How North-South partnerships can give new energy to industry
Global efforts to achieve climate neutrality will spur the rise of new manufacturing hubs, making countries with abundant renewable power increasingly competitive for some energy-intensive processes. This is especially true for those industries that require renewable hydrogen to decarbonise. A new report by Agora Industry lays out how countries in both the Global South and North can benefit from this development.
Cutting greenhouse gas emissions from industry to net zero is a complex but achievable task that requires a mix of measures, including a shift from fossil fuels to renewables. Where possible this should occur through electrification, as it is the most efficient use of energy. Where that is not an option, the use of hydrogen made with renewable energy is a viable alternative.
A new policy paper by Agora Industry examines how the economics of producing hydrogen and its derivatives may affect global value chains. As industries seek to cut their emissions, new opportunities to contribute energy-intensive parts of decarbonised production processes will emerge for Global South countries rich in renewable power. Politically stable nations with strong governance and advanced financial and industrial bases, such as Brazil and South Africa, are particularly well-placed to become leaders in the supply of materials needed for green steel and chemicals.
By forging partnerships with those nations, Global North countries can gain access to cost-effective green energy-intensive materials, diversify their supply chain and improve their strategic autonomy, thereby accelerating the decarbonisation of their own carbon-intensive industries.
The report highlights the importance of promoting local processing of raw materials to ensure that Global South countries retain some of the gross value added and diversify their economies, thereby boosting economic stability and growth. This is crucial to avoid dependency on energy or raw material exports, a development sometimes referred to as the “resource curse”.
In the case of steel, it is estimated that exporting green iron can raise local employment by 16 percent per tonne of DRI produced in Global South countries compared with exporting the equivalent volumes of green hydrogen and iron ore separately. At the same time, countries in the Global North can retain more than 90 percent of existing jobs, lessen the need for state support, diversify critical material supply chains and improve the competitiveness of existing industries in the transition to green steel.
Both Brazil and South Africa can leverage their upcoming G20 presidencies to develop such strategic international partnerships and establish themselves as key players in the global industrial value chain. Measures to achieve this include collaboration on harmonising standards and certification for renewable hydrogen; streamlining governance structures and regulatory approval processes; setting clear frameworks for local content requirements and skills development; and stimulating local hydrogen industries through tax incentives and public procurement strategies.
The 26-page report ‘Industrial Value Chain Transformation’ can be downloaded for free below.
