Format: Study
Date: 21 April 2021

Breakthrough strategies for climate-neutral industry in Europe (study)

Policy and Technology Pathways for Raising EU Climate Ambition

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Preface
Key findings

Preface

The basic materials industries are a cornerstone of Europe’s economic prosperity, increasing gross value added and providing around 2 million high-quality jobs. But they are also a major source of greenhouse gas emissions. Despite efficiency improvements, emissions from these industries were mostly constant for several years prior to the Covid-19 crisis and today account for 20 per cent of the EU’s total greenhouse gas emissions.

A central question is therefore: How can the basic material industries in the EU become climate-neutral by 2050 while maintaining a strong position in a highly competitive global market? And how can these industries help the EU reach the higher 2030 climate target – a reduction of greenhouse gas emissions of at least 55 per cent relative to 1990 levels?

In the EU policy debate on the European Green Deal, many suppose that the basic materials industries can do little to achieve deep cuts in emissions by 2030. Beyond improvements to the efficiency of existing technologies, they assume that no further innovations will be feasible within that period. This study takes a different view. It shows that a more ambitious approach involving the early implementation of key low-carbon technologies and a Clean Industry Package is not just possible, but in fact necessary to safeguard global competitiveness.

Key findings

Given the new paradigm of achieving climate neutrality by 2050, current climate and industry policies will lead to investment leakage or risk stranded industrial assets.

Industrial companies understand: The EU objective of climate neutrality by 2050 has clear implications for industrial reinvestment in the 2020s. Carbon-intensive technologies have lifetimes of up to 70 years. Reinvestments into long-lived assets will not be made unless there is an investment framework to deploy climate-neutral technologies.
With a new policy framework, the basic materials industries can support an increased EU 2030 climate target of at least -55 per cent. Key low-carbon technologies are available and can be deployed well before 2030.

The CO2 abatement potential of key low-carbon technologies in the steel, chemicals, and cement sectors alone amounts to 145 Mt of CO2 by 2030, exceeding the required emission reductions from industry under the EU ETS. Their deployment will represent a breakthrough in Europe’s industrial sector and ensure it a leading global role.
By 2030, 30 to 50 per cent of existing assets in cement, steel, and chemicals will require major reinvestment. New policies are needed now to create a business case for breakthrough technologies.

Key low-carbon technologies are available, but their abatement costs are still in the range of 100 to 170 €/t of CO2. The EU should adopt policy instruments to cover the gap between these abatement costs and the EU ETS price as soon as possible.
Europe needs a Clean Industry Package in 2021 to kick-start breakthrough investments and protect existing assets.

By reﬁning existing carbon leakage protection instruments it will be possible to protect existing plants until they can be replaced. At the same time, decisive support for investments in breakthrough technologies is needed. This should come in the form of carbon contracts-for-difference, planning and ﬁnancing for clean-energy installations and infrastructure, and standards to create markets for climate-neutral and circular products.

Bibliographical data

Authors: Wido K. Witecka, Dr. Oliver Sartor, Philipp D. Hauser, Dr. Camilla Oliveira, Dr. Fabian Joas, Thorsten Lenck, Frank Peter, Fiona Seiler (all Agora Energiewende), Clemens Schneider, Dr. Georg Holtz, Dr. Sascha Samadi, Dr. Georg Kobiela, Prof. Dr. Stefan Lechtenböhmer (all Wuppertal Institute), Katja Dinges, Dr. Karoline Steinbacher, Jonas Schröder, Thobias Sach, Matthias Schimmel (all Guidehouse), Christine Kliem LL.M., Dr. Martin Altrock, Dr. Wieland Lehnert LL.M., Dr. Jasper Finke (all BBH), Yasin Yilmaz (IKEM)
Publication number: 208/02-S-2021/EN
Version number: 1.0
Publication date: 21 April 2021
Pages: 216
Suggested Citation: Agora Energiewende and Wuppertal Institute (2021): Breakthrough Strategies for Climate-Neutral Industry in Europe: Policy and Technology Pathways for Raising EU Climate Ambition.
Project: This publication was produced within the framework of the project A Clean Industry Package for Europe.