Emissions from the industry sector decreased by 41% between 1990s and 2021 – only slightly faster than overall emissions. Energy-related emissions decreased faster than process-related emissions mostly due to improving efficiency of East German industry after the reunification in the early 1990s.
Electrification combined with energy efficiency measures are the main drivers to decrease energy related emissions in the industry sector according to the 1.5°C compatible pathway. Such scenarios assume an increase in the share of energy consumed as electricity to increase from 34% in 2019 to 47% in 2030 and between 64-67% in 2050, as the sector gets electrified.
Significant reduction of process related emissions will in many cases require different technologies, e.g. application of green hydrogen for steel production. Some German companies are taking positive steps in this direction, e.g. Thyssen Krupp aims to make its steel “climate neutral” by 2045 and is deploying first pilot projects to achieve this goal., Another option is replacement of existing high carbon materials by low carbon alternatives (e.g. for cement) as well as recycling (e.g. steel scrap). Implementation of some of these measures could accelerate emissions reductions in the sector.
The main policy driver of emissions reduction in Germany is carbon pricing through the EU Emissions Trading System. To decrease the potential threat of carbon leakage, many industry sectors receive from allowances, which reduces the scheme’s effectiveness on decarbonisation. Introducing Carbon Border Adjustment Mechanism, combined with phase-out of free allowances would accelerate decarbonisation of the sector. Using such instruments as Carbon Contracts for Difference could facilitate deployment of low carbon technologies.