Published March 2025
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Executive summary The seeds for producing and using near-zero emissions materials have been planted, but acceleration is needed
The industry sector requires a massive scale-up of markets for transformative near-zero emissions materials to contribute to the achievement of internationally-agreed government objectives for net zero emissions. Such scale-up requires the production and use of these materials to grow from essentially zero today to capture nearly the entire market within the next few decades, shifting away from high-emissions conventional production and demand. The steel and cement sectors account for 14% of global energy and process-related emissions on a direct basis, making them central to the decarbonisation challenge.
First mover producers of near-zero emissions materials are beginning to position themselves to compete in such markets, including through the development of definitions, certification and labelling systems for near-zero emissions steel and cement – in some cases through collaboration with government – like the Low Emissions Steel Standard initiated in Germany, the voluntary CO2 standard of the China Iron and Steel Association, and the Global Cement and Concrete Association’s definitions proposal. Yet, while progress is underway, it has not yet advanced at the speed and scale needed: announced capacity for near-zero emissions iron-based steel production and cement production by 2030 amounts to only about 10 Mt and 35 Mt, respectively, equivalent to 10% of that required in the same year on a pathway to net zero emissions by mid-century.
On the demand-side, some material-consuming companies – like auto manufacturers and construction companies – are already committed to procure near-zero emissions products, indicating a willingness from some buyers to pay a price premium. The quantities are so far quite small – offtake agreements for near-zero emissions steel for which quantities are publicly disclosed account for only a little under 2 Mt per year of demand by 2030. Material purchasers have announced a willingness to purchase an additional 3 Mt through the First Movers Coalition Near-Zero Steel 2030 Demand Challenge and the RMI Sustainable Steel Buyers Platform, although this demand has not yet been met. Together, this nearly 5 Mt of demand is estimated to have a combined value of roughly USD 3.5 billion. Further demand that has not yet been fulfilled may already be much larger but is difficult to quantify outside of such initiatives. Nevertheless, offtake agreements so far lack regional diversity and remain too small to provide the certainty needed for a sufficient number of producers to take on the risk of early deployment.
Despite relatively modest beginnings, markets have the potential to grow substantially in the coming years. By way of example, the global market value of near-zero emissions steel alone would reach close to USD 300 billion (about 20% of today’s total steel industry global market value) by 2035 if markets grow at a pace commensurate with government climate pledges. By 2035, this market value would reach close to USD 550 billion on a pathway compatible with reaching net zero emissions by mid-century. The market value for near-zero emissions cement could reach up to USD 100 billion by 2035, depending on the policy settings.
Policy action is vital to establish international markets for near-zero emissions material production and use
Early adoption of near-zero emissions materials and production technologies requires overcoming a number of barriers, most notably cost. Early offerings of near-zero emissions steel and cement carry a price premium resulting from an estimated 10% to 125% higher production cost compared to conventional production, depending on regional and technological factors. The international nature of industrial markets, which means that producers are trade-exposed, further accentuates the risks for the first private sector investors.
Against this backdrop, targeted demand and supply policy measures implemented by governments globally could help push markets for near-zero emissions steel and cement over important thresholds. For example, past experience suggests that at around 1% of market share, technologies typically have sufficient maturity to have a tangible effect on supply chains. This makes wider adoption afterwards more straightforward due to the experience from early projects and economies of scale in production that help lower cost. Reaching these thresholds can take up to several decades, especially for large and site-tailored technologies typical of industry. As industry players look for new ways to secure a competitive advantage in the currently challenging market context – and with mid-century only one investment cycle away for long-lived industrial plants – government support could make the difference in spurring growth for near-zero emissions materials.
Demand-side measures are critical to provide certainty given the higher costs and risk of early deployment
Government measures have a particularly important role to play in the near term for scaling up markets: well-designed targeted demand-side measures can create early lead markets for near-zero emissions materials, paving the way to more widespread market opportunities thereafter. Governments are well-positioned to help buffer the higher risk through targeted policies during market formation, until other dynamics may be able to take over in the longer term. Policies to support innovation and early deployment can help shrink the price premium through technological learning and economies of scale. Moreover, the price premium on final products like cars and houses is likely to be relatively small – up to 5%, but often less – given that steel and cement make up a relatively small portion of overall costs. Yet in the short-term, supply chain complexities can make it difficult to pass through additional costs to final consumers – policies may be able to help bring markets to the point where cost pass-through could be more feasible. Over the longer term, increasing stringency and global coverage of broader policy measures like carbon pricing would raise the cost of high-emissions materials and may help enable near-zero emissions materials to eventually reach price parity.
