For Machinery Makers, Green
Tech Creates Green Business
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With around 3,300 members, VDMA is the largest
network organization for mechanical engineering
in Europe. The association represents the common
economic, technological and scientific interests of
this diverse industry. VDMA was founded in
November 1892 and is the most important voice
for the mechanical engineering industry today. It
represents the issues of the mechanical and plant
engineering sector in Germany and Europe. It
successfully accompanies its members in global
markets. Its technical expertise, industry
knowledge and straightforward positioning make it
a recognized and valued point of contact for
companies as well as the general public, science,
administration and policy makers.
For Machinery Makers, Green
Tech Creates Green Business
BCG in cooperation with VDMA
,
and
July 2020
AT A GLANCE
Machinery and equipment manufacturers have an essential role to play over the
coming decades in reducing the greenhouse gas (GHG) emissions that are causing
global warming. Their products and services will provide the gains in efficiency and
the technological innovations needed to substantially reduce their customers’
carbon footprints.
Opportunity Knocks
In this study, we analyze the total GHGs emitted by 14 different industries served
by machinery makers, the potential they have to reduce those emissions, and the
specific technology levers they can pull on this journey. Providing the right equip-
ment offers a revenue opportunity of €10 trillion through 2050.
Getting Started
Manufacturers looking to capture value should evaluate their product and service
portfolios in light of available opportunities and jumpstart the R&D capabilities
needed to develop and market future technologies.
2
For Machinery Makers, Green Tech Creates Green Business
The next decades will be critical in the worldwide effort to combat climate
change. Unless we can substantially reduce greenhouse gas (GHG) emissions
globally and permanently, we have little chance of limiting the increase in average
global temperatures to 2°C or less by 2050, a key tenet of the 2016 Paris Agreement. If
we don’t meet these goals, the consequences f
or the world’s economies will be severe.
Right now, we have the technical means to reduce a major portion of the estimated
51 gigatons (Gt) of GHG emissions released into the atmosphere each year, and ma-
chinery and equipment manufacturers have a key role to play in the effort. Already,
they supply the renewable-power generation equipment, optimized heating and
cooling systems, highly efficient motors, and other technologies needed to reduce a
substantial portion of our GHG emissions. Gaining the full benefits of this equip-
ment will require a considerable investment from clients—around €10 trillion
through 2050. That’s about a third of €1 trillion per year—but still a mere drop in
the bucket compared with the annual global GDP of €76 trillion.
Developing and deploying those technologies that are technically possible but still too
costly to use at scale (such as greener fuels and carbon capture), will be a far more dif-
It is up to the
ficult task. But machinery and equipment providers willing to take on the challenge
machinery suppliers
stand to gain a significant competitive advantage over slower, less progressive rivals.
to develop the green
technologies needed
In this report, we examine the role of machinery manufacturers in providing the
in the fight against
equipment and expertise needed to meet our GHG reduction goals. By analyzing
climate change.
the relative amount of GHG emissions produced by each of the industrial sectors
that purchase and use these manufacturers’ products, and the specific technological
levers the manufacturers themselves can pull to contribute to the effort, we can
gauge the broader impact these actions have in reducing our global total. It is up to
the machinery suppliers to develop the green technologies needed in the fight
against climate change. For them, the potential upside is massive.
Accounting for Global GHG Emissions
According to the United Nations, global GHG emissions came to 51 Gt of CO2-e in
2017, of which the 36 countries we analyzed emitted 35 Gt (the “total” referred to
throughout this report).1 The biggest contributors were China and the US, with 13
Gt and 6 Gt, respectively.
Our analysis shows that 37%, or 13 Gt, of the 35 Gt total can be reduced by existing
technologies that are economically feasible today. Another 49%, or 17 Gt, can be
Boston Consulting Group X VDMA
3
mitigated with technologies that are feasible but not yet economically viable, in-
cluding green fuels and carbon capture techniques. This brings the reduction poten-
tial to 86% of the total.
Every industry sector emits two kinds of emissions:
•
Scope 1 includes all the emissions produced by companies in the course of their
operations. These can be broken down further into “process” and “energy”
emissions, the former of which include all GHGs emitted as part of company
activities, such as the CO2 produced in the processing of iron to make steel and
the methane produced by cows in agricultural production. Scope 1 process
emissions account for 29%, or 10 Gt, of total emissions. Energy emissions include
the emissions companies produce to generate the heat, electricity, steam, and
other power sources they use in their production activities. These account for
44% of the global total, or 15.2 Gt. Note that virtually all the emissions produced
by transportation, including cars, trucks, planes, trains, and ships, fall into this
category.
•
Scope 2 includes all emissions produced by energy-generating companies that
are then bought and used by companies in other sectors. Power generation
accounts for 27% of total emissions, or 9.5 Gt.
Globally, manufacturing produces 48% of total emissions: 6 Gt of Scope 1 process
Companies from
emissions, 5.7 Gt of Scope 1 energy emissions, and 5 Gt of Scope 2 emissions. Among
almost every industry
manufacturing subsectors, iron-and-steel producers are the largest contributor, at 3.9
have a variety of
Gt. Minerals companies follow with 3.3 Gt (mostly in the production of cement, but
existing technological
also in making ceramics and glass). Chemicals companies come third, at 2.6 Gt.
levers they can use to
reduce their carbon
Nonmanufacturing sectors produce the remaining 52% of the total. Aside from the
footprint.
power generation sector, residential and commercial buildings produce the most
(6.7 Gt), followed by transportation (5.7 Gt) and agriculture (3.5 Gt). (See Exhibit 1.)
The power generation industry is a special case. It alone produces 10.4 Gt of GHG
emissions, or 30% of the total. The industry creates just 0.9 Gt of Scope 1 emissions
to maintain operations, but it creates 9.5 Gt of emissions in the course of producing
the power it sells. We attribute those emissions to the customers to which the in-
dustry sells its power; the GHG emissions these customers produce is therefore
equal to all the Scope 2 emissions created during the consumption of energy by all
the other sectors combined.
