Carbon pricing and its future role for energy-intensive industries

The report assesses how carbon pricing affects the competitiveness and investment strategies of energy-intensive industries (EIIs). It finds that while carbon costs are a factor, they are often secondary to energy and raw material prices. The analysis highlights the risk of carbon leakage, where production shifts to regions with lower emissions costs, particularly as demand grows in Asia. The report emphasizes that current short-term policy horizons, such as the EU's 2020 targets, are insufficient for the 20- to 40-year investment cycles typical of these sectors, suggesting a need for longer-term regulatory certainty and support for breakthrough technologies like Carbon Capture and Storage (CCS).

• Carbon pricing is not the primary driver for investment decisions in energy-intensive industries; instead, the availability and price of energy and raw materials, along with tax incentives, are more significant factors.
• The 2020 time horizon for EU climate policies is too short to provide the necessary reliability for large-scale low-carbon innovation investments, as industrial capital cycles typically span 20 to 40 years.
• The steel sector is highly vulnerable to carbon leakage due to its high emissions, limited short-term abatement options, and the commodity nature of its products, which makes cost pass-through difficult.
• In the cement sector, high transport costs act as a barrier to international trade, meaning landlocked plants can pass through carbon costs more easily than coastal plants, which face competition from cheaper imports.
• Aluminium production is extremely sensitive to indirect carbon costs because electricity consumption accounts for a vast majority of its emissions, making regions with cheap hydroelectric power highly competitive.
• The basic chemicals sector exhibits varying cost pass-through abilities: speciality products allow for higher price control, while basic chemicals acting as feedstocks are more substitutable and thus more exposed to cost pressures.
• The pulp and paper industry has mitigated carbon cost exposure by shifting toward biomass fuel sources, with the European industry relying on biomass for approximately 50% to 55% of its energy inputs.
• The discovery and exploitation of shale gas in the United States has created a significant competitive advantage for the US chemicals and steel industries, drawing investment away from Europe.
• Carbon Capture and Storage (CCS) is identified as a critical but costly breakthrough technology for the steel, cement, and chemical sectors, requiring significant government innovation support to become commercially viable by 2030.

APA

Droege, S. (2013). Carbon pricing and its future role for energy-intensive industries. Climate Strategies. https://climatestrategies.org/wp-content/uploads/2016/01/cs-eii-synthesis-march-2013-final.pdf

Chicago

Droege, Susanne. Carbon pricing and its future role for energy-intensive industries. Climate Strategies, 2013. https://climatestrategies.org/wp-content/uploads/2016/01/cs-eii-synthesis-march-2013-final.pdf.

Wikipedia

{{cite report |last1=Droege |first1=Susanne |title=Carbon pricing and its future role for energy-intensive industries |publisher=Climate Strategies |date=March 2013 |url=https://climatestrategies.org/wp-content/uploads/2016/01/cs-eii-synthesis-march-2013-final.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{droege2013carbon, author = {Droege, Susanne}, title = {{Carbon pricing and its future role for energy-intensive industries}}, institution = {Climate Strategies}, year = {2013}, month = mar, url = {https://climatestrategies.org/wp-content/uploads/2016/01/cs-eii-synthesis-march-2013-final.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }