Designing policy packages for a climate-neutral industry: A case study from the Netherlands

Abstract

This paper investigates the design of policy packages to enable carbon neutrality in the manufacturing sector by 2050, based on the case of the Netherlands. It first models potential pathways to net-zero emissions by 2050 in the Dutch manufacturing sector, and then evaluates the current policy framework's ability to catalyse the transition. The analysis shows that the Netherlands' credible commitment to raising carbon prices combined with ambitious technology support provides strong incentives for manufacturing to significantly decarbonise. However, even if the carbon levy sets an ambitious price trajectory to 2030, it is tempered by extensive preferential treatment to energy-intensive users, yielding a highly unequal carbon price across firms and sectors. Moreover, the country's technology support focuses on the cost-effective deployment of low-carbon options, which ensures least-cost decarbonisation in the short run but favours relatively mature technologies. The paper offers recommendations for policy adjustments to reach the country's carbon neutrality objective, including the gradual removal of exemptions, enhanced support for emerging technologies and greater visibility over future infrastructure plans. Other countries can learn from the Dutch experience when designing their own decarbonisation strategy for the manufacturing sector.