Speeding up the decarbonisation of European industry. Assessment of national and EU policy options

Under the Fit for 55 package of the European Commission, industry must drastically reduce its carbon emissions and become carbon neutral as early as 2040. In this study, we investigate whether the EU ETS alone can ensure such a reduction or whether additional policy measures are required.

The study shows that the EU ETS has so far failed to reduce GHG emissions in industry: prices remain below the required price levels, emissions have stabilised and the carbon efficiency of industrial production has not improved. It is therefore necessary that auxiliary instruments are developed to help industry rapidly decarbonise. In this study, we have examined a limited number of options, such as:

  • Price floors, such as the CO2 price floor in the Netherlands
  • CO2 taxes on emissions. Under the current system, emissions are mostly not taxed. The additional tax income could be used for low carbon investments in industries
  • Phasing out of carbon-intensive production routes, such as in the iron, steel and cement sectors
  • Public-Private Partnerships for technology development and scale ups
  • Making free allowances conditional upon low-carbon investments
  • Carbon contracts for differences

Each of these options could be attractive in order to ensure that EU industry starts to decarbonise and remains competitive in the long term.