From smoke to sustainability: Climate action in the industrial sector

1.     Climate action in the industrial sector has expanded rapidly since 2010, outpacing action in other energy sectors such as buildings, transport and electricity.

2.     Non-market-based policy instruments, such as energy efficiency mandates and performance standards, were the key driver behind most of this growth, increasing their share in climate action from below 50% in 2010 to nearly 62% in 2023. Climate action of some market-based instruments even decreased in that period.

3.     Market-based policy instruments, although less frequently used, seem to be more effective at driving large industrial emission reductions.

4.     Significant untapped potential remains to scale up climate action to reduce industrial emissions in Latin America and the Caribbean and Africa and the Middle East, particularly through the adoption of market-based instruments.

Despite technological advances in energy and input efficiency, as well as international climate efforts such as the Paris Agreement, total industry-related global greenhouse gas (GHG) emissions rose by 78% between 2000 and 2023, the largest increase among major sectors. This surge reflects the rapid expansion of industry in emerging economies such as China and India, fuelled by rising consumer demand, a growing middle class, and increased exports.

Industry remains one of the hard-to-abate sectors; technological substitutes for major industrial sub-sectors, especially in steel and cement production, are not yet commercially available or scalable, making deep decarbonisation difficult and highlighting the urgent need for innovation and supportive policy frameworks (OECD, 2024).

Governments have responded with increasing climate action to curb industry-related GHG emissions. The OECD Climate Actions and Policies Measurement Framework (CAPMF) tracks these efforts by measuring both the adoption and stringency of climate mitigation policies across major emitting sectors; industry, electricity, buildings, and transport, in 50 OECD and OECD Partner countries from 1990 to 2023. Climate action is measured on a scale from 0 (no action) to 10 (strong action). The CAPMF includes 56 climate actions and policy instruments covering a broad range of instrument types, such as market-based and non-market-based measures, and accounts for approximately 75% of the policy types referenced in the latest IPCC report (IPCC, 2022). For the industry sector, the CAPMF comprises information on carbon pricing instruments (i.e. carbon taxes, emissions trading schemes, fuel excise taxes and reform of industry-specific fossil fuel support measures), financial support measures for energy efficiency and clean technologies, minimum energy performance standards for electric motors and energy efficiency mandates.[i]

[i] While the CAPMF covers a broad set of industry-specific mitigation policies, it may not fully capture all policy efforts targeting these emissions and, hence, needs to be interpreted carefully.

Since 2010, climate action in the industrial sector has increased significantly, outpacing progress in all other energy sectors (Figure 1). Industrial climate action has seen a 150% increase compared to an average 50% increase in the other energy sectors. While the industrial sector was second to lowest in 2010, it reached the highest level of climate action by 2023. This increase highlights efforts towards industrial decarbonisation as countries strive to achieve their nationally determined contributions (NDCs) and net-zero commitments. In recent years, momentum for the sector’s transition has been growing through initiatives such as the EU Innovation Fund, launched in 2020, and increased public financing for industrial energy efficiency (EC, 2025).

Public sector momentum has been matched by increased private investment in clean manufacturing technologies, including green steel and low-emission hydrogen. The global pipeline of low-emission hydrogen projects is expanding rapidly, expected to grow from USD 1.3 billion in 2023 to USD 12 billion by 2030 (IEA 2023).

Between 2010 and 2023, climate action in the industrial sector expanded significantly across all regions (Figure 2). Western Europe and Canada recorded the largest improvements, building on already high levels of climate action in 2010. Regional differences reflect the relative strength of industry-focused policies and institutional capacity to implement. Western Europe and Canada lead with comprehensive emissions trading schemes (ETS) supported by strong energy efficiency mandates and targeted financing for energy efficiency. These policies have grown increasingly ambitious, with EU ETS permit prices rising from around EUR 14 in 2010 to more than EUR 80 in 2023 (ICAP, 2024). In contrast, regions such as Latin America and the Caribbean continue to rely on fossil fuel subsidies and have generally less stringent energy efficiency standards, resulting in slower progress on industrial climate action, as shown in the latest Data Insight on Climate action in Latin America. In addition, the industrial emissions profile and, thus, the relevance of industrial climate action also varies greatly across countries, which may explain some of the divergence of regional climate action. Nevertheless, there are encouraging signs of enhanced climate action, witnessed by a growing trend towards increased regional cooperation, with initiatives such as the ASEAN Alliance on Carbon Markets (AACM) launched in 2023 to support the establishment of a regulated cross-border carbon market (AACM, 2024).

Non-market-based instruments (nMBIs) have experienced the most significant growth among policy instrument types from 2010 to 2023 (Figure 3). While nMBIs, such as standards or information instruments, accounted less than half of climate action in 2010, they represented around 62% in 2023. Other energy sectors have seen comparable trends, with nMBIs representing a larger proportion of climate action than market-based instruments (MBIs) (see Figure 9 in Supplementary Graphs). NMBIs provide regulatory certainty since measures such as bans, mandates, and standards deliver clear and predictable outcomes. They are especially prevalent in countries such as China, India, and across Latin American countries, where regulatory approaches are often preferred over MBIs, as explained in more detail in the Data Insight on non market-based instruments. While both MBIs and nMBIs can be effective at reducing emissions (Stechemesser et al. (2024), (OECD, 2025), MBIs - such as carbon pricing – are usually more cost-effective. Together, MBIs and nMBIs create a cohesive and complementary policy mix for industrial decarbonisation. 

