Title page 1

Contents 5

Acknowledgments 14

Executive Summary 15

Importance: Transforming 40 percent of global industrial output for sustainable growth and the energy transition 17

Methodology: Unpacking industrial decarbonization strategies and global best practices 19

Technical Pathways: Decarbonization potential, cost-effectiveness and trade-offs 22

Implementation Challenges: Energy, finance, technology, and jobs 29

The Policy Package 34

The World Bank Playbook: Operationalizing country and regional actions 49

1. Introduction 51

The role of industry in the region's economic development and the energy transition 53

The emissions impact of the region's industrial sector 55

Industrial energy use in key emerging economies in the region 56

Barriers to mitigating industrial emissions in emerging economies of the region 58

2. Methodology 63

Scope of analysis 64

Data sources 67

Sensitivity analysis 68

Technology tiers 69

3. Modeling Results 78

Energy use 79

Emissions 89

Costs 94

Sensitivity analysis 107

4. Case Studies of International Industrial Decarbonization 109

Case study 1. Bottom-up decarbonization of India's medium-sized steel producers 111

Case study 2. Northern Sweden's green industrial hub 116

Case study 3. Full-scale zero-carbon cement in Norway 122

Case study 4. Zero-carbon industrial parks in China 126

Case study 5. From fertilizer to fuel-the dual role of ammonia in clean hydrogen adoption 127

5. Recommendations 131

Policies for the first steps in industrial decarbonization: Tiers 1 and 2a 133

Policies for later-stage industrial decarbonization dependent on electricity: Tiers 2b, 4a, and 4b 138

Policies to support carbon capture and use or storage: Tier 3 142

Policies to level the price of fossil fuels and clean energy 145

Investment strategies to support industrial decarbonization 148

Policy options to ready the workforce for industrial decarbonization 153

6. Deep Dive: Industrial Electrification in China 155

Impacts of electrification tiers on industrial energy use in China 157

Cost-effective electrification technologies 159

Policies to overcome the challenges of high electricity costs 163

The availability of clean electricity for industrial electrification in China 164

Policies to help industrial firms access clean electricity 168

Policies to increase consumption of clean electricity 170

7. Conclusion 173

References 176

Appendix A. Technical Appendix: Supplementary Figures 194

A.1. Energy-related industrial emissions by country in the East Asia and Pacific region 195

A.2. Industrial energy use by subindustry 195

A.3. Change in demand by subindustry 197

A.4. Absolute annual energy and annualized capital expenditures 198

A.5. Composition of Tiers 1, 2a, and 2b 199

A.6. Sectoral analysis: Cement 200

A.7. Sectoral analysis: Iron and Steel 201

Appendix B. Industrial Use of Demand-Side Resources 202

B.1. Demand-side resources and industrial decarbonization 203

B.2. Industrial demand-side resources 206

B.3. International experience with industrial demand-side resources 210

B.4. Policy recommendations and possible financing opportunities 218

Appendix C. Policy Recommendations for Electrification of Industrial Heating: Focus on Heat Pumps and Financing Mechanisms 222

C.1. Innovative business models 223

C.2. Reducing capital cost 226

C.3. Reducing installation cost 228

Appendix D. Scenario Input Data and Assumptions 230

D.1. Selected input data and assumptions by country 231

D.2. China non-feedstock industrial energy use in 2022 (PJ) 235

D.3. Indonesia non-feedstock industrial energy use in 2022 (PJ) 236

D.4. Viet Nam non-feedstock industrial energy use in 2022 (PJ) 237

List of Abbreviations 238

Tables 10

TABLE ES.1. The Six-Tier Approach: Strategies for industrial decarbonization based on cost-effectiveness and technological readiness 20

TABLE ES.2. The industrial decarbonization policy package for East Asia 35

TABLE 1.1. Industrial statistics for the East Asian region versus the world average in 2023 52

TABLE 3.1. Percent reductions in emissions by technological tier relative to the BAU scenario in China, Indonesia, and Viet Nam 91

