Unlocking Industrial Decarbonisation via SMEs

The path to industrial decarbonisation holds a critical yet often overlooked truth: Small and Medium Enterprises (SMEs) generate 60-70% of global industrial emissions. While global corporates command headlines with billion-dollar green initiatives, the real key to accelerating industrial decarbonisation lies in enabling SMEs to develop and scale sustainable solutions.

The Challenge: De-risking Capital Gap

Industrial decarbonisation fundamentally requires developing numerous greenfield projects. These projects, whether focused on carbon avoidance or carbon capture and sequestration, demand significant de-risking capital - typically 20% of the initial investment. This presents a stark challenge: while large corporates can readily access de-risking capital, SMEs face severe constraints despite being responsible for the majority of industrial emissions.

Consider this disparity: The total CAPEX for the world's 2,000 largest non-financial companies is $3.7 trillion, averaging $1.85 billion per corporation. In contrast, typical SME project CAPEX ranges from $1-5 million. This 370:1 ratio in project scale highlights why traditional funding approaches fail to address the SME decarbonisation challenge.

The Solution: Restructuring Decarbonisation Funding

The speed of industrial decarbonisation will be directly proportional to the pace of de-risking greenfield projects at the SME level. This calls for a fundamental restructuring of how we fund decarbonisation initiatives.

1. Two-Stage Funding Approach

Consider a transformative funding model that could revolutionise how we address environmental challenges. Take the case of crop residue burning in collaboration with Government of Haryana (India), where the World Bank seeks to support entrepreneurs and startups in developing solutions. Instead of the conventional approach of funding a few full-scale projects, here's a more effective two-stage strategy:

First, allocate de-risking capital (8-15% of total project capital) to a larger pool of entrepreneurs - enabling 100 different entrepreneurs to conduct de-risking activities including pilots. This would ensure at least one entrepreneur in each affected district can explore viable solutions. Then, based on demonstrated commitment and success potential, select and fully fund the top 10 projects that show the highest promise.

This proposed approach would:

• Maximise impact by supporting multiple parallel initiatives
• Reduce initial risk through smaller, targeted investments
• Enable more accurate selection of viable projects through real pilot data
• Create local entrepreneurship opportunities in every affected region
• Achieve better success rates than traditional single-stage funding

Compared to conventional funding approaches that skip the de-risking stage, this model offers higher probability of success, better resource utilization, and more comprehensive market coverage. It acknowledges that innovation and successful implementation often require testing multiple approaches before identifying the most effective solutions.

2. Expert Support Systems

Experienced advisors can reduce de-risking capital requirements from 20% to 8%. At APChemi's R&D Facility, we've demonstrated this through our research and development facility, where entrepreneurs utilise our pilot plants for pyrolysis, fractional distillation, and pyrolysis oil purification to generate proof-of-concept samples at lower costs.

3. Global Corporate Synergies

Creating value chains that connect SME suppliers with global corporate buyers is essential. For instance, SMEs can convert biomass waste into biochar for industrial decarbonization, which global corporates can purchase for their processes. Similarly, SMEs processing plastic waste into purified pyrolysis oil can supply to large refineries for circular plastics production.

The Impact Potential

With proper support, SMEs can achieve remarkable efficiency in decarbonization:

• Chemical recycling of plastic waste reduces carbon footprint by 50% compared to incineration
• Biomass-to-biochar offers one of the most cost-effective carbon capture methods while improving crop yields
• Advanced pyrolysis projects can achieve 2-5x better capital efficiency
• Increase SME investment success rate from 20% to 50 to 60%

Call to Action

To global decarbonisation funds and corporates: The time has come to restructure funding approaches to match the reality of industrial emissions. This means:

1. Allocating 60-70% of decarbonisation funding to SME initiatives, matching their contribution to industrial emissions
2. Establishing dedicated de-risking funds with two-stage funding mechanisms
3. Creating platforms for SME-corporate partnerships in the decarbonisation value chain
4. Supporting expert facilities that can help reduce de-risking costs for SMEs

The path to effective industrial decarbonisation runs through SMEs. By providing them with appropriate de-risking capital and support systems, we can unlock their potential to drive significant emissions reduction. The question isn't whether to support SME decarbonisation initiatives, but how quickly we can scale this support to meet our global climate goals.

Suhas Dixit is the CEO of APChemi, a company specialising in advanced pyrolysis technologies for plastic recycling and biomass conversion. APChemi has helped numerous entrepreneurs reduce project de-risking costs while achieving superior capital efficiency in decarbonisation projects.

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