Gaining Leverage
Companies from almost every industry have a variety of existing technological le-
vers they can use to reduce their carbon footprint, from electric vehicle usage to
green fuels (such as hydrogen), of which some are not yet fully developed for most
industries. In order to determine which of these levers will produce the greatest im-
pact on the GHG emissions attributable to each sector, and how machinery manu-
facturers can contribute to the effort to lower those emissions, we analyzed the
technical feasibility of all existing carbon-reducing technologies. We did not account
4
For Machinery Makers, Green Tech Creates Green Business
Exhibit 1 | Manufacturing, Buildings, and Transportation Are the Largest GHG Emitters (Outside of the
Power Industry)
GHG emissions measured in Gt CO equivalents
16.0
35.0
10.4
Scope 1 – Process
6.7
0.9
Scope 1 – Heat or power
10.0
(29%)
5.7
Scope 2 –
Purchased power
(primarily electricity)
3.5
Not allocated
0.8
51.0
0.3
16.9
15.2
3.9
(44%)
3.3
2.6
1.8
9.5
9.5
Emissions
1.2
1.2
(27%)
allocated to sectors
1.1
as Scope 2
0.5
0.4
0.5
0.4
0.3
e
e
e
or
er
es
ast
eel
als
als
ous als
et
ap
ag
om
Global
ation
omm.
viation
W
Other
err met
er
oducts
Other
y sect
A
Mining
ener
buildings
acturing
Discr
industries
Miner
oleum & oduction
acturing
a b
CD + BRIC
& Shipping)
Chemic
(incl.
Agricultur
Iron & St
Non-f
OE
esid./C
Petr
R
Pulp & P
ort
Manuf
as pr
G
manuf
Emissions fr
Power g
Food & Bev
non-fuel pr
Transp
Countries without GHG
OECD + BRIC
emissions dat
Sources: IEA report: CO2 Emissions from Fuel Combustion 2019; United Nations Framework Convention on Climate Change data on GHG
emissions (2017); BCG analysis.
1Ten biggest emitters without sector data: Indonesia, South Korea, Mexico, Saudi Arabia, South Africa, Vietnam, Kazakhstan, Argentina, UAE,
Philippines.
2Excludes Mexico and South Korea.
3Includes manufacturing of machinery.
for how widely available the technology is at present, how quickly it could be in-
stalled at scale, or the willingness of companies to deploy it given their installed
base of current technologies.
Each technology’s economic viability depends on whether it has developed to the
point where companies would be willing to implement it today, or if it is still too
costly to deploy at scale.
The emissions-reducing technology levers can be grouped into five categories, with
placement depending on the nature of the levers, as well as their technical and eco-
nomic feasibility. (See Exhibit 2.) Efforts to carry out the first two categories have
already begun—although much work remains to capture their full potential. For
the most part, the others will have to wait until their implementation becomes both
technically possible and economically practical on a broad scale. Still, regardless of
their technological maturity, efforts to develop and perfect them can and should be-
gin immediately. There is no reason that our five categories should follow a strict
sequential order. Exhibit 3 summarizes the technological options available to each
industry in reducing its carbon emissions along these categories.
Boston Consulting Group X VDMA
5
Exhibit 2 | Technology Levers Span Five Categories and Can Reduce Emissions by 13 Gt—and Potentially
30 Gt
Category 1:
Category 2:
Low-carbon
-6.5 Gt
Economically viable
-6.5 Gt
power generation
technology
28.5 Gt
22.0 Gt
35 Gt
5.0 Gt
17.2 Gt
Category 5:
12.3 Gt
-7.3 Gt
CCUS
Category 3: -4.8 Gt
Category 4:
Costly technology
-4.9 Gt
Green fuels
Source: BCG analysis.
Note: CCUS = carbon capture, utilization and storage; Gt = metric gigatons.
•
Category 1 levers include only those technologies that can enable the power
generation industry to reduce its own emissions. This category is critical if we
are to reach our climate goals, since the power industry emits an enormous
portion of total GHGs, at 10 Gt annually. The lever in this category with the
greatest potential for GHG reduction is renewable power generation, which
could, in theory, entirely decarbonize the power generation industry. Given the
practical limits of its use, however, it is estimated that renewables could replace
5 Gt of GHGs each year.2
•
Category 2 levers include the economically viable technologies that could be
used currently to reduce emissions in all manufacturing and nonmanufacturing
sectors. The primary levers in this category, available to almost every industry,
are heat-optimization-and-recovery technologies (which could reduce 1.8 Gt of
GHGs) as well as increased electrical and mechanical efficiency (0.8 Gt). Other,
sector-specific emission reduction levers also have a role to play.3
•
Category 3 levers cover those technologies that, while currently available in
some form or another, are not yet viable due to cost or because they can’t yet be
scaled to the point where they would make a significant difference. These
6
For Machinery Makers, Green Tech Creates Green Business
Exhibit 3 | The Technical Levers to Reduce GHG Emissions Across Industries
All measurements in metric gigatons (Gt)
Residential
&
Petroleum
Non-
Discrete
Power
Commercial
Iron
& Gas
ferrous
manufac-
Pulp &
Food &
generation
buildings Transport Agriculture
Waste
& Steel
Minerals Chemicals production
metals
turing
Mining
Paper
Beverages
GHG
emissions
in CO -
equiv.
10.4
6.7
5.7
3.5
0.8
3.9
3.3
2.6
1.8
1.2
1.2
1.1
0.5
0.4
(2017)
Waste to Heat opt. Heat opt. Heat opt.
Heat opt.
Elec./
Heat opt. Recycling Heat opt.
Renewable
Building
Electric
Fertilizer
power/
&
&
&
Flare gas
&
mech.
&
rate
&
-5.04
automation vehicles
mgmt.
recovery
-1.41
-2.38
-0.08
synfuels
recovery
recovery
recovery
recovery
effic.
recovery
increase
recovery
-0.67
-0.28
-0.28
-0.24
-0.31
-0.21
-0.16
-0.03
-0.14
-0.11
AL
Natural
Optimized Optimized Methane
Elec./
Elec./
Elec./
Heat opt. recycling Heat opt. Elec./
Heat opt.
