Thanks to my co-authors @keliauskaite.bsky.social ,
@bmcwilliams.bsky.social, and @tagliapietra.bsky.social
from @bruegel.bsky.social.
Thanks also to #EnergyPolicy for accepting our work.

6️⃣ Enhance equity: #Frontload investment support for vulnerable consumers to encourage energy renovations and reduce the need for compensation after ETS2 kicks in.

5️⃣ Streamline regulation: One-stop shops (OSS) have a positive track record of improving energy renovations. #OSS can also help pool projects, creating an investment case for contractors that would be lacking for projects in isolation.

4️⃣ Boost #ETS2 impact: Ensure revenues are targeted effectively to finance building decarbonisation. Compensation measures must preserve the price incentive to renovate.

3️⃣ Improve market signals: Phase out fossil fuel subsidies (€120bn in 2022) and adjust energy taxes to encourage clean heat adoption. Recycle the #CfD idea for fuel switching and energy renovations at the household level.

2️⃣ Mobilise private capital: Partner with #Banks to create accessible, long-term financial products using property value and public guarantees as collateral + subsidized zero-interest rate.

6 policy levers to meet the challenge:

1️⃣ Leverage future savings: There are potential savings of €81bn/y by 2030. Making a larger use of energy-performance contracts, energy service agreements and pay-as-you-save contracts can substantially reduce upfront costs for households and companies.

2/2 Full study: www.sciencedirect.com/science/arti...

👉The full analysis is available here www.bruegel.org/analysis/how...

While there are no easy fixes, I believe that these challenges could be greatly mitigated by:
1) prioritising public support for exporters
2) promoting carbon pricing and sectorial decarbonisation agreements globally
3) improving consistency in state aid
4) pooling subsidies at EU level

In my piece I explore three key challenges:
1️⃣ Export competitiveness (even with CBAM EU exporters will continue to compete on the global market).
2️⃣ #CBAM sectoral coverage (what about products further down the value chain?).
3️⃣ Geographical misallocation of industrial subsidies within the EU

From 2031-2040, decarbonising industrial production will require investment estimated at €46 billion per year. More than 60% of this investment will be concentrated in chemicals, basic metals and non-metallic minerals (Table 1, in EUR billion).

Between 2013 and 2023, ETS emissions fell by 36%, led by a -44% in the power sector, while industrial emissions declined by 17%. The slower progress in cutting industrial emissions can be attributed partly to free carbon allowances – a benefit the power sector does not receive (Figure 2).