Industrial Decarbonization: The Missing Link in Climate Diplomacy

In Short

Industrial decarbonization is essential to achieving global climate goals, yet it remains underrepresented in climate diplomacy. This article argues for stronger alignment between industrial strategy and climate policy, drawing on regional insights from APAC and the EU. We explore why industry lags behind, how trade and technology can accelerate progress, and what role public‑private coalitions and strategic foresight must play. Without targeted policy frameworks and coordinated investments, industry risks becoming the Achilles’ heel of the global energy transition. Ultimately, we call for climate diplomacy to treat industry not as a footnote, but as a foundational pillar of the transition.

The Quiet Giant of Global Emissions

While power generation often dominates climate headlines (with nuclear enjoying a resurgence), heavy industry remains the overlooked engine of global emissions—responsible for nearly a third of the total. According to the IEA’s Global Energy Review 2025, energy‑related CO₂ emissions from heavy industry rose by 0.8% in 2024, reaching an all‑time high of 37.8 Gt. For comparison, IATA reports 942 Mt of gross CO₂ emissions from aviation in the same year.

Steel, cement, chemicals, and refining form the backbone of modern economies, yet they are often absent from international climate negotiations or referenced only indirectly through carbon market debates. If the world is serious about achieving net zero, industrial decarbonization must be elevated from a technical and economic hurdle to a strategic pillar of climate diplomacy.

Why Industry Is Falling Behind

The lag in industrial decarbonization is not a failure of ambition but a reflection of structural complexity. Industrial value chains are cross‑border, capital‑intensive, and deeply reliant on legacy infrastructure and energy systems. Decarbonizing them requires more than national policy; it demands regional coordination, long‑term investment signals, and tailored transition pathways.

Several factors explain this gap between ambition and realization:

Industrial policy is entangled with national security.

Taiwan’s dominance in global chip manufacturing or the EU’s debate on localizing AI data centers illustrate how industrial strategy sits at the intersection of security, competitiveness, and sovereignty, making it harder to integrate into climate diplomacy. Sustainable aviation fuel is another example of how industrial decarbonization quickly becomes geopolitical. Despite emerging demand signals, production is constrained by feedstock limits and fragmented certification, underscoring the need for cross‑border standards and coordinated policy.

Technology deployment is slow.

Carbon capture, hydrogen, and high‑temperature electrification remain costly and difficult to scale. Meanwhile, the “low‑hanging fruit” (mostly efficiency gains and energy‑use reductions) has largely been exhausted. Emerging solutions like modular DAC and distributed carbon capture (e.g., in residential and shipping) show that technology is advancing faster than policy. Their deployment depends on clearer permitting, infrastructure, and carbon‑accounting rules that allow captured‑carbon credits to move across borders.

Just transition remains unresolved.

Without credible pathways for workers and regions dependent on legacy heavy industry and exports, any international agreement risks being politically untenable.

Regional Realities: Lessons from APAC and Europe

I have navigated this disconnect firsthand across APAC and the EU: two regions where industrial competitiveness is tightly linked to national identity and economic resilience.

Japan and Korea

Both countries possess strong industrial bases and are advancing hydrogen strategies, yet policy alignment across ministries and sectors remains fragmented. Both countries are also energy importers by default and are therefore acutely aware of the challenges balancing climate targets with energy independence. During my time at Shell, I led advocacy efforts in these markets to bridge these gaps, working with government, national champions, and industry bodies to influence policy roadmaps that reflect both climate ambition and industrial realities.

European Union

The EU’s Clean Industrial Deal (2025) aims to bolster competitiveness by supporting clean tech and energy‑intensive industries through cheaper energy and strategic investments. It is also a high‑stakes test of Europe’s ability to reconcile climate leadership with economic competitiveness.

The Carbon Border Adjustment Mechanism (CBAM) is another example: a bold but geopolitically sensitive tool. In negotiations with EU institutions, I helped shape industry input on CBAM, advocating for transitional support and global harmonization to avoid unintended consequences for trade partners.

Across both regions, the lesson is clear: industrial decarbonization is as much a geopolitical and societal challenge as it is a technological one.

Strategic Levers for Change

Carbon Clubs and Green Trade Diplomacy

Mechanisms such as CBAM can incentivize the emergence of carbon clubs and green trade alliances, accelerating industrial decarbonization while protecting competitiveness. But they must be designed with geopolitical sensitivity and grounded in industrial realities. Davos 2026 also highlighted the growing influence of demand‑side coalitions in industrial decarbonization. The First Movers Coalition (effectively a demand-side carbon club) now brings together 101 companies with $19 billion in purchasing commitments by 2030 across hard‑to‑abate sectors such as aviation, shipping, trucking, steel, cement, aluminium, and carbon removal. Its prominence at the WEF Annual Meeting shows how coordinated procurement can accelerate clean‑technology deployment and support the emergence of coordinated climate clubs.

Public‑Private Coalitions

Industry champions are critical to shaping policy and accelerating technology deployment. Public‑private partnerships such as hydrogen hubs, CCUS clusters, and industrial transition alliances show how shared risk and coordinated investment can unlock progress. Bio‑LNG projects reinforce this at a smaller scale: they rely on municipal feedstocks, private capital, and industrial offtakers to create circular, regionally distributed systems that cut emissions. Their scale‑up depends on harmonised guarantees of origin that enhance credibility and fungibility, which in turn support predictable demand.

Strategic Foresight and Scenario Planning

Anticipating industrial disruption and policy shifts is essential. At Shell, we used global energy scenarios to engage stakeholders on long‑term transition pathways. At Whiteleaf Climate, we now apply policy‑scenario thinking to help clients craft resilient strategies for the energy transition.

A Call for Industrial Inclusion

Climate diplomacy must evolve. Industrial decarbonization cannot remain a footnote; it must become a foundational pillar of the global energy transition. This requires embedding industrial pathways into climate agreements, fostering regional cooperation, and building coalitions that balance ambition with pragmatism.