17 Nov 2022

Industrial Transformation in a time of crisis

How to keep our eye on the low-carbon ball

Milan Elkerbout / Vasileios Rizos

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The war in Ukraine and the ensuing energy crisis have shaken the European economy and put domestic energy-intensive industries under severe pressure. Heeding these concerns, EU policymakers have reasserted the objectives of the Green Deal and acknowledged the importance of a rapid energy transition for decarbonisation, industrial competitiveness, and energy security. However, to concretely support these objectives and reduce the risks for underinvestment in low-carbon energy and industry, EU climate and policy frameworks – as well as internal market rules – should be strengthened.

This CEPS policy brief makes recommendations regarding several potential avenues to achieve this.

First, policy attention should be given to creating a level playing field for low-carbon EU producers to compete not only with non-EU producers but also with conventional, higher-carbon producers within the EU. This may require a new approach regarding the definitions and boundaries of the benchmarks for free allocation in the EU ETS. Second, new revenue streams, including from free allowances, should be utilised to support transformational investments. Third, harmonised product and labelling rules for industrial goods can support internal market objectives and play an important role in boosting demand for climate-neutral goods.

This policy brief has been published in the context of CEPS’ Forum on the Future of European Industry.