Deep dive: Thermodynamics, entropy & complexity — the fastest-moving subsegments to watch

European industrial processes lose approximately 52% of their primary energy input to waste heat and irreversible entropy production, representing an annual economic loss exceeding €180 billion according to 2024 data from the European Environment Agency. This staggering inefficiency has catalysed a new wave of thermodynamics-informed sustainability strategies, where decision-makers are increasingly turning to exergy analysis, entropy-minimisation frameworks, and complexity science to unlock unprecedented gains in decarbonisation. Understanding the physics underpinning energy degradation is no longer an academic exercise—it has become a strategic imperative for organisations seeking to meet the EU's 2030 climate targets while maintaining competitive unit economics.

Why It Matters

The application of thermodynamic principles to sustainability represents one of the most significant paradigm shifts in industrial ecology over the past decade. While traditional carbon accounting focuses on emissions quantities, thermodynamic analysis reveals the quality of energy flows and identifies where irreversible losses occur in complex systems. This distinction matters enormously: a process may appear carbon-efficient on paper while harbouring massive exergy destruction that undermines long-term viability.

In 2024, the European Commission's Joint Research Centre published landmark findings indicating that thermodynamically-optimised industrial clusters could reduce EU-wide industrial emissions by 23-31% beyond current best practices. The report specifically highlighted that conventional life cycle assessment (LCA) methodologies systematically undervalue interventions that reduce entropy production, creating misaligned incentives in sustainability investment.

The financial stakes are substantial. Analysis from the Fraunhofer Institute for Systems and Innovation Research (ISI) estimates that European manufacturers adopting exergy-based process optimisation achieved median cost reductions of 12-18% in energy expenditure during 2024-2025, with payback periods averaging 2.3 years for retrofit investments. These figures compare favourably to the 4-7 year paybacks typical of conventional efficiency upgrades.

From a regulatory perspective, the EU's revised Energy Efficiency Directive (EED) now explicitly references thermodynamic efficiency metrics in its guidance for large enterprises, signalling a shift from simple energy consumption targets toward quality-adjusted frameworks. Member states including Germany, the Netherlands, and Denmark have introduced tax incentives specifically tied to exergy efficiency improvements, creating powerful market signals for early adopters.

The complexity dimension adds another layer of strategic importance. Industrial ecosystems are increasingly recognised as complex adaptive systems where linear optimisation approaches fail to capture emergent inefficiencies. Research from the Santa Fe Institute and ETH Zurich demonstrates that supply chain entropy—the information-theoretic measure of disorder in material and energy flows—correlates strongly with Scope 3 emissions intensity. Organisations with high supply chain entropy scores exhibit 34% greater emissions variance and 28% higher compliance costs under the Corporate Sustainability Reporting Directive (CSRD).

Key Concepts

Thermodynamics refers to the branch of physics governing energy transformations and heat flow in systems. In sustainability applications, the first and second laws of thermodynamics provide fundamental constraints on what efficiency improvements are theoretically achievable. The first law establishes energy conservation—energy cannot be created or destroyed—while the second law dictates that every real process increases the total entropy of the universe, meaning some energy is always degraded to unusable waste heat.

Entropy quantifies the degree of disorder or randomness in a system. In practical sustainability terms, entropy production measures the irreversibility of a process: high-entropy-production processes destroy more useful work potential and generate more waste. Manufacturing processes, logistics networks, and even information systems all produce entropy, and minimising this production represents a fundamental pathway to efficiency. The concept extends to supply chains, where entropy metrics capture the dispersal and degradation of materials through complex networks.

Exergy (also called availability or available energy) measures the maximum useful work obtainable from a system as it comes into equilibrium with its environment. Unlike energy, exergy can be destroyed—this destruction represents the real thermodynamic cost of irreversible processes. Exergy analysis has become central to industrial sustainability because it identifies where value is truly lost, not merely transferred. European industrial leaders increasingly report exergy efficiency alongside traditional energy metrics.

