Industry

The Energiewende doesn’t just affect the energy sector, it also has repercussions for industry in general.

The Energiewende doesn’t just affect the energy sector, it also has repercussions for industry in general. The transition to a low-carbon economy will be successful only if Germany’s industrial base remains strong while the share of renewable energies grows. So far, this has been the case. Renewables have now grown to more than 36 percent of the power mix, while German industry has remained competitive internationally. The goal is to maintain this position even when renewables make up 80 percent of the power mix.

Five factors are key: First, energy system costs must be kept as low as possible at any given rate of renewables expansion. This means minimising the cost of expanding renewables and also the cost of flexibility options for a system with a high volume of fluctuating power. Second, industrial power costs - especially among energy-intensive industries – cannot be so high that they threaten the competitiveness of German industry compared to countries with lower climate protection goals. Third, energy efficiency is key: Higher industrial energy efficiency reduces the burden of energy costs for German companies significantly, while increasing competitiveness. Fourth, through active load management, industry can be a source of flexibility, generating new sources of revenue in the market and benefitting when a surplus of wind and solar power push market prices lower. Finally, Germany as an export country can benefit from its pioneering role in the energy transition. The market for wind and solar power is booming. More and more countries are facing the same challenges in integrating renewable power into their electricity systems. Technologies and know-how developed in Germany through the Energiewende can now be exported worldwide.

In addition to emissions from energy generation, greenhouse gas emissions from production processes will also become increasingly important in the future. This is a consequence both of the German Climate Protection Plan 2050 and of the international emission targets, which demand greenhouse gas neutrality by the middle of the century. This also offers opportunities for German industry. After all, it is not just a matter of developing and applying the key technologies for greenhouse gas-neutral economic activity, but also of achieving success in the growing global market for climate protection technologies.

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Dr. Fabian Joas

Dr. Fabian Joas

Senior Associate EU Electricity Market | Industrial Policy and the Energiewende (until December 2019)

    Partner

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    Core results

    1. 1

      Given the new paradigm of achieving climate neutrality by 2050, current climate and industry policies will lead to investment leakage or risk stranded industrial assets.

      Industrial companies understand: The EU objective of climate neutrality by 2050 has clear implications for industrial reinvestment in the 2020s. Carbon-intensive technologies have lifetimes of up to 70 years. Reinvestments into long-lived assets will not be made unless there is an investment framework to deploy climate-neutral technologies.

    2. 2

      With a new policy framework, the basic materials industries can support an increased EU 2030 climate target of at least -55 per cent. Key low-carbon technologies are available and can be deployed well before 2030.

      The CO2 abatement potential of key low-carbon technologies in the steel, chemicals, and cement sectors alone amounts to 145 Mt of CO2 by 2030, exceeding the required emission reductions from industry under the EU ETS. Their deployment will represent a breakthrough in Europe’s industrial sector and ensure it a leading global role.

    3. 3

      By 2030, 30 to 50 per cent of existing assets in cement, steel, and chemicals will require major reinvestment. New policies are needed now to create a business case for breakthrough technologies.

      Key low-carbon technologies are available, but their abatement costs are still in the range of 100 to 170 €/t of CO2. The EU should adopt policy instruments to cover the gap between these abatement costs and the EU ETS price as soon as possible.

    4. 4

      Europe needs a Clean Industry Package in 2021 to kick-start breakthrough investments and protect existing assets.

      By refining existing carbon leakage protection instruments it will be possible to protect existing plants until they can be replaced. At the same time, decisive support for investments in breakthrough technologies is needed. This should come in the form of carbon contracts-for-difference, planning and financing for clean-energy installations and infrastructure, and standards to create markets for climate-neutral and circular products.

    1. 1

      The basic materials industry is facing a major challenge: it must make a 25% reduction in emissions by 2030 and achieve near zero emissions by 2050 – but emission levels have remained constant over the last ten years.

      Breakthrough innovations are thus needed to enable the climate-neutral production of steel, chemicals and cement. Gradual efficiency improvements remain important, but they are no longer sufficient.

    2. 2

      The technologies needed for climate-neutral industry are already available – or are close to market readiness.

      Green hydrogen will play a central role in achieving carbon neutrality in the steel and chemical industries. Particularly in the chemicals industry, the closing of material loops will be a core strategy. In the cement industry, new binders and carbon capture and storage (CCS) will be key technologies.

