05 Jul 2021

European Green Deal

Towards a Resilient and Sustainable Post-Pandemic Recovery

Working Group Report of the New Industrial Strategy for Europe Task Force

Milan Elkerbout / Vasileios Rizos / Christian Egenhofer / Julie Bryhn

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If the European Green Deal is going to be a successful growth strategy, it will need to set in motion a profound industrial transformation in line with the EU’s 2050 climate neutrality objective. Transforming industries requires industrial policies. This report, prepared in the context of the CEPS Industrial Policy Task Force, presents 12 recommendations that would accelerate this industrial transformation in the EU and its member states.

Throughout the 2020s, steps must be taken to create markets for climate-neutral goods and for increased circularity in industry. Limited public support through Carbon Contracts for Difference and policies that increase demand for low-carbon goods through green public procurement are two attractive options.

With increased deployment – initially supported by policy – costs will decline. The impact of the EU’s carbon price on industrial greenhouse gas emissions will grow; it has already done so in the power sector. EU firms need revenue streams to invest in climate-neutral and circular products, but equally, the EU will need to find revenue to support firms in the initial transition. The EU emissions trading system (ETS) can play an important role, but for that it is important that the most innovative climate-neutral producers are rewarded. ETS revenues can help, but injudicious free allocation hampers more transformational investment.

The EU’s climate diplomacy should focus on industrial partnerships to ensure that the trade system benefits rather than threatens climate action. While a carbon border adjustment mechanism can mitigate carbon leakage risk, its design should not undermine global climate and trade diplomatic efforts. Ultimately, it is desirable for domestic products and imports to be treated alike. The just transition requires a focus on regions and skills, while smaller companies and industries should not be forgotten. The construction value chain deserves specific attention as it brings together many carbon-intensive sectors and products. The focus should be on deploying low-carbon materials across the value chain through tools such as carbon budgets and carbon obligations as well as on developing credible carbon-footprint rules.

Read the executive summary of the task force here.