Scope 3 emissions encompass all indirect greenhouse gas emissions occurring in an organisation's value chain, both upstream (suppliers) and downstream (customers). These typically represent 70-90% of a company's total carbon footprint. Thermodynamic analysis of Scope 3 emissions reveals hidden inefficiencies in supply networks that traditional accounting methods miss, particularly around waste heat cascading and material entropy accumulation across production stages.

Life Cycle Assessment (LCA) is a methodology for evaluating the environmental impacts of products or services throughout their entire life cycle. Traditional LCA focuses on mass and energy flows, but thermodynamic LCA (or exergy-based LCA) additionally accounts for quality degradation. This enhanced approach has gained traction in European regulatory frameworks, particularly for construction materials and industrial chemicals where energy quality differences substantially affect true environmental burden.

What's Working and What Isn't

What's Working

Waste heat cascade networks in industrial clusters represent the most mature application of thermodynamic sustainability principles in Europe. The Kalundborg Symbiosis in Denmark, now in its fifth decade, has been joined by newer initiatives including the Rotterdam Industrial Heat Network and the Antwerp chemical cluster. These systems capture high-temperature waste heat from primary processes and cascade it through successively lower-temperature applications before final rejection. Data from 2024-2025 shows participating firms in Rotterdam achieved 19% reductions in primary energy consumption with levelised costs of saved energy (LCSE) averaging €32 per MWh—substantially below wholesale electricity prices.

Exergy-based process redesign in heavy industry has delivered transformative results, particularly in cement and steel production. HeidelbergMaterials' Brevik plant in Norway implemented exergy-pinch analysis to redesign its clinker cooling and waste heat recovery systems, achieving a 27% reduction in thermal exergy destruction. The retrofit cost €23 million but generates annual savings exceeding €8 million at current energy prices, representing a 2.9-year payback. Similar approaches at SSAB's steel facilities in Sweden have reduced specific energy consumption by 14% while maintaining product quality specifications.

Entropy-minimisation algorithms for logistics have emerged as a powerful tool for supply chain decarbonisation. Companies including DB Schenker and Maersk have deployed complexity-aware routing algorithms that minimise the entropy production of freight networks rather than simply optimising distance or fuel consumption. These approaches account for the thermodynamic costs of trans-shipment, storage temperature maintenance, and modal transfers. Pilot results from DB Schenker's European network showed 11% emissions reductions beyond what conventional optimisation achieved, with equivalent or improved delivery performance.

Thermodynamic monitoring in data centres has matured significantly, with hyperscale operators adopting exergy-based metrics for cooling system management. Google's European facilities now report exergy efficiency alongside traditional power usage effectiveness (PUE) metrics, revealing that conventional high-PUE facilities may nonetheless operate with poor thermodynamic efficiency if cooling is achieved through energy-intensive mechanical systems rather than free cooling cascades.

What Isn't Working

Standalone exergy audits without integration pathways frequently fail to generate actionable outcomes. Many European SMEs have invested in thermodynamic assessments that identify substantial improvement potential but lack the capital, expertise, or ecosystem connections to implement recommendations. A 2024 survey by the European Association of Energy Efficiency found that 62% of SMEs receiving exergy audits had not implemented any recommendations after 18 months, citing capital constraints and uncertainty about integration with existing systems.

Complexity metrics without standardisation have created confusion in sustainability reporting. While the scientific literature offers numerous entropy-based supply chain metrics, the absence of standardised calculation methodologies means that reported values are frequently non-comparable across organisations. The European Financial Reporting Advisory Group (EFRAG) has acknowledged this gap in CSRD implementation guidance but has not yet mandated specific approaches, leaving reporters to select methodologies that may optimise for favourable results rather than transparency.

