EU plans support for heavy industry's climate challenge

BRUSSELS (Reuters) - The European Union will review state aid rules and launch a project to produce clean hydrogen to replace fossil fuels to help European firms to maintain a competitive edge in global markets as they embark on large-scale emissions cuts.

FILE PHOTO: Steam comes out of the chimneys of the Ilva steel plant in Taranto, Italy, November 11, 2019. REUTERS/Ciro De Luca/File Photo

The EU industrial strategy, unveiled by the executive European Commission on Tuesday, lays out a long-term vision to steer industry towards the bloc’s goal to cut net greenhouse gas emissions to zero by 2050.

“Managing the green and digital transitions and avoiding external dependencies in a new geopolitical context requires radical change - and it needs to start now,” EU industry chief Thierry Breton said.

The Commission will propose a public-private “alliance” to produce clean hydrogen, following the model of an 8.3 billion euro ($9.4 billion) battery project involving seven EU countries and 17 companies.

Using hydrogen as an alternative fuel source to coal or gas could slash emissions in hard-to-decarbonise sectors like steel, but the technology remains prohibitively expensive.

Other EU alliances will follow for low-carbon industries, cloud data and raw materials.

Companies will require huge amounts of clean electricity to support technologies such as hydrogen production. Brussels will follow up with a more detailed plan to help guarantee this supply.

“For industry to reduce emissions they need greater energy efficiency and, crucially, access to a plentiful supply of low-carbon energy at competitive prices,” the EU’s top economic commissioner Valdis Dombrovskis said.

For some sectors, the EU’s 2050 goal is only one or two investment cycles away, meaning firms must make low-carbon investments now or risk locking in emissions for decades and creating stranded assets.

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Roughly half of Germany’s steel production capacity and nearly a third of its cement plants will require major reinvestments over the next decade.

“The challenge is that there is no clear investment case for companies in Europe to go forward with commercial-scale technologies,” Oliver Sartor, senior industry associate at Agora Energiewende, said.

European firms are already running pilot projects for hydrogen-based steelmaking and capturing carbon emissions from cement production.

But while pilot projects can cost around 20-80 million euros, the price tag for commercial-scale versions starts at hundreds of millions of euros.

The Commission will also revise state aid rules for energy and environment next year to encourage member states to funnel domestic funds into scaling up these projects.

A group of eight EU countries - Bulgaria, France, Germany, Greece, Italy, Luxembourg, Romania and Spain - welcomed the industrial strategy. The Commission’s plan to support green products is a “step in the right direction” but must be backed up by funding from the EU’s next long-term budget, they said in a statement.

EU chief executive Ursula von der Leyen has pitched her “Green Deal” as Europe’s growth strategy.

She has pledged to mobilize 1 trillion euros in investments over the next decade to help EU firms cut emissions while boosting jobs and gaining a first-mover advantage in new technologies.

The industrial strategy slots together with other parts of the Commission’s Green Deal, including its plan to impose carbon border measures on imports from other countries to help EU firms stay competitive while investing in emissions cuts.

The EU has also launched an innovation fund, a pot of carbon allowance revenues valued at around 8-10 billion euros, which aims to help companies bridge the gap between the EU’s carbon price and the real-world cost of cutting emissions.

Brussels will also unveil an EU circular economy plan on Wednesday to guide manufacturers to create sustainable long-lasting products that are repairable and recyclable.

Editing by John Chalmers/Jan Harvey/Jane Merriman