Elec./
gas
building
ICE
pill
mech.
mech.
mech.
&
rate
&
mech.
&
mech.
-0.71
envelope
effic.
effic.
effic.
recovery
recovery
effic.
recovery
effic.
-0.72
-1.24
-0.42
-0.06
-0.06
-0.22
-0.16
increase
-0.09
-0.13
-0.02
-0.06
-0.04
Conven-
Road
Elec./
Recycling
Leak
Elec./
Energy
Coal mine
Elec./
tional
Heat
transport
Rice
mech.
Clinker
rate
detection
mech.
mgmt.
methane
mech.
HVAC
gen. effic.
pumps
fuel cells
mgmt.
effic.
substitution increase and repair effic.
systems
capture
effic.
-0.01
ers
-0.51
-0.52
-4.13
-0.31
-0.14
-2.3
-0.02
-0.15
-0.06
-0.09
-0.31
-0.03
Lev
Road
Manure &
Fuel
Elec./
Biomass
HVAC
transport methane
Fuel
Elec.
Elec.
substitutes
mech.
-0.21
-0.23
fuel
substitutes vehicles
vehicles
substitutes capture
-1.11
-0.28
-0.31
effic.
-0.23
-4.13
-0.21
-0.04
Aviation &
H
shipping
Fuel
reduction
Fuel
H as
Fuel
Fuel
Fuel
Fuel
Fuel
Fuel
fuel
substitutes
fully/
substitutes feedstock substitutes substitutes substitutes substitutes substitutes substitutes
substitutes
-0.26
partially
-0.56
-0.26
-0.65
-0.07
-0.10
-0.12
-0.14
-0.11
-1.25
-1.3/
-0.24
CCUS
CCUS
CCUS
CCUS
CCUS
CCUS
-3.54
-1.06
-1.57
-0.72
-0.28
-0.14
Total
reduction
potential
-10.01
-2.88
-3.63
-1.28
-0.67
-3.10
-2.75
-1.77
-1.59
-0.57
-0.48
-0.71
-0.37
-0.27
across
levers
Cat. 1: Low-carbon power generation
Cat. 3: Costly technology
Cat. 5: CCUS
Cat. 2: Economically viable technology
Cat. 4: Green fuels
Sources: United Nations Framework Convention on Climate Change; BCG analysis.
Notes: CCUS = carbon capture, utilization, and storage; EAF = electric arc furnace; H2 = hydrogen; ICE = internal combustion engine.
1Maximum potential takes into account that some levers are not additive (e.g., Transport reduction total includes electric vehicle usage instead of
fuel cells alternative).
include methane capture in agriculture and switching entirely to electric
vehicles in the mining and minerals sector.
•
Category 4 and Category 5 levers include green fuels, such as hydrogen and
biofuels, and carbon capture, utilization and storage (CCUS) technology, that all
Boston Consulting Group X VDMA
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have the potential to be real game changers in emissions reduction efforts,
although many are not yet technologically or economically practical. When
applied to the Scope 1 emissions that remain after pulling the category 2 and
category 3 levers in every sector, green fuels could potentially reduce emissions
by a total of 4.9 Gt annually, and CCUS technology by a total of 7.3 Gt.
The Opportunity for Machinery Makers
Each of the five categories offers a wide range of actions that companies in industri-
al sectors can take to participate in the global effort to reduce GHG emissions. For
us to achieve the goals of the Paris Agreement, companies from every industry will
have to use the full range of technologies at their disposal. (See the sidebar.)
COLLECTIVE ACTION
The goals of the Paris Agreement are
The EU, for example, recently
highly ambitious, as are the indus-
announced a plan to renew and
try-specific target goals described
reinforce its efforts to become
here. If we are to meet them—or even
entirely carbon neutral by 2050.
come close—we must pull every lever
Called the Green Deal, it gathers
available to us.
together a variety of sustainability
goals—including zero pollution, a
Levers that are economically viable
circular economy, a just and
now should be pulled as soon as
inclusive energy transition, and
possible; those that aren’t will need
others. Key to the effort is posi-
to be supported until they are. Those
tioning the EU for technological
that are not yet technically feasible
leadership to reduce carbon
must be developed and deployed
emissions as a trigger for sus-
once they mature.
tained economic growth. The plan
is estimated to require approxi-
Ensuring the economic viability of
mately €300 billion in additional
current and future technologies will
investments annually over the
depend largely on the degree of
next decade for the infrastructure
commitment by multiple stakeholders
needed to meet these goals—a
to the goal of reducing GHG emis-
significant further opportunity for
sions:
machinery makers.
•
Governments. The most import-
Governments should also support
ant factor in this effort will be the
the long-term goal of ensuring
willingness of the international
predictable price differences
community to stick to global
between fossil-fuel-based and
climate goals. All governments can
climate-friendly energy generation,
accelerate the effort by determining
as well as foster a supportive
strict pricing mechanisms for GHG
environment for investment in the
emissions and offering temporary
technology needed for hydrogen-
support for the deployment of new
fueled transport and electricity
GHG reduction technologies.
transmission and distribution.
8
For Machinery Makers, Green Tech Creates Green Business
COLLECTIVE ACTION
Continued...
•
Investors. Investors are already
early on, and even be willing to
increasingly demanding transpar-
pay a premium for components,
ency in their companies’ GHG
feedstock, and services produced
emissions practices and investing
using low-emissions standards
in companies with clear, cli-
and processes.
mate-friendly strategies for
reducing their emissions. Some
•
Society at Large. The public
are considering applying a risk
must be willing to accept and
premium for companies with
support all efforts to reduce
potentially stranded assets that
carbon emissions, including more
may become unprofitable in a
controversial technologies such as
more sustainable future.
the long-term storage of carbon in
deep-sea waters or former oil and
•
Businesses. Private-sector
gas fields.
enterprises can increase the
pressure on their partners and
suppliers to make their GHG
footprints more transparent, adopt
economically viable technology
This is unlikely to happen immediately. However, by pulling the currently more fea-
sible levers in the first two categories alone, we can reduce total emissions by 37%.
