The carbon capacity nexus

This report presents a conceptual framework to support the development of supply-side climate pledges in emissions-intensive sectors. Focusing on the “carbon-capacity nexus” — the relationship between industrial capacity and carbon emissions — it identifies key actions that governments and companies can take to reduce emissions through adjustments in industrial production capacity. While much of the current attention is on demand-side pledges (and on the supply side, on bringing near-emissions steel to the market), this report highlights the importance of wider supply-side pledges to ensure that industrial decarbonisation is grounded in real changes to production capacity and plant emissions. Using the steel industry as an example, the report outlines three main types of capacity adjustments: expanding near-zero emissions capacity, phasing out high-emission facilities, and lowering emissions from existing capacity. The report also shows how such pledges can be made actionable, and underscores the role of international cooperation, particularly through the Climate Club, in fostering coordinated and inclusive pledging processes. By integrating policy, technology and market considerations, the framework provides practical guidance to governments and industry stakeholders on designing effective, flexible, and actionable climate pledges across a wide range of emission-intensive industrial sectors, taking into account the heterogeneity of country circumstances.