Summary of "Green Lead Markets - Driving Europe’s Industrial Decarbonisation"

Summary: Green Lead Markets - Driving Europe’s Industrial Decarbonisation

This video features a panel discussion focused on creating and accelerating green lead markets in Europe to drive industrial decarbonization, with a particular focus on the steel and fertilizer sectors. The event is supported by Hydrogen Europe and includes insights from PwC, European Parliament, industry representatives, and policy experts.

Key Business-Specific Content

1. Concept of Green Lead Markets & Strategic Importance

Definition: A lead market is one that creates significant demand for clean hydrogen-based products, targeting at least 20% demand (~2 million tons of clean hydrogen) aligned with EU hydrogen supply targets.
Sectors Focused: Steel and ammonia-based fertilizers are prioritized due to their large greenhouse gas emissions in Europe.
Challenge: Bridging the cost gap between conventional and clean products while maintaining economic competitiveness.
Goal: Drive demand for “Made in Europe” clean products to stimulate investments upstream (e.g., clean hydrogen production) and downstream (final products).

2. Policy Frameworks & Models Explored

Sector-Specific Quotas:
- Tailored quotas for sectors like automotive and appliances to mandate clean steel use.
- Advantage: Spreads responsibility across the value chain.
- Challenges: Implementation complexity, risk of carbon leakage, infrastructure readiness, and hydrogen cost competitiveness.
Supplier Quotas: Imposing quotas on suppliers (e.g., steel producers) carries high carbon leakage risk and infrastructure constraints.
Public Procurement:
- Essential but limited in scale.
- Must comply with EU procurement and WTO rules.
Labeling Systems:
- Crucial for transparency and fraud prevention.
- Voluntary labeling insufficient to create needed demand.
Levy-Financed Contracts for Difference (CFDs) for Fertilizers:
- Small levies on food products to finance subsidies for clean fertilizer production.
- WTO-compliant mechanism.
- Bonus schemes for farmers using green fertilizers.
Assessment Criteria for Policy Models:
- Cost efficiency
- Effectiveness in creating demand
- Carbon leakage prevention
- Administrative simplicity

3. Key Metrics and Economic Insights

Demand Target: Lead market requires at least 20% clean hydrogen demand.
Cost Impact: Price increase for green steel in consumer products (e.g., cars) expected to be lower than the cost of winter tires, thus socially acceptable.
Investment Scale: Steel industry investing billions (e.g., €2.7 billion by Zalis Gita Aer) in low-carbon technologies.
Hydrogen Use: Fertilizer industry (Yara) currently uses 7% of Europe’s hydrogen, with green hydrogen production underway but requiring market demand signals to scale.

4. Operational & Organizational Tactics

Three-Step Approach for Steel Lead Markets:
1. Define and label “green steel” with clear sustainability metrics (process transformation, carbon footprint, recycling content).
2. Identify target markets where steel has high climate impact but low share in final product cost (e.g., automotive, construction).
3. Develop tailored policy instruments (quotas, credits, financial incentives) per sector to stimulate demand.
Value Chain Considerations:
- For fertilizers, the challenge is involving farmers and distributing green premium costs across the entire food value chain.
- Importance of integrated value chain investments (hydrogen → ammonia → fertilizer).
Demand Signal Importance: Upstream investments in clean hydrogen and ammonia require strong, clear downstream demand commitments.
Balancing Domestic Content and Global Value Chains: Lessons from solar subsidies highlight the need to balance support for domestic industry with openness to international supply chains to avoid inefficiencies and promote competitiveness.

5. Marketing, Sales, and Product Certification

Certification and Labeling:
- Certification schemes like the Low Emission Steel Standard are critical to provide transparency and credibility.
- Labels help customers and policymakers differentiate product sustainability levels and reward early movers.
Green Premium:
- The green premium (additional cost for low-carbon products) is temporary and expected to decrease with scale.
- Cost distribution across value chains is necessary; no single stakeholder should bear the entire burden.
Public and Private Sector Roles:
- Public procurement can catalyze demand but has scale limits.
- Private sector adoption is essential, supported by policy incentives and market-based instruments.

6. Management & Leadership Insights

Policy Leadership:
- Strong EU-wide legislation and coordination are essential for scaling lead markets.
- Need for smart, harmonized regulations rather than fragmented national laws to create a level playing field.
Investment and Bureaucracy: Public investment is critical, but regulatory bureaucracy must be streamlined to accelerate decarbonization.
Geopolitical and Resilience Considerations: European industrial strategy must consider geopolitical risks (e.g., war in Ukraine) and aim for industrial resilience by maintaining local production capabilities.
Future Policy Priorities:
- Clear, realistic decarbonization targets (2030, 2040, 2050).
- Balanced approach between openness to trade and protecting European industries.
- Focus on end-user incentives and demand-side measures.

7. Case Examples and Actionable Recommendations

Yara’s Green Ammonia Production:
- 24 MW electrolyzer in Norway producing green hydrogen feeding ammonia plant.
- Upcoming carbon capture and storage project in the Netherlands.
Steel Industry Investments:
- €2.7 billion invested by Zalis Gita Aer in hydrogen and natural gas-based low-carbon tech.
Policy Instruments Suggested:
- Sector-specific quotas for steel in automotive and construction.
- Levy-financed CFDs for fertilizers.
- Green steel crediting system for automotive manufacturers to meet climate targets.
Recommendations:
- Develop mandatory labeling with credible metrics.
- Create demand-side incentives through quotas, credits, and procurement.
- Ensure EU-wide coordination on levies and subsidies.
- Reduce bureaucratic hurdles for faster deployment.
- Foster collaboration across stakeholders including policymakers, industry, farmers, and consumers.

Frameworks and Processes Highlighted

Lead Market Creation Framework: Demand stimulation, cost reduction, and scaled market introduction.
Policy Model Evaluation: Cost efficiency, carbon leakage risk, administrative simplicity.
Three-Step Steel Lead Market Playbook: Define → Target → Instrument.
Carbon Contracts for Difference (CCfD): Subsidy linked to carbon abatement vs ETS price.
Labeling and Certification: Multi-metric product sustainability standards.

Presenters and Sources

Matias Stefan, Director at PwC Germany (Legal & Consulting)
Paul Kuna, Member of European Parliament, Head of EP Portuguese Delegation
Ben McWills, Affiliate Fellow at Bugal
Philip Shinka, Head of Brussels Office, Zalis Gita Aer (Steel Industry)
Vbec Rasmussen, SVP Product Management and Certification, Yara Clean Ammonia (Fertilizer Industry)

This discussion underscores the critical need for coordinated EU policy, clear demand signals, and innovative financing mechanisms to enable industrial decarbonization through green lead markets, balancing competitiveness, resilience, and climate goals.