We estimate that pulling all the levers in categories 1 and 2 will require total capital
expenditures of €4.5 trillion into machinery and equipment over the next decade.
(This estimate does not take into consideration the cost required to operate the
equipment once it is installed.)
The next three categories will only grow in importance, feasibility, and productive
value in subsequent years, and they will require investments of an additional €5.9
trillion in new machinery and equipment through 2050. This brings the total invest-
ment needed to complete all five categories to €10 trillion. Exhibit 4 breaks this
down into the overall investment potential for each technology category.
A category-specific analysis reveals the levers that can be pulled in each category
for every industry covered, the specific role of machinery makers and related tech-
nology providers in helping clients and potential clients pull them, and the poten-
tial size of the investments needed to deploy these technologies.
Category 1: Power Generation Levers
The sole goal of category 1 is to reduce the GHG emissions released by the global
power industry in the course of generating electricity. If all the levers in this catego-
ry alone were to be pulled, the industry’s emissions would decline by 6.5 Gt, a re-
duction of almost 20% of our global total.
Boston Consulting Group X VDMA
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Exhibit 4 | The €10 Trillion Opportunity for Machinery Makers
Cumulative capex investment as market potential in €billions
Sectors
NA
20
85
NA
2300
580
1100
230
290
1000
280
1700
410
2400
Food & Beverages
Pulp & Paper
Mining
GHG reduction potential in Gt CO equivalents
Discrete manufacturing
7.3
Non-ferrous metals
6.5
acturing industries
Petroleum &
Gas production
4.8
Manuf
Chemicals
1.6
Minerals
2.9
0.6
5.0
1.8
1.6
1.8
Iron & Steel
3.5
0.8
2.4
0.7
0.5
0.8
0.3
Waste
0.2
1.3
0.3
Agriculture
o
e
ry
al al
S
AC
her
es
e t
her
as
industries
able
Fuel
ock
Aviation & Shipping
ation
Heat
Ot
ast
e and
Ot
aptur
H 2
CCU
Building
pumps
omation & HV
Electric vehicles
Electric
W
Road transport
enew ener
& recove
efficiency
feedst
aut
Coal mine methane
R
substitut
Manur
Residential &
or mechanic
synthetic fuels
Non-mfg.
Commercial buildings
power g
methane c
Heat optimization
and/
Power generation
Category 1
Category 2
Category 3
Category 4 Category 5
Source: BCG analysis.
Notes: CCUS = carbon capture, utilization and storage; H = hydrogen.
2
1 Including electrical motors, pumps, compressors, fans, variable-speed drives, and integrated control systems.
By far, the most important action involves shifting to renewable sources of power
generation—primarily solar and wind power—which would reduce emissions by 5
Gt if 49% of energy production were converted to these sources. Renewable power
generation has already proven to be technically feasible at scale, and it is already
cost competitive with fossil-fuel-based methods, so expanding the use of renewable
sources would be economically viable.4
Still, if we are to reach the goal of reducing emissions from power generation by 5
Gt, the worldwide use of solar photovoltaic power systems will have to increase by
800% over the next ten years, while the use of wind generation must increase by
400%. The effort to increase the use of these power sources will require significant
investments in machinery and equipment—an estimated €2.3 trillion through 2030.
The largest share of this investment potential, approximately €1.1 trillion, will go to
solar energy, the cost of which is also expected to decline the most. Wind energy
will likely capture the second-most investment (€820 billion), followed by hydro-
electric energy (€360 billion). How much of this potential revenue will be unlocked
depends on multiple factors, including the regulatory conditions regarding the
share of renewables in the power mix and public acceptance of wind farms and hy-
droelectric dams.
10
For Machinery Makers, Green Tech Creates Green Business
Equipment suppliers have a major role to play in the development and deployment
of these systems—and a major opportunity to increase revenues. Moreover, technol-
ogies for boosting the flexibility of the power grid and improving storage capacity
(not included in this analysis) will lead to further revenue opportunities.
In addition to renewable power sources, the power generation industry has several
other levers it can pull. Increasing efficiency at its plants, upgrading to highly effi-
cient, modern combined-cycle gas power plants, and the use of biofuels under cer-
tain circumstances would together reduce another 1.4 Gt of carbon emissions. Here,
the opportunity for technology providers lies in carrying out upgrades of gas and
biofuel plants and supplying high-efficiency motors.
Decarbonizing the power sector is especially critical because global demand for en-
ergy is expected to keep growing for the foreseeable future. The production of syn-
thetic fuels (synfuels) such as hydrogen, while not yet economically viable, will
place an enormous burden on the electrical grid. For example, increasing the share
of synfuels in road transportation in Germany to 25% would result in an estimated
70% increase in demand for electricity nationally. And converting hydrogen to a
useable fuel requires electrolysis, a further drain on the grid.
Category 2: Technically Feasible, Economically Viable Levers
This category covers all the levers that could be deployed today across industries,
offering machinery makers a wide range of opportunities for providing customers
with the means to reduce their carbon emissions. For these companies, the revenue
potential is a considerable €2.2 trillion opportunity. A good portion of this invest-
ment potential is likely to become a reality due to the associated cost savings to be
gained by implementing these technologies. If fully deployed, they have the poten-
tial to reduce emissions by 13 Gt annually. The following options are most feasible.
Heat Optimization and Recovery. Widespread implementation could reduce GHG
emissions by 1.8 Gt and offer revenue opportunities of €580 billion for machinery
Considerable growth
makers. These technologies can be deployed in every manufacturing industry,
opportunities exist
especially in applications where the recovery of waste heat has so far been neglect-
in the further
ed. And because they lead directly to cost savings in energy consumption, their
development and
return on investment for manufacturers is immediate. As a result, they will likely be
production of heat
among the very first levers to be pulled by companies committed to low-carbon
optimization
production methods.
and recovery
capabilities.
