The green deal is a credible first step to decarbonise energy-intensive industries such as steelmaking and chemicals. However, the transition to climate neutrality will also depend on the development of a comprehensive, integrated industrial strategy, writes Gauri Khandekar.
Gauri Khandekar is a researcher at the Institute for European for Studies at the Vrije Universitaet Brussel.
This week has illuminated that the EU’s green deal – the proposed framework for the EU economy to achieve carbon neutrality by 2050 – will be the bloc’s top priority.
At the first European Parliament session of the year, MEPs voted overwhelmingly in favour of the European Green Deal while the European Commission introduced plans for ambitious funding of the same.
A much-awaited Just Transition Mechanism was also announced that would accompany the Green Deal in ensuring the transition to a carbon-neutral Europe by 2050 is both fair and balanced. The Parliament also supported the Green Deal calling for a higher 2030 emission reductions goal of 55%.
While the Green Deal is an ambitious initiative, its Sisyphean task will be ensuring the transition of European energy-intensive industries which are typically considered as ‘hard to abate’ sectors given their high CO2-and-energy intensive processes and because most of the low-hanging fruits for decarbonisation have already been picked.
For industry, the 30 years left for achieving climate neutrality translates into one large investment cycle. For these industries and their value chains to successfully move ahead with such a transition, five main challenges will first have to be addressed.
First, innovation needs will be substantial. They encompass a broad spectrum ranging from the creation and acceleration of new low-carbon production processes (many of which necessitate fundamentally different modes of production, in addition to novel feedstocks and/or core industrial processes), to innovation that applies not only to the value chains of energy-intensive industries but also to the energy systems that power them.
Second, achieving enhanced levels of circularity and materials efficiency will be vital. This implies the better retention of material value by avoiding downgrading and contamination, improvement of efficiency of new material use in manufacturing and construction, and increasing the collection and recycling rates of basic materials. It also includes the stimulation of demand for low-carbon products. Low-CO2 solutions will eventually need to be able to compete with incumbent products from inside and outside the EU.
Third, the industrial transition will require streamlining between the parallel climate-neutral transition of the energy system and the development of enabling infrastructure. Achieving climate neutrality both in industry and power production will require proper planning and coordination to allow for huge amounts of reliable, competitively priced and green electricity to power the industrial transition, while the most promising industrial processes will require the timely development and financing of adequate infrastructure (for e.g. H2 and CO2).
Fourth, significant volumes of additional investment will be needed (25-60% increase) by energy-intensive industries. The market and regulatory environment will need to ensure that companies can make those investments with an acceptable level of risk. It is also important that new investments do not lock-in high carbon pathways over their lifetime. It is also likely that the transition will require significant amounts of brownfield conversions, which adds capital needs.
Finally, this transition will have to be carefully and smartly managed through a new governance system similar to the one created for the Energy Union.
Furthermore, this transition will happen in a highly competitive and dynamic international environment, with many of the basic materials industries being part of a global market. The transition cannot happen with EU industry suffering major competitive losses against international competitors.
Moreover, an EU-wide industrial climate neutrality target will implicitly require a balanced approach that distinguishes between the more developed Western European industrial corridors and the pockets of industry found in Southern and Eastern Europe.
The Just Transition Mechanism would help in this regard as it is foreseen to be open to even energy-intensive industries like steel or chemicals. Larger interconnected industrial clusters might have an advantage for scaling up the infrastructure needed in this transition. Hence specific initiatives need to be taken so that smaller industrial hubs e.g. in Eastern Europe succeed as well.
The green deal is a credible first step that delivers on most of the challenges outlined above.
It highlights the role of the circular economy actions, sector coupling between energy and industry sectors, digitisation, materials efficiency, extended producer responsibility, supply of sustainable raw materials (especially critical raw materials necessary for clean technologies), R&D, development and deployment of the first commercial applications of breakthrough technologies by 2030 (with priority given to clean hydrogen, fuel cells and other alternative fuels, energy storage, and carbon capture, storage and utilisation), in particular through the EU Emissions Trading System Innovation Fund.
Noteworthy is the mention of support for clean steel breakthrough technologies leading to a zero-carbon steel making process by 2030. However, the transition to climate neutrality for energy-intensive industry will depend on the development of a comprehensive, integrated industrial strategy set to be released in March 2020.