers face when it comes to sales forecasting,cited by 59%of respondents.Difficulty in integrating data from multiple sources(cited by 37%)and the high cost of technology and tools(cited by 30%)were the second and third biggest challenges respectively.Unlocking Manufacturing Growth9Furthermore,our survey found that manufacturers have seen their sales teams roles change in recent times.The top change,cited by 36%of respondents,is an increased use of digital tools.Greater emphasis on value-add services(31%)and more data-driven decision-making(30%)were the second and third biggest changes respectively.The manufacturers we spoke with said they have witnessed a significant transformation in their sales teams roles,largely influenced by technological advancements,changing consumer behaviour and evolving market dynamics.One of the most notable shifts has been from a transactional approach to a more relationship-based strategy.Instead of solely focusing on closing deals,sales representatives now prioritise building long-term relationships with clients,acting as advisors who deeply understand their needs and offer personalised solutions tailored to their specific requirements.This transformation has been facilitated through increased use of digital tools.As we discovered,that could be as simple as assigning tasks in Outlook and/or setting reminders in calendars.However they facilitate it,digital tools are helping salespeople perform their roles.“Weve switched to using a task management system as a centralised location for our sales data,”one manufacturer told us.“We can now keep track of what quotes we have out,set reminders to call a particular customer on a certain date to follow-up with them and make a note of conversations weve had,”they added.Another manufacturing sales leader said theyve seen a notable emphasis on providing value-added services.“Beyond simply selling products,our salespeople now offer services such as training,technical support,and after-sales service.This approach not only improves customer satisfaction but also fosters loyalty as clients see the sales team as partners invested in their success”they said.Furthermore,we learned that the COVID-19 pandemic accelerated the adoption of remote selling practices.“Our sales teams now utilise video conferencing,virtual product demonstrations and online presentations to engage with customers remotely,regardless of their physical location.This has not only expanded their reach but also made sales processes more flexible and adaptable to changing circumstances,”one manufacturer told us.How have your sales teams roles changed in recent times?“Video conferencing has not only expanded their reach but also made sales processes more flexible and adaptable to changing circumstances.”CHAPTER 3|UNLOCKING MANUFACTURING GROWTH23%Wider globalisation and market expansion21%Our sales teams roles have not changed25%Bigger focus on consultative selling26%Focus on sustainability and ESG30%More data-driven decision making31%Greater emphasis on value-add services36%More use of digital toolsFORCASTING CHANGES THE GAME“Beyond simply selling products,our salespeople now offer services such as training,technical support,and after-sales quotations.”CHAPTER FOURCHAPTER 4|UNLOCKING MANUFACTURING GROWTH10BECOME AN ADVISOR BY UNDERSTANDING CUSTOMERS AND MAPPING BUYER JOURNEYSWith changing customer needs ranked as the number one challenge preventing manufacturing sales teams from achieving their targets(cited by 46%of survey respondents),we wanted to find out more about how manufacturers manage their customers,including buyer journeys.460)(%! %8%5%Interestingly,just 45%of manufacturing organisations said they use a bespoke CRM system for managing customer data and interactions.A further 28%of respondents said they use spreadsheets to manage customer data and interactions.The stark reality here is that,despite changing customer needs being cited as the number one challenge coming between sales teams and their targets,more than half of manufacturers arent using a fit-for-purpose CRM system to manage their customer data and interactions.What challenges could potentially prevent your sales team(s)from achieving its targets?What kind of system do you use primarily for managing customer data and interactions?Unlocking Manufacturing GrowthOUR ERP SYSTEMEXCEL OR SIMILAR SPREADSHEETS28%1E%A CRM SYSTEMI DONT KNOWCHANGING CUSTOMER NEEDSGEOPOLITICAL ISSUESNOT HAVING ACCESS TO JOINED UP CUSTOMER DATA ACROSS MARKETING,SALES AND SERVICE SYSTEMSINCREASED COMPETITION WITHIN THE SECTORNOT ENOUGH MARKETING SPEND RESULTING IN REDUCED BRAND AWARENESSREDUCTION IN SALES DUE TO INFLATION/INTEREST RATES/COST OF LIVING NOT RELATEDINABILITY TO FORECAST SALES ACCURATELYINADEQUATE OR OUTDATED CRM/SALES TECHNOLOGYLACK OF ADEQUATE SALES TRAINING FOR THE SALES TEAMINSUFFICIENT SKILLS OF SALES PERSONNELI DONT KNOWREDUCTION IN SALES DUE TO COVID-19The positive message is that 62%of manufacturers recognise the importance of the buyers journey.CHAPTER 1|UNLOCKING MANUFACTURING GROWTH11A similar story was uncovered by our survey with respect to how manufacturers manage the buyers journey.Just over a third(34%)of manufacturing organisations have a formal process to map and track their customers journeys.Meanwhile,28%said they have an informal process.In other words,38%of manufacturers do not have a set process for mapping customer journeys.This is despite manufacturers knowing their customers journeys have changed significantly in recent years.However,turn those figures around and the positive message is that 62%of manufacturers recognise the importance of the buyers journey whether they track it with a formal process or not.“People are used to buying online in their personal lives and it makes sense that this would also reflect in the way they conduct business.”How do you define and map out the buyers journey for your products or services?7(4%8%WE HAVE A FORMAL PROCESS TO MAP OUT THE JOURNEYITS AN INFORMAL PROCESSWE DO NOT MAP OUT THE BUYERS JOURNEYI DONT KNOWWE BASE IT ON INDUSTRY STANDARDS WITHOUT CUSTOMISATIONCHAPTER 4|UNLOCKING MANUFACTURING GROWTH12CHAPTER 4|CONT.“Weve now moved away from our traditional approach of sending printed catalogues to customers and switched to a more online focused one.”43%Higher emphasis on sustainability and corporate responsibility.34%Rise in individual digital research and online presence.31%Increased demand for high-quality,relevant content.26%Shift in decision-making dynamics due to an increase in buying committee members.20%An uptick in mobile and IoT device usage.When asked about the changes theyve witnessed in this area,43%said their customers now place greater emphasis on sustainability and corporate responsibility.Just over a third(34%)said they have seen a rise in customers doing individual digital research and 31%said there is now more demand for relevant,high-quality content.The sales manager of an engineering company offered some insights into why they dont map customer journeys.They said that while they dont have a formal process to map customer journeys,they do have regular meetings between their management team and their sales team to discuss how they are changing.“Something we have seen pick up in recent years is the eagerness of buyers to find out more information by themselves,”they said.“People are used to buying online in their personal lives and it makes sense that this would also reflect in the way they conduct business.“Now that could be finding out more information via a website or placing an order online.The bottom line is modern manufacturing buyers seem to want/need less human interaction during their journeys,”they added.This view was supported by the EMEA sales and marketing manager of a world-leading manufacturer,who said that where buyers find out information has changed considerably.“Nowadays its all about online first.When our sales team comes into contact with a potential buyer,the individual already has a very good idea of what theyd like because theyve discovered most of the information via our new website.“Weve now moved away from our traditional approach of sending printed catalogues to customers and switched to a more online focused one.And it seems that our customers are embracing it,”they said.However,both individuals also said it would help better equip their salespeople if they could formally map customer journeys,rather than just rely on the informal sharing of information.A factor both cited was the disconnect between sales,marketing and customer service when it comes to customer interactions.By harnessing the power of a CRM system,manufacturers can create a joined-up customer journey from start to finish and across every touchpoint.This affords not only a seamless,responsive experience,but also ensures that each customer-facing individual is equipped with all the tools and information they need on a per-customer basis.How has the manufacturing buyers journey changed in recent years?Addition of self-service and per-sonalisation options.CHAPTER 4|UNLOCKING MANUFACTURING GROWTH13Paul FarrellChief Product Officer SugarCRMModern Sales Force Automation,Revenue Intelligence,and Sales Enablement tools help manufacturers make the most of their existing data,giving sales teams accurate information to focus on the right opportunities and engage with customers at the best times.These tools also automatically track all customer interactions whether through phone,email,social media,or Zoom providing insights into customer sentiment and the likelihood and timing of conversions.As we consider the world around us,modern CRM solutions also keep an eye on external factors like economic conditions and local and regional issues that can affect sales pipeline accuracy.By considering these external elements,manufacturers get a clearer picture of their sales landscape,leading to better forecasting and strategic decisions.Looking forward,manufacturers who embrace these advanced tools will see significant improvements in pipeline accuracy,leading to higher revenues and more profitable sales.This not only boosts financial performance but also increases satisfaction among shareholders,employees,and customers.By using modern sales technologies,manufacturers can gain a competitive edge and ensure sustained growth and success in a constantly changing market.“Something we have seen pick up in recent years is the eagerness of buyers to find out more information by themselves.”GAIN A COMPETITIVE EDGE By Making the Most of Your DataUnlocking Manufacturing GrowthHarnessing Accurate Sales Forecasts for Profitability and Competitive EdgeAbout SugarCRMSugarCRM offers software solutions that help marketing,sales,and service teams reach peak efficiency through better automation,data,and intelligence so they can achieve a real-time,reliable view of each customer.Sugars platform provides leading technology in the sales automation,marketing automation,and customer service fields with one goal in mind:to make the hard things easier.Thousands of companies in over 120 countries rely on Sugar by letting the platform do the work.Headquartered in the San Francisco Bay Area,Sugar is backed by Accel-KKR.About The Manufacturer We know manufacturing.The Manufacturer has been at the heart of the sector for over 30 years,giving us unrivalled reach and expertise in the industry.As rapid advances in technology drive transformation in the industrial landscape,were on the frontline of that change,working with the most innovative manufacturers and technology providers.We share that insight with our community.Manufacturers prosper because we make sense of the change and maximise resulting business opportunities for our community,putting them ahead of the curve.We do this every day,meeting and talking with manufacturing companies across the UK,Europe and the USA,and reporting on their challenges and successes across our multimedia portfolio,providing the insights and connections to help them make the right decisions and thrive.365 days a year.The knowledge you need,delivered the way you want it.Daily news,interviews and thought leadership across our publishing channels.If daily is too much,we publish weekly digital briefings and hold monthly physical and virtual learning and networking events.Annually,we host the leading industry awards programmes that recognise manufacturing talent and business excellence.In-digital,in-print,or in-person,The Manufacturer offers ideas,insight and innovation to the manufacturing community when they need it,in the format they desire.Because sharing the knowledge benefits to find out more.Vto find out more.VisitABOUT|UNLOCKING MANUFACTURING GROWTH14CHAPTER 1|UNLOCKING MANUFACTURING GROWTH15To learn more scan the QR code.Hennik Research Ltd(part of Nineteen Group),Central House,1 Alwyne Road,Wimbledon,SW19 7AB
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1Ali Javaheri Associate Analyst,Emerging TOriginally published November 5,EMERGING SPACE BRIEFCommercial Space LaunchTrending companiesOverviewCommercial space launch includes companies focused on launching satellite payloads,offering launch services,and building essential launch infrastructure.The rise in satellite launch startups is largely driven by expanding satellite constellations,which support applications such as broadening internet access,enhancing weather monitoring,and expanding geospatial intelligence.While national space agencies have traditionally dominated satellite launches,these startups aim to attract customers by providing greater flexibility in launch scheduling,shorter lead times,and cost savings.BackgroundIn the early decades of the Space Age(1950s-2000s),space technology development was primarily driven by government agencies in the US and Soviet Union.These efforts were supported by affiliated organizations in the USSR and contracted companies in the US,with rocket designs and missions explicitly dedicated to government objectives.In 1975,the European Space Agency(ESA)was founded,and followed a similar approach,while countries such as China and India also began funding the indigenous development of their own national designs.Commercial satellite launches emerged in the 1970s and 1980s,representing the primary non-government application of space technology,while national launch providers continued to operate at high cost structures initially geared toward military needs.The landscape began to change significantly in the 2000s.As commercial competition increased,particularly in the US,the federal government moved away from a monopoly arrangement with United Launch Alliance(ULA)for military launches.By 2015,the US military launch market experienced multi-provider competition,leading to substantial cost pressures and increased launch frequency.SpaceXs reusable rocket technology,introduced during this period,reshaped the market with its lower-cost,higher-frequency launch capabilities,particularly within the heavy launch class,which includes lifting payloads of more than 20,000 kg to low Earth orbit(LEO).Heavy launches,represented in the graph below,have seen a marked decline in costs over time,driven primarily by SpaceXs introduction of the Falcon Heavy in 2018,which achieved a record-low cost of$1,500 per kilogram.SpaceXs next-generation Starship vehicle aims to reduce these costs even further,targeting launch costs below$100 per kilogram to LEO.If achieved,this would represent a revolutionary decrease that could transform the economics of space access.This evolving competitive environment has created opportunities for lower-cost and higher-volume launches,attracting significant interest from both commercial and governmental clients globally.The impact of reusable launch technology and new entrants into the market has reshaped cost structures,with implications for pricing strategies and competition in both the US and international markets.Commercial space launch VC deal activity$665.5$725.1$1,269.9$3,424.4$3,544.4$2,656.8$2,893.7$763.1274050536556423820172018201920202021202220232024Deal value($M)Deal countSource:PitchBook Geography:GlobalAs of November 1,2024For access to more of this data and PitchBooks Emerging Spaces tool,access a free trial link here.2Emerging Space Brief:Commercial Space LaunchTechnologies