Investments in heat exchangers, the core technology for recovering heat, will likely
constitute the largest share of these investments. Other technologies include
high-efficiency burners that preheat the air and fuel to enable them to operate
more effectively, systems that send waste heat from exhaust gases to nearby con-
sumers of heat, and heat pumps that raise the temperature of waste heat to levels
needed in other production processes. In addition, effective heat storage technolo-
gies can store waste heat and send it to consumers when needed.
Considerable growth opportunities exist in the further development and produc-
tion of heat optimization and recovery capabilities. According to one machinery
Boston Consulting Group X VDMA
11
manufacturer that caters to the beverage production industry, the use of waste heat
and heat storage systems can save up to 60% of the thermal energy required by
breweries.
Building Automation. Building management systems that control heating, cooling,
ventilation, and shading and lighting (both automatically and on demand) have the
potential to lower carbon emissions by 1.64 Gt. Regulating a building’s tempera-
ture, air quality, and lighting depending on when it is occupied can reduce energy
costs by up to 40%, especially in commercial buildings, whose occupants are typical-
ly less inclined to try to save energy when someone else is paying for it.
Taken together, these various technologies offer machinery companies a revenue
opportunity of about €1.1 trillion. The most important include efficient HVAC sys-
tems, automation systems (from simple, standalone thermostats and timed switches
to the most advanced automation equipment), building management systems that
bring together a range of building maintenance functions, and systems that manage
and monitor energy performance.
Building-automation technologies will likely be implemented quickly in the coming
All manufacturers
years, given their immediate effect on energy costs. Technology providers can par-
can benefit from the
ticipate in the transition in several ways. Measuring and networking equipment will
devices needed to
be needed to monitor conditions inside buildings. Automation equipment such as
boost the electrical
actuators for controlling windows, blinds, and HVAC systems will be needed to opti-
and mechanical
mize heat and energy use and storage. The deployment of heat pumps and peak
efficiency of
load heaters will also increase significantly. Finally, there is all the equipment re-
their production
quired to produce advanced insulation materials in addition to double- and tri-
equipment.
ple-pane glass windows. However, the effectiveness of these technologies varies
considerably depending on the building’s local climate conditions.
Process and Equipment Optimization. All manufacturers can benefit from the devices
needed to boost the electrical and mechanical efficiency of their production equip-
ment, which in total can reduce GHG emissions by 0.8 Gt. To reach that goal, these
technologies, the majority of which have already proven effective, must be fully rolled
out across industries. The potential decline in emissions will come through significant
reductions in energy consumption, and the resulting savings will likely make them
especially attractive to manufacturers. Pursuing cross-technical technologies can
support this effort.
The use of highly efficient motors that produce the same mechanical power while con-
suming less electrical energy, as well as efficient distribution transformers, can achieve
real energy savings. Moreover, most electric motors in industrial applications, such as
pumps, compressors, and fans, run constantly at full speed. This is highly inefficient in
most applications since the demand placed on these motors varies considerably and is
usually much lower. Electrical motors with variable-speed drives and intelligent con-
trols that detect demand and operate accordingly can reduce electricity consumption
by up to 40%, resulting in extended lifetimes and decreased noise.
But even the most efficient motors can’t reach their full potential if their design
isn’t suited to their application. Greater cost savings can be achieved when the de-
12
For Machinery Makers, Green Tech Creates Green Business
signs of pumps, compressors, fans, and other motors precisely match their respec-
tive applications. Machinery makers therefore have a big opening to manufacture
all connected mechanical equipment with the same degree of efficiency.
Meeting the goal of reducing emissions by the full 0.8 Gt will require an estimated
€230 billion in investment, with most of the opportunity for the machinery industry
coming through the supply of variable-speed drives.
Recycling. Increasing the recycling and reuse of all kinds of materials offers many
benefits, the most important of which is reduced need for sourcing and raw materi-
als usage. But the so-called “circular economy” can also help reduce GHG emis-
sions, primarily because producing goods with recycled materials is far less energy-
and process-intensive than using virgin materials. There’s no need to mine, smelt,
and ship iron ore for steel if it can be produced from scrap.
Our analysis of the reduction in GHGs to be gained through recycling focuses on
the iron and steel, aluminum, and pulp and paper industries, and on the produc-
tion of plastics in the chemicals industry. Pulling category 2 levers across these
industries would lead to a decline in emissions of 0.5 Gt. Furthermore, recycling
plastics has the added benefit of reducing the pollution created by its improper dis-
posal.
The quality of recycled end products depends greatly on the homogeneity and
Recycling is already
cleanliness of the recycled materials, especially for plastics. It is critical, therefore,
economically viable in
that the materials to be recycled are carefully sorted and separated into what’s use-
the iron and steel,
able and what isn’t. The machines needed for these operations are largely avail-
aluminum, and paper
able, and demand is increasing.
industries.
Recycling is already economically viable in the iron and steel, aluminum, and paper
industries, but recycling many types of plastics is not yet economically competitive
and needs to be subsidized. Technology providers should nevertheless consider fur-
ther developing the equipment needed to improve its viability to take part in an at-
tractive growth market.
Heat Pumps. Current state-of-the-art heat pumps use three units of heat from the
surrounding ground heat or air, and one unit of electricity, to produce four units of
heat. That is far less energy than the typical gas boiler, which requires four units of
energy from natural gas to produce the same amount of heat. Yet most of the heat
generated for homes and other buildings today comes from the energy produced by
burning fossil fuels, such as natural gas.
A heat pump’s efficiency depends on two factors: the temperature of the surround-
ing input heat and how the heat produced is distributed. Heat pumps are already
economically viable in new buildings, but less so for buildings that need retrofitted,
as the new ground-based heat sources and low-temperature space heating systems
typically needed can be expensive. Still, technology providers can benefit in either
scenario. Switching to heat pumps, together with the decarbonization of the power
generation sector that supplies their electricity, can reduce emissions by 0.5 Gt. Sup-
plying the need would provide €290 billion in revenue for the machinery industry.
