How the European steel and chemicals industry can become carbon-free

A new study by Agora Energiewende finds that replacing industrial plants that reach the end of their lifetime in the 2020s with conventional technology is not a sustainable strategy. Due to their long service life of 40 years on average, the goal of climate neutrality by 2050 formulated in the European Green Deal would not be attainable. Instead, industrial companies should start investing in climate-neutral key technologies now.

The technical solutions discussed in the EU for reducing greenhouse gas emissions in the European steel, cement and chemical industries by 2030 fall short of the long-term goal of climate neutrality. For example, the European Commission has so far almost completely ignored the use of climate-neutral technology in steel, cement and chemical factories. According to the Commission's Climate Impact Assessment (the impact assessment for a higher climate target by 2030), emission reductions at European industrial plants over the next decade are planned almost exclusively through investments in efficiency improvements in conventional plants.

However, the steel, cement and chemical industries will only achieve the necessary emission savings for the entire European industrial sector over the next ten years if it starts implementing climate-neutral key technologies, thereby contributing to a more ambitious EU climate target of at least 55 percent lower emissions by 2030. In addition, investments in conventional plants counteract the goal of climate neutrality by 2050: By then at the latest, only climate-neutral plants will be allowed to operate so that industrial emissions are reduced to zero. Accordingly, conventional industrial plants are at the risk of becoming stranded assets in the 2040s. Any such plants built in the 2020s will therefore no longer reach the end of their technical life. "Under these circumstances, it is questionable whether industrial companies will even invest in Europe as a business location," says Frank Peter, Deputy Director of Agora Energiewende. There will be a great need for reinvestment over the next ten years, and many climate-neutral key technologies will be ready for use before 2030.

Short-term success instead of sustainable emission reductions

"The EU currently runs the risk of putting short-term emission reduction success in the European steel, cement and chemical industries above long-term climate targets. In this context, foresight is crucial in the sustainable conversion to climate-neutral industrial processes," says Peter. "Industrial plants have a service life of up to 70 years - which means that investments in purely conventional plants are already no longer compatible with the long-term goal of climate neutrality. In order to avoid stranded assets, decisions must be made in favor of climate-neutral innovation from now on." Only then would the EU's 2030 and 2050 climate targets both be achieved.

With an increased 2030 climate target of at least 55 percent, the greenhouse gas emissions of the energy-intensive industries covered by the European emissions trading scheme would have to be reduced by 27 percent by 2030 compared to 2019, equivalent to around 140 million tons of CO₂. According to the Agora study, energy-intensive companies could reduce CO₂ emissions by 145 million tons simply by consistently investing in climate-neutral technology – especially for upcoming reinvestments. The steel industry could already reduce a third of 188 million tons of CO₂ in 2017 by 2030 if it from now on replaces coal-fired blast furnaces that reach the end of their service life with direct reduction plants. These plants can initially be operated with natural gas and then switch to climate-neutral hydrogen as it increasingly becomes available.

Industrial companies currently lack freedom of choice

"Industrial companies are showing increasing interest in climate-neutral technology. What they lack is framework conditions for a climate-neutral business model. It is up to the EU to create such a framework for investment in climate-neutral innovation," says Frank Peter. With the prospect of high carbon prices, stricter environmental regulations and declining demand for carbon-intensive products, companies currently shy away from investing in carbon-intensive facilities. "Under current conditions, there is a high probability that they will shift their investments to countries with lower environmental requirements. As a result, industrial emissions elsewhere will increase, and European industrial sites will close. The EU should therefore now put together the package that allows energy-intensive industry to kick-start its transformation to climate neutrality".

Source and graphic: Agora Energierwende