and processes The commercial space launch industry has witnessed substantial technological diversification,as companies seek to innovate across various aspects of rocketry to address market demand for more frequent,cost-effective,and flexible launch services.This section explores key approaches in launch technology and the startups leading in these areas,with a particular focus on cadence(launch frequency)and time-to-launch,both of which are critical metrics for evaluating performance and scalability in this sector.In a highly competitive market,cadence(number of launches per year)and time-to-launch(lead time from scheduling to launch)are essential metrics for assessing a startups viability and scalability.Companies that achieve higher cadence and shorter time-to-launch are better positioned to serve commercial clients needing rapid deployment for satellite constellations,as well as government clients with urgent defense or scientific missions.For instance,Rocket Lab has maintained an industry-leading launch cadence in the small launch vehicle segment,making it an attractive choice for clients needing flexible,frequent launch windows.Startups in this space often highlight their cadence goals and time-to-launch metrics as indicators of operational efficiency and client responsiveness,crucial factors for venture capitalists evaluating growth potential and operational scalability in the commercial space launch industry.Reusable launch vehicles:Reusable rockets have transformed the economics of space launch by enabling multiple uses of core rocket components,particularly the first stage,significantly reducing costs per launch.SpaceX pioneered this approach with the Falcon 9 and Falcon Heavy,using booster recovery technology to achieve lower cost per kilogram and faster turnaround times.Startups such as Rocket Lab are following suit with reusable designs for its Electron rocket,while Relativity Space is developing the partially 3D-printed,reusable Terran R,designed for rapid manufacturing and deployment.SpinLaunch is innovating further with a novel approach,creating a catapult-like launch system,or“space gun,”which aims to propel payloads into orbit without conventional rockets,potentially offering even greater reductions in cost and resource use.Together,these companies are enhancing launch cadence and meeting the time-sensitive demands of satellite constellations,defense,and scientific missions.Advanced propulsion systems for launch vehicles:Propulsion technology is key to improving the efficiency and capabilities of launch vehicles.Several companies are developing innovative rocket propulsion systems:Relativity Space is working on its Aeon engines using methane/liquid oxygen propellants and 3D printing technology,while Rocket Lab has developed the Rutherford enginean electric pump-fed engine for its Electron rocket.SpinLaunch is exploring a radically different approach using kinetic launch technology for initial acceleration before rocket ignition.On the research front,Stoke Space is developing reusable rocket engines with novel cooling systems for second stages.3Emerging Space Brief:Commercial Space LaunchAdditive manufacturing and modular rocket design:Additive manufacturing,or 3D printing,has become a strategic enabler for space startups aiming to streamline production and reduce costs.Relativity Space leverages 3D printing extensively to produce nearly all rocket components in-house,minimizing lead time and production costs.Similarly,Ursa Major specializes in 3D-printed rocket engines,which support faster production cycles,scalability,and the ability to iterate designs rapidly.This technology reduces both time-to-launch and launch costs,allowing companies to maintain a higher cadence with reduced reliance on supply chains for complex parts.High-cadence launch platforms and spaceports:Several startups are working on launch platforms designed for high-frequency missions,aiming to reduce ground preparation time and increase launch readiness.Firefly Aerospace,for instance,operates the Alpha rocket for flexible,mid-sized launches with a focus on short lead times between launch opportunities.Additionally,new spaceports such as those developed by Orbex in the UK are being established to support increased cadence for small and medium launch vehicles.ApplicationsThe commercial space launch industry serves a broad spectrum of applications,driven by increased demand for satellite deployment,scientific research,and new sectors such as space tourism.With advancements in launch technology and increased availability of frequent,cost-effective launches,commercial clients now have greater flexibility to deploy and maintain their assets in space.The following are primary applications of commercial space launch services and key clients who represent significant demand in each area:Satellite deployment for telecommunications and Earth observation:The majority of commercial launches support the deployment of satellite constellations for telecommunications,internet connectivity,and Earth observation.Companies such as SpaceX,Rocket Lab,and Astra provide flexible and frequent launches to support mega-constellations such as Starlink(SpaceX)and OneWeb.In Earth observation,companies such as Planet Labs,Maxar Technologies,and ICEYE deploy satellites to gather high-resolution imagery for applications including environmental monitoring,disaster response,and agricultural assessment.Internet connectivity and broadband expansion:The growing demand for global broadband coverage has driven the expansion of satellite internet services to underserved and remote areas.High-profile clients in this sector include Amazon with its Project Kuiper and SpaceX,which deploys its Starlink satellites to provide high-speed internet across diverse geographies.This segment is particularly suited to companies offering high-cadence,low-cost launch services,as satellite constellations require regular replenishment and expansion to maintain coverage.Government and defense missions:Government contracts remain a cornerstone of the space launch industry,with high demand for dedicated launches that ensure security and mission-critical capabilities.The US Department of Defense,NASA,and similar agencies globally have established partnerships with launch providers such as United Launch Alliance(ULA),SpaceX,and Rocket Lab to deploy payloads 4Emerging Space Brief:Commercial Space Launchfor intelligence,surveillance,reconnaissance(ISR),and scientific research.For example,the US Space Force has increasingly partnered with SpaceX for rapid deployment and flexibility in military satellite placement.Scientific and research missions:Space launch services play an essential role in supporting scientific research,from interplanetary missions to microgravity experiments in low-Earth orbit.NASA and international space agencies such as ESA and JAXA(Japan Aerospace Exploration Agency)use commercial launches for planetary exploration and satellite deployment in support of scientific research.Additionally,private research organizations and universities partner with companies such as Rocket Lab for smaller payloads,as the high cadence and lower cost of small launch vehicles make them ideal for research-focused missions.Space tourism and payload return:The emerging space tourism market and suborbital flight services have gained traction with companies such as Blue Origin and Virgin Galactic,which focus on providing suborbital experiences to private individuals.SpaceX has entered this market with Inspiration4 and future private crewed missions,which also provide opportunities for payload return missions,enabling research and commercial customers to retrieve materials and equipment.This application represents a growing frontier within the commercial space sector,as demand increases for human spaceflight experiences and the safe return of scientific payloads.On-demand launch and responsive space missions:Rapid,on-demand access to space is increasingly critical for national security and commercial applications requiring quick deployment and flexibility.Companies such as Astra and Rocket Lab target this need with small,agile rockets that can be scheduled on short notice.Such responsive capabilities appeal to clients seeking to replace failed satellites or rapidly deploy new technology in orbit,especially in scenarios requiring adaptability and fast response times.Top clients for space launch services Telecommunications:SpaceX(Starlink),Amazon(Project Kuiper),OneWeb Earth observation:Planet Labs,Maxar Technologies,ICEYE Government and defense:US Department of Defense,NASA,European Space Agency,US Space Force Scientific research:Various international space agencies(NASA,ESA,JAXA),research institutions,and private labs Space tourism:Blue Origin,Virgin Galactic,and private missions with SpaceXWith these varied applications and a wide range of clients,the commercial space launch market continues to grow,driven by the need for more frequent,reliable,and cost-effective access to space.5Emerging Space Brief:Commercial Space LaunchLimitationsCommercial space launch startups face several significant limitations and challenges that impact their scalability,profitability,and ability to compete in the global market.These include regulatory hurdles,high capital requirements,technological complexities,and market competition.Regulatory and licensing challenges:Launching a rocket requires regulatory approval,with licensing processes often differing from country to country.In the US,for instance,startups need approval from the Federal Aviation Administration(FAA),which can delay timelines and add to costs.Export control regulations,such as ITAR(International Traffic in Arms Regulations),limit certain technologies from being shared or sold internationally,impacting companies abilities to partner globally.For small startups,navigating this regulatory landscape without established government relationships can slow development and reduce flexibility in scaling operations abroad.High capital requirements and cash burn rate:The space launch industry is notoriously capital-intensive,with extensive R&D costs,expensive infrastructure requirements,and the need to rapidly iterate on vehicle designs.Building and testing rockets,especially reusable ones,involves large upfront investments and ongoing operational costs.Startups in this space often face high burn rates and may require continuous rounds of funding to remain operational.Access to funding can be unpredictable,especially during economic downturns,and the high failure rate of rocket launches makes it difficult for startups to secure long-term investor confidence.Technical risk and reliability concerns:Launching rockets is a complex and high-risk endeavor.Failures during testing or live launches can have severe financial and reputational impacts,with repercussions for client trust and insurance costs.Even established companies occasionally face technical setbacks,but for startups,these risks are particularly damaging.Reliability is key in the space launch industry,as clients need assurance that their payloads will reach orbit without incident.For startups,achieving the high reliability standards required for sensitive payloads,such as national security satellites,is a significant technical and operational challenge.Supply chain constraints:Manufacturing a launch vehicle involves sourcing specialized components and materials,which can be challenging for new entrants without established supply chains.Recent global supply chain disruptions have affected the availability of critical parts,often sourced from a limited number of suppliers.This dependence on complex,often global supply chains can increase lead times,delay testing,and drive up costs for startups that lack the volume and purchasing power of larger companies.Market competition and price pressure:The commercial space launch market has become increasingly competitive,with established players such as SpaceX,Rocket Lab,and Blue Origin setting high standards for cost-effectiveness and reliability.Price competition is intense,particularly for small and medium launches,and large incumbents are often able to undercut new entrants.SpaceXs reusability has driven down costs significantly,creating pressure on newer companies to match or exceed those standards.This competition can make it difficult for startups to build a strong 6Emerging Space Brief:Commercial Space Launchcustomer base and differentiate themselves,especially if they cannot offer a clear cost or technology advantage.Environmental and sustainability concerns:As launch frequency increases,environmental impact is becoming a concern.Rocket launches release substantial CO2 emissions and can affect the atmospheric layers,contributing to climate change.Also,the rapid growth in launches increases the risk of orbital debris,which can endanger active satellites and space stations.Startups may face rising pressure to develop environmentally friendly propulsion systems,potentially increasing R&D costs and complicating the development process.Challenges in scaling launch cadence:Many startups aim to increase launch frequency(cadence)to meet the demands of satellite constellations and on-demand missions.However,scaling operations to achieve high launch cadence is challenging and requires extensive infrastructure,increased staffing,and reliable supply chains.The logistics of running frequent launches also introduce complexities in scheduling,ground operations,and rocket recovery.Startups that lack established infrastructure and operational expertise can struggle to meet high-frequency demands,impacting their competitiveness in the commercial market.Recent deal activity and market outlookThe commercial space launch sector has seen dynamic shifts in investment patterns and deal activity,driven by increased demand for satellite deployments and the competitive pursuit of more frequent and cost-effective launches.Notable funding rounds in recent years reflect investor interest in supporting startups working on reusable rockets,low-cost small launch vehicles,and advanced propulsion systems.Companies such as Relativity Space and Rocket Lab have attracted significant capital,underscoring the sustained demand for innovations that can increase launch cadence and reduce time-to-launch.However,public market interest in space launch companies has faced challenges,with several high-profile SPAC mergers,such as Astra,failing to meet revenue targets and returning to private ownership.This trend has led to caution around SPACs,with investors increasingly scrutinizing long-term profitability and scalability in the space launch sector.Competition in the market remains intense,with SpaceX holding a dominant position due to its high-cadence reusable rocket technology,enabling a large share of global commercial and government satellite launches.SpaceXs market advantage has been bolstered by its own satellite constellation,Starlink,which drives significant launch revenue.China has emerged as another major player,dramatically increasing its annual launch rate to support both government missions and commercial ventures such as the Guowang satellite constellation.The countrys state-owned enterprises have demonstrated high reliability and growing launch frequencies,although they primarily serve domestic customers.Yet,as global demand for satellite deployment grows,other companies are positioning themselves to capture market share.Government initiatives in countries such as the UK,Japan,and India are supporting the establishment of new spaceports,which can facilitate increased launch frequency and drive regional competition.Companies such as Rocket Lab and emerging startups may increasingly specialize in niche use casessuch as rapid-response or small payload launchesto carve out segments of the market.7Emerging Space Brief:Commercial Space LaunchLooking forward,industry leaders anticipate both consolidation and specialization within the space launch sector.Intense competition,high capital requirements,and the ongoing need for technological advancements are likely to lead to mergers,acquisitions,and strategic partnerships as companies seek scale and operational efficiencies.In addition,the expected proliferation