Boston Consulting Group X VDMA
13
Flare Gas. Approximately 150 billion cubic meters of petroleum gas are vented or
burned off as flare gas in the course of oil and gas exploration and extraction,
according to World Bank estimates. Unburned gas is mostly methane, a particularly
potent GHG, while flare gas releases CO2 when burned. Switching to flare gas on a
global scale would cut emissions from the oil and gas industry by 0.3 Gt.
In addition to lowering their GHG emissions, oil and gas companies can profit from
the capture of flare gas, which can be reused on site or sold as fuel or feedstock for
chemicals without the need for expensive refinery equipment.
The additional profits should provide an incentive for these companies to install
equipment for capturing, processing, and transporting flare gas—and an incentive
for technology providers to supply the equipment.
Leak Detection and Repair. Gaseous hydrocarbons also leak out in the course of
petroleum and gas production. Reducing these emissions by 40% would save 0.15
Gt of GHGs. But detecting leaks requires special equipment, such as satellites and
infrared cameras, and while the equipment needed to repair leaks is inexpensive,
the labor costs can be high. Manufacturers looking for opportunities in this area
should also consider offering their own monitoring and repair services.
Energy Management Systems (EMSs). The ability to monitor and benchmark
Precision agriculture
energy consumption can enable companies in every manufacturing sector to
technologies can be
identify significant potential reductions. EMSs allow them to compare their own
used to reduce GHG
experience with best-practice KPIs and to monitor usage trends. Thanks to the
emissions even
associated cost savings, EMSs are already economically viable and can save up to
further.
10% of a company’s total consumption; on a global basis, they could reduce total
emissions by 0.09 Gt (the figure does not include emissions reductions achieved
through efficient equipment and intelligent operations, which are accounted for in
other levers).
Here, equipment manufacturers can benefit in several ways: by developing and sell-
ing the technology itself; by providing the technologies for further reducing emis-
sions revealed by EMSs; and by leveraging their benchmarking and experience with
other customers to sell additional EMS services and audits.
Efficient Fertilizer Management. Farmers worldwide release a considerable amount
of GHGs (mostly nitrous oxide) into the atmosphere when using natural fertilizers,
such as liquid manure. Managing their application could lead to a 0.08 Gt emissions
reduction annually. Proper management can minimize the contamination of soil
and water through excessive fertilizer use and save money in the process.
Many of these techniques are already economically viable. Technology providers
can supply the measurement tools needed for determining the content of natural
fertilizer and the nutrient concentration in the soil in their fields, as well as in the
water they use to irrigate their crops. Precision agriculture technologies can be used
to adapt the rate of fertilizer application to each field’s specific requirements, low-
ering the amount of fertilizer, capturing additional savings, and reducing GHG emis-
sions even further.
14
For Machinery Makers, Green Tech Creates Green Business
Category 3: Technically Feasible, But Not Yet Viable Levers
This category covers all the levers that are not ready to be deployed today, either
because they cannot yet be scaled up, or because they still cost too much. Capturing
the full potential of these levers will depend on when they are ready for wide-
spread use, which for most is unlikely without considerable government-backed fi-
nancial and regulatory support. If fully deployed across all sectors, however, they
could lower GHG emissions by 17 Gt.
Companies conducting the research needed for scaling can benefit further by
spreading their R&D costs across several sector opportunities and as a result get
more bang for their buck. The following levers should be considered.
Electrification of Vehicles. The emissions-lowering effect of substituting fossil fuels
with electricity to power the world’s vehicles depends on the degree of the technol-
ogy’s penetration; the total electrification of our global road transport system
would reduce 2.4 Gt of GHGs annually. Achieving this, however, also depends
directly on the complete application of category 1 reductions in the carbon intensi-
ty of the power generation industry.
This lever is already available and economically productive in sectors where
light-duty vehicles travel short distances—in local package delivery, for example. If
electric vehicles are to reach their full emissions reduction potential, however, the
charging infrastructure and battery production capacity will also need to be fully
deployed. This is economically viable, in theory, but getting there will take consider-
able political support.
There’s considerable
potential in supplying
Still, converting existing auto plants to battery electric vehicle (BEV) production of-
components for BEVs,
fers a market potential of around €1 trillion, assuming that BEVs will ultimately re-
including batteries,
place all other cars. There is also considerable potential in supplying components
electric motors, and
for BEVs, including batteries, electric motors, and electronics.
electronics.
Optimization of Internal Combustion Engines. A 30% increase in the efficiency of
the internal combustion engines that propel road vehicles can potentially reduce
GHG emissions by 1.2 Gt. These gains can be made by increasing the efficiency of
the engines themselves, as well as by advances in the equipment needed to produce
lighter-weight vehicles and technologies for recouping waste energy, such as so-
called “hybrid motors” equipped with regenerative braking.
The costs associated with the R&D needed to design and deploy these technologies,
in addition to the costs of replacing all the internal combustion engines currently
on the road, are considerable. Pulling this lever completely will require a significant
financial investment as well as political and regulatory support—much like the gov-
ernment-mandated retrofitting of catalytic converters in the 1990s.
Reusing Waste Methane. As organic waste decomposes, it releases methane gas
that can be captured to produce biomethane fuels that can, in turn, be used in
numerous applications, including power generation, transportation, and heat
production. Taking these steps on a global scale has the potential to reduce GHG
emissions by 0.67 Gt.
Boston Consulting Group X VDMA
15
Recycling waste methane is not yet economically viable, and it will likely take sub-
stantial subsidies and carbon-pricing regulations to increase its use. As the technol-
ogy becomes more common, however, the tech providers will be instrumental in
supplying the necessary equipment for the leak-proof facilities needed to store
methane, as well as the anaerobic digesters and gasification and treatment plants
for converting it to other uses. We estimate the market potential for these invest-
ments at €280 billion.
Coal Mine Methane Capture. The process of coal mining releases methane trapped
inside the coal. In addition to the risk that it can explode, endangering miners, the
methane released is a particularly potent GHG, and capturing it could reduce an
equivalent of 0.3 Gt of emissions. The market potential for providing the technolo-
gy for capturing this methane, pumping it to storage facilities and reusing it as fuel
for heating or electricity generation, is around €20 billion.
