A vision for international trade in CO₂-intensive materials

Countries implement different policy approaches to transform their energy-intensive basic material sectors such as steel, aluminium, cement and chemicals: Some governments put carbon pricing at the centre of their policy mix while others choose to incentivize the transition through green subsidies. In this context of diverging policy approaches, it is difficult for governments to jointly align on common targets for the decarbonisation of their industrial sectors. This is important, because differences in ambition increase the risk of carbon leakage and deters national governments from climate action in these trade-exposed sectors.

An international framework is needed to bridge those divergent strategies and allow countries to converge in their pathways to net-zero. We argue that carbon product requirements (CPRs) for basic materials are a missing puzzle piece in the policy toolkit for industry decarbonization and can be such a platform for global collaboration. They can co-exist with national carbon pricing systems, subsidies and other decarbonisation policies and can be designed to accommodate the different starting points and trajectories of emerging and developing economies.

While green lead markets can strengthen the business case for low-carbon production by creating demand in downstream sectors, carbon product requirements can complement this incentive by regulating the gradual phase-out of carbon-intensive production. In the context of looming re-investment cycles as well as new investment pipelines in emerging and developing economies, a concerted international signal is needed to avoid the significant risk of carbon-lock in for decades to come. Therefore, existing international initiatives such as the Climate Club, Industrial Deep Decarbonization Initiative, the G7 and G20 should include CPRs in their work programs.