of satellite constellations for telecommunications,Earth observation,and IoT applications will continue to fuel demand for launch services.While some companies are likely to dominate in general-purpose launches,others may differentiate by focusing on specialized services,such as on-demand,micro-launch vehicles or rapid launch capabilities,which will cater to time-sensitive commercial and defense needs.While current market conditions suggest possible oversupply risks,growing demand across various geographies and sectors could balance this by driving launch frequency and reducing operational delays.Overall,though SpaceX currently has a significant market lead,the growth in demand and development of international launch capabilities point to a more diversified competitive landscape,with multiple providers catering to both global and specialized regional needs.8Emerging Space Brief:Commercial Space LaunchQuantitative perspective144companies65deals(TTM)35.42%YoY$6.7Mmedian deal size(TTM)32.46%YoY$510.0Mmedian post-money valuation(TTM)159.35%YoY$5.4Bcapital invested(TTM)130.29%YoY621deals1,168investors$31.8Bcapital investedAs of November 1,2024Top VC-backed commercial Space Launch companies by total raised Source:PitchBook Geography:Global As of November 1,2024CompanyTotal raised($M)Last financing size($M)Last financing dateLast financing deal typeHQ locationYear foundedSpaceX$9,449.9N/AN/ASecondary Transaction-privateHawthorne,US2002Relativity Space$2,383.5N/AN/APE growth/expansionLong Beach,US2015Rocket Lab USA$1,224.3$355.0February 6,2024PIPELong Beach,US2006Sierra Nevada$1,000.0$250.0January 29,2021Debt-generalSparks,US1963Blue Origin$500.0$35.0July 31,2023GrantKirkland,US2000Firefly Aerospace$483.3N/AMay 24,2024Merger/acquisitionCedar Park,US2013ABL$481.3$20.0May 1,2024General corporate purposeEl Segundo,US2017Momentus$413.2$2.8September 16,2024PIPESan Jose,US2017OrienSpace$308.0$84.2January 24,2024Early-stage VCYantai,China2020Ursa Major$274.1$12.5September 17,2024GrantBerthoud,US20159Emerging Space Brief:Commercial Space LaunchTop commercial space launch companies by active patent countSource:PitchBook Geography:Global As of November 1,2024CompanyActive patent documentsTotal raised($M)HQ locationYear foundedArianeGroup2,543$206.4Les Mureaux,France2014Blue Origin161$500.0Kirkland,US2000SpaceX148$9,449.9Hawthorne,US2002Sierra Nevada95$1,000.0Sparks,US1963United Launch Alliance57N/ACentennial,US2005Relativity Space40$2,383.5Long Beach,US2015Orion Space Solutions26N/ALouisville,US2005TransAstra26$8.5Los Angeles,US2015Vector Launch25$94.0Huntington Beach,US2016Rocket Lab USA21$1,224.3Long Beach,US2006Top commercial space launch companies by Exit Predictor Opportunity ScoreCompanyOpportunity ScoreSuccess probabilityM&A probabilityIPO probabilityTotal raised($M)HQ locationYear foundedBlue Origin9994P0.0Kirkland,US2000Phantom Space9891v.8Tucson,US2019Space Walker9585w%8.7Tokyo,Japan2017Inversion9486%2A.9Los Angeles,US2021Unastella9483u%8!.3Seoul,South Korea2022FOSSA9081y%2.9Madrid,Spain2018SpinLaunch90910a8.7Long Beach,US2014Latitude8896%6A.2Reims,France2019Morpheus Space8880y%1(.1El Segundo,US2018X-Bow8490h.2Albuquerque,US2016Source:PitchBook Geography:Global As of November 1,2024Note:Probability data is based on PitchBook VC Exit Predictor methodology.10Emerging Space Brief:Commercial Space LaunchCOPYRIGHT 2024 by PitchBook Data,Inc.All rights reserved.No part of this publication may be reproduced in any form or by any meansgraphic,electronic,or mechanical,including photocopying,recording,taping,and information storage and retrieval systemswithout the express written permission of PitchBook Data,Inc.Contents are based on information from sources believed to be reliable,but accuracy and completeness cannot be guaranteed.Nothing herein should be construed as investment advice,a past,current or future recommendation to buy or sell any security or an offer to sell,or a solicitation of an offer to buy any security.This material does not purport to contain all of the information that a prospective investor may wish to consider and is not to be relied upon as such or used in substitution for the exercise of independent judgment.Recommended reading“Commercial Space Data,”Federal Aviation Administration,n.d.,accessed November 1,2024.“The Commercial Space Imperative,”CSIS,Douglas Loverro,Stephen Kitay,and Mandy Vaughn,October 31,2024.“Orbital Launches of 2024,”Gunters Space Page,Gunter D.Krebs,October 31,2024.“Space Launch:Are We Heading for Oversupply or a Shortfall?”McKinsey&Company,Chris Daehnick,John Gang,and Ilan Rozenkopf,April 17,2023.“The State of Launch,”Payload,Jacqueline Feldscher,April 2,2024.“Vertical Snapshot:Space Tech Update,”PitchBook,Ali Javaheri,August 28,2023.Top commercial space launch investors by investment countSource:PitchBook Geography:Global As of November 1,2024InvestorInvestmentsPrimary investor typeHQ locationNational Aeronautics and Space Administration38GovernmentWashington,DCUnited States Department of Defense20GovernmentWashington,DCSpace Capital17Venture CapitalNew York,NYY Combinator16Accelerator/IncubatorMountain View,CAGaingels10Venture CapitalBurlington,VTAlumni Ventures8Venture CapitalManchester,NHK5 Global8Venture CapitalSan Francisco,CAAirbus Ventures7Corporate Venture CapitalMenlo Park,CACalm Ventures7Venture CapitalLos Angeles,CANational Science Foundation7GovernmentAlexandria,VA
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Engineering Thermoplastics GuideThe Comprehensive Guide to Thermoplastic Materials in Engineering:From Manufacturing to RecyclingIntroductionChapter I:Properties and Classification of Engineering Plastic Products All You Need to Know About Thermoplastic Materials in Engineering and Beyond General Properties of Engineering Thermoplastics Classification of Thermoplastic Products Application of Advanced ThermoplasticsChapter II:Processing Techniques of Engineering Thermoplastics Manufacturing with Thermoplastics:from Injection Molding to 3D Printing Challenges of Processing Engineering Thermoplastics Thermoplastics Processing Methods Additive Manufacturing of Engineering Thermoplastics Selecting the Right Processing MethodChapter III:Performance Enhancement Strategies for Engineering Plastics Products Which Additives and Enhancements can Improve Engineering Thermoplastics Performance?Understanding the Need for Enhancement Performance Enhancement Strategies Uses of Enhanced Thermoplastics Chapter IV:Advancements in Thermoplastic Materials Science Cutting-Edge Developments in Thermoplastics from the Forefront of Scientific Research New Formulations and Polymer Chemistry Hybrid processing technology Towards“smarter”thermoplastic materials Looking towards the futureChapter V:Thermoplastic Composites and Their Applications How Composite Technology Unlocks Unprecedented Applications for Thermoplastic Materials General Properties of Thermoplastic Composites Filler Types and Properties Advantages of Thermoplastic Composites Processing of Thermoplastic Composites Applications of Thermoplastic CompositesChapter VI:Sustainability and Recycling of Engineering Thermoplastics Circularity is the Key of Thermoplastic Sustainability Can Thermoplastics Be Sustainable?Recyclability of Thermoplastics Recyclability of Thermoplastic Composites Waste Management and Sustainable Design Principles Looking Ahead:Current Challenges and Future SolutionsReferencesAbout Mitsubishi Chemical GroupAbout Wevolver5667912141415161819202021222628282930313234343536383840424243444546474850525IntroductionThermoplastics are the most diverse and widely employed group of plastic materials,used in a variety of appli-cations from consumer goods to the most advanced and challenging engineering applications.Different from thermosets,thermoplastics can be reversibly melted and solidified,making them easier to process and recycle.This guide aims to offer a compre-hensive perspective on thermoplastic materials.It will cover the different types and properties of thermoplastics,including engineering and advanced plastics used in demanding applica-tions across various industries.The properties,classification,and applications of thermoplastics are thoroughly discussed in Chapter 1.In Chapter 2,you will also learn about the most widely used processing techniques of thermoplastic materials,from conventional manufacturing to 3D printing.Chapter 3 is focused on performance enhancement strategies of thermoplastics,such as reinforce-ments and additives for different functional properties.Some of the latest cutting-edge developments in thermoplastics materials science,from advanced formulations to smart materials,are discussed in Chapter 4.A focus on thermoplastic composites is offered in Chapter 5,with a discussion of their general properties and classification,processing methods and engineer-ing applications.Finally,Chapter 6 is dedicated to the sustainability and environmental impact of thermoplas-tics,focusing on the importance of Life Cycle Assessment and the implemen-tation of sustainable design principles along the entire value chain.This guide is accompanied by the discussion of relevant case studies from Mitsubishi Chemical Groups portfolio,offering real-world examples of the countless applications,open challenges,and future outlooks for thermoplastic materials.67All You Need to Know About Thermoplastic Materials in Engineering and BeyondPlastic products are ubiquitous in our lives.Total plastics production is esti-mated to be over 50 Mtons in Europe alone,and almost 300 Mtons in the entire world.1Based on their functional characteristics and uses,thermoplastic materials can be sorted into three main categories:Standard or commodity thermo-plastics,such as HDPE and PP.They are relatively low-cost,high-vol-ume consumption materials,mainly used for packaging and consumer goods.They constitute the largest portion of thermo-plastic materials produced today,with a global consumption of about 30 times that of engineering plastics and 600 times that of the advanced plastics group.General-purpose engineering thermoplastics,such as PC and PA.These materials generally exhibit higher thermal and mechanical resistance compared to commodity plastics.They are used as durable components in a large number of engineering applications.Advanced thermoplastics,such as PEEK and PPS.These materials are suitable for applications under extreme thermal,mechanical,and chemical conditions,where they can substitute thermosets and metals.They can typically withstand temperatures of over 200 C and possess high strength,stiffness,and toughness.This chapter will offer a compre-hensive overview of the properties of different classes of thermoplastic materials,with special attention to engineering and advanced thermo-plastics.General Properties of Engineering ThermoplasticsChain flexibility and mobilityIn plastics,chemical micro-structure is strongly tied to the materials macroscopic properties.The structure-property relationship of thermoplastics is complex,but generally speaking,it boils down to chain flexibility,i.e.the freedom of movement of the atoms inside each polymer chain,and chain mobility,i.e.the freedom of movement of polymer chains with respect to each other.Intrinsic chain flexibility is related to the energy required by molecules to rotate around chemical bonds.This,in turn,depends on the chemi-cal structure of each polymer.If the polymer chain is linear and composed of mostly single aliphatic bonds,such as in the case of polyethylene(PE),polymer chains will be flexible.On the other hand,if the molecular structure contains aromatic groups,such as in the case of polycarbonates(PC)or polyether ketones(PEEK),the polymer chains will be more rigid.Chain mobility between polymer chains is affected by molecular weight and chemical composition.If the molecules have high molecular weight or contain highly polar chemical groups capable of forming hydrogen bonds,chain mobility will be restricted.Glass transition temperature and heat deflection temperatureThe differences in chain flexibility and mobility are mirrored in the macro-scopic properties of thermoplastics.1 Glass transition temperature,or Tg,is defined as the temperature below which a plastic material behaves as a glassy solid.Smaller flexibility and mobility of the polymer chains lead to higher Tg.All engineering and advanced thermoplastics are high-Tg materials.This makes them more suit-able for demanding applications due to their higher thermal and mechani-cal resistance.In engineering,another significant parameter to understand the thermal Chapter I:Properties and Classification of Engineering Plastic Products89properties of thermoplastics is heat deflection temperature or HDT.This parameter is a measure of the effect of temperature on the resistance to distortion of the thermoplastic under load.In other words,if a thermoplastic material has a high HDT,it is more likely to preserve its shape and mechanical properties even at high temperatures.CrystallinityThermoplastics are classified as either semi-crystalline or amorphous.Put simply,crystallinity is a measure of the degree of order in the arrangement of the polymer chains.While amor-phous thermoplastics have a random molecular arrangement,semi-crystal-line thermoplastics possess a regular molecular structure.1This has significant consequenc-es on the functional properties of plastic products.Semi-crystalline thermoplastics,such as polyethylene terephthalate(PET)or PEEK,typically possess higher mechanical strength and stiffness compared to amorphous materials.They also tend to exhibit better chemical resistance.Conversely,amorphous thermoplastics,such as polysulfone(PSU)or polyeth-erimide(PEI),are flexible and possess higher impact resistance.Because they tend to be transparent,they are also employed for optical applications.Classification of Thermoplastic ProductsAdvanced Engineering PlasticsAdvanced engineering plastics possess high mechanical strength and stiffness even at extreme temperatures,between 120 C and 230 C.Some advanced thermoplastics can now be used at temperatures surpassing 400 C.These materials also tend to possess broad chemical stability and excellent electrical properties.They are suitable for the most challenging and demanding applications.Imidized polymers(PEI,PAI,PI)The family of imidized polymers is characterized by the presence of at least one imide chemical bond(CO-N-CO).This group includes thermoplastic imides(PI),polyamide-imides(PAI),polyetherimides(PEI),and poly-benzimidazole(PBI)(see Paragraph 1.3.1.5).Structure of PAI Pure polyimide(PI)can withstand temperatures up to 360 C,which makes it suitable for demanding applications as a lightweight alterna-tive to metal.It offers high strength,toughness,and chemical resistance.However,its high Tg means it is not easily melt processable.1PEI was first developed to overcome this processability issue.This amor-phous thermoplastic with high HDT,high tensile strength,and modulus ensures a reliable performance at high temperatures.Additionally,PEIs electric properties remain stable over a wide range of frequencies.It can undergo repeated autoclave treat-ments.It is also flame-retardant and is resistant to hydrocarbons,alcohols,and acids.2PAIs flexible amide bond makes processability easier while retaining the outstanding thermal and chem-ical resistance properties of PI.This,combined with its optimal dielectric properties,makes it one of the most suitable materials for demanding applications in electronics.All imidized polymers are hygroscopic,meaning they tend to absorb moisture.Therefore,parts must be carefully dried before use to prevent damage and ensure optimal performance.3Sulfone polymers(PSU)Polysulfone(PSU)is an amorphous translucent thermoplastic.Chemically,it is characterized by diphenyl sulfone units.Structure of PSUIts chemical structure offers excel-lent stability,resulting in a broad temperature range,excellent mechan-ical properties,and good short-term chemical resistance to solvents and weak acids.It is lightweight and rela-tively inexpensive.It possesses good dimensional stability and generally is resistant to beta,gamma,and X-ray radiation.1Polyphenylene sulfide(PPS)Polyphenylene sulfide(PPS)possesses a regular,semicrystalline structure.Structure of