Three sectors, steel, organic chemicals, and cement, account for roughly a quarter of all emissions covered by the EU Emissions Trading System and currently source 75% of their energy and feedstocks from imports, predominantly fossil fuels. A study published on 14 July 2026 by Agora Industry, modelled jointly with the Wuppertal Institute and University of Kassel, sets out a pathway under which that import dependence falls to 25% by 2050 through a combination of electrification, green hydrogen, sustainable biomass, and carbon capture with storage.
The cost of pursuing this trajectory, the study finds, amounts to less than one percent of European industrial gross value added annually compared to a scenario in which fossil dependence is maintained. Against a single-year fossil price shock comparable in magnitude to the disruption around the recent Strait of Hormuz closure, the decarbonised pathway avoids over €17 billion in additional costs relative to the fossil-dominant baseline.
That comparison is not incidental. The Strait of Hormuz disruption exposed the specific vulnerability of European heavy industry to supply and price events in fossil fuel markets that it has no mechanism to hedge beyond short-term procurement contracts and strategic reserves. Renewable electricity and domestically produced hydrogen are, by contrast, price-stable once the infrastructure is in place, because their marginal cost of production does not fluctuate with geopolitical risk premia in commodities markets. The Agora study frames decarbonisation as a resilience investment rather than exclusively a climate one, a reframing that has become more analytically defensible since 2022 and more politically necessary since the Hormuz episode.
What the Transformation Actually Requires at Scale
The four technological levers that Agora Industry identifies are not equally mature or equally constrained, and the modelling is explicit about what each demands in volume terms. Industrial electricity demand will triple to almost 380 TWh per year by 2050 under the Increased Resource Sovereignty scenario. That figure requires contextualisation: total EU industrial electricity consumption in 2023 was approximately 950 TWh across all manufacturing. More than tripling the consumption of three sectors alone implies an electricity system capable of delivering a substantial increment of clean power to industry at prices that do not render the electrified production economically uncompetitive, which loops directly into the grid infrastructure and wholesale price debate that dominates EU energy policy discussions.
The hydrogen lever is similarly constrained in the near term. Annual hydrogen demand from steel and chemicals reaches almost 80 TWh by 2050 under the model, equivalent to approximately 2.4 million tonnes of hydrogen per year. The EU’s REPowerEU targets called for 10 million tonnes of domestic green hydrogen production by 2030, a figure that has already proved unachievable: actual EU electrolyser installations at the start of 2025 totalled around 1.5 GW of operational capacity, capable of producing roughly 250,000 to 300,000 tonnes per year. The pathway to 80 TWh of industrial hydrogen by 2050 is technically plausible but depends on electrolyser cost trajectories, renewable electricity prices for electrolysis, and the availability of pipeline infrastructure to deliver hydrogen to industrial consumers, all of which require policy decisions that have not yet been finalised.
The biomass lever is the most constrained by sustainability limits. The Agora model treats sustainable biomass as a strategic domestic resource specifically for the chemical sector, where it substitutes fossil feedstocks as a renewable carbon source. European biomass availability is finite, and biomass for chemicals competes with biomass for power generation, heat, and aviation fuel. Quantifying the industrial biomass allocation within a credible sustainability boundary requires land-use accounting, as sector-level analyses do not always apply with sufficient rigour. The study’s framing of biomass as a strategic resource rather than a scalable substitute implies acknowledgment of this constraint, though the modelled volumes are not broken down publicly in a way that allows independent assessment of the assumed supply availability.
The ETS Reform Argument and the Carbon Price Floor
Agora Energiewende’s companion paper on EU ETS design is timed to inform the European Commission’s reform proposal. The core argument is that the current linear reduction factor of 4.4% per year, which determines how quickly the emissions cap declines, should be maintained until 2035 to provide investment certainty for companies already committed to clean technology transitions. After 2035, the analysis suggests the LRF can be reduced to 2%, with the ETS cap reaching 200 million tonnes in 2040 and the Market Stability Reserve playing an increasingly important role in managing residual allowance supply.