The approach taken to provide critical early demand-side support can be tailored to each governments’ circumstances and preferences. Targeted measures could include policies aiming to cover the price premium, like contracts for difference and public procurement of near-zero and low-emissions materials. They could also include mandatory regulations that require a growing market share of near-zero emissions materials or establish compulsory emission intensity performance levels. These can be supplemented by measures that target end-products, like policies that set embodied carbon limits on buildings or vehicles, or product design codes that consider lifecycle emissions. Government involvement to ensure clear, consistent and verifiable labelling and certification can underpin these policies and facilitate demand by providing transparency and reducing complexity.
Supply-side measures can work hand-in-hand with demand-side policies to help drive a shift in capacity
Investment decisions made today directly impact the stock of facilities operating mid-century. For a trajectory compatible with internationally agreed government objectives, near-zero emissions production needs to be scaled up rapidly while high-emissions production is reduced in an orderly manner. Yet the window is narrowing to bring near-zero emissions technologies to market: 15% of the global steel production fleet around 2035 and 40% for cement around 2030 will face a reinvestment decision. These figures increase to 50% and nearly 100% for Climate Club members.
New investments will require careful consideration: at present, over 200 Mt of high-emissions conventional steelmaking capacity is either planned or set to come online in the next years, virtually all in emerging economies. Meanwhile, achieving net zero emissions by mid-century requires that production eventually transition away from high-emissions conventional production. This means that new capacity additions would be constructed to be near-zero emissions “capable”, if not fully near-zero emissions, with clear plans and technical capabilities for conversion to near-zero emissions production prior to mid-century. In some jurisdictions, this may also entail the retrofit or replacement of high-emissions existing assets with near-zero emissions technologies during the upcoming investment cycle.
Governments can make use of a variety of targeted supply-side measures to design a strategy for their industry transition. Economy-wide measures such as carbon pricing can help backstop policy strategies and improve the cost-competitiveness of near-zero emissions materials, but are most effective when coupled with targeted measures. These include incentives such as grants, contracts for difference, tax credits, or other financing that can support technology demonstrations, commercial-scale early deployment, and operating costs for clean energy technologies. Policies targeted at supporting and co-ordinating scale-up of enabling infrastructure – including for low-emissions hydrogen and electricity production, transmission and distribution, and CO2 transportation and storage – can facilitate more rapid roll-out of near-zero emission technologies. Meanwhile, regulatory measures like retrofit-ready or near-zero “capable” requirements, moratoriums on new builds of high-emissions capacity, or targets to reduce production and use of emissions-intensive materials can be ways to ensure assets are decarbonised sufficiently quickly, while also reducing excess capacity that contributes to depressed market prices that make it harder for industry players to invest in decarbonisation.
Collaboration across borders on demand and supply would bring multiple benefits
The international nature of markets for industrial products – along with the need for large and capital-intensive technology demonstrations for near-zero emission production – means that international collaboration is vital to make the industry transition faster and less costly; weak international co-operation could delay the transition to net zero by decades.
Investments in supply of near-zero emissions materials tend to be large and lumpy – that is, a new million-tonne steel or cement plant is a major investment that will supply many buyers over decades. International co-operation on demand commitments can send larger signals to markets, thereby helping to de-risk such investments. Aggregating demand from multiple public and private sector buyers, as well as across borders, can increase certainty and help secure a business case for producers. Such efforts are already underway; for example, ten governments are collaborating on public procurement of low-emissions materials under the Industrial Deep Decarbonisation Initiative (IDDI), of which five have committed to a Green Public Procurement Pledge. Together, they procure over 30 Mt of steel and 55 Mt of cement per year. Such efforts need to be widened to a larger number of governments, and ambition needs to be raised overall, to achieve critical mass.
