What manufacturers need to know about the EU’s 2040 carbon reduction plan

On February 6, 2024 the European Commission unveiled an ambitious plan for a drastic 90% net reduction in greenhouse gas emissions (GHG) by 2040, compared to 1990 levels.

The recommendation to cut carbon emissions by 90% comes at a crucial time as European manufacturers are already concerned about maintaining their competitiveness against China and the USA. China’s supply-chain dominance and investment in clean-energy initiatives alongside the US Inflation Reduction Act (IRA) put additional pressure on the EU’s response and readiness to achieve its ambitious climate targets. The detailed proposal will serve as a stepping stone to achieving climate neutrality by 2050, making Europe the first carbon-neutral continent.

2040 carbon reduction plan — manufacturing industries

The European Commission’s recommendation affects a number of industries and major carbon contributors in Europe, including:

• Heavy industry
• Construction 
• Energy 
• Transportation
• Agriculture

2040 carbon reduction plan — key takeaways

1. The target

The plan advocates for a 90% reduction in net greenhouse gas (GHG) emissions, complemented by a 10% contribution from carbon dioxide removal (CDR) strategies. This sets a goal for carbon emissions to fall below 850 million metric tons of CO2 equivalent (MtCO2-eq) by 2040. 

To meet this objective, the European Union would need to reduce total carbon emissions by 55% by the year 2030, a critical interim milestone towards achieving the 90% reduction goal by 2040. The 55% carbon reduction goal is in line with the EU’s existing climate pledge under the Paris Agreement, also known as the nationally determined contribution (NDC). According to NDC rules, all signatory countries are required to set increasingly ambitious climate objectives every five years. The EU’s next pledge is scheduled to be submitted by 2025. 

The 90% reduction target comes from recommendations by the European Scientific Advisory Board on Climate Change (ESABCC). Such a significant decrease in emissions would ensure that the EU remains within the 1.5C temperature threshold established by the Paris Agreement in 2015.

2. Investing in industrial decarbonization

To reach its ambitious target the EU will need to invest about €1.5 trillion per year in clean tech initiatives between 2031 and 2050. In clean tech manufacturing alone, the market is expected to roughly triple to €600 billion by 2030. 

To remain within the recommended limits, emissions will need to drop in all carbon-intensive sectors. Particularly: 

• Energy emissions must reach near-zero by 2040.
• Transport emissions must drop by 69-78%.
• Agricultural emissions must drop by 30%.
• Industrial emissions must drop by 56-84%.

3. What manufacturers need to know about the carbon reduction plan

EU manufacturers have to meet increasingly stringent emission regulations that stem from EU policies like the Carbon Border Adjustment Mechanism (CBAM) and EU Emissions Trading System (EU ETS). 

According to the 2040 proposal, domestic manufacturing will play a crucial role in Europe’s carbon reduction plans, presenting manufacturers with the opportunity to become clean tech front runners in their industry. Manufacturers who embrace the transition and invest in low-carbon solutions will not only comply with regulations, but gain a competitive market edge by providing materials with clear and transparent environmental labels. 

To attain its industry targets, the Commission plans to impose a regulatory and financing environment to attract investment and production to Europe. The Critical Raw Materials Act and the Ecodesign for Sustainable Products Regulation will be key components of the industrial decarbonization deal. At the same time, the Net Zero Industry Act, a regulation that aims to strengthen the European manufacturing capacity of net-zero technologies, will facilitate faster permitting, R&D investments, and changes in public procurement rules.

Read more about how the EU Parliament approved revised EPBD — a milestone in ‘Fit for 55’ climate initiative.

Support & funding for EU manufacturers 

Acknowledging the necessity to transform the Green Deal into an industrial decarbonization deal, the Commission commits to creating a supportive ecosystem for EU manufacturers. This includes:

• Financial support: Research grants, loans, and other financial incentives will be available to help companies invest in clean technologies.
• Fast permit granting process: Limiting the time to deliver a permit for net-zero manufacturing projects substantially.
• Skills development: The Commission will launch programs to equip workers with the skills needed to support the green economy.
• Level the playing field: The Commission will work with international partners to ensure fair competition and prevent carbon leakage.

The Green Deal needs an industrial makeover to hit the recommended climate targets. This means leveraging Europe's existing strengths in clean energy and ramping up production of future technologies like electric vehicles and batteries. Fair carbon pricing and access to funding are crucial for industries to decarbonize. The EU will work on a global carbon pricing strategy and mobilize public and private investments to ensure a sustainable and competitive economy.

What’s next for the manufacturing industry

This plan cements the EU’s ambition to lead the global clean tech race. More specifically, the European Commission is focusing on the rapid deployment of zero and low-carbon technologies by 2040, creating a large domestic market for clean tech manufacturing. 

The final decision on the proposal is bound to take place after the elections for a new European Parliament in June 2024. Following a brief period of debate between the European Parliament and the member states, the target is expected to be adopted into a law towards the end of 2025.

On March 4th, the European Commission President Ursula von der Leyen put forward her candidacy for a second term, and achieving the 2030 climate goals is at the forefront of her campaign. This has also been flagged as the main challenge for the next EU term. 

Climate ministers will initially be tasked with considering the target and the wider package of climate measures, starting at the next Council of the EU environment meeting on 25 March and followed by another on 17 June.  

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