Exploring the future of lead markets for climate-friendly basic materials
As businesses strive to cut their greenhouse gas emissions, the importance of ensuring sufficient demand for low-emission goods has come to the fore. A new report by Agora Industry outlines which steps can be taken to kickstart the market for climate-friendly products.
Industries across the European Union have until 2040 to reach net zero, according to the timeline laid out in the revised EU Emissions Trading System regulation. Yet companies in sectors such as steel, cement and chemicals may hesitate to make their production facilities fit for climate neutrality due to high upfront investment costs. A new report by Agora Industry examines how governments can use dedicated policy measures to drive up demand for climate-friendly products and create ‘lead markets,’ thereby boosting the business case for rapid decarbonisation.
Taking inspiration from efficiency labels
The introduction of efficiency labels for white goods such as refrigerators and washing machines is a successful example of how policy measures can be used to promote sustainable product characteristics. The Agora report outlines how low-emission steel and other goods would likewise benefit from a broad set of supportive measures such as clear standards, transparent carbon accounting and reporting requirements, labelling and limits for embodied CO2 and green public procurement.
The ideal policy mix to support industrial transformation will depend on how and where each product is used. However, it is clear that some end-use sectors, such as buildings, construction, packaging and mobility will need to be prioritised for lead market creation. This is because 60 percent of the emissions from the steel, cement, plastics and aluminium industries are linked to materials that go into those demand sectors. Therefore, switching to using climate-friendly alternatives can have a strong steering effect for transforming industrial production as a whole.
Climate-friendly products don’t cost the Earth
There is considerable scope to increase demand for climate-neutral basic materials in these end-use sectors with little impact on prices, the report’s authors note. Using climate-friendly steel in cars, for example, is estimated to increase the final price of a new car by just one to three percent. As the share of low-emission materials increases with rising demand, product costs will begin to align with those made using conventional methods. The aim should be to accelerate a virtuous cycle where market growth becomes self-reinforcing.
In the long run, market uptake of climate-friendly materials in end-products can reduce the need for financial support for the industrial transition on the supply side.
The Agora Industry analysis also discusses how lead market instruments such as quotas for low-emission steel and cement in public procurement programmes or embodied carbon limits in buildings can encourage the efficient use of climate-friendly, circular materials. By implementing targets or limits for the CO2 intensity of basic materials or final products, lead market instruments can also indirectly foster the use of circular materials with a much lower CO2 intensity. This can help boost a resource-efficient and resilient circular economy.
Going beyond national measures
While national governments have a role to play in the creation of lead markets, certain instruments are most effectively implemented at the level of the European Union. The incoming EU Commission thus has an opportunity to support industry in the transition to net zero, such as by drawing on its “soft superpower” of setting standards and transparent carbon accounting and reporting rules for the world’s biggest common market. Just as efficiency labels mandated in Europe have become the de facto global standard, the 27-nation bloc can lead in the creation of markets for climate-friendly products and the new technologies needed to make them.
The 58-page analysis ‘Creating markets for climate-friendly basic materials’ can be downloaded below.
