EU ETS at 20: The Heavy Industry Decarbonization Gap
Twenty years of the EU ETS cut emissions and drove power-sector innovation — but heavy industry remains the gap. What it means for industrial buyers.
Here is the uncomfortable truth about the EU ETS on its twentieth birthday: it has been a success almost everywhere except the sectors most of our readers actually work in.
That is not our opinion — it is the conclusion of a new review in the Annual Review of Resource Economics, which names decarbonising heavy industry as the single most critical unresolved challenge facing the EU ETS. Power generation got the innovation. Steel, cement, and foundries got the compliance bill. If you sit in procurement or ESG at an industrial site, that asymmetry is your problem to solve this decade.
Twenty Years In, the EU ETS Isn't Going Anywhere
Let's start with what the research settles. The EU ETS is the largest and most mature carbon market in the world — two decades of continuous operation, through recessions, energy crises, and multiple political cycles.
We hear a version of the same hope in supplier conversations every year: maybe the rules soften. They haven't. The review's framing is that the EU ETS demonstrates how to design carbon pricing that is both environmentally effective and politically durable. Durable is the operative word. Plan your sourcing accordingly.
Quick refresher, because the jargon still trips people up: a cap-and-trade system sets a hard ceiling on total emissions, issues tradeable allowances up to that ceiling, and lets the market price them. The ceiling drops. The price pressure rises.
The Two Arguments You Can Stop Having
Empirical studies reviewed here confirm two things that used to dominate every industry roundtable.
"Carbon markets don't reduce emissions." They do. The research confirms measurable emissions reductions across covered sectors.
"We'll just export the problem." We didn't. Carbon leakage — emissions-intensive production relocating to weaker-regulation jurisdictions — was effectively mitigated. That mattered enormously, because widespread leakage would have gutted the system's credibility and given regulators an excuse to walk away.
Instead, the EU doubled down and started extending the logic to imports. If you haven't stress-tested your import exposure, start with our [link:cbam-compliance-guide].
Why Power Got the Easy Win
The review is blunt about where innovation actually landed: the power sector saw the most significant low-carbon innovation from EU ETS incentives.
We would argue that says less about ambition and more about optionality. Compare the two situations honestly:
| Power generation | Heavy industry | |
|---|---|---|
| Substitutes available | Multiple, mature | Few, emerging |
| Emissions source | Fuel combustion | Fuel and process chemistry |
| Switching speed | Dispatch-level, fast | Asset lifetime, slow |
| Capex cycle | Years | Decades |
| Cost pass-through | Established | Contested |
A generator responds to a carbon price by changing what it burns tonight. A blast furnace operator responds by rebuilding a plant. Same price signal, radically different response function. That is the gap the EU ETS has not closed.
The EU ETS You Comply With Is a Hybrid Now
One more thing worth internalising: the system has changed under our feet. The review describes the EU ETS evolving from pure cap-and-trade into a hybrid instrument, thanks largely to the Market Stability Reserve — which pulls allowances out of circulation or releases them to stabilise prices and improve economic efficiency.
What that means practically: the era of hoping for another allowance-price collapse is over by design. Prices are actively managed to stay meaningful.
The review also emphasises that the EU ETS works as part of a broader policy ecosystem, not in isolation. Carbon pricing alone was never going to decarbonise a coke oven. It needs standards, support schemes, and — this is our read — real supply chains for alternative industrial carbon.
Where Biochar and Biocarbon Enter the Picture
So what do you do with a policy gap? You look for the levers that exist today rather than the ones promised for 2040.
Carbon-bearing inputs are the most underexamined lever we see in industrial procurement. Biochar and biocarbon — solid carbon made by heating biomass with limited oxygen, a process called pyrolysis — can partially displace fossil carbon in roles you already buy for:
- Pulverised coal injection substitution in blast furnaces
- Recarburising and carbon addition in EAF and foundry melts
- Reductant duty in ferroalloy and silicon smelting
- Blending alongside your existing [link:metcoal-suppliers] contracts
The carbon came from biomass grown in the last few years, not from a seam formed over millions. That changes how the substituted portion is accounted for — and, done properly with documentation, it changes what you can defend in an audit. Our [link:biochar-for-steel] breakdown covers the application specifics.
Our Advice to Buyers Reading This
We would not tell anyone to replace a metcoal contract tomorrow. We would tell you to stop treating alternative carbon as a future-state item.
- Audit the reductant, not just the fuel. Most carbon inventories skip the carbon you literally purchase as a material.
- Qualify on spec, not on story. Fixed carbon, ash, sulphur, volatiles, sizing, moisture. If a supplier can't produce consistent numbers, they aren't ready.
- Demand traceability. Feedstock origin and production data are what turn a claim into an asset.
- Pilot small, learn fast. Low blend rates surface handling and combustion issues cheaply.
- Diversify suppliers now, while the market is still forming and relationships are cheap to build.
Twenty years of the EU ETS transformed how Europe makes electricity. The next twenty will be judged on whether it transforms how we make steel, cement, and castings. That work happens in procurement, one specification at a time.
Source: Annual Review of Resource Economics, "Happy Birthday: Twenty Years of the EU ETS".
Want to see who is actually supplying industrial-grade biocarbon today? Explore verified suppliers on BiocharLink and compare specs in our [link:biochar-marketplace].