Bridging the Green Premium: EU Demand-Side Policies for Chemical Decarbonisation
The EU's chemicals sector faces a significant challenge in decarbonisation due to the 'green premium' – the higher cost of low-carbon production. While technical solutions exist, economic barriers and current policies like ETS and EPR schemes do not facilitate cost recovery. The article highlights the EU's Clean Industrial Deal, which promotes demand-side measures like public procurement and labelling. These policies aim to strengthen demand for low-carbon products, de-risk investments, and help chemical producers recover decarbonisation costs, crucial for industrial transformation and competitiveness.
The EU chemicals sector, the bloc's fourth-largest manufacturing industry, is pivotal for industrial value chains but accounts for a substantial portion of EU greenhouse gas emissions. Decarbonisation is critical, with 60-80% of emissions originating from fossil-derived feedstocks. While technical solutions, such as bio-based feedstocks and electric furnaces, exist, their widespread adoption is hampered by economic factors, specifically the 'green premium'—the added cost of producing low-carbon goods. This premium poses a significant barrier without predictable market demand.Current EU policies like the Emissions Trading System (ETS) and Extended Producer Responsibility (EPR) schemes elevate the cost of carbon-intensive production but lack mechanisms to ensure demand at prices that allow for cost recovery. The article introduces the EU's Clean Industrial Deal (CID), marking a strategic pivot towards stronger demand-side industrial policy. This includes leveraging public procurement, labelling, and investments to stimulate demand for low-carbon chemical products. These demand-side measures are designed to de-risk investments in cleaner production technologies and assist chemical producers in recovering decarbonisation expenses. The Policy Brief argues that well-designed demand-side instruments are more targeted and time-limited than direct subsidies, strategically leveraging private capital alongside public funds. Such policies are crucial for unlocking investments, fostering high-skilled employment, and strengthening European value chains, ultimately addressing the green premium while preserving the Union's industrial competitiveness.