Thermodynamic optimisation in isolation from economic constraints often produces technically elegant solutions with prohibitive unit economics. Academic research continues to propose theoretically optimal configurations that require simultaneous transformation of multiple production stages—changes that exceed the investment capacity or risk tolerance of most industrial operators. The gap between thermodynamic potential and economically viable implementation remains substantial, with estimates suggesting that only 35-40% of identified exergy savings are capturable at current energy prices and capital costs.

Cross-border waste heat exchange faces persistent regulatory and commercial barriers despite clear thermodynamic logic. Heat flowing across national boundaries triggers complex questions about taxation, emissions accounting, and regulatory jurisdiction. A proposed heat pipeline linking German industrial facilities to Danish district heating networks has been in regulatory limbo since 2022, despite projected annual savings exceeding €40 million and carbon reductions of 180,000 tonnes.

Key Players

Established Leaders

Siemens AG has emerged as Europe's leading provider of exergy-based industrial optimisation solutions. Its Digital Industries division offers comprehensive thermodynamic modelling tools integrated with process control systems, enabling real-time exergy tracking and automated efficiency optimisation. Siemens reports that installations across European industry achieved aggregate energy savings of 4.2 TWh in 2024.

BASF SE operates some of Europe's most sophisticated industrial symbiosis networks, with its Ludwigshafen Verbund site integrating over 200 production plants through heat and material cascades. The company publishes detailed exergy flow analyses and has committed to 25% improvement in site-level exergy efficiency by 2030.

Ørsted A/S has pioneered the integration of thermodynamic principles into renewable energy system design, particularly around waste heat utilisation from offshore wind installation vessels and the coupling of hydrogen electrolysis with district heating systems. The company's 2024 sustainability report introduced exergy metrics for its entire value chain.

TotalEnergies SE has invested heavily in thermodynamic optimisation of refinery operations, with its European facilities achieving 8% exergy efficiency improvements through advanced pinch analysis and heat integration. The company's Antwerp refinery operates one of Europe's largest industrial heat pump installations for low-grade waste heat upgrading.

Vattenfall AB operates district heating networks across Northern Europe that increasingly incorporate industrial waste heat and thermodynamic cascade principles. The company's Uppsala Heat project captures heat from data centres, sewage treatment, and industrial processes through an integrated exergy-optimised network serving 200,000 residents.

Emerging Startups

Exergyn Ltd (Ireland) has developed shape-memory alloy heat engines that can convert low-grade waste heat (40-80°C) into useful mechanical or electrical work—a temperature range where conventional technologies fail. The company raised €28 million in 2024 and is deploying pilot installations at European food processing facilities.

Entropy Analytics GmbH (Germany) provides software-as-a-service platforms for supply chain entropy measurement and Scope 3 thermodynamic analysis. The platform integrates with existing ERP systems to calculate real-time entropy metrics, enabling dynamic supply chain reconfiguration for emissions optimisation.

Kelvin.ai (UK) offers machine learning tools for predictive exergy management in commercial buildings and light industry. The platform has demonstrated 15-22% energy cost reductions in pilot deployments by anticipating thermodynamic conditions and pre-positioning HVAC and process systems.

Symbiosis Hub (Netherlands) operates a digital marketplace connecting industrial waste heat producers with potential consumers, reducing transaction costs that have historically blocked heat exchange arrangements. The platform facilitated 340 GWh of waste heat transactions in 2024.

Thermovault ApS (Denmark) develops advanced thermal energy storage systems optimised for exergy preservation rather than simple energy capacity, enabling higher-value applications of stored heat and improved round-trip thermodynamic efficiency.

Key Investors & Funders

European Investment Bank (EIB) has allocated €4.2 billion through its InnovFin Energy Demonstration Projects facility specifically for thermodynamic efficiency innovations, with explicit evaluation criteria favouring exergy-based approaches over simple energy reduction.

