Industries such as steel, cement, power production and shipping are both the largest greenhouse gas emitters globally and the most difficult to decarbonise. Yet, for many years, these sectors have been largely excluded from the voluntary carbon market.
With the implementation of Article 6 of the Paris Agreement and other domestic compliance markets, the role of carbon credits is emerging stronger than ever as a powerful mechanism to accelerate the decarbonisation of heavy industries.
In this blog, we will explore how carbon credits can be a financial vehicle to decarbonise hard-to-abate sectors and what role governments, companies from this sector and buyers must play to drive this transformation.
Historically, industrial sectors have been considered difficult to abate because they are capital-intensive, often rely on fossil fuels, and operate in highly competitive global markets where low margins make sustainability investments challenging.
While hard-to-abate industries were among the first to face regulated carbon pricing, such as taxes and emissions trading schemes, their engagement in the voluntary carbon market is a more recent development. This is because the voluntary market's growth has largely focused on projects with strong co-benefits, like nature restoration or community initiatives, which often align well with corporate ESG and branding goals. Decarbonising heavy industries, by contrast, typically involves higher costs and offers fewer of these direct co-benefits.
Although regulated carbon pricing policies exist for these sectors, they are not implemented in most countries. This global policy gap means many high-emitting companies lack sufficient incentives to decarbonise, leaving them on the sidelines of the net-zero transition. The global carbon market therefore acts as a critical tool to create the market mechanisms and opportunities these sectors need to accelerate their journey towards decarbonisation.
Carbon finance can make the difference between business-as-usual and transformative climate action. By developing projects that work to decarbonise these hard-to-abate sectors, industrial companies can unlock funding to help them reach net zero — efforts that would otherwise be too expensive. What’s more, carbon credits aligned with compliance markets or Article 6 tend to fetch a higher price than credits sold on the voluntary market.
This is bringing a new generation of carbon projects, specifically tailored to the realities of industrial transition. These include:
To support this shift, new methodologies are needed: particularly those that reflect the technical and financial complexity of these projects while ensuring high integrity and transparency.
One of the most promising examples of this evolution is the recent approval by Verra of a carbon credit methodology for early coal decommissioning, supported by the Rockefeller Foundation. This landmark development marks the first time carbon finance has been formally recognised as a viable pathway to accelerate the retirement of coal-fired power plants and their replacement by renewable energy sources.
The methodology sets a precedent for other sectors, opening the door to similar frameworks for steel, cement and hydrogen. It also signals a growing momentum within both the voluntary and compliance carbon markets to support large-scale industrial transition.
Recognising the need for regional innovation and collaboration, South Pole and GenZero recently launched the Asia Centre of Carbon Excellence, a platform to accelerate climate action across the continent. The centre aims to scale the development and deployment of high-integrity carbon projects in hard-to-abate sectors, build regional capacity and foster cross-sector partnerships.
Asia is home to some of the most carbon-intensive industries in the world. By driving investment and innovation at scale, initiatives like this are crucial to ensuring that industrial decarbonisation is not only possible but also profitable.
To fully realise the potential of carbon markets for hard-to-abate sectors, both supply and demand must be scaled simultaneously.
Companies operating in high-emitting industries should explore how to leverage carbon markets to:
Carbon credits can help transform climate ambition into action and accelerate decarbonisation.
Governments play a critical role in shaping the future of the global carbon market. Post-2025, we must see stronger regulatory frameworks that:
By embedding carbon credits into national climate strategies, governments can help crowd in private finance and drive systemic change.
Companies with net zero targets can amplify their impact by:
Buyers’ carbon credit purchases can be a catalyst, not just a cost.
The path to net zero runs through the factories, furnaces and freight routes of the world's hardest-to-abate sectors. Carbon credits, when used responsibly and strategically, offer a viable, scalable solution to finance this transition.
Now is the time for action. Whether you're a government policymaker, an industrial heavyweight or a climate-conscious buyer, you have a role to play. Together, we can turn the carbon markets into a powerful engine for global decarbonisation.
Navigating the complexities of industrial decarbonisation requires robust solutions. With our global expertise in carbon asset development, from feasibility to commercialisation, we help bring high-integrity climate projects to life.