TABLE 3.2. Annual abatement cost of each technological tier (in US$/tCO₂) in China, Indonesia, and Viet Nam 104

TABLE 4.1. India's Green Steel Taxonomy 111

TABLE 4.2. Comparison of annual capacity and emission intensity: Kalyani Group and top Indian steel producers 112

TABLE 4.3. Swedish public sector investment instruments for green steel projects 119

TABLE 4.4. Financing structure of Strega 119

TABLE 5.1. Comparison of carbon pricing systems 146

Figures 10

FIGURE ES.1. Industrial sector energy use by fuel for China, Indonesia, and Viet Nam shows fossil fuel dependence 18

FIGURE ES.2. Industry decarbonization technical pathways: Abatement potential and abatement cost per tonne of CO₂ 22

FIGURE ES.3. Breakeven carbon pricing and electricity cost combinations in China, Indonesia, and Viet Nam 28

FIGURE ES.4. CO₂ emissions from industry and from electricity purchased by industry 30

FIGURE ES.5. Capital investment needed per tier in China, Indonesia, and Viet Nam to reach net-zero 32

FIGURE 1.1. Energy-related CO₂ emissions in the East Asian region by country, 2022 56

FIGURE 1.2. Industrial energy use by fuel (top) and by subsector (bottom) in key emerging economies of the region, 2022 57

FIGURE 2.1. Anticipated percent changes in product demand in China by industrial subsector 71

FIGURE 3.1. Annual industrial sector final energy use in China (across intervention tiers) 79

FIGURE 3.2. Cumulative annual industrial energy use in China by energy type 80

FIGURE 3.3. Industrial sector electricity demand in China 81

FIGURE 3.4. Annual industrial energy use in China by subindustry 81

FIGURE 3.5. Annual chemicals industry feedstock uses in China by energy type 82

FIGURE 3.6. Annual industrial final energy use in Indonesia 83

FIGURE 3.7. Annual industrial energy use in Indonesia by energy type 83

FIGURE 3.8. Industrial sector electricity demand in Indonesia 84

FIGURE 3.9. Annual industrial energy use in Indonesia by subindustry 85

FIGURE 3.10. Annual chemicals industry feedstock uses in Indonesia by energy type 85

FIGURE 3.11. Annual industrial sector final energy use in Viet Nam across intervention tiers 86

FIGURE 3.12. Annual industrial sector final energy use in Viet Nam by energy type 87

FIGURE 3.13. Industrial sector electricity demand in Viet Nam 87

FIGURE 3.14. Annual industrial energy use in Viet Nam by subindustry 88

FIGURE 3.15. Annual chemicals industry feedstock uses in Viet Nam by energy type 88

FIGURE 3.16. Annual CO₂ emissions in China, Indonesia, and Viet Nam by energy type 89

FIGURE 3.17. CO₂ emissions from the industrial sector and from electricity purchased by industry 93

FIGURE 3.18. Annual industrial energy expenditures in China by technology tier 95

FIGURE 3.19. Annual industrial energy expenditures in China by energy type 95

FIGURE 3.20. Annual industrial energy expenditures in Indonesia by energy type 96

FIGURE 3.21. Annual industrial energy expenditures in Indonesia by energy type 96

FIGURE 3.22. Annual industrial energy expenditures in Viet Nam by energy type 97

FIGURE 3.23. Annual industrial energy expenditures in Viet Nam by energy type 97

FIGURE 3.24. Capital equipment investment needs in China by intervention tier 98

FIGURE 3.25. Capital equipment investment needs in China by subindustry and by intervention tier 99

FIGURE 3.26. Required capital investment per unit of GHG abatement in China 99

FIGURE 3.27. Capital equipment investment needs in Indonesia by technology tier 100

FIGURE 3.28. Capital equipment investment needs in Indonesia by subindustry and by technology tier 101

FIGURE 3.29. Required capital investment per unit of GHG abatement in Indonesia by technology tier 101

FIGURE 3.30. Capital equipment investment needs in Viet Nam by technology tier 102

