$1.7 Trillion Industry Investment Opportunity In East Asia, Says World Bank

Asia’s industrial sector is home to a $1.7 trillion clean investment opportunity, according to a new World Bank analysis – and doing so could cut the equivalent of 16% of global carbon emissions in 2023.

Industry – making the products we use every day, from steel to cement to clothing – emits a third of all human-caused climate pollution. This is especially true in China, Indonesia, and Viet Nam, where the power and industrial sectors make up 75%-87% of all energy-related emissions.

But a new flagship report from the World Bank, co-authored by Energy Innovation, finds investing just $70 billion per year – equivalent to 0.3% of these countries’ GDPs – in clean industry could achieve a decarbonized manufacturing sector by 2050.

The new report, Industrial Decarbonization in East Asia: Transforming Energy, Finance, Technology, and Jobs, is a comprehensive roadmap to the technologies that are poised to transform manufacturing throughout East Asia.

The manufacturing sector, which turns raw materials into goods, is East Asia’s largest energy user and source of greenhouse gas emissions. Despite its importance, industry remains underexplored in the global energy transition, but this report reveals a pathway to decarbonization. Transforming manufacturing creates opportunities like adopting new technologies and growing domestic economies through smart investments in modern, efficient industrial processes. If these three countries used this strategy, they would reduce global emissions by around 6 billion tonnes of carbon dioxide equivalent per year.

And the opportunities are not limited to East Asia: The same technology and policy playbook could help economies across the world join the clean industrial revolution.

The Task of Cleaning Up Industry

The World Bank’s report considers how industrial production will change from now through 2050 if no new policies are implemented, then layers on efficiency and decarbonization technologies in six tiers. Technologies that boost energy efficiency, material efficiency, and product longevity account for the largest share of energy savings and emissions reduction in China and Viet Nam, and the second largest in Indonesia.

“Easy” electrification options – which include direct electrification of low-temperature industrial heat, replacing diesel engines with electric motors, and partially shifting from primary to recycled steelmaking – are the next priority. Subsequent technology tiers encompass further opportunities in direct electrification, as well as carbon capture and storage, the use of clean hydrogen, and the use of clean chemical feedstocks.

These technologies can steadily cut CO₂ emissions from industrial activities. However, if the electricity sector does not shift to emissions-free energy like renewables and nuclear, the emissions impact of the electricity purchased by the industrial sector could largely negate emissions reductions from the industrial sector itself.

Truly reaching net-zero therefore requires the clean industrial transition be accompanied by electricity sector decarbonization.

The study illustrates how clean industrial technologies change the mix of fuels used by manufacturers in each country. For instance, in Indonesia, under a business-as-usual scenario, industrial energy use is projected to be about 70% higher in 2050 than in 2022 due to economic growth. Efficiency measures and electrification can reduce that energy consumption by more than half. Although the remaining interventions—carbon capture, clean hydrogen, and clean feedstocks—increase energy use, the total energy consumption of a decarbonized industrial sector remains below 2022 levels.

The largest cost associated with industrial decarbonization is the cost of energy (such as electricity, clean hydrogen, and sustainable bioenergy) to run clean industrial processes. Fortunately, a transition to clean industry can save firms money. Efficiency and “easy” electrification technologies significantly reduce costs, and the remaining technology tiers only modestly increase costs, so total annual energy expenditures across all clean technology tiers are well below BAU energy costs.

Upfront capital costs can also be a barrier to firms upgrading to new, clean industrial equipment. The total required investment in equipment to transition to clean manufacturing is about $1.7 trillion across the three countries, $1.5 trillion of which is in China.

Although this may sound like a lot, it amounts to only $60 billion per year in China from 2026-2050, just 0.3% of China’s $18.7 trillion GDP or 1.6% of its $3.8 trillion government expenditures. However, this does not include capital needs outside of the industrial sector, such as power plants and transmission lines to supply electricity.

Results are similar in Indonesia and Viet Nam, relative to those countries’ smaller sizes. These are modest investments compared to their benefits, which include improved air quality (and associated reductions in asthma, heart attacks, and premature deaths), technological leadership, and enabling exports to regions with carbon border adjustment mechanisms, such as the European Union.

Good Policy Can Clean Up Industry

Although the costs of industrial decarbonization are within reach, this transition will not happen on its own. The World Bank highlights four key areas where policymakers can take action to accelerate a clean industrial transformation in their countries.

• Energy: Industrial firms require sufficient and cost-competitive clean electricity. This can be achieved by accelerating deployment of inexpensive wind and solar energy, co-optimizing industrial energy use with electricity supply, supporting storage technologies, and reforming market rules to improve electricity trading and facilitate direct renewable energy procurement.
• Finance: Financing for firms must be adequate and properly targeted. This includes strategic approaches to concessional finance and public procurement, carbon pricing, and de-risking instruments to help support new technologies.
• Technology: Governments can accelerate the commercialization of new industrial technologies through standards with appropriate measuring, reporting, and verification; pilot programs; technical assistance; and research and development support.
• Jobs: Industrial firms require a skilled technical workforce. Policymakers can help by promoting and funding vocational training programs; ensuring educational systems prepare workers for data-driven roles spanning engineering, manufacturing, and environmental science; and establishing programs to help with workforce transition and reskilling.

Many approaches exist to solve the problem of reducing industrial carbon emissions. The World Bank’s research shows how countries can make smart investments backed by sound public policy to become clean industrial leaders, achieve energy savings, create larger and more capable workforces, and secure a livable, pollution-free climate.