The EU’s new industrial strategy, due out on 10 March, is an opportunity to shake up more than a decade of lethargic progress in cutting greenhouse gas emissions from Europe’s heavy industries, writes Wilf Lytton.
Wilf Lytton is special adviser at Sandbag, a think tank. Lytton specialises on industrial decarbonisation technologies with a focus on carbon capture and storage and utilisation (CCS) for industrial sectors.
The EU talks a good game on climate action. Just days ago, the European Commission unveiled a new climate law, paving the way to become the world’s first climate neutral continent by 2050.
Tomorrow, the Commission will debut its new industrial strategy – an opportunity to shake up more than a decade of lethargic progress in cutting greenhouse gas emissions from Europe’s heavy industries.
The measures being announced are part of major pieces of climate legislation that Commission President Ursula von der Leyen pledged to deliver in her first 100 days in office which have quickly come to an end.
Backed up by a strong mandate from the EU Parliament, there is nothing it seems that can perturb the Commission from its mission. Nothing, that is, apart from the EU’s current policy framework which embodies a mass of perverse incentives which keep innovators at bay.
While the EU continues to provide funding for early stage research into low-carbon technologies, it has also dismantled the incentives to commercialise those very same technologies by shielding heavy industry from carbon pricing.
Emissions from the EU’s industrial sectors have hardly reduced during the last five years and now account for close to one-seventh of the bloc’s total greenhouse gas emissions – an unsustainable trend that threatens to make achieving net zero by the middle of the century an impossibility.
Widespread deployment of low-carbon technologies in industrial sectors before 2030 is vital.
The EU ETS, which was intended to help industry decarbonise, has become in some cases an excuse to pollute. The ETS benchmarks for industrial products exemplify the absurd contradictions that have been allowed to persist.
Currently, they set industry on 60 to 400-year trajectories to zero. Worse still, the ETS benchmarks have systematically undermined the EU’s much-vaunted low-carbon innovators, forcing them to play by a less favourable set of rules to their counterparts.
Thanks to heavy lobbying for industry, the least emitting forms of manufacturing have been excluded from the top 10% best performers which are used to calculate benchmarks for each sector on the premise that they represent substitutes. That means more free allocation for higher carbon industry and less money invested in forms of production which would directly reduce emissions.
One example is Europe’s iron & steel manufacturers who produce iron ore sinter and pellets that are used interchangeably in the manufacture of steel, however it is uncertain whether pellets, which can be more than 50% more efficient than iron ore, will actually be allowed to be considered inside the EU ETS benchmark.
There would be good reason to think they will, since In the summer of 2017, in a case brought to the European Court of Justice by ArcelorMittal, the Commission successfully argued that its decision to include a plant producing both sintered ore and pellets in its calculations to determine the benchmark for sintered ore was consistent with the one laid out in the ETS Directive.
In May 2019, the Swedish iron ore pellet producer, LKAB, which had been closely following the ArcelorMittal case, applied to the Swedish authorities and European Commission requesting that its product be included under the ETS’ sinter benchmark.
Their pellet production process also yields 85% substantially lower emissions less emissions compared to sinter, making it the most efficient immediately available route for steelmaking. However, the company was recently told they would not qualify under the ETS benchmark.
This is by no means the only example of the Commission treating low-carbon manufacturers discriminately. Companies that produce non-Portland cement are also excluded from the ETS since the benchmark for cement is based on clinker production, something that low-carbon cements often displace.
The idea that being excluded from the ETS is advantageous for low-carbon cement makers is misleading. While they are excluded from the ETS benchmarks, it is the Portland cement producers who are instead able to profit from free allocation.
These contradictions will persist into the next phase of the EU ETS and industrials in Europe risk sleepwalking into 2050 having achieved little more than a slight reduction in emissions.
To turn the Commission’s vision of a carbon-neutral Europe into reality, low and zero-carbon manufacturing will need to become the new benchmark for industrial growth. Here are some ideas as to what this vision would need to keep have in its repertoire:
- A clear signal of the need to reach net zero by 2050 in every sector of industry, with clear milestone to be reached before that;
- The EU ETS innovation fund will need to be directed towards technologies that can play a role in delivering zero-carbon industry by 2050, instead of being set on the current benchmarks which go way beyond that time horizon;
- Revising the 2030 and 2050 emissions cap will be necessary; introducing new mechanisms to safeguard the carbon price, such as a price floor through an auction reserve price, would be helpful for investment planning;
- Introducing a border adjustment mechanism as a measure to ensure industry can in fact take the innovation route safely in the EU.
Finally, in keeping with the Commission’s objective of decoupling economic growth from resource consumption, circular economy policy should be expanded to encompass bulk commodities and promote material efficiency. We believe this can be best achieved through carbon content and process emissions disclosure.
An early draft of the EU’s industrial strategy that was leaked in January, gives little cause for optimism. The document provided little indication that the EU is prepared to reconsider its current policy approach.
Time is running out, a step change is needed, and the EU’s forthcoming Industrial Strategy offers the last hope for making progress in cutting industry’s emissions during the next decade.