This is the first blog in a series called  ‘Transformation for the future’  which aims to bring solution oriented stories about how to change our world for a better future for all. 

Humanity needs to reduce its greenhouse gas emissions – and other related impacts such as habitat destruction – if we are to avoid irreversible climate change and throwing more people into ongoing climate chaos. The European Union signed up to deliver its fair share of emission reductions and is currently updating several policies meant to achieve those reductions, as well as introducing new policies to fill important gaps in a still-limited toolbox.

Converging crises continue to multiply 

The climate and biodiversity crises already threaten humanity’s continued existence, and then came the Covid-19 pandemic, also stemming from human activity as industrial animal rearing encroaches further into wild species’ habitats. Russia’s orchestrated invasion of Ukraine and its impacts on Ukrainian society and the rest of the world has amplified global shockwaves only starting to be felt through energy price hikes and coming food shortages.

These crises point to a system that is failing. Failing people and the planet.

This difficult backdrop influences heavily the ongoing discussions amongst EU policy-makers on how to shape the EU policy framework to help get industry more effectively on-track to meet various European Green Deal objectives. 

CAN Europe’s work on industrial transformation spans beyond pure industrial decarbonisation, addressing interlinkages between impacts such as climate and resources and pollution. However, also the current policy discussions which focus narrowly on greenhouse gas emissions reductions needs some more focus.

Emissions trading that is not fit for purpose

For far too long and with very limited effect, the EU’s main tool for driving reductions in industry’s greenhouse gas reductions has been the EU Emission Trading System. With unfortunately poor timing, recent legislative proposals – which could frame the EU ETS in a more constructive way – have come much later than the Fit for 55 package and deserve to be highlighted in ETS discussions so that we end up with a market-based tool that works as an incentive to industry to tackle its climate impacts more effectively.

Two potentially ground-breaking pieces of legislation – the sustainable product policy initiative (SPPI) and the industrial emissions directive (IED) legislative proposals help start to complete the industry-focused policy toolbox to drive the needed industrial transformation identified in the European Green Deal. The SPPI focuses on products and, taking an integrated approach by addressing several environmental impacts in one tool, is designed to be a global leveller of the playing field. Setting specific product requirements, the SPPI will apply to any entity wanting to place their product on the EU market, whether it was manufactured in Germany, Spain, China, Brazil, South Africa, Australia or the USA. As the SPPI is meant to reduce carbon and environmental footprints of products, climate-related requirements will apply to manufacturers in all those countries and beyond. Alongside the carbon border adjustment mechanism, this international influence will help reduce/eliminate the risk of carbon leakage.

The IED focuses on processes at installation level providing an opportunity to manage greenhouse gas reductions at local level – if the European Parliament and Council decide to introduce greenhouse gas aspects into the IED – and as part of an integrated approach to reducing environmental impacts. The European Commission’s proposal has worrying shortcomings which we’ll elaborate in another blog, but those shortcomings are similar to those being played out right now on the EU ETS.

Our question on just how much “protection” EU industry really needs is a crucial one. Anyone following discussions on the revision of the EU ETS and the introduction of a shadow policy tool that is the carbon border adjustment mechanism recognise that protection of EU industry is at the heart of resistance to the phasing out of ETS free allowances.

Political discussions on the ETS revision have to date been choreographed against a narrow backdrop of significant funding apparently needed to pay for industrial transformation to achieve European Green Deal objectives. These discussions completely ignore the shockingly high amount of windfall profits received by industry through the ETS, especially since reduced production levels due to the 2008 economic crisis.

Taking the steel industry as an example – and one that has been singled out by the European Commission for EU-level targeted support – this sector leads on the level of windfall profits gained between 2008-2019. According to CE Delft, iron and steel firms made between €12bn and €16bn over that time, mainly through passing costs on to customers. Carbon Market Watch also forecasted a €100bn ‘gravy train between 2021-2030’ for the sector. That is money that has not gone into the public purse, to help pay for national climate action or even education and health.

Stalling a fair transformation 

Since the publication of the European Green Deal, heavy industry, including yet again the steel sector, has been constantly conditioning its transformation to increased access to public funding. Unfortunately, many public authorities appear willing to provide these with few and general conditions attached to considerable sums. Some examples include at EU level, at least 2bn€ direct grants for steel before 2030, according to conservative estimates, and the Research Fund for Coal and Steel which this year will allocate €104m to the steel sector for “new, sustainable and low-carbon” steel making or circular economy or the just transition. At national level, the German government, on top of having invested 1bn€ for the period 2021-2023 to decarbonize CO2-intensive industries, has already funded €60m (for one single-project at a Duisburg-based steel plant) and has announced a further €84m for the same project, to capture carbon emitted in steel-making for use in the chemicals sector. For both of these sectors, carbon capture and use and storage form an element of their climate neutrality plans. Why does the public purse therefore need to pay for it? No permanent capture of that carbon, of course. And this is only a sample of what can be found in each country, with polluting companies funded with a wide variety of schemes or bailed out (e.g. State aid temporary crisis framework) to build further the “industrial success story” that is only possible through the public purse: but what about a fair transformation that would work for people and the planet?

ETS discussions reflect neither historical profits industry made through poor ETS design and implementation, nor the numerous and multiplying public funding being allocated to support vague and untargeted industry innovation. Not setting a clear and short timeframe for ETS free allowance phase-out further weakens this already weak tool, helping no-one in the end.

We starve the public purse while continually feeding under-performing industry. Otherwise known as stealing from the poor to give to the rich. Is that what Europe has become? Robin Hood for the rich?

Read more: 

Civil society and Industry Associations call for an end to free pollution permits for industry

The EU Emissions Trading System: Time to end free pollution permits for big polluters