This report provides a comparative analysis of the EU’s decarbonization policies with those of the industrial powers of Asia (China, South Korea and Japan). It is built on two main pillars:

• A roadmap for a bold and ambitious European industrial decarbonization strategy backed by a joint funding of €100 billion per year, and drawing on practices rolled out in Asian countries.
• A sector-based approach that focuses on the decarbonization of two crucial industries: steel and aluminum.

The results of this year-long research effort are based on almost 500 interviews and consultations with European and Asian political and industrial stakeholders, most of which were conducted as part of trips to Europe, Japan, South Korea and the United Arab Emirates during COP28. The report also draws on an international dialogue organized in Paris in January 2024, that brought together forty decision-makers from Europe, Japan and South Korea.

"At a time when the major industrial powers are intensifying their efforts to dominate the post-carbon era, the European Union stands at a critical crossroads: it must decarbonize its industry while also restoring its declining competitiveness. As a pioneer, Europe must draw lessons from the strategies of Asia's industrial giants-China, Japan, and South Korea-to shape its own path in an increasingly competitive landscape and remain a strong contender in the global race." - Joseph Dellatte, Resident Fellow - Climate, Energy and Environment at Institut Montaigne.

Key Challenges to Shaping a Clean Industrial Strategy

European industrial policy faces an uphill battle in its path towards carbon neutrality. It suffers from the EU’s fragmented governance, an absence of coordination between Member States, lack of strategic thinking and joint funding.

Furthermore, industry decarbonization will require widespread access to clean and affordable energy sources. Europe's aging infrastructure and high energy costs risk delaying its climate transition and pushing industries away from Europe, while technological uncertainties surrounding decarbonization could also impact Europe in the global race if it chooses the wrong technologies.

Industry Decarbonization: Drawing on Asian Strategies

Europe and Asia are choosing different strategies to achieve carbon neutrality:

• China, with its state-led industrial policy, backed by massive industrial capacity, is seeking to balance industrial growth and sustainability with controlling its decarbonization agenda for high-emission industries.
• Japan, through close collaboration between government and industry, is prioritizing R&D, notably in hydrogen, but remains exposed to energy dependencies.
• South Korea, led by its conglomerates, is making slower progress in the energy transition, focusing on hydrogen but remaining dependent on fossil fuels.
• In Europe, some steps have already been taken, in the form of a Net-Zero Industry Act and the STEP platform - but these are insufficient to meet the scale of the challenge and disparities between Member States are growing.

To succeed, the EU must equip itself with a bold and coherent strategy to reach industrial decarbonization by 2050, while remaining competitive on the global stage.

1. Establish common funding of €100 billion per year at the EU level through European Clean Industrial Bonds. These bonds would be financed by anticipating the future carbon tax revenues (in place from 2028 onwards).
2. Create a European Clean Industrial Strategy Agency by merging all existing EU policy instruments, providing technological guidance, coordinating European and national climate funds and mechanisms, and providing a one-stop financing hub for European decarbonization projects.
3. Support demand for European clean industrial goods, with a Made-in-Europe Green Public Procurement Policy.
4. Use trade policy to support industrial decarbonization aims, by encouraging cooperation with regions and countries that share similar levels of climate ambition.
5. Support industrial demand for electrification by facilitating coordination between Member States and anticipating the future impacts of increased demand on the grid.
6. Adopt a Cross-Sectoral Technology-Hub Strategy to stimulate innovation and promote mutualization of clean electricity generation.
7. Set new clean industrial standards.

To forge a post-carbon industry, Europe will need to adopt a sector-specific approach to meet the technological and regulatory challenges of each industry and take into account the characteristics of manufacturing regions.

The steel and aluminum sectors should be a key focus due to their high carbon intensity, representing 8% and 2% of global emissions, respectively, and their importance in the post-carbon economy and energy transition. This report puts forward solutions to decarbonize these sectors using European instruments to accelerate the production of green industrial goods, support investment and innovation, and guarantee fair competition with other regions of the world.