PPS It exhibits the lowest moisture absorption of all advanced thermoplastics and is inherently flame-retardant.It possesses outstanding chemical resistance to both corrosive substances and solvents even at high temperatures.The low coefficient of thermal expansion provides optimal dimensional stability.Its mechanical properties depend on the degree of crystallinity:although the material has a high E-modulus,highly crystalline PPS can be relatively brittle.1Polyether ether ketone(PEEK)PEEK is a semi-crystalline thermo-plastic with outstanding thermal and mechanical properties.Similarly to other advanced thermoplastics,it owes its properties to its peculiar chemical structure,containing phenyl and ketone groups which offer high stability and rigidity.Structure of PEEKMeasurement procedure for HDT of thermoplastics(ASTM D 648).HeaterHeater1011cations in the electronics industry.This class of thermoplastics exhibits toughness and rigidity up to 130 C.However,these materials are often sensitive to UV.Balancing crystallinity is crucial to maintaining optimal mechanical properties in PCs.2Polyethylene terephthalate(PET)Despite being well-known for pack-aging applications,Polyethylene terephthalate(PET)is also a versatile engineering thermoplastic.Structure of PETThis thermoplastic possesses excep-tional dimensional stability and wear resistance.With its low coefficient of friction,high strength,and resistance to moderately acidic solutions,it is suitable for many engineering appli-cations.1While PET is readily available and cost-effective,it has limitations,including relatively low heat resistance and susceptibility to oxidation.However,its high strength-to-weight ratio,optical properties,toughness,and recyclability make it a desirable choice in many contexts.Polyacetals(POM-C,POM-H)Polyacetals,also known as polyox-ymethylenes(POMs),are engineering thermoplastics derived from the polymerization of formaldehyde.They are commercially available in both homopolymer(POM-H)and copolymer(POM-C)forms.Structure of POM These materials offer improved dimensional stability but slightly lower wear resistance compared to polyamides.Acetals are character-ized by high mechanical strength,stiffness,hardness,resilience,resist-ance to creep,and excellent impact strength at low temperatures.2 They also exhibit low water absorption for outstanding dimensional stability.However,polyamides outperform acet-als in impact toughness and abrasion resistance.1Acetal homopolymer resins are particularly resistant to organic solvents,especially at low temperatures.POM-C is highly resistant to strong alkalis.However,polyacetals should be avoided in strong acids or oxidizing environments.Water does not significantly degrade the polymer but may cause minimal swelling(0.8%)or permeation under certain conditions.Standard PlasticsStandard plastics are the most common thermoplastics used in consumer applications and packaging.They are inexpensive and ensure good chemical and mechanical properties below 65 C.Structures of PE and PPPolyethylene(LDPE,HDPE,HMW-PE,UHMW-PE)Polyethylene(PE)is the most widely used thermoplastic.It is an inex-pensive material with an excellent balance of properties.In general,it offers ease of processing,toughness,and flexibility.Excellent electrical insulation across various frequencies and strong chemical resistance make it suitable for several commodity applications.In particular,molecular branching and molecular weight influence the characteristics of this thermoplastic.1 As a result,there are numerous grades of PE with varying properties.High-Density Polyethylene(HDPE)is characterized by remarkable impact resistance,tensile strength,chemical resistance,and low moisture absorption.Low-density polyethylene(LDPE)is flexible,with great impact and chemical resistance.High and Ultra-High Molecular Weight Polyethylenes(UHMW-PE)are highly versatile materials offering superb wear resistance properties,making them ideal for demanding applications like prosthetics.PEEK possesses a high E-modulus and tensile strength.It melts at 350C and is resistant to high temperatures.Its chemical resistance to organic solvents is also outstanding,and it is not hydrolyzed by either water or high-pressure steam.Very good resistance to radiation is another feature of this advanced plastic material.1Polybenzimidazole(PBI)Polybenzimidazole(PBI)is an amor-phous thermoplastic.It can be classified as an extreme thermoplas-tic material,exhibiting the highest thermal stability of all advanced thermoplastics.It can withstand temperatures as high as 430C for prolonged periods,and above 500 C for up to a few hours.Structure of PBIAbove 200C,high molar mass PBI possesses the highest mechanical properties than any other unfilled plastic material.It does not burn and preserves its mechanical characteristics even when charred.Because of this,it is one of the most outstanding advanced thermoplastic products available on the market.1Fluoropolymers(PTFE)Fluoropolymers,such as PTFE,are characterized by the presence of highly stable carbon-fluorine chemical bonds.Structure of PTFEThis chemical stability,coupled with high crystallinity,makes PTFE espe-cially heat-resistant,even at high temperatures.Fluoropolymers possess outstanding chemical stability and are resistant to most solvents and corro-sive chemicals.They possess excellent strength and stiffness.Excellent dielectric properties and inherently low friction behavior are also key advantages of these materials.1General Engineering PlasticsEngineering thermoplastics ensure consistent mechanical properties between 5 C and 120 C.They can be used to replace heavier and less reliable materials,such as bronze or rubber.2 Good chemical stability,non-toxicity,and good electrical prop-erties are additional advantages of many engineering thermoplastics.Polyamides(PA6,PA66,PA46)Aliphatic polyamides,also known as nylons,are semi-crystalline thermoplastic materials.They are char-acterized by the amide group CONH.Structure of PA6Different kinds of polyamides are labeled based on the monomers used to manufacture them.The most widely used polyamides are PA6 and PA66,commonly used in packaging and textiles.They both possess good stiffness and strength at high temper-atures,good wear resistance,and good impact strength at low temper-atures.They are resistant to non-polar solvents and alkalis.Due to its superior mechanical performance,PA46 is considered more suitable for engineering applications.Up to 200C,it retains outstanding strength and stiffness.Additionally,it provides low friction combined with optimal wear resistance.Good electri-cal insulation and radiation resistance are additional benefits of this engi-neering thermoplastic.4Water absorption of all polyamides is very high.Low moisture should be maintained during processing to prevent the loss of mechanical properties.Polycarbonates(PC)Polycarbonates(PCs)are a family of engineering thermoplastics character-ized by carbonate(OCOO)bonds.Structure of polycarbonate(Bisphenol A)PCs possess superior impact strength and elasticity,minimal moisture absorption,excellent resistance to acids,and remarkable electrical insulation properties.This makes PC a valuable choice for demanding appli-1213Polypropylene(PP)Polypropylene(PP)is a linear hydro-carbon thermoplastic with notable similarities to PE.PPs electrical char-acteristics closely resemble those of HDPE,making it an excellent insulat-ing material,particularly for capacitor films.Its chemical resistance aligns with HDPE as well,as both polymers are highly resistant to most solvents and corrosive chemicals.1Additionally,PP offers excellent resistance to stress cracking,ease of fabrication and welding,a high strength-to-weight ratio,minimal moisture absorption,and minimal porosity.These properties make PP a versatile choice for various appli-cations,from electrical insulation to chemical-resistant components.Application of Advanced ThermoplasticsNew developments in thermoplas-tic products and formulations have led to a significant expansion of the thermoplastic market in recent years.Demanding applications,where the use of plastics was previously unthink-able such as aerospace,engineering,and electronics are being continually improved by introducing advanced thermoplastic products.Two note-worthy case studies by Mitsubishi Chemical Group(MCG)exemplify the advantages of employing specific thermoplastic materials over tradition-al ones.In the semiconductor manufactur-ing industry,baffles are exposed to extreme temperatures and can ignite if they become too hot.The presence of smoke will lead to contamination,with serious consequences on produc-tion times and costs.For this reason,the choice of a temperature-and fire-resistant material is paramount.The adoption of Duratron U1000 PEI,a high-performance thermoplas-tic formulation in MCGs portfolio,successfully addressed these critical safety concerns.In the aerospace sector,nacelle components need to be lightweight,fatigue-resistant and require frequent manual lubrication and servicing.To address these needs,MCG suggested the use of Ketron TX PEEK for nacelle slider tracks.This PEEK material,known for its low density and optimal mechanical properties,extended the lifespan and efficiency of these aircraft components,setting a new industry standard for aerospace.These case studies underscore the pivotal role of advanced thermo-plastics,such as PEI and PEEK,in enhancing safety,efficiency,and sustainability across diverse industries.Ketron TX PEEK nacelle slider tracks1415Manufacturing with Thermoplas-tics:from Injection Molding to 3D PrintingThe widespread success of thermo-plastic materials today is related to their easy processability.Compared to thermosets,which undergo irreversi-ble curing processes,thermoplastics can be reversibly melted and hardened in any desired shape.In the post-war era,the worldwide use of thermoplas-tics surpassed that of thermosets in most applications due to increased production,low cost,and ease of manufacturing.While conventional techniques,including subtractive manufacturing(machining),welding,and gluing can be applied to most thermoplastics,melt-processing offers advantages unique to thermoplastic materials.In melt-processing,granules or powder of plastics are heated to reduce the viscosity to allow easy shaping of the desired components.Melt-processing offers design freedom at very low costs and is one of the core reasons for the widespread success of thermo-plastic materials.1In recent years,additive manu-facturing has emerged as an increasingly powerful solution across various industries.Because of their characteristics,thermoplastics are the most suitable materials for 3D printing.However,developing additive manufacturing processes for engineer-ing and advanced thermoplastics is still an open challenge.The processability of thermoplastics depends on the specific properties of each material.While for most commodity plastics the manufactur-ing is straightforward,in the case of engineering and advanced thermo-plastics there are unique challenges to keep in mind.Material waste needs to be minimized,and consistent quality and performance must be ensured for demanding engineering applications.In this chapter,you will learn about the most significant challenges in engineering thermoplastic process-ing.The main processing methods of thermoplastics and their applications will be discussed.Challenges of Processing Engineering ThermoplasticsThermoplastics offer several advan-tages,including easy processing with low energy consumption,low density,and aesthetic appeal.However,achiev-ing quality plastic products can be challenging,especially when high-per-formance standards are required.To address this,a careful design process is crucial,starting with the selection of the most suitable processing meth-od for your thermoplastic of choice.Manufacturing thermoplastic compo-nents demands precise control of temperature,pressure,and cooling rates due to narrow processing windows,which,if not followed,can lead to defects and product failure.Melt processing can lead to anisotro-py in the finished products,resulting in directionally dependent physical properties in the material.,This can determine inconsistent mechanical properties in the final component.When substituting metal with engi-neering or advanced thermoplastics,you should keep in mind that different materials pose unique design chal-lenges.Many engineering and advanced thermoplastics,such as PC,PEI,and PA,are moisture-sensitive,necessitating careful drying prior to melt-process-ing to prevent material degradation and maintain product performance.Moisture can adversely affect the plastics properties leading to bubbles,imperfections,or reduced mechanical properties.Additionally,advanced thermoplastics require exceptionally high processing temperatures,often surpassing 300 C.This requires specialized heating elements,insulation,and cooling procedures.High energy expenditure and increased safety precautions should also be considered.5General flow diagram for the processing of thermoplastics.Chapter II:Processing Techniques of Engineering Thermoplastics1617Thermoplastics Processing MethodsInjection moldingInjection molding is a melt-process-ing approach where thermoplastic material is heated and subjected to pressure,filling the interior of a mold.Afterward,the thermoplastics cool and regain rigidity,completing the molding cycle.After demolding the cycle can start from new.An injection-molding machine consists of an extruder for plasticizing the resin,a ram system for high-pressure material introduction into the mold,and a cooling device to facilitate part solidification.Key varia-bles in the injection molding process include cylinder temperature,mold temperature,injection rate,holding pressure,back pressure,and the speed of the screws rotation.6One of the key challenges of injection molding is that,due to differences in densities between the solid poly-mer and the melt,cooling results in dimensional shrinkage.In the case of some semi-crystalline polymers,this contraction can reach 20%of the original volume.The inherent shrinkage can be compensated for by injecting addi-tional material in a step known as the holding phase.However,a residual contraction between 0.5%and 2.5%is unavoidable with injection mold-ing,and should always be kept into account when designing the molds.1Injection molding offers a highly automated process with efficient output rates,making it ideal for mass production.Low labor costs and excel-lent surface finishes make it efficient,versatile,and inexpensive.However,optimizing molding parameters can be challenging,leading to potential issues like part warpage and shrink-age.While it requires the highest initial investments in molds and machinery,it remains the most cost-effective option for high-volume processing of standard thermoplastics.Injection molding can also be used with engineering and advanced thermoplastics,such as PEEK.However,additional care should be taken during both heating and cooling due to the extremely high melting temperatures involved.1ExtrusionExtrusion processes are primari-ly designed to produce parts and products with a constant transverse cross-section,such as pipes,window profiles,sheets,and tubing.This versatile method is widely used across various industries.Generally,the output of extrusion processes can range from medium to high,vary-ing from kilograms per hour to tons per hour.While section sizes are constrained by die and machinery dimensions,the length of extruded materials is virtually unlimited.6Extrusion processes also present some limitations.Incorporating reinforce-ments,such as glass and carbon fiber,is difficult.Parts produced via extrusion often exhibit anisotropic properties,with significant differenc-es between machine and transverse directions.Although the outer surface appearance is typically smooth,cuts may have a rough finish.Each tool is tailored to a specific section,which can result in additional costs.While possible,extrusion of high-temperature thermoplastics may require additional specialized equipment.Compression moldingCompression molding is a processing method that exploits compressive force to shape plastic products and components.In this process,a charge of