Europe’s industrial future depends on creating lead markets for clean commodities

European industry is at a turning point. Fossil-based production has become economically unviable and environmentally unsustainable due to high energy costs, ageing assets and global competition.  

High-emission pathways for steel, aluminium and chemicals production in Europe are more expensive than global averages and highly exposed to the price volatility of imported fossil fuels, with European producers steadily losing market share.   

Without an urgent shift toward cleaner industrial value chains, Europe risks a slow erosion of its industrial base and with it, the jobs, technologies and strategic influence that underpin its economic strength.  

There is room for optimism. The EU boasts one of the world’s most ambitious pipelines of clean industrial projects, but this potential is stalling: of 19 clean industrial plants that secured financing globally last year, only two were in the EU, while China progressed 12.   

What’s slowing momentum isn’t technology or capital; it’s the absence of buyers willing to pay a premium for clean materials and chemicals. Without markets for clean commodities, progress in Europe will remain slow at best and, in some cases, is already reversing.  

Meeting the competitiveness challenge

While many European companies have announced bold investment plans to decarbonise, Mission Possible Partnership’s Global Project Tracker shows that only a fraction are moving forward. The challenge is clear: unless there is an uptick in demand for clean materials and chemicals, investors will not invest. This is compounded by Europe’s comparatively high energy costs, which further widen the competitiveness gap for clean production.  

The European Commission recognised these challenges last year in its Clean Industrial Deal, which put competitiveness and resilience at the centre of Europe’s transition. A few early steps are taking shape – with the proposed extension of the EU Carbon Border Adjustment Mechanism (CBAM) to downstream aluminium and steel intensive products, and new low-carbon steel incentives under the EU tailpipe CO2 regulations for cars.  

The next step – the Industrial Accelerator Act, which is due later this month – must now complete this picture by building long-term market certainty that creates a credible business case for low-carbon production.   

However, early signals suggest the Act may rely mainly on voluntary labelling and soft incentives. These are welcome, but – like the proposals published in December – are insufficient to create demand at the scale or pace required. And while debates over “Made in Europe” are becoming increasingly contentious, they should not starve the political oxygen for green lead markets. New analysis from the Industrial Transition Accelerator (ITA) and E3G shows what is at stake. Across just four commodities – steel, cement, aluminium and ammonia – Europe already has a pipeline of clean industrial projects worth around €100 billion, but this pipeline is stalled.   

Europe’s path to resilience

Investing in these industries is Europe’s path to economic resilience, energy independence and green growth. It is also a cornerstone of Europe’s security strategy: the ability to produce key materials and chemicals domestically strengthens its autonomy in a world where energy and industrial supply chains are increasingly contested. A strong local industrial base also helps ensure a secure domestic defence industry that can scale in times of conflict.  

To achieve this, Europe needs a comprehensive lead-markets strategy that mobilises both public and private demand to turn industrial ambition into reality and to maintain the industrial capability to underpin its security. That means deploying a full policy toolkit, tailored to the needs of each sector, from public procurement and contracts for difference to targeted regulation and standards.  

Concerns about cost should not hold Europe back. The so-called “green premium” – the extra cost of cleaner materials – has a minimal impact on consumers. For example, switching entirely to clean steel and aluminium would raise the cost of an average car by only 1%. By contrast, dependence on fossil fuels has proven a far greater inflation risk: energy price spikes added roughly six percentage points to EU inflation in 2022 alone.  

At the same time, Europe cannot go it alone. Clean energy costs are a critical driver of the competitiveness of clean industry. To make the most of the industrial transition, Europe should tap into the potential of its renewable-rich countries, while building mutually beneficial partnerships with clean energy leaders beyond its borders. Such cooperation can secure affordable clean inputs, strengthen supply chains and expand global green markets, while reinforcing Europe’s diplomatic ties in a world that is increasingly fragmented.  

If European leaders want the Clean Industrial Deal to succeed in heralding a new era for European industry, the Industrial Accelerator Act must move beyond good intentions. It should create the strong and predictable lead markets to turn Europe’s clean-industrial ambition into investable demand and secure Europe’s place in the clean economy of the future.