An Enlightened Industrial Policy for Europe

At a time when belief in the European Union as a project for peace and prosperity is challenged, an enlightened industrial policy that matches reducing greenhouse emissions with improving competitiveness could give oxygen to Europe’s workers and entrepreneurs. It can become the foundation of a new prosperous and low-carbon age in Europe’s history.

Deep greenhouse gas emission reductions in Europe’s energy intensive industries are often regarded as expensive, harmful to competitiveness or even impossible. In a recent report, the Institute for European Studies (IES) analysed the potential of important European industrial sectors, such as steel, chemicals and cement, to reduce emissions by more than 80% by 2050. This would enable the EU to contribute significantly towards achieving the long-term goals mentioned in the Paris Climate Change Agreement. However, researching decarbonisation cannot ignore essential economic challenges for these industries, such as increased international competition and global over-capacity. A new public sector led industrial policy would be able to address both elements at the same time and hence catalyse the transition to a competitive, highly innovation-driven and low-carbon European industry.

Between 1990 and 2013, EU industry contributed significantly to the economy-wide emission reductions in the EU. However, tapping into the reduction potential of 80% and beyond will not be easy, as most of the low-hanging fruits have already been picked. There also is no single silver bullet for these deep emission reductions. Therefore, an economically attractive low-carbon transition will require the combination of three pillars. These are the process, product and business model transformations.

The cement industry seems to have a unique opportunity to use a specific type of CO2-capturing technology, which comes with important co-benefits.

Radical process innovation is still an important option for the industrial sector. In the chemical industry, there is ample potential for using biomass waste, as a feedstock for replacing most of the oil-based inputs. The cement industry seems to have a unique opportunity to use a specific type of CO2-capturing technology, which comes with important co-benefits. In the steel sector, a new type of blast furnace, currently tested in the Netherlands, would be less costly to build and operate compared to conventional technologies while reducing emissions significantly.

Innovative high value-added products will also play a key role in the industrial low-carbon transition. Development of new high-performing chemical compounds that can easily be assembled from bio-based feedstock will be critical here. For cement, a promising and widely abundant clinker substitute, mentioned in this report, can reduce emissions by 30%, while giving the same properties as the commonly used Portland cement. Advanced material science leading to high performance and lightweight steel can open a market for steel producers, which targets downstream consumers in need of these types of steel for low-carbon performance of their products.

Business model transitions will be essential to enable both economic and environmental benefits. Ammonia and fertiliser production can move from a manufacturing sector more into the direction of agricultural services, by benefiting from the use of emerging biotechnologies. The cement and steel industries will have to address the current (and possibly structural) overcapacity through streamlining, modernisation and increased overall value added at lower sales volumes.

Both the steel and the chemical sector have significant potential to increase re-usage and recycling of products.

These three industrial transitions cannot be seen as isolated from other major shifts in the EU economy that are expected over the next decades. The growth of renewable electricity can become an economic asset for industrial transformation through the smart use of demand response. Increased resource efficiency as part of a circular economy is another example. Both the steel and the chemical sector have significant potential to increase re-usage and recycling of products. For the steel industry, this would fit well with a move towards higher levels of electric arc steel and away from blast furnace production.

Realising a low-carbon industry will require smart and committed public policies and support. One of the more challenging parts of the industrial low-carbon transformation will be 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. Again, these investments will be capital intensive, but also, due to their pioneering nature, risk intensive. The proposed EU Emissions Trading System Innovation Fund for the period 2020-2030 can become an important tool to enable a timely commercialisation of these process technologies. Governments can also enable the creation of markets for new low-carbon products through public procurement. Avoiding regulatory misalignment is a third element that requires evaluation, as to avoid (unintentionally) punishing industries that move towards low-carbon processes or business models.

The EU finds itself at an important moment in its industrial development. Thanks to technological process and product innovations that are happening throughout the industries, achieving competitive deep emission reductions can be possible over the next decades. The public sector has to play a catalytic role in enabling this transition, driven by a vision that fully integrates decarbonisation challenges in a modern industrial policy. At a time when belief in the European Union as a project for peace and prosperity is challenged, this enlightened industrial policy for Europe could bring hope to workers and entrepreneurs. It can become the foundation of a new prosperous and low-carbon age in Europe’s history.

Photo: Air pollution and its controls are a significant concern for EU policy makers.