Executive summary

The EU has a long-term climate objective of achieving economy-wide emission reductions of 80-95% by 2050 to avoid dangerous climate change. It is often argued that such deep emission reductions are technically impossible or that they would harm the economy and create unemployment.

In the spring of 2016, Carbon Market Watch therefore asked the Institute for European Studies to look at the feasibility of such emission cuts by 2050 in three of the most important manufacturing sectors in Europe: chemicals, steel and cement. The main findings of the report “The Final Frontier – Decarbonising Europe’s energy intensive industries” are summarised in this briefing.

The study illustrates that deep emission reductions, up to -80% or more, are possible in each of the industries considered. This transition will also enable opportunities that can enhance the competitiveness of European industry. However, tapping into this emission reduction potential will not be easy, as most of the low-hanging fruit has already been picked.

Most energy intensive industries face major challenges regardless of the EU’s climate commitments. These include capacity surpluses, as well as increased competition with other regions that have competitive advantages through better access to raw materials or larger sized domestic markets. These challenges can, on the other hand, also become an opportunity to focus on the climate friendly solutions that come with co-benefits, which would increase the economic performance of these industries and reduce the reliance on imports.

The economically attractive low-carbon transition will require the combination of three pillars: the process, product, and business-model transformations. The decarbonisation options for the chemicals, steel, and cement sectors are described in more detail in this briefing and in the study.

What is clear is that the necessary transformation of energy intensive industries will not take place in the absence of smart and committed public policies. Governments assistance will be vital to bolster industry innovation through modernisation & rationalisation, the reduction of capital costs on low-carbon projects, market creation for new low-carbon products through public procurement and the avoidance of regulatory misalignment.

One of the more challenging elements of the industrial low-carbon transformation will be how to bring promising low-carbon process technologies to the commercialisation stage. These new process technologies will need to be market-ready by 2030 to allow for deployment across the EU by 2050. They will be capital intensive, but also, due to their pioneering nature, risk intense. The proposed Innovation Fund under the EU’s Emissions Trading System (ETS) for the post-2020 period can become an important tool to enable a timely commercialisation of these process technologies.

This briefing ends with five ideas to strengthen the design of the EU ETS Innovation Fund.

This briefing has been produced using the information of the report by the Institute for European Studies (2016), ‘The Final Frontier – Decarbonising Europe’s energy intensive industries’ available here