material conforms to the molds lower and upper halves under pres-sure and heat.This processing method can be used with both thermosetting and thermoplastic materials.7In general,the compression molding process can be divided into five steps.1.Mold preheating and preparation.In this step,the mold is cleaned and a released agent is applied.Afterward,it is heated to reduce the viscosity of the charge mate-rial.2.Charge preparation and loading.The raw material is cut to size or weighed,dried,and pre-heated if necessary.It is loaded in the lower part of the mold.3.Compression.In this step,the material is pressed into the final shape.Precise control of tempera-ture and pressure is crucial.4.Cooling and ejection.Release agents are necessary to ensure easy release of the finished component from the mold.Prod-ucts with elaborate geometries(threads,holes,grooves)can pose additional challenges during this step.5.De-flashing.In some cases,excess material is expelled from the mold and must be removed from the final product.Market shares of the main thermoplastics processing methodsDiagram of an injection molding system.1819Because it doesnt require fully melting the material,compression molding is especially suitable for engineering and advanced thermoplastics with high melting temperatures.These include PTFE,PEEK,and PBI.Other processing methods(rotational molding,melt spinning,calendering)Melt spinning is used to produce fibers from thermoplastic materials.It involves melting polymer pellets through a screw extruder and extrud-ing them through a spinneret with multiple holes to form strands,which are subsequently drawn,solidified,and wound.This method is commonly used for polyamides(nylon).Rotational molding,or roto-molding,coats the inner surface of a metal mold with plastic pellets,or powder,or liquid raw material.By heating and rotating the mold,large-scale hollow plastic parts can be easily produced.Calendering utilizes two-roll mills or calenders to shape high-melt viscosity thermoplastic sheets.This method is ideal for polymers prone to thermal degradation or containing solid additives.Calendering is quicker and can typically requires smaller energy input compared to extrusion,depending on the product.This process is commonly employed in various industries to produce sheets,films,and other products with precise thickness and surface finish requirements.Additive Manufacturing of Engineering ThermoplasticsAdditive manufacturing of thermoplas-tics,also known as 3D printing,offers an alternative approach to creating complex parts rapidly,layer by layer,without the need for traditional tool and mold fabrication and with maxi-mum design freedom.This technology has revolutionized the production of prototypes and products,resulting in substantial cost and time savings since its invention in 1986.Due to their ability to melt and solidify into any desired shape,thermoplastics are the ideal materials for additive manufacturing and have been the first materials used for this technol-ogy.Among the different 3D printing processes utilized today for thermo-plastics,most can be classified into two categories.1.Extrusion 3D printing(E3DP).In E3DP,the material is heated to reduce its viscosity and extruded through the printers nozzle.For small-scale printers,the preferred approach is fused filament fabrication or FFF.Small-scale FFF printers extrude thermoplas-tic polymer filaments through a heated nozzle onto a heated bed,allowing for fast and cost-effective component production.However,Diagram of the compression molding process.these printers have limitations,including filament diameter constraints and smaller print areas.To address these challenges,large-scale extrusion printers for Big Area Additive Manufacturing or BAAM have been developed.These technologies implement more efficient feed systems and allow for faster production rates.2.Powder Bed Fusion(PBF).In PBF,the powdered material is locally melted with a high-energy laser beam.Subsequent deposition and fusion of powder layers result in the gradual formation of the finished product.This process is suitable for large-scale industrial printing and can be used with engineering and advanced ther-moplastics with higher melting temperatures.For FFF,commodity plastics such as PETG and HDPE are a common choice.However,also engineering plastics such as polyamides and polycarbonates can be used with most professional extrusion 3D printers.The technology for 3D printing with advanced thermoplastics is still in its infancy.Materials such as PEEK and PEI are challenging to extrude but can be used with PBF technology.New thermoplastic blends,composed of a mixture of advanced and standard thermoplastics,are also emerging as a suitable choice for additive manufacturing.8Selecting the Right Processing MethodThe choice of processing method for thermoplastics depends on the specific requirements of the desired application.Injection molding stands out as an excellent choice for mass production of standard thermoplastics due to its automation capabilities,cost efficiency,and superior surface finish.However,challenges such as part warpage and shrinkage should be carefully considered.Extrusion processes are ideal for producing parts with constant cross-sections,making them suitable for products like pipes and window profiles.While versatile and capable of high output,they have limitations when it comes to incorporating reinforcements and can result in anisotropic properties.Compression molding is particular-ly well-suited for engineering and advanced thermoplastics with high melting temperatures,offering advan-tages like minimal material waste and the ability to maintain product performance.This method is especially valuable for producing high-perfor-mance engineering components.Additionally,additive manufacturing,or 3D printing,has revolutionized rapid prototyping and product devel-opment.It is a valuable option for complex,customized parts,with extru-sion 3D printing(E3DP)suitable for small-scale applications and Powder Bed Fusion(PBF)better suited for large-scale industrial printing,espe-cially with engineering and advanced thermoplastics like PEEK and PEI.Ultimately,the selection of the most suitable processing method should be based on factors such as material properties,production volume,design complexity,and cost considerations,ensuring that the chosen method aligns with the specific needs of each application.2021Which Additives and Enhancements can Improve Engineering Thermoplastics Performance?While thermoplastics possess sever-al attractive properties,such as low weight,low cost,ease of processability,and design freedom,the applications of unmodified plastics are limited.For example,most thermoplastics possess lower mechanical strength,lower resistance to UV radiation,and lower conductivity compared to metals.In order to increase the applicability of thermoplastics across various industries,these properties must be enhanced.Reinforcing additives,like chemical substances,can be added to thermo-plastics to improve the behavior of the product throughout its lifespan.They are mechanically dispersed within the polymer matrix,contributing signifi-cantly to the overall performance of the material.The addition of addi-tives can improve many properties of thermoplastic products,including mechanical behavior,tribological properties,thermal and UV resistance,chemical stability,fire retardancy,resistance to electromagnetic interfer-ence,and electrostatic dissipation.9This chapter will offer a comprehen-sive overview of common additives for thermoplastics and illustrate their applications.Chapter III:Performance Enhancement Strategies for Engineering Plastics ProductsUnderstanding the Need for EnhancementDespite their versatility,the appli-cability of thermoplastics is limited in many contexts due to the intrin-sic challenges of these materials.Although the mechanical and tribo-logical properties of thermoplastics vary widely depending on the type of material,with advanced thermoplas-tics exhibiting much higher strength and toughness,standard unmodified thermoplastics can be unsuitable for many demanding applications.UV resistance is another issue with thermoplastics.Due to their organic nature,polymers can be prone to chemical degradation as a result of long exposure to light and atmospher-ic conditions.This can lead to loss of aesthetic appeal,such as discoloration,as well as a reduction of function-al properties.Similarly,the organic composition of thermoplastics,which are mostly composed of carbon,hydro-gen,and oxygen,often makes them susceptible to combustion.Lastly,most thermoplastics are not suitable for applications where elec-trostatic discharges(ESD)can be an issue.This is because these materi-als are insulators and are unable to dissipate electric charge.In the elec-tronics and semiconductor industries,ESD phenomena can lead to serious damage to expensive components.Many unmodified thermoplastics are also transparent to electromagnetic radiation,resulting in interference issues when these materials are used in electronic devices.For these reasons,thermoplastics are often enhanced with fillers and additives to improve their mechani-cal,chemical,thermal,and electrical properties.With new enhancement strategies,these versatile materials are adapting to an increasing number of unprecedented applications.2223Performance Enhancement StrategiesMechanical Reinforcement(Fillers)Fillers play a crucial role in enhanc-ing the mechanical and functional properties of commodity,engineering,and advanced thermoplastics.Typical-ly,fillers are inorganic solid materials of small size(100 microns)added in a relatively large volume fraction to the matrix.They are incorporated into thermoplastic products to improve their stiffness,impact strength,appearance,conductivity,and flamma-bility,making them highly versatile in adjusting material properties for specific applications.While initially used as extenders to reduce the cost of plastic products,modern fillers,known as“function-al fillers”,are primarily focused on enhancing functionality,with a specific effect on mechanical properties.Stiff-ness,toughness,strength,and modulus can all be improved thanks to the addition of specific fillers.Tribological features of plastics are also improved by the addition of inorganic fillers.This results in enhanced wear and friction resistance properties under dynamic conditions.9Despite the advantages they offer,achieving effective filler dispersion in polymers can be challenging.A homogeneous distribution of the fillers is simportant to achieve the desired properties.While fillers are typically inorganic and hydrophilic,plastic matrices are organic and often hydrophobic.Because of this,compat-ibilization via specific additives is crucial.The influence of fillers on the mechan-ical properties of thermoplastics depends on their nature,size,shape,and distribution,as well as their impact on the matrixs microstructure.Among the fillers used in thermoplas-tic products,glass fiber,carbon fiber,Important parameters for the selection of fillers in thermoplastic materials.Heat deflection temperature of unfilled vs.filled(30%glass fiber)thermoplastics.and graphite are some of the most widely used.Glass fiber is the most commonly employed filler due to its cost-ef-fectiveness and capacity to enhance strength and impact resistance while offering chemical resistance and low weight when compared to metal.The addition of glass fiber results in materials with high flexural and tensile strength.Carbon fiber,despite its higher cost compared to glass,has become a staple functional filler in lightweight high-performance ther-moplastics,with continuously growing demand.In addition to improving mechanical properties,carbon fiber can also enhance thermal and electri-cal conductivity.Compared to glass fiber-filled thermoplastics,carbon fiber-filled materials are also suitable for dynamic applications,where they do not abradeact abrasive towards the mating counter part.Glass and carbon fiber can also be mixed resulting in hybrid reinforcement systems.1Graphite,when added to thermoplas-tics,can significantly impact both mechanical and tribological features,making it a versatile choice for tailored applications.Due to its improved ther-mal conductivity and nonflammability,graphite is an ideal filler in industrial applications where high heat dissipa-tion is needed.UV StabilizersUV stabilizing additives are crucial for preserving the integrity and longevity of thermoplastic products exposed to sunlight.When polymers are subjected to light,they undergo photooxidative degradation in the presence of air.The absorbed light initiates photochemical reactions,particularly affecting specif-ic chemical groups within the material known as chromophores.This can lead to loss of mechanical and functional properties.The specific sensitivity of each thermoplastic to radiation depends on the materials chemical structure.In particular,weaker chemical bonds undergo more pronounced degra-dation.Double bonds also tend to interact more strongly with light.In addition,photosensitive groups can be introduced as impurities during manufacturing.In general,due to their microstructure,semi-crystalline ther-moplastics tend to exhibit increased sensitivity to light.9UV stabilizers are essential in combating UV-induced degradation by absorbing and safely dissipating ultraviolet radiation,thus protecting 2425the material.These stabilizers typically consist of organic molecules with tailored photochemical properties,although inorganic fillers such as carbon black can also improve UV resistance.UV stabilizers are particularly crucial for plastics exposed to outdoor conditions,as they prevent the aging process and protect against discoloration.Additionally,UV stabilizers play a vital role in safeguarding the contents of packaged goods from degradation due to UV light exposure.10AntioxidantsDuring processing and use at high temperatures,thermoplastics are susceptible to a process known as auto-oxidation,caused by the spon-taneous formation of free radicals.This can lead to a loss of mechanical and functional properties over time.For this reason,antioxidants play an important role in preserving the qual-ity and extending the service life of thermoplastic materials by inhibiting their oxidative and thermal degrada-tion processes.These additives act as radical scav-engers,retarding or preventing degradation during various stages,including processing,handling,and long-term use.They effectively inter-rupt the chain propagation steps in auto-oxidation reactions.Antioxidants must possess specific characteristics to effectively protect the material,such as resistance to degradation,easy incorporation into the polymer,and resistance to evaporation or leaching.These additives are typically cate-gorized into primary and secondary antioxidants.9 Primary antioxidants,also known as chain breakers,are radical scavengers or hydrogen donors,and they include organic molecules such as hindered phenols and secondary amines.These molecules directly stop the free radical propagation.Secondary antioxidants,on the other hand,are peroxide decomposers.They turn these highly reactive molecules into less harmful compounds.Often,these two kinds of additives are combined to maximize their efficacy.10Flame RetardantsFlame retardant additives play a crucial role in enhancing the fire resistance of thermoplastics,address-ing their inherent flammability issues.In fact,most plastics are prone to easy ignition due to their chemical compo-sition,primarily consisting of carbon and hydrogen.A common measure for flammability is the limiting oxygen index(LOI),which quantifies the percentage of oxygen required in the atmosphere to sustain combustion under standardized condi-tions.While materials with an LOI below 21%burn easily,thermoplastics with an LOI between 21%and 28%are slow-burning,and those with an LOI above 28%are inherently fire extin-guishing.While most advanced thermoplastics exhibit inherent fire resistance,many plastics are known for their high flammability,often accompanied by the release of corrosive or toxic gases and smoke during combustion.Thus,improving the fire retardant behavior of thermoplastic products is essen-tial