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Production of basic materials (cement, iron and steel, paper and board, aluminum, as well as chemicals and petrochemicals) account for around 16% of European greenhouse gas emissions.

For some time this number was regarded to be sufficiently low to be out of the primary focus of policy makers – which was largely dedicated to improving the power sector and increasing energy efficiency. However, the Paris Climate Agreements’ commitment to reaching net carbon neutrality by mid-century implies that a comprehensive industrial policy strategy is required that also tackles CO2 emissions from the basic material production.

The transformation of the basic materials sector in line with the 2050 emission reduction target represents both a challenge and an opportunity.

On one hand, the capital-intensive investments needed to meet the targets will not take place unless there are sufficient incentives set by the policy framework, which is so far unclear and dominated by other concerns (e.g. carbon leakage protection).  Creating a robust policy package might be challenging. On the other hand, the large investments required in the transition process are a clear opportunity to attract resources to a country and create job opportunities.

Inclusive transformation can enable all EU countries to take part in the transition process and benefit from innovation and investment in climate friendly options. It requires a shared vision of feasible development pathways and will benefit from financial and policy incentives on the EU level. Thus, inclusive transformation can protect the local economies, as well as Europe, from the risks associated with being locked-in to carbon intensive processes and practices.

The “Climate Friendly Materials Platform” engaged national stakeholders from Hungary, Poland, and Spain in this European discussion in a project funded by the European Climate Initiative (EUKI) and pursued by DIW Berlin together with WiseEuropa, REKK and IIT Comillas Pontifical University.

A report summarizing the key insights to emerge during the project roundtables was published this week.  The report focuses on the following elements.

  1. What is the nature of 2050 roadmaps – what elements will be part of a transformation pathway for a basic material sector?
  2. What is the status and outlook of national material industries?
  3. What is the status of national policies, what are lessons learned so far, what are the challenges ahead and what are the remaining gaps?
  4. What is the policy toolbox to close the gaps – what solutions can allow private actors in market based economies to pursue investments that follow the 2050 roadmaps?
  5. How can European policies be inclusive – e.g. support national developments? What is the value added of European cooperation?

Discussion in the roundtables focused on three policy instruments that were considered to have the potential to make a significant contribution to the transformation process: carbon pricing robust to carbon leakage, standards, and contracts for differences.