The EU's 'Fit for 55'​ package needs to provide a clear horizon for industrial decarbonisation

As the Commission works on the herculean task of delivering its ‘Fit for 55’ package ahead of the Summer break, it is time to reflect on the key policy measures that will come into play for industrial decarbonisation.

The good news is that the Green Deal has invited itself to company boardrooms, and there are high ambitions to reach carbon neutrality. In the European cement industry, the past months have been marked by a spectacular series of announcement from companies on climate change. These have not been limited to companies sharing their climate commitments – like we did at CEMBUREAU, issuing our Carbon Neutrality Roadmap in May 2020. Very concrete and innovative measures have also been launched: several major producers have started to put on the market low-carbon cements or carbon neutral concretes; new types of financial bonds, linked to the environmental performance of companies, have been ignited in the industry. We have also witnessed radical changes in the pay of senior staff of some companies, which will now be linked to the accomplishment of climate objectives. In itself, these developments are a first victory for the European Green Deal: carbon neutrality is embedded in companies’ day-to-day business!

So how could the upcoming ‘Fit for 55’ package support these developments and help us square the often-tortuous circle of industrial decarbonisation? 

A first key element will be to avoid a punitive approach and provide ambitious instruments to support industrial decarbonisation. As the Commission recognises it in its own impact assessment, energy-intensive industries have a much smaller abatement potential (22%) than the energy sector (70%) by 2030. This is largely due to the fact that many breakthrough technologies (carbon capture, hydrogen) will only be deployed on a large-scale towards the end of the decade. It is essential that the EU recognises this and provides the necessary financial tools to fasten the deployment of these breakthrough technologies, be it through Carbon Contracts for Difference (CCfD) and other types of funding. In that respect, it is important to keep in mind that the ongoing decarbonisation of the EU’s electricity mix, however successful it may be, did not happen with carbon pricing alone. On the contrary, Europe’s renewables revolution was built on the back of ambitious support policies for these technologies. Energy-intensive industries need a similar approach, which will also require to adapt the EU State Aid rules on Energy and the Environment currently being reviewed by the Commission. 

Solve the carbon leakage dilemma through ambitious policies and proceed carefully with CBAM. The issue of carbon leakage is central to industrial decarbonisation. At an ETS price of around 50 EUR per ton of CO2, as we are seeing currently, carbon costs represent more than 50% of the usual price of a ton of clinker, the CO2-intensive part of cement. If EU producers pay the full ETS price while non-EU suppliers do not, we will inevitably see industrial activities re-located to outside the EU. A CBAM is much needed in this respect; but its design should be considered with caution. The system of free allocation has proved, to a degree, its effectiveness in protecting EU industries against carbon leakage. Ensuring that such a system co-exists with CBAM for a long period of time will be key: it will provide certainty for low-carbon investments and shield the industry from the inherent risks of an untested and complex system like CBAM.

Accept that Carbon Capture, Use and Storage (CCUS) is indispensable to decarbonise energy-intensive industries. For many years, CCUS has suffered from a bad reputation, being seen as a means for the fossil fuels industry to maintain a business-as-usual scenario. It is time we move ahead and recognise that CCUS efforts need to be focused on industries which have high process emissions, such as cement. There is a remarkable number of pilot projects being launched across the EU, connected to cement plants, looking at CO2 storage, re-use and mineralisation, and have demonstrated the full potential of CO2 capture in cement kilns. The task to deploy CCUS at scale is significant, but doable. Alongside with supporting the necessary investments in CO2 transport infrastructure and continued financial support for the technology, it will be key to carefully-crafted CO2 accounting rules as part of the upcoming ETS revision. We indeed see a large number of CO2 utilisation projects emerging, and these will require clarity on how capturing installations can deduct the CO2 captured and transferred for further use.

Leave the door open for an evolution of carbon pricing in the long term. Strengthening the EU ETS is necessary to meet the increased 2030 target, but due consideration should be given to the expansion of market-based carbon pricing mechanisms down the value chain. In particular, the setting up of consumption charge has the potential to increase demand for low-carbon solutions across the value chain and strengthen the business case for low-carbon investments. Setting up such a consumption charge would no doubt be difficult politically. But if the EU is serious about decarbonisation, it could become a critical tool to decarbonise energy-intensive industries. Such evolution should be part of the upcoming EU ETS debate.