for expanding their applicability across various industries.Flame retardants can act through various mechanisms,such as inhib-iting reactive radicals,reducing heat generation via endothermic reactions,or forming thermally insulating char layers on the plastics surface.The most widely used flame retardants are halogenated compounds.While halogen-based flame retardants have historically dominated the market,the primary challenge today revolves around their substitution with more environmentally friendly options.Among these,phosphorous and metal hydroxide flame retardants are sustainable and effective halogen-free solutions.11Electrical Properties Enhancers(Conductivity and ESD)Electrostatic discharge(ESD)can be a significant issue with plastics due to their inherent electrical insulat-ing properties.This can result in the accumulation of strong electrostatic charges that may disrupt or damage sensitive electronic components.To mitigate this issue,antistatic additives can be employed to enhance the elec-trical properties of thermoplastics.ESD resistance enhancers can be classified into two main types:internal and external.Internal antistatic addi-tives create a conductive path within the plastic,allowing for the rapid dissipation of electrostatic charges.On the other hand,external antistat-ic agents are applied to the surface of the material after processing and require minimal dosages.However,these external treatments may not be suitable for long-lasting applications due to potential issues with adhesion.Internal antistatic additives are directly blended with the thermoplastic material during processing.Typically,these additives are inorganic fillers such as carbon black,carbon fiber,or metal powders.Thermoplastics with inherent conductivity,such as conducting polymers-also known as IDP(inherently dissipative polymers),may also be utilized to produce antistatic products.9EMI Shielding AttributesEMI(Electromagnetic interference)shielding is essential for preventing the passage of electromagnetic waves into or out of electronic devices.In many contexts,these interferences can cause serious issues with the correct functioning of electronic systems.Most thermoplastics are naturally transparent to electromagnetic radia-tion.Because of this,metals have been traditionally employed as shielding materials.However,switching to plastics can lead to diminished costs,weight reduction,ease of production,and improved design freedom.To address the inherent lack of EMI shielding in thermoplastics,various methods have been developed.These methods aim to enhance the electri-cal conductivity of plastics through approaches such as conductive coat-ings,compounding with conductive fillers,and using intrinsically conduc-tive polymers(ICPs).Conductive coatings,including metallic plating,are effective but require additional surface preparation and equipment.On the other hand,compounding with additives like carbon black,carbon fibers,stainless steel fibers,and aluminum can lead to optimal EMI shielding properties.The use of these fillers favors the increasing integration of thermoplastic materials into the electronics industry.12Coloring agentsColoring additives,including dyes and pigments,play a crucial role in enhancing the aesthetic appeal of thermoplastic products.Dyes are soluble organic compounds,while pigments can be either organic or inorganic but are typically insoluble.Certain pigments,such as carbon black,provide extra benefits beyond coloring,including UV protection,rein-LOI of common thermoplastics.Limiting Oxygen Index(LOI)is a test that measures the combustion characteristics of different materials and indicates the percentage level of oxygen needed to maintain combustion26forcement,and improved electrostatic properties.However,its worth noting that some pigments and dyes can affect the photostability of thermoplastics by increasing their sensitivity to light.Pigments,especially in standard plastics such as polyethylene and polypropylene,may impact the molecular structure of the material,leading to a loss of dimensional stability.Therefore,pigments and dyes should be selected carefully depending on the material and the final application.10Uses of Enhanced ThermoplasticsEnhanced thermoplastics can find applications in many demanding industrial sectors where other mate-rials,such as metals,were previously used.Reinforcement of advanced thermoplastics with fillers such as carbon fiber,graphite,and glass fiber can lead to outstanding mechanical and tribological properties.These enhanced materials can be used in the most challenging applications such as the aerospace industry.For example,MCGs Duratron T4301 PAI is an advanced thermoplastic with low-friction properties.It is enhanced with a graphite filler,providing exceptional reinforcement and wear resistance for labor-intensive compo-nents.This graphite-filled advanced material was employed in aircraft wing flaps,providing long-term endurance to wear,weight reduction,and optimal thermal and chemical resistance.Improved electrostatic dissipation is crucial in the electronics and semiconductor industries.However,thermoplastics with enhanced ESD properties can also be employed in other industrial sectors to prevent the buildup of electrostatic charge and facilitate the flow of dusty materials.MCGs TIVAR 88-2 ESD is an electro-static dissipative UHMW-PE material.Thanks to its optimal electrical and chemical properties,this material was used to substitute steel in silo liners for the bio-coal industry,leading to significant cost savings.From aerospace to electronics and beyond,advanced thermoplastics offer effective solutions to common challenges associated with traditional thermoplastic materials across various industries.2829Chapter IV:Advancements in Thermoplastic Materials ScienceCutting-Edge Developments in Thermoplastics from the Forefront of Scientific ResearchSince the early days of thermoplastic materials science,continued research and innovation have been driving the industry.Throughout the decades,this has led to the discovery of materials with unprecedented properties.In the 1930s,for example,the discov-ery of nylon substituted the use of silk in consumer goods and military applications.In the 1960s,continued research in materials science led to the discovery of Kevlar,a material with an outstanding strength five times greater than steel.Today,research in the field of thermoplastics is focused both on the exploration of new formulations,like thermoplastic elastomers and liquid crystal polymers,and on the development of new processing methods,capable of expanding the technological possibilities of these materials.Smart and responsive materials and composites are also pushing the boundaries of thermoplastic technology.In this chapter,you will learn about the latest advancements in ther-moplastics materials science and processing technology.New Formula-tions and Polymer ChemistryOne of the most interesting features of thermoplastics is the wide diver-sity of their chemical structures and formulations.Today,research in materials science and engineering is uncovering new thermoplastic materials with unique properties for advanced applications.Thermoplastic elastomers(TPEs)are a versatile family of polymeric materials that exhibit thermoplastic processability while retaining elas-tomeric characteristics traditionally associated with thermoset rubbers.The composition of TPEs involves the block copolymerization of molecu-larly dissimilar polymers,resulting in the creation of hard”and soft”segments within the polymer chain.The mechanical properties of these materials are dictated by their molecu-lar composition.Noteworthy TPE types include:TPE-S,whose molecular structure consists of repeated styrene and butadiene units;TPO,a blend of polypropylene or polyethylene with another elasto-mer;TPE-E,high-performance ther-moplastic elastomers consisting of polybutylene terephthalate combined with polyesters.TPEs offer many advantages over regular elastomers,including reduced energy consumption during produc-tion,recyclability,and improved mechanical properties such as strength and creep resistance.Addi-tionally,TPEs are easily processed through standard thermoplastic techniques like injection molding,3D printing,and blow molding.Common applications of TPEs span across various industries,including electronics(condenser sheaths,plugs,and sockets),and medical devices,such as breathing tubes,syringe seals,ventilation masks,and catheters.1Liquid Crystal Polymers(LCPs)are a distinctive class of materials that can maintain molecular order in both liquid and solid states.LCPs exhib-Molecular structure of thermoplastic elastomers.3031it two distinct phase changes:the transition from solid to liquid crys-tal and,subsequently,the transition from liquid crystal to full liquid.The intermediate phase is also known as mesophase.LCPs are categorized as either lyotropic,processed by solvent addition,or thermotropic,melt-processable like conventional thermoplastics.Three of the most common forms of liquid crystal polymers include semi-aromatic copolyesters,copoly-amides,and polyester-co-amides.The aromatic amide polymer Kevlar is one the most well-known examples of an LCP.Due to its outstanding strength and toughness,superior to almost any other synthetic fiber,it is used for bulletproof vests,aerospace materi-als,sporting goods,and other highly demanding applications.During processing,the rod-like molecules of LCPs align in a specific direction,resulting in anisotropic mechanical properties.In general,these materials possess outstanding strength,excellent temperature,flame,and chemical resistance,and optimal dimensional stability.The remarkable combination of strength,stiffness,low shrinkage,and stability makes LCPs a preferred material in diverse appli-cations.In electronics,LCPs find use in connectors,switches,and displays.Medical applications include dentistry and micro-surgery.1Continued innovation and research are pivotal for advancing thermoplastic materials science.One recent groundbreaking development is 2DPA-1,a 2D polyaramide material obtained through an innovative polymerization process by researchers at MIT in 2022.2DPA-1 exhibits remarkable properties,including an elastic modulus four to six times greater than bulletproof glass and a yield strength twice that of steel,despite being one-sixth as dense.The mechanical properties of this novel material,combined with its low gas and water permeability,make it a promising candidate for advanced applications such as ultrathin coatings in engineering and aerospace.13Hybrid processing technologyA notable advancement in thermo-plastic processing technology is the use of 3D printing to craft continuous fiber-reinforced composites.While the additive manufacturing of short fiber-reinforced thermoplastics is already well-established,the 3D print-ing of long fiber-reinforced composites presents additional challenges.Today,several technologies are being developed for 3D printing continuous fiber-reinforced composites.These hybrid processing approaches hold the potential to significantly improve part quality and performance while reduc-ing production costs.The demand for printers capable of fabricating contin-uous fiber-reinforced plastics is high,promising substantial cost-savings and increased automation in the field of composites.This technology holds promise for diverse applications,including the automotive and aerospace sectors,custom products like orthopedic implants,and prosthetic limbs in healthcare.Replacing traditional labor-intensive manufacturing with 3D printing is a transformative shift leading to a new generation of ther-moplastic composites.14Overmolding with thermoplas-tic composites represents another significant step forward in composite manufacturing.It allows the produc-tion of complex 3D structures with exceptional structural performance and high functional integration.Overmolding technology is a processing method that allows the combination of two distinct materials into a unique component.Typical-ly,it involves thermoforming a first material(thermoplastic or thermoplas-tic composite),followed by injection molding of a second material.The overmolding process can signif-icantly reduce production times and costs,particularly in aerospace and automotive applications.With its short cycle times,it enables the combina-tion of characteristics from two or more materials without the need for mechanical interlocking or adhesive bonding,eliminating assembly steps.Overmolding can be used to combine composite materials and other ther-moplastics,or thermoplastic materials with thermosets,obtaining hybrid and multifunctional components for versatile applications.The main challenge of overmolding is optimiz-ing the adhesion while preventing interdiffusion between the two differ-ent material layers.To address this challenge,new adhesive technologies,based on nanomaterials,are currently being developed.15Large-scale additive manufacturing(AM)technologies have revolutionized various industries,from aerospace to construction,by unlocking the versatility of 3D printing in unprece-Diagram illustrating the overmolding process.dented applications.While traditional 3D printers have limitations in terms of print volumes and deposition rates,there is a growing focus on overcom-ing these constraints to facilitate the manufacturing of larger components.The emergence of large-format addi-tive manufacturing(LFAM)promises increased speed,precision,mechanical strength,and customization in the production of complex,lightweight,large-scale geometries.LFAM can be adapted to different additive manufac-turing methods including both powder bed fusion and extrusion-based systems.Pellet-based technologies within fused filament fabrication(FFF)have also emerged as a notable advance-ment,offering reduced production times and material costs,as well as the flexibility to use a wide array of materials,including composites.These innovations in LFAM overcome the limitations of conventional 3D print-ing,paving the way for efficient and cost-effective large-scale manufactur-ing across diverse sectors.16Towards“smarter”thermoplastic materialsSmart thermoplastics are a fascinating class of modern materials designed to respond to external stimuli by changing their shape and properties.Among these materials,shape-memory polymers,or SMPs,stand out for their ability to memorize a specific shape and recover their original form upon exposure to an external stimulus,commonly heat.This“smart”behavior and the advan-tages of low density,easy processing,and cost-effectiveness provided by thermoplastics make SMPs promising candidates for various applications.Unlike thermosets,thermoplastic SMPs are processed quickly and cheaply using conventional thermo-plastic technology.Notably,some SMPs can be 3D print-ed with conventional FFF printers.PLA,for example,is a well-known polylactic acid used in additive manufacturing that also possesses shape-memory properties.A combi-nation of SMPs with new design strategies,such as origami and bio-inspired structures,can result in responsive components.The integration of 3D printing and SMPs has led to the emergence of 4D printing,”enabling printed structures to actively change configurations over time in response to environmental stimuli like heat or humidity.This innovative technology holds signifi-cant promise for applications such as minimally invasive biomedical devices,such as stents and dilators.17Another example of“smart”materials is self-healing thermoplastics.The quest for materials with self-healing capabilities has gained substantial attention in the past 15 years,particu-larly for applications in aerospace,electronics,robotics,and sporting goods.The ability of materials to autonomously repair damage holds significant promise for enhancing longevity,reducing replacement costs,and improving safety.Structural polymer materials and composites are prone to damage and degradation,with cracks often forming deep within the structure.Detecting and repair-ing such cracks pose considerable challenges.Self-healing thermoplastics offer an alternative solution,allowing for the 324D printed Eiffel Tower showing shape-memory behavior.From Nature spontaneous repair of degraded and