Breakthrough Energy Ventures (founded by Bill Gates) has made significant investments in European thermodynamic technology companies, including €65 million in advanced heat pump manufacturers and waste heat recovery specialists during 2024-2025.

Horizon Europe provides substantial grant funding for thermodynamic sustainability research through its Cluster 5 (Climate, Energy and Mobility) programme, with dedicated calls for exergy analysis tools and industrial symbiosis platforms totalling €380 million for the 2024-2027 period.

OGCI Climate Investments (Oil and Gas Climate Initiative) has directed €290 million toward European industrial decarbonisation projects with explicit thermodynamic efficiency criteria, focusing on hard-to-abate sectors including cement, steel, and chemicals.

KfW Capital (Germany) has established a dedicated cleantech fund with thermodynamic innovation as a core investment thesis, deploying €180 million in early-stage companies developing exergy-based solutions for industry and buildings.

Examples

ArcelorMittal Dunkirk Waste Heat Recovery Project (France): This €95 million initiative captures 1.2 TWh annually of waste heat from blast furnace operations, upgrading it through absorption heat pumps for supply to the municipal district heating network. The project reduces the steelworks' carbon intensity by 8% while generating €22 million in annual revenue from heat sales. Exergy analysis during design optimised the temperature cascade to maximise useful work extraction, achieving thermodynamic efficiency 34% above conventional waste heat boiler approaches. The installation came online in late 2024 and serves 45,000 households.

Port of Rotterdam Waste Heat Exchange Network (Netherlands): Europe's largest seaport has implemented a €340 million industrial heat network connecting refineries, chemical plants, and municipal heating infrastructure. The system exchanges 4.7 PJ of thermal energy annually across 47 participating facilities, with exergy-optimised routing algorithms ensuring heat flows to the highest-value applications. Carbon savings exceed 400,000 tonnes annually, while participating companies report combined energy cost reductions of €78 million. The network's governance structure, developed with Erasmus University Rotterdam, has become a model for replication across European port-industrial clusters.

Heidelberg Materials Brevik Carbon Capture Integration (Norway): The world's first full-scale carbon capture installation at a cement plant has been designed using rigorous exergy principles to minimise the energy penalty of CO2 separation. By integrating capture unit waste heat into clinker preheating and utilising excess low-grade heat for sorbent regeneration, the installation achieves a net energy penalty of 2.1 GJ per tonne of CO2 captured—40% below industry expectations. The €550 million facility began operations in 2025 and will capture 400,000 tonnes of CO2 annually while demonstrating the commercial viability of thermodynamically-optimised carbon capture.

Action Checklist

FAQ

Q: How does exergy analysis differ from conventional energy audits, and is the additional complexity justified? A: Conventional energy audits track the quantity of energy flowing through systems but ignore quality degradation. Exergy analysis captures both dimensions, revealing where useful work potential is destroyed rather than merely transferred. The additional complexity is justified when energy costs are significant (typically >5% of operating costs) or when compliance with emerging regulatory frameworks requires quality-adjusted metrics. Studies consistently show that exergy analysis identifies 20-35% more improvement potential than energy audits alone, with particularly large gains in processes involving heat transfer, mixing, or chemical reactions. The methodology requires additional data collection—particularly environmental reference conditions and temperature profiles—but modern sensor networks and simulation tools have substantially reduced implementation barriers.

Q: What are the primary barriers preventing wider adoption of industrial symbiosis and waste heat exchange in Europe? A: Four categories of barriers predominate. First, transaction costs remain high: identifying partners, negotiating agreements, and managing ongoing relationships requires specialised expertise that many firms lack. Second, temporal and spatial mismatches between heat supply and demand often require storage or transport infrastructure with uncertain economics. Third, regulatory fragmentation across EU member states creates complexity for cross-border arrangements and uncertainty about emissions accounting treatment. Fourth, counterparty risk concerns—what happens if the heat supplier or consumer ceases operations—deter long-term commitments. Digital platforms, standardised contracts, and supportive regulatory frameworks are progressively addressing these barriers, with transaction volumes growing approximately 18% annually across European industrial clusters.

