Report: Building blocks for a climate-neutral European industrial sector

On Tuesday, October 29, 2019, a new report Building blocks for a climate-neutral European industrial sector by the Climate Friendly Material Platform was released. The report proposes a concrete package of policy instruments that, if considered at both EU and national level, will allow heavy industry to reach climate neutrality by 2050 while remaining competitive in global markets.

Several studies already showed that while EU heavy industry is one of the main contributors to climate change (accounting for 16% of EU GHG emissions), it can reach net zero emissions by 2050 and deliver the low-carbon products needed for the energy transition, thus playing a determining factor in whether the EU is able to rapidly shift to a net-zero economy.

However, even if the European materials sector itself is increasingly showing eagerness to commit to reaching carbon neutrality by 2050, low carbon materials are significantly more expensive to produce (estimated costs are up to 115% higher than withcurrent production methods). Industry needs an integrated and coherent policy framework that will help it meet the challenge. In an age of increasing trade disputes and intensifying competition on low carbon manufacturing and digitalisation, it has become clear that the current framework, mainly relying on the ETS -as it is – and innovation funds alone won’t be sufficient to make the EU heavy industrial sector both Paris compliant and able to compete at the global level. That’s why, drawing upon the results of the workshops pursued with policy and industrial stakeholders across EU Member States, the Climate Friendly Material Platform suggests the EU and member states to consider the following package that strengthens and integrates existing policy instruments with new options:
1. A Climate Contribution as part of the EU Emissions Trading System is a charge on carbon-intensive materials sold for final use in Europe. The Climate Contribution could be a pragmatic alternative to the Border Tax Adjustments recently proposed by incoming European Commission President von der Leyen, as this policy tool has not found support in past discussions on protecting industries. The Contribution creates incentives for choosing and using climate-friendly materials, facilitating the funding of low-carbon production processes and aligning effective carbon pricing with carbon leakage protection. It supports a socially just implementation as it offers the possibility to reimburse the income of the charge to citizens directly as well as raising the funds for dire support needed for the industry sector.
2. Project-based Carbon Contracts for Difference (CCFDs) create lead markets for innovative low-carbon production processes and materials at national and European scale.
3. Contracts for Difference for Renewables will hedge renewable energy investors against regulatory risks such as changes in the power market design and address market failures that limit the role of private long-term contracts for mitigating electricity price risks.
4. Green Public Procurement (GPP) allows local, regional and national authorities to use their spending power when buying infrastructure or buildings to create lead markets for low-carbon practices and design.
5. Product Carbon Requirements effectively ban the sale in Europe of products comprising materials produced with carbon-intensive processes.

Together these policies will:

  • Create markets for the industry to pursue transformative innovation and investments towards climate neutrality production and use of materials. Thus, they accelerate the commercialization of innovative climate- friendly technologies and create the business case for climate-neutral industrial technologies and processes
  • Contribute to a just industrial transition by preventing relocation of production and jobs to other regions that may currently implement less stringent climate policies. Thus, they provide a pragmatic alternative to border carbon adjustments currently discussed at EU level.

The authors argue that the suggested policies should be urgently considered not only at the EU but also at the national level. They appear particularly timely for some countries (Sweden, Netherlands, Spain, UK and Germany) which are currently discussing strategies to decarbonize their heavy industries.