cracked structures.These materials are broadly categorized as intrinsic or extrinsic self-healing systems,depending on the repair mechanism.Extrinsic self-healing requires the incorporation of additional materials.Intrinsic self-healing thermoplastics,on the other hand,can autonomously heal themselves,triggered by stimuli such as heat,light,or static load.Among self-healing materials,thermoplastic elastomers and nanocomposites containing graphene and carbon nanotubes have shown great promise in various engineering applications,spanning from electronics to robotics.This technology represents a ground-breaking advancement in materials science,offering the potential to revolutionize how we approach durability and maintenance in diverse industries.18Looking towards the futureIn conclusion,the evolution of thermo-plastic materials is being improved by remarkable new research and industry advancements.The contem-porary landscape of thermoplastics is characterized by a rich diversity of formulations,including the emergence of thermoplastic elastomers and liquid crystal polymers,bringing unique properties and applications.The quest for innovation extends to hybrid processing technologies,such as 3D printing for continuous fiber-re-inforced composites,large-format additive manufacturing,and overmold-ing.These new technologies further enhance the versatility,applicabil-ity,and potential of thermoplastic materials.Recent breakthroughs in thermoplastic research,such as self-healing and shape-memory polymers,are paving the way for new applications of thermoplastics in engi-neering,medicine,and aerospace.Looking forward,the future of ther-moplastic research holds exciting possibilities.Integration of thermo-plastics with nanomaterials,such as carbon nanotubes,graphene,and silica nanoparticles,can exponen-tially improve the mechanical and functional properties of composites.Additionally,the rise of biodegradable,bio-derived,and recycled plastics is bringing the thermoplastics industry in alignment with global sustainability goals.3435Chapter V:Thermoplastic Composites and Their ApplicationsHow Composite Technology Unlocks Unprecedented Applications for Thermoplastic MaterialsComposites are mixtures of two distinct components:the matrix and the reinforcement.The resulting prop-erties of the composite combine the properties of both components,result-ing in unique advantages compared to unreinforced materials.Typically,when we speak of composites,we refer to Polymer Matrix Composites(PMCs).These are the most common and widely used composites today.Since their first invention in the 1940s,their use has rapidly increased.Today,the production of these materials amounts to several tens of Mtonnes worldwide.19Typically,composites can be classified based on the matrix.In this context,we can distinguish between thermoset matrix composites and thermoplastic matrix composites.While thermoset matrices are initially liquid before they undergo irreversible curing processes,thermoplastic matrices can be melted and solidified repeatedly.Although both types of composites are suitable for specific applications,thermoplastic composites present unique advantages.They possess improved toughness,are faster and easier to process,and can be recy-cled.Composites with engineering and advanced thermoplastic matrices result in mechanical and resistance properties that can easily surpass traditional engineering materials in many demanding applications.In this chapter,the properties of thermoplastic matrix composites will be discussed.You will also learn about their advantages compared to metals and thermoset matrix composites,their processing methods,and the most common applications across different industries.Difference between discontinuous and continuous(UD)fiber reinforcement.Credit:Ning.H,2022.20General Properties of Thermoplastic CompositesThe behavior of thermoplastic composites can be understood based on the different characteristics of the fillers.In general,we can distinguish between particulate fillers,typically constituted by small mineral particles,short fiber reinforcements,and long or continuous fiber reinforcements.In the realm of thermoplastic composites,the choice of reinforcing filler plays a pivotal role in determining material performance.Fibers stand out as the most prevalent reinforcement method for thermoplastics due to their unique efficiency in load-bearing.Fiber-rein-forced composites can be classified by distinguishing between continuous and discontinuous fibers.Continuous fiber-reinforced ther-moplastic composites possess fibers extending uninterrupted from end to end.This results in superior load-bear-ing capacity compared to their discontinuous counterparts,which employ shorter,randomly distributed fibers.In continuous fiber-reinforced thermoplastic composites,different arrangements of fibers are possible,each resulting in unique advantages.For example,unidirectional(UD)fibers provide outstanding mechanical proper-ties in the longitudinal direction due to fiber alignment.On the other hand,the transverse direction(90 with respect to the fiber alignment axis)typically possesses much weaker mechanical properties.Woven fiber reinforcements,where fibers are bundled in tows and interlaced in specific patterns,yield a balance between longitudinal and transverse properties.Braided fabrics,with their variable interlacement angles,are used for enhanced impact resistance and torsional load-bear-ing applications.Longer fibers,while enhancing mechanical properties,result in longer processing time.In contrast,discontinuous fiber-re-inforced composites possess fibers characterized by lower aspect ratios.While these composites possess more modest mechanical properties compared to continuous fiber-reinforced composites,they exhibit much easier processability.In fact,they can typically be processed with the same methods used for unfilled thermoplastics.3637Dependence of material properties on fiber length in thermoplastic composites.Credit:Ning.H,2022.20ronmental impact of carbon fiber.The manufacturing process for virgin carbon fiber(vCF)is energy-inten-sive and can generate hazardous compounds.In contrast,recycled carbon fiber(rCF)is a sustainable option,with much lower energy requirements and reduced environ-mental impact.Mitsubishi Chemical Groups portfolio stands out for its selection of carbon fiber-reinforced thermoplastic composites.KyronMAX is a range of short fiber-reinforced composites suitable for injection molding or 3D printing.The KyronTEX family of pre-impregnated materials offers both random fiber-reinforced composites,ideal for high-impact resistance,and continuous fiber-reinforced composites,optimal for high-strength requirements.KyronMAX and KyronTEX feature matrix materials from PP to advanced thermoplastics like PEI and PEEK,with exceptional mechanical performance.Glass fiberIn the context of thermoplastic composites,glass fibers are the predominant choice,making up 95%of the reinforcement fibers utilized in plastics.This material provides a combination of high strength,low weight,and low cost,which makes it suitable for replacing metals in various structural and semi-structural applications.Fiberglass also demonstrates high tensile strength and is highly resist-ant to corrosion.It excels in electrical insulation,is non-flammable,and maintains dimensional stability with-out warping or degrading over time.Moreover,the low thermal conductiv-ity of glass fiber can be exploited in construction and building materials.Among the innovations in glass fiber composite technology,MCG developed Glass Mat Thermoplastics or GMT.This range of materials features continuous glass fiber mats impregnated with a thermoplastic matrix.The long fiber structure provides GMT with exceptional impact resistance and energy absorption,even at low temperatures,making it less prone to brittleness and shattering compared to traditional glass fiber-reinforced materials.Helmet made with KyronTEX,a continuous carbon fiber-reinforced thermoplastic composite.Source:Mitsubishi Chemical GroupTo understand the properties of discontinuous fiber-reinforced ther-moplastics,the most fundamental property is critical fiber length.This parameter is determined by different factors,such as the intrinsic tensile strength of the fiber and its bond with the matrix.Critical fiber length governs the load transfer from the matrix to the fiber.In general,low crit-ical fiber length is beneficial.This is because when the fiber length in the composite is greater than the critical fiber length,the maximum load-bear-ing capacity of the fiber is exploited.20Filler Types and PropertiesCarbon fiberCarbon fiber is one of the most widely used reinforcements for composites.Its market is expected to grow significantly from 3.7 billion USD in 2020 to 8.9 billion by 2031,reflecting the increas-ing popularity of this material.When combined with thermoplastic polymer matrices,from commodity plastics to advanced thermoplastic materials like PEEK,carbon fiber yields composite materials with exceptional properties.Carbon fiber possesses an outstanding strength-to-weight ratio,making it one of the most desirable reinforce-ments in weight-sensitive applications such as aerospace.In addition to its exceptional mechanical properties,carbon fiber also provides excellent corrosion,fire,and chemical resistance.Its low thermal expansion makes it ideal for high-temperature applica-tions.Carbon fiber also possesses good electrical conductivity,making it an excellent choice for ESD-sensitive applications in electronics.However,in continuously electrified applications,carbon fibers should not be the only ESD-supporting medium in reinforced thermoplastics.Additional ESD-sup-porting additives are recommended to prevent electrical arcing.21Its important to consider the envi-3839Particulate fillersThe use of particulate fillers is a common practice in the plastics indus-try,aimed at enhancing the properties of thermoplastics.The impact of these inorganic fillers on physical,chemical,mechanical and other properties is closely linked to their inherent char-acteristics,depending on their nature,shape,particle size,state of matter aggregate size,surface features,and dispersion within the polymer matrix.A range of particulate fillers,such as calcium carbonate,ceramics lay,silica,graphite,carbon black,and more can be employed in thermoplastic materials.These fillers can improve both the mechanical properties of thermoplastics and other characteristics,such as thermal and electrical conductivity.22Advantages of Thermoplastic CompositesThermoplastic matrix composites offer numerous advantages over both metals and thermoset matrix compos-ites.In comparison to metals,they provide optimal mechanical proper-ties,such as high specific strength and modulus.In general,metals are much denser than plastics,resulting in an exceptional strength-to-weight ratio in thermoplastic composites.This property makes these materials espe-cially suitable for weight-sensitive and energy-saving applications,including automotive and aerospace.Many thermoplastics provide impres-sive resistance to corrosion and chemicals compared to metals.Ther-moplastic composites also feature a low coefficient of thermal expansion,making them well-suited for applica-tions where temperature variations are common.Additionally,thermoplas-tic composites offer remarkable design flexibility and ease of processing.They can be used for overmolding appli-cations,which allow for the creation of complex,multi-material parts or products with enhanced features and performance.They also require minimal secondary processing,stream-lining the manufacturing process and reducing production costs.When compared to thermoset matrix composites,thermoplastic compos-ites possess several key advantages.These composites excel in tough-ness and impact resistance,making them reliable choices for demanding applications.Because no curing steps are required in the manufacturing of thermoplastic composites,these materials are quicker to process,resulting in shorter lead times and higher production rates compared to thermosets.20Thermoplastic composites also provide longer shelf life and are less prone to degradation over time.Notably,thermoplastic composites are easily recyclable compared to thermosets.This contributes to sustainable practices and circular design,while also emitting fewer volatile organic compounds during production.Because thermoplastics are versatile,encompassing a broad spectrum of physical mechanical,thermal,and chemical properties,the characteristics of the final composite can be optimized for each desired application.Processing of Thermoplastic CompositesThe properties of thermoplastic composites,including matrix viscosity,reinforcement volume percentage,and the form of the reinforcement,signif-icantly impact their processability.In general,unlike thermoset composites,which are liquid during the process-ing stage,thermoplastic composites are made of already polymerized thermoplastics.These materials have therefore much higher viscosity and present unique challenges during processing.Especially for thermoplastic compos-ites reinforced with discontinuous fibers or particulate fillers,viscosity is a critical variable.The addition of discontinuous fibers or particulate fillers further increases the materials viscosity,impacting flow and filling during processing.For this reason,specific precautions should be adopted.Short fiber-reinforced composites can be processed with many of the approaches used for unfilled ther-moplastics,e.g.injection molding or extrusion.However,care is needed to ensure the uniform dispersion of the fibers.Tools and machines used for processing should be sufficiently resistant to the abrasive effect of the fibers.6Continuous fiber-reinforced compos-ites require specific processing techniques.Typically,the processing of these composites takes place in two steps:pre-impregnation and consoli-dation.In the pre-impregnation step,the thermoplastic matrix is combined with reinforcement to create composite preforms.This includes techniques such as melt impregnation,powder impregnation,commingling,film stack-ing,and solution impregnation.These processes ensure that the fibers are fully enveloped by the thermoplastic matrix before forming the composite into the desired components.These pre-impregnated materials are transformed into composite parts and products in the consolidation step.Different methods,such as thermo-forming and filament winding,can be used for the consolidation of thermo-plastic composites.Thermoforming of thermoplastic composites involves using heat and pressure to shape flat sheet preforms into a desired three-dimensional part.The process begins by preheating the sheet using either conduction,convection,or radiant heating.The preheated sheet is then placed onto a temperature-controlled,preheated mold,where it conforms to the molds surface as it cools.The excess material is trimmed and can be reprocessed,reducing waste.Thermoforming encompasses various techniques,ranging from simple sheet bending to more complex methods like vacuum forming and pressure forming,which utilize negative pressure(vacuum)or positive pressure(compressed air).20Filament winding of thermoplas-tic composites consists of winding pre-impregnated filaments onto a rotating mandrel.This process involves several steps.First,pre-im-pregnated filaments are pre-heated.Then,a machine winds these mate-rials onto a mandrel,which rotates on an axis.Post-consolidation is finally achieved through heat and 3D printing with KyronMAX carbon fiber-reinforced thermoplastic composite.4041pressure.Depending on the context,the mandrel can be recovered or integrated into the finished part.The main advantage of filament winding is that it is suitable for high reinforce-ment volumes,reaching up to 80%.This results in outstanding mechanical properties for the most demanding applications.In recent years,3D printing of thermoplastic composites has emerged.Additive manufacturing enables design freedom with complex geometries and can contribute to waste and cost reduction.Fusion deposition modeling(FDM),a typical extrusion-based 3D printing process,is commonly used for printing short fiber-reinforced thermoplastic