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Bottlenecks to decarbonising German energy-intensive industries: A Stakeholder Workshop in Berlin
The PARIS REINFORCE project hosted a stakeholder workshop in Berlin, on 8 July 2022, to discuss and refine the project’s modelling results on low-carbon pathways for Germany. Based on this feedback the workshop aimed to identify bottlenecks hampering the decarbonisation pathways and to co-create elements of a transformative policy mix that could overcome those bottlenecks. The workshop, which was coordinated by Philine Warnke (Fraunhofer ISI), focused in particular on the energy-intensive industry sectors of steel and cement and gathered stakeholders from academia, civil society, policy, and the private sector with particular insights on these sectors.
Dr. Alexandros Nikas (National Technical University of Athens) kicked off the meeting with a brief introduction of the project, highlighting in particular the I2AM PARIS platform (link) and the co-creative nature followed in PARIS REINFORCE. This was followed by input by Khaled al-Dabbas (Fraunhofer ISI), who presented three scenarios resulting from the project's modelling exercises on the German energy-intensive industries. The first scenario assumed implementation of current policies and strong diffusion of best available technologies in terms of energy efficiency as well as a continuation of the current recycling trend. The other two scenarios comprised more ambitious policy mixes with additional decarbonisation measures: one scenario prioritising electrification especially for process heating, and another one with hydrogen being the primary decarbonisation option. In the Q&A session, participants mentioned the need to have more detailed chemical recycling in the model result, with Dr. Andrea Herbst (Fraunhofer ISI) pointing out that this issue is well established and that the FORECAST modelling team is currently working on a more detailed presentation for the chemical sector. Furthermore, participants emphasised the importance of considering the whole energy-system perspective especially for hydrogen demand.
Baptiste Boitier (SEURECO) then presented insights on the wider implications of European climate action on different Member States, especially with regard to employment and GDP, based on a comparison of results of seven different models of the PARIS REINFORCE modelling ensemble. Via online polling, participants provided feedback on key aspects, such as the use of negative emissions technologies. Jakob Wachsmuth (Fraunhofer ISI) presented insights from the qualitative analysis of the German industry system and a first tentative list of bottlenecks for the decarbonisation of Germany's energy-intensive industries stemming from this analysis. Stakeholders questioned some of these bottlenecks, before eventually complenting this list with further aspects, including lack of acceptance for green steel/cement (danger of greenwashing), acceptance levels for different types of infrastructure expansion, and uncertainty revolving around availability of hydrogen and electricity from renewables.
Participants were then asked to vote up to three bottlenecks of the highest relevance from their perspective. As a result, two lists of bottlenecks were singled out for further discussion. From the perspective of infrastructure, uncertainty around availability of hydrogen and renewable electricity (8 votes), infrastructure expansion for hydrogen and CO2 (6 votes), and uncertainty over political framework conditions (4 votes) were upvoted. From a demand-side perspective, stakeholders upvoted certification (2 votes) and markets (1 vote) for green steel/cement, as well as customer-related barriers such as norms and competences (2 votes).
In the second part of the workshop participants discussed these two areas in two small groups, first specifying each bottleneck and then outlining means to overcome it.
Table 1 - Infrastructure
The uncertainty around availability of hydrogen and renewable electricity was characterised as having multiple, intertwined dimensions. In particular, the potential lack of truly additional renewable electricity increased the uncertainty about future supply with green hydrogen. This was perceived to be worsened by a lack of resources (e.g., rare earths) and capacities to build electrolysers producing the desired green hydrogen. Other colours of hydrogen were expected to face limitations with regard to public acceptance. For blue hydrogen, the reduced viability due to higher gas prices was also considered critical and expected to lower its future relevance.
According to the participants, the need for additional renewable electricity for the green hydrogen production calls for further increased support for the expansion of renewable electricity production and grids, but also for more harmonisation between hydrogen production and renewable energy production. The use of renewable electricity for direct electrification of industry processes was considered of highest priority here, while clear rules for the production of green hydrogen were to be enforced. If blue hydrogen was to play a bridging role in certain areas, then either requirements for a transition to green hydrogen or at least additional benefits for green hydrogen, for instance based on its lower carbon footprint, would need to be established.