    3. 3

      Industry needs a new regulatory framework over the short term, as a major reinvestment phase will occur between 2020 and 2030. Promising political instruments include Carbon Contracts for Difference (CfD), a green hydrogen quota, and a green public procurement commitment by the federal government.

      With the right mix of policy instruments, the German government can ensure reliable conditions for investment while also incentivising behaviour at various levels of the supply chain: upstream, midstream and downstream. By contrast, continued investment into conventional technologies risks stranded assets, as new industrial plants have lifespans well beyond 2050.

    4. 4

      The future of German industry must be climate-neutral. Germany now has the opportunity to become a technology leader in key low-carbon technologies with a significant potential upside.

      By ushering in climate-neutral industry at home, Germany could help to demonstrate the viability of a climate-neutral industry and thereby help to foster a global market for low-carbon technologies worth billions.

    1. 1

      Wholesale spot power prices are on the decline in many parts of Europe, and are lowest in Germany and Central Eastern Europe (especially in Poland and the Czech Republic). Meanwhile, prices have been rising in the US.

      Since 2011, spot prices have been decreasing in Europe, except for in the UK, Belgium and the Netherlands. While spot prices in Germany were higher than in the US during 2010-2012, in 2013 they fell below the New York ISO prices, and converged with those of other US regions. In many other European markets, the gap with US prices remains significant.

    2. 2

      Wholesale market prices can serve as a starting point for comparing the energy costs of European industries, especially energy-intensive industries. Nevertheless, this approach has inherent limitations:

      (1) Wholesale prices don’t necessarilyaccurately reflect the “energy component” of prices paid by end users, due to differences in purchasing strategies, longtermcontracts and potential price regulation; (2) Several additional components must be taken into account as well (gridtariffs, renewable levies and other taxes), from which industrial actors may receive partial or full exemptions.

    3. 3

      While numerous European companies have complained of market distortion due to regulatory favouritism for Germany’s energy-intensive industries,...

      ...caution must be exercised when attempting to directly compare industrial end-use pricesbetween countries and sectors. Against the backdrop of decreasing wholesale prices and increasing exemptionsfor energy-intensive consumers in Germany, several EU member states have argued that domestic regulations inGermany create market distortions that unduly favour German firms. Because firms in different regions and sectorsvary considerably in the extent to which they pay wholesale market prices and/or receive tax exemptions and levyreductions, comparing prices between sectors and countries is a difficult task. The heterogeneity of the situation is notfully and transparently captured by European statistics.

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    Latest News

    • [Translate to English:]

      How to overcome barriers to the European market for climate-friendly products

      While the clean production, efficient use and recycling of basic materials are essential to make European industry climate neutral, a joint study by Agora Energiewende and CLG Europe exposes the barriers that still hold back demand for climate-friendly goods – and outlines policy priorities to scale up demand.
       

      How the European steel, cement and chemicals industry can become carbon-free - full version published

      By using climate-neutral technology, the steel, cement and chemical industries can achieve the necessary greenhouse gas reductions for all industrial sectors covered by the European emissions trading scheme by 2030. The Leaders Summit on Climate hosted by Joe Biden on April 22 & 23 could be the EU’s chance to position itself as a climate leader – but industrial transformation will be key in this competition.
       

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

      By using climate-neutral technology, the steel, cement and chemical industries could achieve the necessary greenhouse gas reductions for all industrial sectors covered by the European emissions trading scheme by 2030. So far, however, these key technologies have been neglected in the European discussion. The EU is thus jeopardizing its long-term climate goals.
       

      A clean industry package for the EU

      For the EU to become climate-neutral by 2050, production at European steel, cement and chemical plants must become carbon-free. Agora Energiewende has presented eleven policy instruments to kick-start investments in climate-neutral technologies.
       

      How policy-makers can solve the investment dilemma faced by energy-intensive manufacturers and facilitate industrial climate protection

      Climate protection is already a major consideration in the investment decisions made by steel, chemical and cement manufacturers. Indeed, if companies in these sectors were to ignore the climate impacts of their long-term investment decisions, significant financial losses could result, given the likelihood of more stringent environmental regulations in coming years. While various climate-neutral production technologies already have a high stage of maturity, their large-scale deployment has been hampered by the lack of a conducive regulatory environment. In a new study, Agora Energiewende and the Wuppertal Institute therefore propose an immediate action programme to make German manufacturers a vanguard in green hydrogen, industrial electrification and the abatement of process emissions.

       

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