Europe is finally getting serious about funding the decarbonization of industrial enterprises, promising a subsidy of 10.5 billion dollars and doubling its emission reduction targets. The Clean Industrial Deal, launched by the European Commission on February 26, also draws on existing reform measures to lower energy costs for consumers and accelerate the construction of electrification and renewable energy. However, all of this heavily depends on the willingness of national governments to fulfill their commitments.
EU Aims at Industrial Emissions with New Targets and Funding
The EU plans to use its carbon market to fund 83% of a new industrial decarbonization bank with 100 billion euros (equivalent to 10.5 billion dollars). Revenue from carbon quota auctions will ensure 3.3 billion euros of the funding, but nearly 30% of the total funding is at risk, relying on the expectation that member states will be willing to hand over additional revenue to the central fund.
Funding the bank will tap into the EU's Innovation Fund, which has previously been a cash cow for clean technology, providing nearly half of the EU's clean technology supply chain subsidies from 2022 to 2026. This decision could jeopardize the manufacturing targets set in the EU's Net Zero Industry Act.
The industry can obtain new long-term subsidy contracts through the agreement. For the EU's clean industrial projects, the mention of a centralized carbon differential contract plan is a good omen. Well-designed public procurement regulations could also stimulate the EU's demand for low-carbon materials, but the details are still too vague at present.
The agreement includes new targets for electrification and renewable energy: by 2030, electricity will account for 32% of end-use energy, and the deployment of renewable energy will reach 100GW/year. The EU's electrification target appears very high, while the renewable energy target is lower compared to BloombergNEF's Net Zero scenario due to the EU's aggressive assumptions on energy efficiency improvements.
Reducing energy costs for consumers is a political goal, but most of the announcements continue ongoing reforms. An upcoming review of natural gas inventory targets and efforts to jointly procure liquefied natural gas (LNG) should help alleviate some of the upward pressure on prices, but guarantees for the grid and renewable energy procurement may be less effective than hoped in overcoming bottlenecks in the transformation of the power industry.
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