Russia’s invasion of Ukraine has once more exposed the EU’s vulnerability in relying on fossil fuels to heat our homes, power our cars and fuel our industries. While the heavy industry is a major consumer of fossil gas, it has been notably absent in the emerging EU strategy to rapidly get off Russian gas. The EU needs to act now, maximising short-term gas savings in the industry and ensuring the ‘Fit for 55’ package sends the right policy signals to substantially reduce gas dependency in the next 10 years.
Industrial sectors such as chemicals, steel, paper, cement and food account for almost a quarter of the EU’s natural gas use. 85 per cent of this is used for space and process heating, while the remaining 15 per cent serves as a feedstock, mainly for the chemical sector. Over the past decade, industrial consumption of natural gas has barely decreased.
The lack of decarbonisation in these sectors reflects the EU’s failure to act decisively in the past, including in the aftermath of the 2014 crisis following the annexation of Crimea by Russia.
The EU’s response to the crisis: potential in industry overlooked
The war in Ukraine has exacerbated the already precarious situation many energy-intensive industries found themselves in due to the ongoing energy price crisis, caused by Europe’s overreliance on fossil fuel imports. Industrial facilities producing products such as fertilisers or aluminium had already announced output cuts across Europe in reaction to the surge in energy prices in late 2021.
Policymakers have taken a dual approach in response:
- cushioning the impact on households and companies, including through the adoption of a Temporary Crisis Framework for Member States to provide state aid up to €50 million;
- outlining action plans to reduce the EU’s dependency on Russian gas.
While REpowerEU acknowledges that the green transition is the most efficient and cheapest way to decrease fossil gas consumption and increase resilience, a recent analysis by E3G, Ember, RAP and Bellona shows the potential of clean solutions remains underleveraged. The potential role of industry in reducing the EU’s dependency on natural gas is especially underplayed.
Indeed, energy savings up to 17%-26% could be achieved through efficiency measures in industry sectors. Electrifying industrial processes that operate at low and medium temperatures could displace over half of industries’ gas consumption. Such measures are both technically feasible, readily available, and often more cost-effective – especially at current gas prices.
Business as usual for the ‘Fit for 55’ package?
The EU needs to act now. In the short term, policymakers should require industries to implement cost-effective energy efficiency measures: energy audit schemes should be expanded, and funding made available for improving energy efficiency, especially for small and medium-sized enterprises. Temporary closures and scheduled maintenance of industrial facilities should be used to electrify low- and medium-temperature heat processes. Where state aid is provided, ‘green strings’ could be considered, including commitments to reduce fossil gas consumption, which should be met with enhanced financial support.
For the mid to long term, it is vital that the EU’s ‘Fit for 55’ package introduces the policy framework required to rapidly decarbonise industry and reduce the sector’s gas dependency. So far, however, policymakers seem to have failed to come to grips with the new reality we find ourselves in.
Only last Tuesday, European finance ministers in the Economic and Financial Affairs Council agreed on a “general approach” for a Carbon Border Adjustment Mechanism, without addressing the most crucial element: how the allocation of free emissions allowances under the Emissions Trading System is going to be phased out. Free allowances mute the carbon price signal, one of the primary economic incentives for industry sectors to decarbonise and reduce their consumption of fossil fuels.
It was already clear that granting free allowances well into the 2030s was no longer politically viable or technically feasible in the context of deep decarbonisation. The Russian invasion of Ukraine has only reinforced this imperative. Industrial sectors need to be supported through this crisis but also given clear signals that they are expected to accelerate efforts to ensure a permanent move away from fossil gas and other fossil fuels.
Policymakers need to take bold action in the coming months and show political will in negotiations to ensure that the ‘Fit for 55’ package finally puts energy-intensive industries on track for climate neutrality by 2050.