Industrial Value Chain: A Bridge Towards a Carbon Neutral Europe Energy Intensive Industries’ contribution to Europe’s long-term climate strategy Gauri Khandekar – 20/06/2019

EIIs reduced greenhouse gas emissions by 36% between 1990 and 2015 and contributed significantly to the EU’s overall emission reductions in same period (-24% in 2015 ref. 1990).

EIIs production was seriously affected through the economic crisis EIIs production was seriously affected through the economic crisis. Only chemicals production was above pre-crisis levels in 2017. Most EIIs have a high trade intensity and are exposed to a high-level of international competition.

EIIs are the lifeblood of key value chains in EU but also their supply chains are linked to other EIIs. EIIs products are and will be needed more to enable the energy transition and will be at the forefront of low-carbon solutions. Most EIIs already see recycled materials, waste and by-products of other industries as important raw material inputs.

Important progress has been made in the development of low-CO2 breakthrough technologies for EII processes. Continued European R&D support under different programmes together with private R&D initiatives played an enabling role in this progress. The gestation time of these breakthroughs is long and many of them have not reached industrial scale demonstration level. Much higher levels of final electricity demand are expected if industrial low-CO2 technologies are deployed across the EU. Transition to higher levels of electrification can create a virtuous cycle between the EU’s renewable energy and industrial transition, under the right conditions. EIIs play an important role in the circular economy and this role will increase in the future in a conducive regulatory environment. Industrial symbiosis, clustering and synergies with non-industrial sectors show potential for significant energy savings and materials efficiency. In the areas of energy transition and circular economy new business models are being explored.

For each sector multiple technology options are being developed towards significant GHG reductions.

Framework conditions

Scope and Approach Accelerate and scale up R&D in low-CO2 solutions Scale up investments and reduce risk of high-carbon lock-in Enable circular materials along value chains Enabling competitive low-CO2 solutions Facilitate sector coupling and supporting infrastructure Governance of an industrial strategy for a climate neutral EU

Innovation for a climate neutral industry Set an industrial climate neutrality mission under the EU’s innovation. Set up an industrial transition observatory to monitor progress and advice course corrections with regard to development and deployment of industrial low-CO2 innovations. Develop one-stop-shops where project developers can get easier access to blended finance.

Scaling up low-CO2 investments and avoiding high-carbon lock-ins Enable fiscal interventions facilitating investments in low-CO2 solutions   Consider the use of industrial investment platforms to facilitate access to low-cost finance Use environmental permits and impact assessments as a transition instrument to lower risk of high-carbon lock-in Use the EU ETS modernisation fund as mechanism to finance brownfield conversion

An enhanced circular economy package for basic materials Develop an updated circular economy package for basic materials consisting of Instruments enhancing the quality of recycled materials to preserve material value Instruments for improving material efficiency in manufacturing and construction Instruments that help raising collection and recycling rates of old scrap

Create competitive lead-markets Assist with development and coordination of (national) support instruments for low-CO2 production solutions Remove existing barriers for low-CO2 solutions in standard setting and standard formulations Make better use of EU procurement package to promote low-CO2 solutions, improve coordination on procurement in the EU and link procurement to low-CO2 standardisation Consider a smart set of policies to protect EU industry in transition such as green public procurement and trade defence instruments if possible and where necessary.

Aligning the energy and industry transition and enabling infrastructure for industrial transition Develop joint industry-energy transition strategy including a joint impact assessment   Further develop or refine supply and demand side instruments to secure sufficient, adequate and competitive electrification of industry Map the needs for transition infrastructure, starting bottom-up from large industrial clusters Formulate a strategic infrastructure investment plan Ensure economic cohesion in Europe during transition

An adequate governance system Align innovation, lead markets, circular economy, infrastructure and investment instruments into a comprehensive industrial strategy. This strategy will have to be mission oriented, with low-carbon innovation and deployment at its heart. It will have to go beyond maintaining existing industrial relationships and value-chains and strive towards an innovative new industrial ecosystem. The strategy must be forward looking with a focus on creating and shaping new markets and business models. It must be protective of industrial value chains in transition. Finally, a long-term transformation of this scale will require solid and integrated governance and leadership to be successful.