Most progress in industry-related climate action was driven by nMBIs, particularly minimum energy performance standards (MEPS) and energy efficiency mandates (Figure 4). While countries are increasingly adopting both MBI and nMBIs, some MBIs such as fossil fuel subsidy reforms, carbon pricing, and industry-specific excise taxes declined in stringency between 2010 and 2023. The limited uptake of MBIs, particularly carbon pricing, often reflects factors such as administrative capacity, political acceptability, and alignment with economic growth objectives (OECD 2024). Consequently, many governments have shifted their focus toward regulatory approaches, such as performance standards and industrial energy efficiency mandates, as well as financial support for low-carbon technologies, driving the rapid adoption and increasing stringency of these measures in recent years.

Growth in industrial climate action is largely driven by the tightening of existing policies, rather than the adoption of new ones (Figure 5). Governments are increasingly building on established policy frameworks, refining and reinforcing them to deliver stronger mitigation outcomes. For example, the EU has progressively tightened MEPS for industrial equipment, such as electric motors, requiring higher energy efficiency levels over time. This trend is reflected more broadly in the previous Figure 4, which shows that while some countries are introducing MEPS, many others are focusing on updating their existing regulations. As a result, regulated entities are compelled to adopt more advanced technologies and practices, leading to deeper and more sustained emissions reductions. In contrast to the industrial sector, climate action in other sectors was driven primarily by the adoption of new policies (Figure 10, Additional data).

Stronger levels of industrial climate action are linked with lower carbon intensity in the industrial sector (Figure 6). Among the ten countries with the highest level of industrial climate action in 2023, nine recorded below average carbon intensity. By contrast, six out of the ten countries with the lowest industrial climate action displayed above average carbon intensity. While stronger climate action is generally associated with lower carbon intensity, significant differences across countries remain due to other contextual factors. The relationship identified here is, however, purely descriptive. Further research is needed to assess the effectiveness of mitigation policies in the industrial sector and more broadly.

MBIs were more effective than nMBIs in driving significant emissions reductions (Figure 7). These results are based on a recent study led by the Potsdam Institute for Climate Impact Research (PIK) that combines CAPMF data with a machine learning approach to provide the first global evaluation of policies and policy mixes driving significant emissions reductions (Stechemesser et al. (2024). Despite the dominance of nMBIs in the industrial sector’s policy mix, MBIs are more frequently associated with emissions breaks in industrial GHG emissions.[i] Specifically, in six out of nine countries, major emission breaks coincide with the implementation or strengthening of MBIs (indicated by the coloured dots in Figure 7). In contrast, nMBIs (represented by triangles) are associated with emission breaks in only two countries, and the magnitude of emission reductions tend to be smaller. In one country, the emissions break was associated with a mix of MBI and nMBI. In contrast to other sectors, the industrial sector is characterised by profit-maximising firms, which are generally more reactive to price signals than households. MBIs are therefore particularly successful in altering the economic incentives faced by industrial emitters, making pollution more costly and encouraging firms to innovate or adopt cleaner technologies.

Note: Based on Stechemesser et al. (2024). 

Countries still have plenty of policy space to further reduce industrial emissions (Figure 8). Climate action in the industrial sector exhibits considerable variation across regions and policy instruments. In Europe and parts of the Asia-Pacific, nMBIs such as MEPS for electric motors and energy efficiency mandates demonstrate moderate to high levels of climate action. In contrast, MBIs, including carbon taxes and excise taxes, remain limited or underutilised in many regions. ETS show marked regional differences, with notably higher implementation in Europe due to the EU ETS than elsewhere. This uneven policy landscape reveals substantial untapped potential, particularly for MBIs. Strengthening and expanding these mechanisms offers a critical opportunity for policymakers to accelerate industrial decarbonisation by expanding the scope and stringency of market-based tools, thereby enhancing climate outcomes in line with national and international commitments.

NOTES

[1] Note that the AFOLU sector, the highest-emitting sector in LA7 countries, is not covered in the current edition of the CAPMF.

[2] OECD partner countries include Argentina, Brazil, Bulgaria, China (People's Republic of), Croatia, India, Indonesia, Malta, Peru, Romania, Saudi Arabia and South Africa.

[3] The AFOLU sector, the highest-emitting sector in LA7 countries, is not covered in the current edition of the CAPMF.

[4] Note that this insight is only based on descriptive analysis and is intended to provide policymakers with some general guidance on which sector could be prioritised.

[5] Note that Stechemesser et al. (2024) focussed exclusively on large emission reductions, rather than all instances of emission declines. As such, their findings should not be interpreted as evidence that policies not listed in Table 2 were ineffective. Instead, the policies highlighted in Table 2 represent successful case studies from which policymakers can draw valuable lessons.