The missing link to net zero

A net-zero target without sector transition plans and transition finance is a destination with no map

More than 140 countries, covering 90 per cent of global carbon emissions, have announced net-zero targets for 2050 to 2070. That was the easy part. The hard part is turning economy-wide pledges into sector- and company-level plans, especially for decarbonising eight hard-to-abate sectors — steel, cement, aluminium, chemicals, aviation, shipping, trucking, and oil & gas. Yet discussion on this remains rare. 

Carbon mitigation so far shows two clear patterns. First, policy and capital have focused heavily on the energy transition, while adoption in other areas, such as electric vehicles, remains limited and concentrated largely in China. Second, there has been little discussion of the eight hard-to-abate sectors, yet they need far more financing than the power sector, where technologies are now mature and costs have fallen sharply. Our recent study found that climate finance needs for the steel and cement sectors in nine G20 emerging market economies through 2030 are 10 times higher than those for the power sector. The need would be greater still if the other six hard-to-abate sectors are included. 

Globally, the eight high-emission sectors are estimated to need roughly $30 trillion of additional investment to reach net zero by 2050. Together they account for around 40 per cent of global greenhouse gas emissions. Steel and cement are especially carbon-intensive because they are both energy-intensive and release CO2 from chemical processes. A majority of deep emissions cuts in steel and cement would need to rely on carbon capture and storage (CCS) and hydrogen-based processes — both still expensive, and not yet proven at scale, with transport and storage infrastructure also lacking. Cement poses a unique challenge because about 60 per cent of its CO2 comes from calcination of limestone, not from fuel combustion. Cheaper gas or more renewables cannot fix that. 

A bridge from ambition to action 

Sector transition plans, or STPs, bridge national climate goals and the concrete actions companies must take in their own transition plans. A credible STP is a forward-looking road map for shifting a sector to a low-carbon economy. It sets interim and long-term targets, identifies technology and process levers, maps financing needs, and spells out the policy support required. In practice, it translates a country’s net-zero target into clear sectoral milestones, giving industry and investors certainty to act. 

Without them, net-zero targets cannot be met. Hardly any country has published detailed, investment-ready road maps for steel, cement and other sectors that specify the technologies, infrastructure, and financing needed. The NITI Aayog’s STP for India outlines decarbonisation direction and sectoral pathways but it is not legally binding. It lacks plant-level timelines and enforcement mechanisms needed to unlock transition finance. 

From road map to capex 

Transition plans are company-level road maps that set out how a business will shift its strategy, operations, and capex to align with net zero. They cover targets, technology choices, governance, and financing needs over time. Global standards, taxonomies, and multilateral development banks are now helping define what credible transition plans and transition finance should look like, so that investors and regulators can judge whether a company’s plan is realistic. 

However, adoption is uneven. In the United Kingdom and the European Union, 66 per cent and 59 per cent of large companies, respectively, now disclose transition plans, driven by regulation and disclosure rules. By contrast, India, China, Indonesia, and Brazil together produce over 60 per cent of global steel and about 70 per cent of cement, yet none has a binding, investment-grade sectoral plan. 

Corporate surveys show the gap. Most firms have not identified decarbonisation levers, let alone budgeted for them. A 2024 EY survey found that only 41 per cent of companies had a climate transition plan, and just 17 per cent said how much they will spend to make it happen. 

From capex to decarbonisation 

Transition finance backs emissions-intensive firms and sectors that must invest heavily to become low-carbon over time. This is distinct from green finance, which fund assets that are already low-carbon, such as solar parks, wind farms and EVs. So far, the focus has been on green finance, not transition finance, with hardly any money flowing into hard-to-abate sectors. Investors in various surveys say the top barrier is the absence of feasible, bankable company transition plans, which themselves depend on credible sectoral plans. Without them, net-zero goals cannot be realised because transition finance cannot flow to the industries that need it most. 

What makes plans investment-grade 

To attract transition finance, two things matter. First, credible and detailed road maps for the eight hard-to-abate sectors, with plant-level timelines, enabling infrastructure, supportive policy and incentives, and the technologies to be used. Today, sector plans in most countries are only guidance, not binding commitments, which means investors lack the certainty needed to finance projects. Second, clear rules, including a recognised label for projects needing transition finance, standard definitions of what qualifies, risk-sharing by development banks to crowd in commercial lenders, and corporate transition plans that disclose capex. 

To sum up, most countries have articulated net-zero targets, but detailed sector plans are missing. Without binding, investment-grade road maps and clear transition finance rules, transition finance will not flow to these sectors. A net-zero target without an STP is a destination with no map. The countries that first link credible sectoral plans with bankable transition finance will lead the next wave of decarbonisation in the eight hard-to-abate sectors.

The writer is senior fellow, Centre for Social and Economic Progress, New Delhi. The views are personal