composites.Matrix materials ranging from standard plastics to advanced,high-temperature thermoplastics can be used,offering a wide range of properties and expanding the possibilities for additive manufacturing with thermoplastic composites.20Applications of Thermoplastic CompositesThanks to their outstanding mechan-ical properties,low weight,and excellent chemical and thermal resist-ance,thermoplastic composites can find applications in several industrial sectors,from aerospace and automo-tive to sporting goods.In these fields,thermoplastic composites can substi-tute metals and thermoset composites,with significant effects in weight reduction,sustainability,performance,and energy savings.Carbon fiber-reinforced thermoplastic composites are becoming increasingly significant in the aerospace sector and MCG is playing a leading role in this transition.MCG is collaborating with Boeing to explore the potential of KyronTEX thermoplastic composites for aircraft sidewall panels.KyronTEX thermoplastic composites employ recycled carbon fiber and are easier to recycle compared to the thermo-set composites employed in the past.This innovation will lead to improved sustainability,reduced emissions,and circularity without compromising performance.In the sporting goods industry,weight reduction and outstanding mechanical performance are critical for athletes.For example,MCG assisted a bow manufacturer experiencing a 14il-ure rate in idler wheels.The solution involved implementing KyronMAX S-2220,a 20%short carbon fiber-rein-forced product.This new material led to a greatly improved failure rate,with increased toughness and strength critical in professional archery.For the manufacturing process,existing tooling was adapted to work with KyronMAX,eliminating the need for new investments.Thermoplastic composites help reduce emissions and enable circularity in aerospace.Carbon fiber-reinforced thermoplastic composites strike the perfect balance between low weight and high performance in professional sporting equipment.4243Chapter VI:Sustainability and Recycling of Enginee-ring ThermoplasticsCircularity is the Key of Thermoplas-tic SustainabilityIn recent decades,the global demand for thermoplastics has surged,primarily due to their versatility,durability,and cost-efficiency.Glob-al plastic production has risen from approximately 270 million metric tons in 2010 to 367 million metric tons in 2020.However,this substantial increase in plastic production has led to a corresponding increase in plastic waste.It is estimated that around 381 million tons of plastic waste were generat-ed in 2015 alone,and this figure is projected to double by 2034.This means that the amount of plastic waste per year currently surpasses the amount of plastic produced.Land-filling and incineration are still the most common disposal methods for thermoplastics.23 However,these practices lead to detrimental effects on soil ecosystems and the creation of toxic byproducts.In this context,it is crucial to develop new ways to deal with thermoplastic waste,not just at the end-of-life,but across the entire product life cycle.In this chapter,you will learn about the most important recycling methods for thermoplastics and thermoplas-tic composites.You will discover the significance of Life Cycle Assessment(LCA)and sustainable design.Finally,the future challenges of thermoplas-tics sustainability will be addressed.Evolution of thermoplastics waste treatment in the EU.Credit:Ragaert,2017,et al.24Can Thermoplastics Be Sustainable?Despite the challenges in waste management,thermoplastics can still be a sustainable option.Compared to thermoset resins,in fact,thermoplas-tics are much easier to recycle,since they can be melted and remolded repeatedly.Due to their low density,when thermoplastics and thermoplas-tic composites are used to substitute metals and other heavier materials,they can lead to energy savings and reduced CO2 emissions.This is espe-cially significant in the aerospace and automotive sectors.In addition,thermoplastics tend to be very durable.In industrial applications,using advanced and engineering ther-moplastics can significantly prolong the lifetime of components,thanks to the outstanding mechanical,chemical,and wear resistance of these materials.In order to promote a more sustainable use of thermoplastics,however,circularity must always be a priority.This means focusing on sustainable design principles,evaluating the materials carbon footprint,integrating recycled materials,prolonging the lifetime of virgin materials,and promoting recycling and waste management practices.4445Recyclability of ThermoplasticsRecycling thermoplastics requires different methods depending on the type of plastic waste.Generally,plastic waste can be categorized into postin-dustrial(PI)waste,generated during manufacturing,and postconsumer(PC)waste,produced at the end-of-life of consumer products.PI waste is usually clean and has a known polymer composition,making it relatively straightforward to recycle.In contrast,PC waste often consists of mixed plas-tics with unknown compositions and potential contamination by organic and inorganic residues,making it more complex to recycle.24The two primary recycling methods for thermoplastics are mechanical and chemical recycling.Mechanical recycling involves reprocessing plastic waste into new products.It includes several steps,such as collection,sorting,washing,and grinding of the material.It is the most straightforward and cost-effective option.Howev-er,for mechanical recycling,careful collection and sorting of waste are paramount.Challenges can arise from coatings,paints,and contaminants that impact the mechanical properties of the recycled thermoplastics.On the other hand,chemical or feed-stock recycling breaks down plastic waste into its basic chemical compo-nents,which can be reprocessed into new polymers.This method is suitable for heterogeneous and contaminated plastic waste,where separation is diffi-cult or too expensive.However,most chemical recycling processes require solvents,with potentially increased environmental risk.Chemical recycling also requires substantial investments and it is only used for large volumes of waste.Finally,quaternary or energy recycling focuses on recovering the ener-gy stored in plastic waste through combustion.It is important to control volatile emissions to prevent envi-ronmental contamination.While it is a way to recover energy,this is widely considered the least sustainable approach compared to conventional recycling methods.25With engineering thermoplastics,recycling is especially important.This is because these materials are often expensive and challenging to produce.However,when recycling thermo-plastics for advanced applications,it is crucial to preserve the materials mechanical and functional properties.To address this challenge,Mitsubishi Chemical Groups Statera sustainability platform offers an integrated approach to engineering thermoplastic recycling.This includes Sterra,a portfolio of high-performance engineering plastics with recycled content,including advanced thermoplastics such as PEEK.These materials are guaranteed to maintain the reliability and mechanical properties of their virgin counterparts.The Statera program also provides verified lifecycle assessment data and simplifies responsible disposal by reclaiming production scrap and end-of-life partsCarboNXT recycled carbon fiber.From Mitsubishi Chemical GroupRecyclability of Thermoplastic Composites Thermoplastic composites offer a clear advantage over thermoset composites when it comes to recyclability.Unlike thermoset composites,which have a cross-linked matrix,thermoplastic composites can be efficiently and fully recycled using cost-effective methods,such as remelting and remolding.In thermoplastic composites,mechan-ical recycling is the most widely used method for recycling both the fiber and the matrix.It involves shredding the composite into smaller parts and reprocessing it through melting and molding.With this process,there is no need to separate the fibers from the matrix.Mechanical recycling of thermoplastic composites is typically regarded as the most economical and environmentally friendly approach.However,it is important to note that certain physical and chemical changes can occur during recycling.The initial size reduction step,such as shredding,leads to a reduction in fiber length.The subsequent melting and molding stages can further break down the fibers and even cause degradation in the mechanical properties of the matrix.Thermal recycling is a method that involves the thermal removal of the matrix in the composite to recov-er the fibers.This process typically includes subjecting the material to high temperatures,ranging from 300 to 1000 C.Although it is mainly used for recycling thermoset composites,it can also be applied to thermoplastic composites.Pyrolysis is a thermal recycling process in which the matrix is eliminated without any oxygen.The recycling of fibers,particularly carbon fiber,is gaining increasing attention due to the demand for low-cost alternatives to virgin carbon fiber.On average,the energy consumption for producing 1 kg of Lifecycle of thermoplastics.Credit:Ragaert,2017,et al.244647recycled carbon fiber is approximate-ly one-fourth of that required for producing the same amount of virgin material.This translates to recycled carbon fibers being 2040%less expensive than their virgin counter-parts.As a result,recycling offers an appealing cost-saving solution.20In this context,Mitsubishi Chemical Groups carboNXT focuses on the recycling and reintegration of carbon fiber into the market.CarboNXTs process involves the sorting of composite waste,the recovery of recycled carbon fiber through pyrolysis,the refinement and resizing of carbon fiber,and its use in high-quality customized products.Waste Manage-ment and Sustain-able Design PrinciplesRecycling alone isnt sufficient to ensure a sustainable approach to manufacturing with thermoplastic materials.In fact,the sustainabili-ty of a product isnt limited to the end-of-life but should be integrated into the design process from the very beginning.Among the tools currently available to address this necessity,Life Cycle Assessment(LCA)is the most important.LCA is a crucial quantitative tool for evaluating sustainability.It offers a comprehensive analysis of environ-mental impacts throughout a products entire life cycle,from material extrac-tion to end-of-life management.This includes raw material acquisition,production,packaging,transportation,use,and waste disposal.LCA quantifies energy consumption,materials used,and emissions produced at every step.It offers valuable insights into oppor-tunities for minimizing environmental impact.LCA can also defy your expectations.For example,LCA has shown that replacing fossil-based polymers with bio-based materials doesnt always enhance sustainability.Waste manage-ment and recycling often provide more eco-friendly solutions than biodegra-dation,and switching from plastics to other materials isnt always environ-mentally sustainable.26To foster sustainable product design in a circular economy,there is an increased need for collaboration along the entire value chain.Here are four key points you should keep in mind.Materials selection.Choose sustainable,recyclable materials.Assess their life cycle impact,including production,use,and disposal.Durability and longevity.Create long-lasting products with robust materials and design,considering their expected lifespan.Modularity and adaptability.Employ modular design for easy disassembly and reconfiguration.Repair,reuse,and recycling.Include features for easy repair,encourage product reuse,and design for recyclability.Mitsubishi Chemical Group is commit-ted to supporting LCA and sustainable design principles.MCGs CORACAL software,for example,is a precious tool for calculating the CO2 footprints of your applications.This software provides transparent information and consulting regarding carbon emissions and environmental impact.CORACAL enables users to estimate carbon emissions for materials in the MCG portfolio,aiding in the selection of the most sustainable options.The software offers insights into waste reduction through takeback programs and helps identify more environ-mentally friendly solutions,fostering data-driven decisions and transpar-ency.MCGs DURABIO bio-derived engineering plastic.Looking Ahead:Current Challenges and Future SolutionsFacing the growing concern towards the environmental challenges posed by thermoplastics,innovative solutions are being explored.Bioplastics,for example,have emerged as a promising alternative.They are plastics derived from biomass,such as plants,instead of fossil fuels.It is essential to note that not all bioplastics are biodegradable,and not all biodegradable plastics are bio-de-rived.Biodegradability is defined as the ability of a material to natural-ly degrade at least 90%within six months,without any toxic residues.While biodegradability is valuable for certain applications,such as packag-ing,engineering applications need to prioritize durability to extend product lifetimes and reduce material waste.The development of bio-derived engineering plastics,combining sustainability and durability,is still an open challenge.To address this issue,MCG has developed DURABIO,a bio-based transparent polycarbonate material with exceptional mechanical and wear resistance properties.In the thermoplastics industry,an additional concern that has emerged in recent years is the environmental impact of per-and polyfluoroalkyl substances(PFAS).PFAS are a large group of polymers,widely employed in advanced applications for their unique heat and chemical resistant properties.However,PFAS raise concerns due to their adverse health effects and envi-ronmental accumulation.Because of this,the European Chemicals Agency is currently discussing a new restric-tion on PFAS.In response to these concerns,MCG is researching advanced solutions to offer suitable PFAS alter-natives.These examples show how the proactive adoption of circular design principles,along with responsible risk management practices and continued innovation,can play a crucial role in mitigating future pollution and promoting 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Mitsubishi Chemical GroupMitsubishi Chemical Group Corporation(TSE:4188)is a specialty materials provider with an unwavering commitment to lead with innovative solutions to achieve KAITEKI,the well-being of people and the planet.A leading global manufacturer of high-performance thermoplastics and composites,we help bring ambitious ideas to life across a wide range of applications and industries.We collaborate with engineers and innovators to find the right materials,designs,and production systems.Our goal is to help our customers get their ideas to market faster,safer,and more sustainably.We bring deep expertise and material science leadership in core market segments such as mobility,digital,food,and medical.In this way,we enable industry transformation,technology breakthroughs,and longer,more fruitful lives for us all.Together,around 70,000 employees worldwide provide advanced chemistry-based solutions to deliver the core elements of our slogan “Science.Value.Life.”For further information,please visit our website: is a global platform and community that provides engineers with the knowledge and connections to develop better technology.We bring a professional audience of engineers informative and inspiring content,such as articles,videos,podcasts,and reports,about state-of-the-art technologies.The knowledge on Wevolver is published by various sources:universities,tech companies,and individual community members.Next to that,we manage a network of over 50 technical writers who create content for our customers and publish that on WMillions of engineers leverage Wevolver to stay up to date,find knowledge when they are developing products,and leverage the platform to make meaningful connections.Wevolver has won the SXSW Innovation Award,the Accenture Innovation Award,and the Top Most Innovative Web Platforms by Fast Company.Wevolver is how todays engineers stay cutting edge.This report wa
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