EU climate subsidies for heavy industry may backfire, new study warns
Government support for energy-intensive industries in the Netherlands and Europe could unintentionally increase CO₂ emissions, despite EU climate policies. A new study reveals that while some subsidies boost competitiveness, they may undermine climate goals unless targeted at clean technologies.
| Key Data Point | Details |
|---|---|
| Study Conducted By | Netherlands Bureau for Economic Policy Analysis (CPB) & PBL |
| Countries Analyzed | Netherlands, Germany, France |
| Support Measures Examined | Production subsidies, lower energy taxes, reduced electricity costs, CO₂ reduction tech subsidies |
| Impact on Emissions | Most subsidies increase emissions; only CO₂ tech subsidies reduce them |
| EU ETS Interaction | Market Stability Reserve (MSR) adjusts emissions cap based on national policies |
| Global Emissions Effect | Cleaner European production may replace polluting production elsewhere |
| State Aid Rules | Production subsidies hard to implement; electricity cost reductions easier |
| Contact for Study Authors | Stan Olijslagers, Corjan Brink, Xinju Li, Herman Vollebergh |
The Netherlands Bureau for Economic Policy Analysis (CPB) and the Netherlands Environmental Assessment Agency (PBL) provide independent research to inform government policy on economic and environmental issues. Their findings help shape national and EU strategies for industrial competitiveness and climate action.
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Read the full translated article below
Support for energy-intensive industry and its interaction with the EU ETS
European governments aim to help the energy-intensive industry remain competitive while meeting climate targets. New research by the Netherlands Bureau for Economic Policy Analysis (CPB) and the Netherlands Environmental Assessment Agency (PBL) shows that most forms of support strengthen companies’ positions but increase emissions in the Netherlands and Europe, despite the EU Emissions Trading System (EU ETS). Direct support for CO₂ reduction technologies does reduce CO₂ emissions, but offers less help in the competitive arena. Since cleaner European production can replace more polluting production elsewhere, global emissions may decline in some cases.
The study compares four possible forms of support measures – production subsidies, lower energy taxes, reduced electricity costs, and subsidies for CO₂ reduction technologies – and examines the effects if the Netherlands, Germany, and France jointly support their energy-intensive industries for five years. Using an economic model, it calculates the impact on the competitive position and emissions in these countries, the rest of Europe, and globally.
The research explicitly accounts for the current EU ETS design. Due to the Market Stability Reserve (MSR) within the EU ETS, the European emissions cap is no longer fixed. As a result, changes in emissions caused by national (climate) policies directly lead to an increase or decrease in total EU emissions.
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- Industry Energy Support and its Interaction with EU ETS
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- Industriesteun verhoogt Europese uitstoot
Competitive position of industry strengthened
Measures that directly lower production costs – such as production subsidies, lower electricity costs, or reduced energy costs – improve companies’ competitive positions, leading to increased production. Subsidies for clean technologies (such as the SDE++) have little effect on competitiveness.
Effects on emissions
The current ETS plays a key role. Subsidies for clean technologies reduce emissions because the MSR withdraws allowances from the market. Other support measures aimed at lowering industry costs have the opposite effect, increasing emissions and the number of allowances. This effect is most pronounced when energy costs are reduced, as fossil fuels also become cheaper. Lowering electricity costs makes industrial production cleaner, but increases emissions from power generation, resulting in more allowances overall. The increase in allowances is smallest when production costs are reduced across the board. At the same time, global emissions may decline because relatively clean European production replaces more polluting production outside Europe.
Implementation
Due to EU state aid rules, production subsidies are difficult to implement, while reducing electricity costs is more feasible. Subsidies for clean technologies can complement support aimed at improving competitiveness and help meet climate targets.
In addition to this research, the authors have written an ESB article: Industriesteun verhoogt Europese uitstoot.
Authors
Stan Olijslagers +31 88 9846220 Contact Read more
Corjan Brink Contact Read more
Xinju Li
Herman Vollebergh +31 88 9846289 Contact Read more
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