On the supply side, international knowledge-sharing and collaboration can help speed-up technology development and cost reductions. International finance can also help accelerate deployment in multiple regional contexts, helping to achieve economies of scale on technologies across more regions and with increased pace. Co-ordination is also needed to address challenges that are fundamentally global in their nature, such as excess global industrial capacity that has implications across international markets.
Co‑ordinating policy ambition across governments can be a central part of co‑operation efforts. Raising policy ambition and setting similar paces of decarbonisation across multiple countries can help mitigate carbon leakage as markets for near-zero emissions materials grow. It can also help share the policy burden, in that larger international markets for near-zero and low-emissions goods would reduce the extent to which individual governments may need to provide export subsidies for early producers. For market actors, this co-ordination can also provide the predictability and transparency needed to accelerate market growth.
Collaboration among governments on policy ambition can take different forms and levels. At a higher level, collective international pledges can spur dialogue on ambition and send powerful early signals to markets. At the more granular level, governments may choose to discuss possibilities for co-ordination and alignment of specific policy measures. These could include similar rates of subsidies under contracts for difference, comparable carbon prices, aligned emissions thresholds used in emissions intensity regulations, co-ordinated requirements within public procurement policies for near-zero and low-emissions materials, or similar timelines for reducing reliance on high-emissions production.
Climate Club members have an opportunity to become collective first movers and shape future markets
Across various areas of the energy system, co-ordinated pledges have emerged in recent years as a rallying point for increasing global ambition and policy efforts, while sending important global market signals. Governments around the world came together around global pledges at COP29 to scale up to 1 500 GW of energy storage and 25 million kilometres of electricity grids, at COP28 to triple renewables and double the pace of improvement on energy efficiency, and at COP26 to reduce methane emissions by at least 30%. Meanwhile, initiatives like the Beyond Oil and Gas Alliance and the Powering Past Coal Alliance target reductions in emission-intensive technologies and processes. In the case of the latter alliance, its members retired 35 GW of coal power capacity from 2018-23 and plan to retire well over 100 GW of further capacity by 2030.
A comparable, easily communicable global rallying point for the industry transition has not yet gained widespread traction. Pledges that have emerged recently among smaller coalitions of governments, such as the IDDI’s Green Public Procurement Pledge and a collaborative call to action launched at COP29 by several governments on scaling international assistance for the industry transition, could provide seeds and learnings for a broader international collective pledge.
As a high-level co-operative initiative for increasing ambition on industrial decarbonisation, the Climate Club has the opportunity to provide a forum to discuss collaborative action and explore the possibility of a broader collective pledge for the industrial transition. Accounting for just over 25% of global production and demand for steel, and around 20% for cement, Climate Club members could act as collective first-mover and have a major impact on global markets. Meanwhile, parallel discussions in other workstreams of the Climate Club on international assistance and finance will be critical to help all members consider ambitious participation in such a pledge.
An international pledge on industrial decarbonisation could send an important market signal
In this report, at the request of the Climate Club, the IEA has developed an illustrative proposal for a collective pledge that could serve as a starting point for consideration and discussion by Climate Club members. It aims to address demand- and supply-side challenges faced by global near-zero emissions steel and cement markets, as well as the transition away from high-emissions conventional materials. These are areas where international collaboration is deemed particularly valuable; complementary measures by members to advance other industrial decarbonisation strategies such as material efficiency and circularity would be useful in parallel.
At the centre of the pledge proposal are simple-to-communicate, tangible, quantitative, and time-bound targets for the market shares of near-zero emissions steel and cement, in line with the ambition of the Net Zero Emissions by 2050 Scenario. These provide a starting point for discussion. The target for steel is higher than that for cement, as a considerable portion of the steel target could likely be met with fully scrap-based production. Supporting the proposal are four categories of actions that governments could consider committing to implement in order to realise the pledge, including through domestic policy implementation, as well as international co-operation, assistance and finance.
In considering such a pledge, Climate Club members could explore how to ensure commitment to the pledge can be formulated in a way that takes into account different countries’ circumstances, and how international assistance can bolster possibilities for raised ambition. Additionally, to be effective, such a pledge would need to be followed through with implementation plans by signatories. This includes, in particular, the design and adoption of a robust portfolio of demand and supply-side measures tailored to the unique circumstances, budgetary considerations, competitive advantages, and policy objectives of each signatory.
