Executive Summary
- Four hard-to-abate industries (aluminum, ammonia, steel and cement) will play a pivotal role in Europe's green transformation. First, they are major energy consumers and carbon emitters. While the industrial sector as a whole accounted for 25% of the EU-27's final energy consumption in 2023 and 19% of its greenhouse gas (GHG) emissions, these four industries alone are responsible for 7.7% of energy consumption and 9.7% of emissions. Second, they are providers of indispensable inputs to green industries such as solar panels and wind turbines. Therefore, their decarbonization is not only critical for achieving the EU’s climate targets but also in securing strategic independence. The EU cannot afford to lose this industrial basis.
- Decarbonization and global competitiveness are two sides of the same coin. The EU can achieve both targets at the same time, even in hard-to-abate industries, if two conditions are met: a reliable and efficient energy system based on renewables and a functioning Carbon Border Adjustment Mechanism regime. The first is needed to meet the power demand of these industries with zero emissions, and the second to secure the billions of investments needed during the transition.
- Aluminum: Quitting coal-fired production. Aluminum is the most widely used non-ferrous metal and is crucial for sustainable industries like transport, construction and renewable energy. Its lightweight and recyclable properties make it essential for electric vehicles, solar panels and wind turbines. Demand is projected to rise significantly by 2030, with transport (+60%) and electrical equipment (+50%) seeing the highest growth. But aluminum production remains highly energy-intensive, accounting for 2% of global GHG emissions. The most critical step of decarbonization is transitioning to green electricity as 65% of aluminum’s emissions stem from fossil-fuel-based power. Another major strategy is deploying near-zero-emission technologies, such as replacing carbon anodes with inert anodes, which eliminate process emissions and reduce operational costs by 10% over time. Combining these two strategies, Europe’s aluminum industry can achieve a cost-effective decarbonization and maintain global competitiveness. Levelized costs of around USD2,500 per ton would be lower than many other markets such as Canada, South America and Russia, although not necessarily compared to the US and China.
- Ammonia: From grey to green. Ammonia production is crucial for global agriculture, with 70% of ammonia used in fertilizers. However, ammonia production is the second most carbon-intensive process among hard-to-abate industries, generating 1% of EU-27 GHG emissions. As hydrogen production is the most carbon-intensive stage, green hydrogen, powered by variable renewable energy sources (VRES), is critical for the production of green ammonia. It also is the most cost-efficient way, with a levelized cost of USD370 per ton (globally). However, Europe would remain at a cost disadvantage, with projected production costs of USD412 per ton compared to the US and China, which have lower costs at USD343 and USD403 per ton, while Brazil is the most competitive at USD292 per ton, benefiting from abundant renewables and offshore hydrogen storage.
- Steel: Reuse, recycle. Steel is also essential, with 52% used in construction and infrastructure, 16% in mechanical equipment and 12% in the automotive sector. However, steel production is one of the most carbon-intensive industrial processes, contributing to 7% of GHG emissions. By promoting circularity, i.e. scrap-based steel production and reducing overall steel consumption, reliance on resource-intensive inputs like iron ore and energy can be minimized. Technological advancements are also crucial for decarbonization. For example, Bio-based Pulverized Coal Injection (BIO-PCI) uses biochar to reduce carbon intensity in blast furnaces, while biomethane from organic waste can replace natural gas in Direct Reduced Iron (DRI) production. Green hydrogen presents the most transformative potential, enabling near-zero-carbon steel production by replacing coal as a reducing agent. For now, scrap-based steel production using electric arc furnace (EAF) technology is the most cost-effective solution, with a global levelized cost of USD440 per ton and USD439 per ton in Europe, making the region competitive.
- Cement and concrete: Cutting clinker emissions. Cement and concrete production accounts for another 7% of global CO2 emissions, making decarbonization a critical challenge. Emissions in the sector stem primarily from the production of clinker, responsible for 88% of sector-wide emissions, with the largest share (53% of the total) attributed to the limestone calcination process. To decarbonize the cement sector, a combination of strategies is essential. Clinker substitution with supplementary cementitious materials (SCMs) can significantly reduce emissions while lowering operating costs by USD2.50–11 per ton of cement. Fuel switching to waste provides a cost-effective alternative energy source, while hydrogen and electrification of the heating process offer promising long-term emission reductions. However, even with these measures, a substantial share of emissions will remain, making carbon capture, utilization, and storage (CCUS) a critical technology to decarbonize 35% of the sectors emissions.
- Of the four sectors, steel and ammonia have the largest green-financing gaps. Over the past five years, capital expenditure has grown at an average annual rate of only +3% globally, which will not be enough to decarbonize three out of the four sectors. The steel and ammonia industries would need to invest an additional USD2,191bn and USD1,205bn, respectively, to achieve their green goals. For this, CAPEX must grow by +8% and +11% annually, respectively, until 2050. In contrast, the financing gap in the aluminium industry is smaller (USD317bn) and the cement sector's investments suggest that companies may be more on track to meet the decarbonization target independently – again, assuming that all capital is directed toward decarbonization efforts, which is not currently the case. This underscores why government action is so critical. Public-private collaboration is essential to expedite progress and help these industries meet the EU’s 2050 target. Governments must provide grants, tax incentives and policy frameworks to reduce the financial burden on companies. Without increased investment now, the path to net zero will only become more challenging and costly in the future.