Manure Methane Capture. Around 7% of GHG emissions released by the global
Even partial
agriculture sector come from the release of methane in the course of manure
substitution of
fermentation at manure management facilities. Capturing these emissions and
clinker can
reusing them to generate power and heat could reduce the industry’s emissions by
reduce GHG
0.21 Gt. But capturing the methane and converting it to fuel at biorefineries is too
emissions
expensive to make it economically viable at present. Technology providers should
significantly.
see this as an opportunity to develop and sell the equipment that would make it
possible, within a potential €85 billion market.
Once this technology does become feasible, technology providers should also con-
sider developing equipment for collecting manure in the field as an additional feed-
stock for biorefineries.
Clinker Substitution. The clinker produced during the production of cement used to
make various cement products requires a tremendous amount of heat and creates
an outsized proportion of all the GHGs emitted globally—fully 2.3 Gt every year.
Avoiding its use by substituting other materials, such as steel slag, fly ash, or granu-
lated blast furnace slag, can save 80% of that total.
The technology for clinker substitution is already being used, but its deployment is
constrained by the lack of enough substitute materials. In addition, safety regula-
tions in some jurisdictions are preventing the rollout of new clinker substitutes. But
even partial substitution of clinker can reduce GHG emissions significantly. And as
the process gains traction, companies can benefit from sales of current and future
clinker substitution systems.
Methane Pills. Cows and other ruminants produce 0.4 Gt of total GHG emissions
through the methane they emit. While it is by no means technically feasible yet, a
methane pill is being tested in clinical studies that prevents the formation of
methane during digestion.
However, it is unlikely that methane pills will ever be economically viable on their
own, since there is no revenue or cost savings to be gained by giving them to live-
stock. Their use would therefore need to be subsidized or supported through
16
For Machinery Makers, Green Tech Creates Green Business
CO₂-pricing schemes. The opportunity for technology providers lies in developing
and selling the equipment for producing the pills.
Rice Management. Rice is usually grown by flooding fields during the early season
to limit the growth of weeds and pests, but the microbes that decay the organic
matter left behind produce methane. As a result, the cultivation of rice accounts for
10%, or 0.3 Gt, of the total emissions produced by the agriculture sector.
Proper rice management can reduce those emissions by 90% through early- and
mid-season drainage. Extensive work has been done to produce hybrids that require
less water and increase productivity, but their value in large-scale applications has
yet to be proven. Moreover, the opportunity for technology providers is low, since
most of the world’s rice is grown in emerging markets such as Asia and Africa,
where the money needed for further research is limited.
Category 4: Green Fuels
This category covers the technologies involved in the substitution of fossil fuels with
green fuels made from hydrogen, biomass, and so-called “power-to-X” (P2X) fuels de-
rived from the conversion of electricity. To help these alternatives reach their full de-
carbonization potential, the energy needed to produce green hydrogen and P2X
fuels must come entirely from renewable sources. Therefore, both renewable power
generation and the infrastructure required to produce and distribute green fuels
must be in place before this lever becomes economically viable at scale. Once these
initial hurdles are overcome, the benefits will span multiple industries and applica-
tions. These fuels could potentially reduce global GHG emissions by 4.9 Gt.
Technology providers can benefit by supplying what is needed to produce green fu-
els in multiple industries. We expect this market to total €2.1 trillion in potential
revenue over the next decade. Opportunities include the construction of electrolysis
Technology providers
plants to produce green hydrogen for use as feedstock in the chemical industry,
can benefit by supply-
which alone will be worth €410 billion in revenue.
ing what is needed to
produce green fuels in
They can also supply the technology and equipment needed to enable the substitu-
multiple industries.
tion of fossil fuels for green alternatives in several industries. Building synfuel pro-
duction capacity for the aviation and shipping industries alone—where electrifica-
tion is not likely to be an option—will require a €1.1 trillion investment.
Other opportunities include using hydrogen for fuel cells in transportation and in
other sectors, and as a reduction agent in the iron and steel industry. Hydrogen and
synfuels can also replace carbon-based fuels for burner use in high-temperature ap-
plications. The market potential for providing the production capacity needed to re-
place natural gas with biogas or biomethane throughout all industrial sectors totals
around €600 billion.
Category 5: Carbon Capture, Utilization and Storage (CCUS)
This category is dedicated to the use of CCUS technologies that capture, use, and
store GHGs emitted during power generation and other industrial processes where
Boston Consulting Group X VDMA
17
the fossil fuels used cannot be economically replaced with green fuels, or in natural
gas extraction. The technology has the potential to lower total emissions by 7.3 Gt,
and extensive research is being conducted into the potential for converting cap-
tured carbon into synfuels. Alternatively, the carbon can be kept in long-term stor-
age locations underground, or even in the ocean. But at scale, such possibilities will
need to overcome both economic factors and safety concerns.
Still, there is growing interest in the technology. As of 2018, there were 43 commer-
cial large-scale global CCUS facilities: 18 of them in operation, 5 under construction,
and 20 in various stages of development. Most of these operations are being de-
ployed at locations where large amounts of CO2 are emitted within a confined area,
such as near power plants and other direct GHG emitters.
Until technologies can be developed to derive more profit from the carbon CCUS
facilities capture—or GHG emissions prices rise high enough to offset the cost—
CCUS will remain a pure cost added to legacy infrastructure, and one that requires
We must reduce emis-
government incentives to make it economically viable. Furthermore, these facilities
sions by another 17
do not require much new machinery for their operation. Instead, their value lies in
Gt if we are to stem
preserving the life cycle of the existing emissions-intensive machinery used in the
the impact of global
processes of the operations where they are co-located, including the blast furnaces
warming.
used in iron and steel production and the equipment used in coal-fired power
plants—already a steeply declining market.
The economic viability of CCUS depends largely on the availability of storage facili-
ties, on the cost to transport it, and on the purity of the gas being captured; the pur-
er it is, the less costly it becomes to process it for other uses. Its viability therefore
varies from industry to industry. Its viability for the chemicals industry (especially
for the production of ammonium and petrochemicals) and natural gas extraction is
rated as medium. But its viability is low in power generation and aluminum, ce-
ment, or iron and steel production. Thus, deployment of these facilities and the
technology needed will depend on the economic viability of CCUS in each industry;
still, the potential market revenue is estimated at €2.4 billion.
Next Steps
Machinery and equipment manufacturers are playing a large role in supplying the
equipment and services needed to meet our GHG reduction goals globally. Already,
they are helping cut back on the 13 Gt of GHG emissions that can be reduced by de-
ploying technologies that are economically viable and available now.
Looking forward, however, we must reduce emissions by another 17 Gt if we are to
stem the impact of global warming. This will be a much more difficult task, and one
that is largely up to those same companies to develop and produce the technologies
needed to get us there. They must look far ahead, anticipating the requirements of
the industry sectors they serve as the need to reduce carbon emissions becoming
even more pressing; thankfully, the potential for growth is significant.
To prepare themselves for ultimately capturing these growth opportunities, all ma-
chinery makers should take the following three steps:
18
For Machinery Makers, Green Tech Creates Green Business
•
Reduce your own carbon intensity. Show your customers that you understand
the urgency of decarbonization. Leading by example will also give you a com-
petitive edge over your less committed rivals. This will involve understanding
and maintaining evolving carbon reduction standards within your own industry.
Become the first company in your industry to achieve true low-carbon produc-
tion, which will be especially important as your customers grow increasingly
conscious of the importance of reducing their own carbon footprints.
•
Evaluate your product and service portfolio. Account for different climate
change scenarios and the opportunities they offer and the risks they present.
This will enable you to identify new green tech opportunities in previously
untapped industries and applications—and to move quickly into new markets
when the opportunity arises. It will also prepare you better to take advantage of
the rise of truly disruptive new green technologies. The surprising speed at
which LED lighting replaced incandescent bulbs, for example, has resulted in the
Mitigating the effects
rapid loss of competitive advantage for many top companies.
of climate change is
everyone’s job, and
•
Immediately develop the ideas that will lead to the products and services
companies every-
capable of mitigating your clients’ GHG emissions. Carry out R&D-based
where can help by
lighthouse projects to determine the technical and economic feasibility of these
reducing the GHG
concepts, and start to upgrade your portfolio, either organically or through
emissions they are
strategic acquisitions.
responsible for.
Train your service professionals to look for potential efficiency gains to be made
at the factories and facilities they visit, ensuring that they report back regularly
with new ideas and potential opportunities. Consider also training service pro-
fessionals to provide energy-efficiency consulting services to clients on site. Fi-
nally, showcase to potential clients the gains in decarbonization, as well as in ef-
ficiency and cost savings, you’ve helped existing customers achieve.
Mitigating the effects of climate change is everyone’s job, and companies every-
where can help by reducing the GHG emissions they are responsible for. Machinery
manufacturers have an especially large role to play in the effort. By improving the
efficiency of the equipment they supply, these manufacturers can reduce 13 Gt, or
37%, of global emissions—and they can do so today. By perfecting existing technolo-
gies and developing new ones, they can help reduce another 17 Gt, or 49%, of the
world’s total. Aside from the importance of reducing these emissions and fighting
climate change, this effort will open valuable opportunities for machinery makers
to capture new sources of growth—a market worth approximately €10 trillion.
Even given the considerable economic incentives, however, machinery manufactur-
ers can’t do it alone. Their industrial customers must be willing to make the invest-
ments in new technologies. Governments, too, must be ready to support, and some-
times subsidize, the effort. But the path to success is clear, and the time to start on
the journey is now.
Boston Consulting Group X VDMA
19
Notes
1. GHG emissions are stated in terms of CO2 equivalents (CO2-e), a method for consistently defining
the global warming potential of all GHGs. Methane, for example, has a global warming potential 28
times greater than CO2. For the purposes of this study, we include emissions data from 34 of the
member countries of the Organization for Economic Cooperation and Development (excluding South
Korea and Mexico) and the four BRIC countries (Brazil, Russia, India, and China). Detailed data on the
emissions attributable to other countries is not available. Calculations do not include emissions from
land use, land use change, or forestry.
2. We use the International Energy Agency’s (IEA) Sustainable Development Scenario as the basis for
the worldwide energy mix and carbon intensity. It assumes that renewables will account for 49% of
energy production in 2030.
3. The building envelope lever, included in category 2, is not directly affected by the machinery
industry. It has a GHG reduction potential of 0.7 Gt.
4. For the expansion of renewable energy, the IEA Sustainable Development Scenario is taken as a
basis: share of renewable energy on total power generation will increase from 25% in 2017 to 49% in
2030 globally.
20
For Machinery Makers, Green Tech Creates Green Business
About the Authors
is a managing director and senior partner in the Munich office of Boston Consult-ing
Group. You may contact him by email at
is a principal in BCG’s Munich office. You may contact him by email at
.
is a principal in the firm’s Munich office.
You may contact him by email at xxxxx.
is a managing director and partner in BCG’s Chicago office. You may contact him by
email at
is the deputy executive director of VDMA. He is responsible for the association’s
efforts in technology, standards, research, education and innovation. He also serves as
chairperson of the board of directors of the Research Association for Mechanical Engineering
(FKM).
is a managing director of VDMA Power Systems and the association’s spokes-man on
climate and energy policy. He also leads the activities of the VDMA’s Climate and Energy Forum.
is an advisor to VDMA and its Climate and Energy Forum. He represents the forum to
policymakers and the public.
Note:
This report was written in conjunction with the Verband Deutscher Maschinen und Anlagenbau
(VDMA), Germany’s mechanical engineering industry association. The authors would like to thank
the many member companies of the VDMA that contributed their expertise and suggestions.
Acknowledgments
The authors would also like to acknowledge the contributions of
o the research and writing of this report.
For Further Contact
If you would like to discuss this report, please contact one of the authors.
Boston Consulting Group X VDMA
21
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