The modelling projects EU-wide carbon emissions from steel, cement, and organic chemicals at 68 million tonnes by 2040, which represents a substantial reduction from current levels and is described as compatible with the proposed ETS trajectory. The 200 million tonne cap in 2040 is a system-wide figure, not sector-specific, and the emissions headroom available to heavy industry within that cap depends on the pace of decarbonisation in other covered sectors, including aviation, maritime, and district heating.
The more operationally significant ETS design question is what happens to free allocation. Under current rules, free allocation of emissions allowances is phased out by 2034 in sectors covered by the Carbon Border Adjustment Mechanism. The Agora ETS paper argues that in instances where free allocation continues beyond 2034, it must be strictly linked to investments in decarbonising European production sites rather than functioning as a general revenue transfer to incumbents. The implication is that free allocation in the post-2034 period should effectively operate as a subsidy conditioned on capital expenditure commitments, a design that has precedent in state aid frameworks but would require significant monitoring and enforcement infrastructure at the EU level.
CBAM, Industrial Policy, and the Competitive Exposure Problem
The Agora analysis places both ETS and CBAM within a comprehensive European industrial policy framework, a framing that acknowledges the limits of carbon pricing as a standalone instrument for industrial transformation. CBAM is now operational for its transitional reporting phase and will impose actual financial adjustments from 2026 onward for steel, aluminium, cement, fertilisers, hydrogen, and electricity. Its coverage will expand to additional sectors in subsequent review cycles.
The competitive exposure problem that CBAM is designed to address is material. European steel producers face electricity prices roughly double those of US competitors and triple those of many Asian producers. At current carbon prices and without CBAM, a European steel plant investing in direct reduced iron technology and electric arc furnaces operates with substantially higher production costs than a competitor in a jurisdiction without carbon pricing, even accounting for the EAF technology’s energy efficiency advantages. CBAM narrows that gap for imports into the EU market but provides no relief for European exporters competing in third markets, which is a significant concern for sectors like chemicals where export competitiveness determines whether European production sites remain economically viable.
The Agora study notes that demand-side instruments, specifically lead markets and green public procurement, are necessary complements to carbon pricing and CBAM. Green public procurement provisions in the Net-Zero Industry Act require public authorities to consider the carbon content of industrial products in procurement decisions, which creates a domestic demand signal for low-carbon steel, cement, and chemicals independent of the carbon price. The European Commission’s Investment Booster and the proposed Industrial Decarbonisation Bank are identified as vehicles for channelling ETS revenues into the transition, a design that partially addresses the criticism that ETS revenue allocation has historically been too diffuse and insufficiently targeted toward industrial capital expenditure.
The Risk in the Residual Emissions Treatment
One structural tension in the Agora framework deserves scrutiny. The model shows EU heavy industry becoming a net carbon sink through the combination of bioenergy with CCS, generating negative emissions that offset residual process emissions in cement and chemicals. The authors explicitly warn against using CCS primarily for fossil emissions because it risks locking in residual fossil dependence. The alternative they endorse is BECCS applied to biomass-based industrial processes, which generates carbon removals.
The economic and logistical requirements for BECCS at industrial scale are substantial and not yet demonstrated in any EU member state at the volumes implied by a net-sink scenario for heavy industry by 2050. CO2 transport and storage infrastructure requires either offshore geological storage or large onshore saline aquifer capacity, both of which require permitting regimes and capital investment timelines that have so far advanced more slowly than the EU’s climate policy ambitions. The Northern Lights project in Norway and the Porthos project in the Netherlands represent the most advanced European CCS infrastructure, and neither is yet operating at the scale that the Agora 2050 scenario implicitly requires as a backstop. Whether BECCS can be deployed at sufficient scale by 2050 to fulfil the carbon sink function in the model is a question that the study’s optimistic framing does not fully resolve.
