Heavy industry, an engine for development
The EU’s heavy industry is under enormous pressure. Across the continent, producers of steel, cement, chemicals, and other essential materials are announcing expensive transformation plans to maintain their competitiveness in a low-carbon world, while struggling to compete with cheap imports and to overcome the current sluggish demand for green products.
Said transformation plans are often dependent on state-led infrastructure development – both for enabling their execution (such as carbon dioxide transport infrastructure for carbon management projects) and for creating lead markets to increase the certainty of investment payback (for example, long-term contracts for purchasing green steel at a premium price tag). They are also costly, both in terms of capital and operational expenses, and will require innovative financial and fiscal instruments, including private sector mobilisation, to ensure deployment at the pace required to keep EU industries operating and competing within emissions and resource constraints.
In Central and Eastern Europe (CEE), heavy industry is both more emissions-intensive and more economically important than in the rest of the Union. Transforming it to a low-carbon industry could bring a significant payoff in terms of economic development and safeguarding of jobs than in other countries. The demand for carbon-intensive products is also unquestionable, with the rapid economic development of CEE countries requiring large volumes of construction materials. However, the CEE countries’ climate policy push is also weaker, public purses are more constrained, and the recent fomenting of far-right agendas may put social “green-lash” high on the list of challenges facing industrial transformation. Under stringent EU climate targets, CEE border countries such as Romania and Bulgaria also face a higher risk of incurring an industrial trade deficit due to their proximity to cheap extra-EU industrial production – even in regional markets judged to have low trade intensity (such as cement). Transforming CEE industry is therefore as challenging as it is necessary – and its dependence on both infrastructure development and creative funding mechanisms, outlined above, may just be the key to achieving it.
The Cohesion Policy, a facilitator of development
The progress of CEE countries in reducing their industrial emissions over the last three decades has been mostly driven by downsizing or shutting down legacy economically inefficient industrial facilities from the communist regime. As in the rest of Europe, concerns about competitiveness are reshaping the decarbonisation agenda to a dual “joint decarbonisation and development” approach. For Central and Eastern Europe, this notion of development is still very much predicated (though likely not for much longer) on regional convergence with wealthier EU regions. This offers an opening into combining the economic development imperative with the need to mobilise finance for industrial decarbonisation in a way that can foster regional economic cohesion: the EU Cohesion Policy.
The EU Cohesion Policy, the “prime investment policy of the EU” is a broad funding mechanism aiming to reduce the economic, social, and territorial disparities still evident between more developed and less developed European countries. It is delivered through four main funds: the European Regional Development Fund (ERDF), the Cohesion Fund (CF), the European Social Fund Plus (ESF+), and Just Transition Fund (JTF). The majority of this funding is allocated to CEE countries: of a total of €392 billion in the 2021-2027 financial period, Poland alone was allocated nearly €80 billion, and remaining CEE countries and Greece a total of €150 billion.
A substantial share of Cohesion Policy funding goes towards infrastructure, particularly transport. In the 2014-2020 period, the single largest direct beneficiaries of funding were the Polish and Romanian national companies for roads and highways, receiving just over €13 billion. Total funding for network infrastructures in transport and energy amounted to €66 billion, while funding for low-carbon transformation totalled €50 billion, out of a total of €531 billion planned. The primary funding instruments for investment in these domains are the CF and ERDF.
The substantial share of Cohesion Policy funding available for investment in CEE infrastructure and low-carbon transformation highlights two things. Firstly, there is a well-established funding instrument for the economic development of less developed European regions, much of which goes to large construction projects requiring substantial volumes of steel, concrete, and other construction products. Secondly, there is an opportunity to improve the efficiency of Cohesion Policy funding (already a heated topic in Brussels), by conditioning infrastructure spending on climate performance and mobilising investments in low-carbon products and services as part of a broad industrial transformation.
Aligning development with climate through public procurement criteria
How could climate conditionalities be implemented within Cohesion Policy infrastructure spending? One solution is to leverage the role of public entities as buyers of the products and services needed to develop new infrastructure. With the vast majority of CEE countries directing most of their funding to public entities, public procurement criteria applied to Cohesion Policy spending could unlock demand for industrial products meeting certain specifications – including their environmental and climate impact, with strong social safeguards in place.
Incorporating climate and environmental criteria into public procurement is far from a new idea, but is not legally mandated at EU level. Instead, the EU has a voluntary scheme for Green Public Procurement (GPP), covering fourteen categories of products – two of which are suitable for generating demand for clean industrial products to the scale required for a genuine transformation of heavy industry (office building construction and road construction). While some Member States have adopted their own Green Public Procurement frameworks at national level, these are mostly absent in Central and Eastern Europe (with some exceptions, for example Lithuania), or where they do exist, they include relatively vague criteria on the emissions and environmental performance of industrial products (e.g., Romania’s recently published GPP action plan).
Leveraging the existing framework for GPP criteria could serve as a starting point for introducing climate conditionalities in the disbursement of Cohesion Policy funding instruments. This means that Member States, who are responsible for selecting projects to be funded under these instruments, can introduce product-level or project-level criteria into their funding contracts, ensuring that beneficiaries (public and private alike) implement such criteria to reduce the life-cycle emissions of infrastructure projects and generate demand for low-carbon industrial products. Of course, much will need to be done to set clear criteria which genuinely incentivise industrial transformation, ensure transparency across the value chains of these complex infrastructure projects, as well as educate procurement bodies to implement, monitor, and evaluate performance against GPP criteria.
Luciana Miu, EPG Head of Clean Economy
Luciana Miu is Head of Clean Economy at Energy Policy Group. She oversees the work of the Clean Economy division, including industrial decarbonisation, building energy efficiency, and climate governance and policy. Luciana also conducts in-depth research and stakeholder engagement primarily in the field of industrial decarbonisation and carbon capture and storage.
Luciana is an expert in industrial decarbonisation and building energy efficiency, with a focus on consumer behavior, systems thinking and policy. She is also trained in renewable energy engineering and a highly skilled communicator with significant experience in stakeholder engagement on sustainability projects. Luciana has extensive experience in data collection and analysis, including conducting nationally representative surveys and statistical analysis and modelling in STATA. She is also well-versed in behavioral frameworks and socio-technical systems approaches to sustainability.
She holds a PhD in energy efficiency from Imperial College London, and an MSc in Sustainable Energy Systems and BSc in Environmental Science from the University of Edinburgh. Her PhD thesis has resulted in 3 publications in peer-reviewed journals, including Energy Policy and Energy Research and Social Science.
Luciana is passionate about youth engagement in the energy transition, and is one of the founders of the European Youth Energy Network, the first network of youth-led, energy-focused organisations in the EU. She is a native speaker of Romanian and English, is fluent in French and has basic knowledge of German and Danish.
Contact: luciana.miu@enpg.ro