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Business leadership for a climate neutral economy

11 May 2021 – The climate transition is an unprecedented shift in our societies and economies. As the EU stands ready to deliver the next round of key policies in support of this transition and works to update its industrial strategy and other key policies, there is an important discussion to be had about how policies that shape and create market demand can be used to drive change. Achieving a climate neutral, circular and competitive economy requires changes to the ways we produce and consume the basic materials that are essential inputs into manufacturing value chains.

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Agora Energiewende, one of Europe’s leading think tanks on climate-related issues, and CLG Europe, a cross-sectoral group of leading European businesses supporting the transition to a climate neutral economy, have both identified that this is a key and underexplored topic. They have therefore pooled their efforts to develop this report which explores the potential for demand-led policies to help support industries providing climate neutral materials. 
The existence of market-driven demand for final products made from climate neutral basic materials is an essential condition for the transition to a decarbonised industrial sector. However, currently, market demand for climate neutral basic materials and final products remains underdeveloped or even non-existent in some EU product markets. There are several barriers that even large progressive European industrial companies face in unlocking sufficient demand to enable a full-scale shift to climate neutral production, supply chains and business models.
This report explores how European policies could be developed to remove these barriers. To gain further insights into these questions, the authors conducted a roundtable and in-depth interviews with representatives from eight leading, progressive European industrial companies. These discussions explored leading practices in industry today to develop climate neutral materials and product brands, the barriers leading companies face to scale up these initiatives, concrete options for additional EU policies to address these barriers and the potential role, and success factors, of such policies in the broader EU policy package for the transition to clean industry.


Key findings

  • Accelerating the transition of energy-intensive basic materials industries to climate neutrality is becoming an increasingly urgent matter. In the EU, direct (Scope 1) emissions from basic materials such as iron and steel, cement and non-metallic minerals, basic chemicals, aluminium, and pulp and paper account for approximately 16 per cent of net annual greenhouse gas (GHG) emissions, while globally the amount is around 20 per cent. Given the life cycle of assets within these industries, the EU has just one investment cycle to shift production processes to achieve domestic climate neutrality by 2050.
  • Enabling investment in climate neutral and circular production requires robust demand for climate neutral and circular basic materials and resulting final products. The industrial transition will require several enabling conditions to be met, including the development of key infrastructure, de-risking, and support mechanisms for deploying breakthrough technologies at large scale and addressing carbon leakage risks. However, a robust long-term business case for clean production investments depends on market-based demand for products made from the efficient use of climate neutral materials. 
  • Progressive industrial companies are working to foster demand for climate neutral basic materials and final products, yet they face several barriers that they cannot solve in isolation. For basic materials producers, there is often insufficient consumer demand for products made with climate neutral or circular materials. For final product manufacturers, there is an inability to effectively market products made from climate neutral materials due to a fundamental lack of high-quality, comparable data on embedded emissions in upstream basic materials and intermediate products. 
  • In the absence of robust regulations, downstream companies can face significant challenges to coordinate and incentivise upstream suppliers to produce climate neutral basic materials and intermediate products. In some cases, such as with certain recycled materials, there is ‘pent-up demand’ due to barriers on the supply side of the market. A lack of abundantly available, high-quality recyclable materials remains a significant issue.
  • To help European industries tackle these barriers, there is a vital role for EU policies that harmonise incentives and data across the internal market: 
    • EU product policies should integrate embedded CO2 limits on final products that are material intensive, ensuring these are reduced over time. 
    • There is a need to significantly improve the availability, quality and comparability of data on embedded emissions in basic materials and intermediate products. 
    • The EU and national institutions should temporarily intervene to support early investments in new and innovative solutions. Such policies are relevant where certain high-potential technologies or other solutions face significant barriers to enter the relevant markets in early phases of their development. 


Citing this report

Please cite this report as: University of Cambridge Institute for Sustainability Leadership (CISL) and Agora Energiewende. (2021). Tomorrow’s markets today: Scaling up demand for climate neutral basic materials and products. CLG Europe 

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Author and acknowledgements

Oliver Sartor (Agora Energiewende), Eliot Whittington (CISL), Sanna Markkanen (CISL)

The authors would like to acknowledge the contributions of numerous people to the preparation of this study, including the employees of Stora Enso, LafargeHolcim, Volvo Cars, Coca-Cola European Partners, Unilever, Bouygues Construction, thyssenkrupp, SSAB and HYBRIT. While every effort has been made to faithfully reflect and build on the inputs provided, this paper does not necessarily reflect the views of these companies or the interviewees. We also wish to acknowledge the many helpful comments of reviewers from the World Business Council for Sustainable Development, CLG Europe, the University of Cambridge Institute for Sustainability Leadership and Agora Energiewende. Special thanks are extended to Annabelle Roblin, Chris Carroll, Ursula Woodburn, Frank Peter, Patrick Graichen, Philipp Hauser, Nina Zetsche, Wido Witecka, Paul Münnich and Nelly Azais.


©2021 University of Cambridge Institute for Sustainability Leadership (CISL). Creative Commons Licence CC BY-NC 4.0.