FIGURE 3.31. Capital equipment investment needs in Viet Nam by technology tier 103

FIGURE 3.32. Required capital investment per unit of GHG abatement in Viet Nam by technology tier 103

FIGURE 3.33. Energy costs and annualized capital investment needs per unit of annual abatement in China 105

FIGURE 3.34. Energy costs and annualized capital investment needs per unit of annual abatement in Indonesia 106

FIGURE 3.35. Energy costs and annualized capital investment needs per unit of annual abatement in Viet Nam 106

FIGURE 3.36. Breakeven carbon pricing and electricity cost combinations in China, Indonesia, and Viet Nam 108

FIGURE 4.1. Heidelberg Materials CCS project in Brevik, Norway 122

FIGURE 6.1. Industrial heat energy demand and temperature requirements in China by manufacturing subsector, 2021 156

FIGURE 6.2. Process heat energy demand by temperature grade in China's manufacturing sector 157

FIGURE 6.3. Capital investment needs for electrification in China (Tiers 2a and 2b), by industrial subsector 158

FIGURE 6.4. China's electricity installed capacity by source, 2000-24 164

FIGURE 6.5. China's electricity production by source, 2000-24 165

FIGURE 6.6. Share of nonfossil power generation in China, 2000-24 166

FIGURE 6.7. Total solar and wind installed capacity in China, 2000-24 166

Boxes 13

BOX 4.1. Power sector policy milestone enables 100 percent renewable energy: India's Green Energy Open Access (GEOA) Rules, 2022 114

BOX 4.2. From abundance to bottleneck: How infrastructure shapes the pace and scale of industrial decarbonization in northern Sweden 120

Appendix Tables 10

TABLE B.1. Demand response types and applications 205

TABLE B.2. A comparative analysis of demand response, demand flexibility, and virtual power plants 221

Appendix Figures 12

FIGURE A.1. Energy-related industrial emissions in the East Asia Pacific Region by country in 2022 195

FIGURE A.2. Annual industrial energy use by subindustry and energy type in China in 2022 195

FIGURE A.3. Annual industrial energy use by subindustry and energy type in Indonesia in 2022 196

FIGURE A.4. Annual industrial energy use by subindustry and energy type in Viet Nam in 2022 196

FIGURE A.5. Anticipated natural changes in product demand and potential changes that could be achieved through material efficiency and... 197

FIGURE A.6. Anticipated natural changes in product demand and potential changes that could be achieved through material efficiency and... 197

FIGURE A.7. Absolute annual energy costs and annualized capital investment needs in China 198

FIGURE A.8. Absolute annual energy costs and annualized capital investment needs in Indonesia 198

FIGURE A.9. Absolute annual energy costs and annualized capital investment needs in Viet Nam 198

FIGURE A.10. Composition of energy use reductions from Tiers 1, 2a, and 2b in China 199

FIGURE A.11. Composition of energy use reductions from Tiers 1, 2a, and 2b in Indonesia 199

FIGURE A.12. Composition of energy use reductions from Tiers 1, 2a, and 2b in Viet Nam 199

FIGURE A.13. Cumulative CAPEX investment needs for the cement industry in China 200

FIGURE A.14. Cumulative CAPEX investment needs for the cement industry in Indonesia 200

FIGURE A.15. Cumulative CAPEX investment needs for the cement industry in Viet Nam 200

FIGURE A.16. Cumulative CAPEX investment needs for the iron and steel industry in China 201

FIGURE A.17. Cumulative CAPEX investment needs for the iron and steel industry in Indonesia 201

FIGURE A.18. Cumulative CAPEX investment needs for the iron and steel industry in Viet Nam 201

FIGURE B.1. How demand-side resources can adjust load 204

FIGURE B.2. Major industrial demand response and flexibility sources 207

FIGURE C.1. Overview of how HaaS business models can provide heat services and structure support for both capital and operating costs 225

Appendix Boxes 13

BOX B.1. Demand flexibility at the Alcoa Warrick Smelter 208

BOX B.2. Demand flexibility actions in the European Union 214