upside of green premiums, reveals that incumbents can reduce emissions by up to 80 percent and create value (Exhibit 3). Launching net-zero offerings successfully is not a given. A thorough market analysis and strategy is needed to identify the markets where net-zero products could generate green premiums, particularly if leaders set ambitious carbon abatement goals or foresee large capital expenditures. Companies often need to move quickly in markets where there are supply shortages, creating new markets and product categories, and working with partners across the value chain to maximize carbon reductions. However, incumbents that have existing production models, familiarity with a customer base, and experience with supply chains should have a leg up. The following are specific actions companies can take to help ensure a successful product launch: — Identify high-potential net-zero markets. Leading companies start with a key question: What net-zero offerings can we provide in markets where there will be structural supply shortages for the foreseeable future? — Create new markets and rethink pricing strategies. Many players who have successfully launched net-zero products have created and shaped new markets. They have achieved this in part through CEO-to-CEO sales (versus selling through the procurement organization). In these CEO-level conversations, leaders can secure early production offtakes and earn a price premium. For example, leadership at SSAB, which is developing fossil fuel–free steel made with hydrogen, has partnered with automotive incumbents to gain early sales. Companies that have identified new opportunities for greener products, like SSAB, have been able to capture a 20 to 30 percent premium. — Secure green supplier partnerships for Scope 2 and 3 emissions. Producing net-zero goods requires reducing emissions across the supply chain (Scope 2 and 3 emissions). Developing
with electrolyzer providers to secure long-term supply at competitive prices.
Launch net-zero offerings Demand for net-zero offerings is surging—so much so that there could be shortages in certain sectors. According to our analysis, in steel, cement, and chemicals, for example, there could be up to a 60 percent supply–demand gap in 2030 for net-zero products. While such shortages could temporarily slow the net-zero transition, there is an opportunity for fast-moving players to capture the value of full decarbonization through value-based pricing strategies (moving away from a “cost plus” approach to one that factors in the value of decarbonization, for example) or earning a price premium on green goods and services. In some sectors, we’re already seeing green premiums of 15 to 30 percent. In many markets, particularly in Europe, the ability to sell excess carbon allowances further strengthens the business case for green offerings. According to our analysis of green steel, for instance, producers in Europe that combine a green premium with the sale of excess carbon allowances could earn a 30 percent return on capital employed by 2035. Similar opportunities exist for many other products and services. Another way to build the business case for net-zero offerings could be to use a marginal abatement revenue and cost curve (MARCC) on a product level. A MARCC, a new concept we have developed, shifts the discussion of offering net-zero goods and services from only cost to the total value of the opportunity. To create a MARCC, we start with the cost to decarbonize a product and then add the green premiums that we anticipate the net-zero version of the product can earn. Looking at just the costs of net-zero products, for example, shows that, on average, net-zero products incur an overall cost that is 10 to 30 percent higher than their more carbon-intensive counterparts. 8 These figures suggest that creating net-zero offerings would erode margins and destroy value for companies. However, a cross-sector MARCC for net-zero offerings, which captures the potential revenue
8 The net-zero transition: What it would cost, what it could bring , McKinsey Global Institute, January 2022.
Accelerating the journey to net zero
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