Abstract
ABSTRACT This paper explores climate-friendly projects that could be part of the COVID-19 recovery while jump-starting the transition of the European basic materials industry. Findings from a literature review on technology options in advanced development stages for climate-friendly production, enhanced sorting, and recycling of steel, cement, aluminium, and plastics, are combined with insights from interviews with 31 European stakeholders in these sectors about the practical and economic feasibility of these technology options. Results indicate that with an estimated investment of 28.9 billion Euros, up to 20% of EU’s basic materials could be produced through low-emission processes or additional recycling by 2025 with technologies that are commercially available or at pilot scale today. However, our stakeholder consultation also shows that in order to make these short-term investments viable, six main barriers need to be addressed, namely: (i) the lack of effective and predictable carbon pricing, (ii) the limited availability of affordable green electricity, (iii) the lack of a regulatory framework for circularity, (iv) low technology market readiness and funding, (v) the lack of infrastructure for hydrogen, CO2 and power, and (vi) the lack of demand for climate-friendly and recycled materials. Based on these insights, the paper proposes elements of a policy package that can create a framework favourable for investments in these technologies; these policies should ideally accompany the recovery package to give credibility to investors that the business case will last beyond the recovery period. Key policy insights Technologies for climate-friendly materials production, sorting and recycling can be supported as part of the recovery package but require an enabling policy framework. Combining continued free allocation with a Climate Contribution within the EU ETS can enhance economic viability of climate-friendly options. Project-based Carbon Contracts for Difference can eliminate carbon price uncertainty for climate-friendly processes. Auctions for publicly backed Contracts for Difference and Power Purchasing Agreements can guarantee price-stability of low-emission electricity. Green public procurement and public-private partnerships can provide infrastructure for hydrogen, CO2 and electricity while creating demand for climate-friendly materials. Revising regulations on product design and end-of-life emissions can improve sorting and recycling incentives.
Highlights
In response to the 2020 COVID-19 health crisis, the European Union and its member states are launching a wide range of economic stimulus measures
Recovery support needs to be temporary, i.e. sufficient to leverage private investments to replace public funding after the recovery timeframe. This means that the regulatory environment must provide long-term incentives and risk-hedging instruments, which ensures that business cases for new investments are robust beyond the recovery package
Using a standardized questionnaire (Annex 9.1), we asked our interviewees about the most promising climate-friendly technology options for the transition of their sector, how their accelerated deployment could contribute to an economic recovery and what barriers they see for their implementation
Summary
In response to the 2020 COVID-19 health crisis, the European Union and its member states are launching a wide range of economic stimulus measures These recovery packages should achieve the short-term objective of boosting the economy and creating jobs, but deliver climate and long-term economic benefits [1]. Supporting climate-friendly investments in the basic material sector can have the potential to be a key element of the recovery package This is challenging as it would require public funding to fulfil three conditions [2]: first, to target novel production processes, sorting and recycling technologies, to trigger investments with high economic returns. Recovery support needs to be temporary, i.e. sufficient to leverage private investments to replace public funding after the recovery timeframe This means that the regulatory environment must provide long-term incentives and risk-hedging instruments, which ensures that business cases for new investments are robust beyond the recovery package
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