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Cracking Europe’s hardest climate nut – How to kick-start the zero-carbon transition of energy-intensive industries?

Executive summary

With total greenhouse gas emissions of 708 million tonnes per year, the resource and energy-intensive industry is the third-largest climate polluter in Europe. The cement, chemical, and steel sectors alone are responsible for almost 60% of these emissions.

Industrial emissions are regulated under the EU Emission Trading System (ETS), but the numerous exemptions and free pollution permits included in the legislation have failed to make the ETS an effective tool to drive down emissions: carbon pollution from heavy industry has not decreased since 2012 and is not predicted to do so until 2030. Moreover, under the EU ETS, energy-intensive industries receive too many free emission allowances, which allows them to make substantial profits from the system that is meant to make polluters pay.

With virtually no market incentive, most energy-intensive industries are not strongly committed to investing in cleaner technologies and making the necessary changes to decarbonise. In fact, the current long-term roadmaps presented by the industries themselves, if taken together, represent a mere 18% reduction of greenhouse gas emissions between 2016 and 2050.

However, decarbonising energy-intensive industries is possible and a plethora of solutions have already been identified. These include increasing energy savings, scaling up renewable energy deployment and applying circular economy models that, if fully adopted can put Europe’s heavy industry on a Paris-compatible pathway. This is confirmed by recent in-depth analysis by the European Commission showing that it is possible to reduce Europe’s emissions by 95% or above by 2050.

Despite the availability of several solutions, there are bottlenecks to clear, such as the lack of large quantities of renewable energy sources, barriers that can hinder industrial symbiosis as well as the currently insufficient level of public and private funding for the necessary investments.

Increased public investments coupled with a new climate and industry policy framework, that covers the entire industrial value chain and includes demand-side measures such as public procurement as a driver of markets for zero-carbon solutions, will be essential for reaching net-zero emissions from energy-intensive industry.

Industrial decarbonisation urgently needs to deliver its share of greenhouse gas emission reductions to ensure that Europe is on a pathway to net-zero carbon emissions by 2040. This is a big challenge which will require a joint effort, strategic planning, and an overarching and effective industrial climate policy framework.

Key recommendations

• Develop a climate-proof industrial strategy for energy-intensive industries, that helps set Europe on the path to achieving net-zero carbon emissions by 2040
• Put forward an industrial climate policy framework that includes at least the following components:

1. A Paris Agreement compliance test for environmental permitting
2. Increased funding for industrial decarbonisation
3. Carbon performance standards for the production and consumption of energy-intensive materials in Europe
4. Provisions to incentivise the use of products which contain increasing rates of recycled materials
5. A phase-out of free EU ETS allowances
6. Improved public procurement rules for energy-intensive materials and products

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