Q: How should organisations prioritise thermodynamic improvements versus other decarbonisation pathways? A: Thermodynamic optimisation typically offers the highest return when baseline efficiency is poor (exergy efficiency <30%), when energy costs are substantial, and when process modifications are feasible without complete system replacement. These conditions often apply to thermal processes, chemical manufacturing, and large-scale logistics operations. Electrification and fuel switching may be preferable when renewable electricity is available at competitive prices and when processes can tolerate step-change modifications. In practice, thermodynamic analysis should inform all decarbonisation pathways: even electrified processes benefit from exergy optimisation, and the magnitude of required investment in low-carbon energy supply depends directly on how efficiently that energy will be used. Decision-makers should sequence thermodynamic improvements early to reduce the scale of subsequent capital investments in renewable energy or carbon capture.

Q: What role do complexity science and entropy metrics play in supply chain sustainability? A: Complexity science provides frameworks for understanding supply chains as adaptive systems where aggregate behaviour emerges from interactions among many actors. Entropy metrics—borrowed from information theory and statistical mechanics—quantify the disorder or unpredictability of these systems. High-entropy supply chains exhibit greater variability in material flows, more intermediaries, and less predictable environmental performance. Research demonstrates that supply chain entropy correlates with Scope 3 emissions intensity and compliance costs, suggesting that simplification and consolidation yield sustainability benefits beyond traditional efficiency gains. Practical applications include supplier portfolio optimisation, logistics network redesign, and risk assessment for CSRD compliance. While standardisation remains incomplete, leading organisations are beginning to track entropy-based KPIs as leading indicators of supply chain sustainability performance.

Q: Are thermodynamic sustainability principles applicable to service-sector organisations and digital businesses? A: Yes, though applications differ from heavy industry. Data centres consume substantial energy for computation and cooling, with exergy analysis revealing that mechanical cooling destroys significant useful work potential compared to free cooling alternatives. Thermodynamic principles inform decisions about server location, cooling architecture, and computational workload distribution. For broader service organisations, the principles apply primarily to building operations and supply chain impacts. Office buildings exhibit substantial exergy destruction in HVAC systems, with heat pumps and thermal storage offering thermodynamically-superior alternatives to conventional heating and cooling. Supply chain entropy metrics apply regardless of whether an organisation manufactures physical products, capturing the complexity and environmental intensity of upstream purchases. Even digital-native businesses typically find that 60-80% of their environmental footprint resides in Scope 3 categories where thermodynamic optimisation principles apply.

Sources

European Environment Agency (2024). "Industrial Energy Efficiency in the European Union: Thermodynamic Assessment and Improvement Potential." EEA Technical Report No. 8/2024.
European Commission Joint Research Centre (2024). "Exergy Analysis for Industrial Decarbonisation: Methodology and Case Studies." JRC Science for Policy Report EUR 31892 EN.
Fraunhofer Institute for Systems and Innovation Research (2025). "Economic Assessment of Thermodynamic Optimisation in European Manufacturing." Fraunhofer ISI Working Paper S01/2025.
Ayres, R.U. and Warr, B. (2009). "The Economic Growth Engine: How Energy and Work Drive Material Prosperity." Edward Elgar Publishing. Updated analysis in Energy Policy 178 (2024).
International Energy Agency (2024). "World Energy Outlook 2024: Industrial Efficiency Special Report." IEA Publications, Paris.
Sciubba, E. and Wall, G. (2024). "A Brief Review of Exergy Analysis in Sustainability Studies: 2020-2024 Developments." International Journal of Exergy 43(2): 112-145.
EFRAG (2024). "Implementation Guidance for ESRS E1: Climate Change—Technical Annex on Thermodynamic Metrics." European Financial Reporting Advisory Group, Brussels.