The bottleneck with regard to the build-up of a hydrogen infrastructure was seen as strongly related to the uncertainty about the future volume and distribution of production and demand. Moreover, participants identified a trade-off with the expansion of the electricity grid. Nevertheless, the installation of a hydrogen backbone network was seen as a no-regret measure. That is why a support scheme for such infrastructures was considered an important instrument, which would pay out at least in the longer term. In turn, the bottleneck with regard to the build-up of CO2 infrastructure was assessed differently. The uncertainty about the desired volumes of carbon dioxide capture and storage (or further usage) was considered so high that participants considered it most important to develop a guiding vision for CO2 circular flows and a carbon management strategy, before rolling out full-fledged infrastructure. Nevertheless, an early push for initial projects and the development of a regulatory framework were considered important to avoid a potential lock-in. Finally, participants considered important to avoid political uncertainty leading to harvesting only the low-hanging fruits in industry decarbonisation, as this might yield cost increases or skill shortages with regard to the more difficult processes. Therefore, they favoured a clear political agenda for full decarbonisation and an early development of the required skills and competences.
Table 2 - Demand-side
It was agreed that, at the moment, there are still several hurdles on the market side of decarbonisation trajectories. Participants highlighted that the EU ETS free allocation for leakage does not provide the incentive for sectors such as cement to seriously explore low-carbon alternatives such as new binders and recycling solutions. There is no market-ready alternative and too little research into such alternatives. Evidence, data, and information for customers such as homebuilders is scarce. The question is what will happen if prices rise. As already seen in certain industries faced with the currently high gas prices, production could also be halted or transferred to other countries with lower costs. So far, cement is considered a local commodity due to the low profit margin and the high transportation cost. One could think that this might change under the current prices but most probably it will still be infeasible for all regions to import cement (specially for regions without direct access to water). Accordingly, measures are required to support low-carbon trajectories to take off. In the case of the building sector, this is challenging due to the conservative nature of the industry and the many layers of actors, from architects to construction workers; these need to be addressed simultaneously by regulatory and education measures. Also, the public sector as a major customer is under severe pressure to reduce costs.
In addition, participants stressed the long time for reforming norms and standards to accommodate new construction materials as important barriers for market pull towards zero-carbon technologies. Another danger was seen in the availability of offset permits. Without proper regulation this could become an alternative to low-carbon pathways, e.g. the automotive industry could opt for such permits instead of paying higher prices for DRI steel. This adds to the danger of increased greenwashing due to lack of clear definitions of both green steel and green cement. Last but not least, the willingness of customers/consumers to pay a higher price for green products (green premium) is far from certain especially in the long term. Participants therefore stressed the need to better define the role of demand-side measures within long term transitions. It was discussed that it is crucial to support the take-off of decarbonisation trajectories with dedicated demand-side measures, although in the long term the carbon price would need to be the main regulating mechanism. At the same time with increasing establishment the price premium will decrease.
Measures that were discussed to overcome the bottlenecks included green public procurement, reduction in material consumption through innovative building solutions, electrification of construction sites (following the example of Oslo), fostering of exchange of pioneering construction projects, strategies for upscaling from local projects, information campaigns for builders and architects and corporate sustainability departments, and finally research and innovation in support to low-carbon solutions, such as recycling in construction and alternative construction materials. For the steel sector, part of the discussion focussed on ways to strengthen the secondary steel route in Germany, which loses much of its steel through export. Scrap quality could be improved with better sorting, e.g., thanks to a digital product pass. This could make it easier to produce high-quality steel through electric furnace. In addition, metal scrap export could be reduced to increase the amount of scrap available.
All workshop presentations can be found here:
Introduction to PARIS REINFORCE - Alexandros Nikas (NTUA)
PARIS REINFORCE Modelling insights for the industry sector - Khaled Al-Dabbas (Fraunhofer ISI)
Analysis of wider EU decarbonisation impacts (NZE scenarios and CBAM analysis) - Baptiste Boitier (SEURECO)
Preliminary analysis of bottlenecks - Jakob Wachsmuth (Fraunhofer ISI)
Menti voting results - Philine Warnke (Fraunhofer ISI)