The long-term vision for a climate neutral society by 2050 is gathering momentum. To meet the objectives of the Paris Agreement and to limit temperature rise to a maximum of 1.5°C above pre-industrial levels, attention is increasingly being drawn towards industry, particularly areas difficult to decarbonise.
These energy-intensive, or heavy, industries still constitute fundamental building blocks of our economy. However, they also emit large amounts of greenhouse gases. Four industries – cement, steel, plastics and ammonia – are responsible for 14% of the EU's total CO2 emissions, globally they even account for 20%. To achieve our climate goals, decarbonisation of heavy industry is key, and at the heart of this green transition lays green financing.
NET-ZERO EMISSION FROM INDUSTRY BY 2050 IS BECOMING POSSIBLE
While the overall picture of where the climate is heading is indeed alarming, recent research provide a great deal of hope, showing that global decarbonisation of industry by 2050 is technically possible, yet economically challenging. Equally, achieving net-zero emission from EU heavy industry is possible but requires significant investments and radical changes in value chains and business models. Furthermore, there is evidence that a fully-fledged energy transition in Europe is becoming technically and economically viable. Most of the necessary technologies are available today and their costs are declining.
But we need to act now. Firstly, because the energy sector is a complex and rather inflexible system. Infrastructure and regulatory changes take decades to implement, thus today’s decisions will shape our energy systems for years to come. The technical life of industrial assets can be up to half a century. Upgrading or replacing such facilities requires planning and investments to start well in advance. Secondly, global competition is rising. Just look towards China, which has become the world’s largest investor in solar and wind technology, and home to almost half of the world’s electric vehicles and 99% of electric buses. Europe cannot afford to fall behind.
EUROPE NEEDS TO TAKE THE LEAD
Climate action is a global responsibility, so why should Europe lead the way? From a narrow competitiveness perspective, developing new carbon-saving technologies before anyone else does it, will offer an opportunity to keep heavy industries in Europe even as the cost of CO2 steadily rises. From a global perspective, the benefits go far beyond that. By becoming the frontier and finding ways to decarbonise its own energy-intensive industries, Europe will develop and demonstrate solutions that are urgently needed across the globe. Once we can prove the feasibility of these technologies at scale, industrial decarbonisation is more likely to accelerate on a global level. If Europe does not take the lead, it is doubtful anyone else will. If Europe does take its responsibility, it will be to everybody's benefit.
A key concern for European industry is that univocal EU decarbonisation would undermine its competitiveness. There is little point in shifting to low-carbon technologies if the costs of the transition result in more imports of these materials from less green sources. We must ensure a "level playing field" and aim to strike the balance between environmental sustainability and international competitiveness.
In some cases, solutions are technically viable, but the economic challenges are daunting. High capital costs, lack of incentives or revenue models, long payback times and high risks are just some of the factors restricting green financing. In other cases, the necessary technologies are not yet here. Industry decarbonisation will require substantial efforts in research, development and innovation. It will require new innovative low-carbon production processes, significant investment in industrial equipment and changes in the energy system. In short, it will require a completely new, greener industrial ecosystem. The global emission equation is not an easy one to solve. Cutting emissions is associated with an expensive and typically inconvenient burden that will mostly help people elsewhere, or future generations. And whereas the benefits accrue over decades and centuries, the costs must be paid upfront. This long-term horizon poses financial challenges, calling for long-term investors.
EMBRACING THE GREEN MOVEMENT: EIB'S ROLE IN FINANCING INDUSTRIAL DECARBONISATION
The recent green movement is extremely encouraging for us at the EIB. Mobilising private capital for the purposes of climate action and environmental sustainability is one of our main areas of expertise. Last year, 30% of our total financing went to climate action projects, and we are proposing to increase this share to 50% by 2025. By working with our public and private partners, we strive to unlock more than 1 trillion euros of climate-action investment by 2030, and we will align all our financing activities with the Paris Agreement by the end of 2020.
These goals mean that we need to aim for climate in everything we do, including in industry. As the European climate bank, we follow a long-term vision that encourages the necessary investments now. We are committed to supporting the EU industry in its efforts to decarbonise by 2050. Our economists and engineers specialise in a wide range of industrial sectors and technologies, and they will ensure that money will be channelled towards the most ambitious and carbon-friendly projects. If we say we are working for a greener future, I can promise you, we are.
Contact information:
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