Promising up to 100 billion, the EU's proposed Industrial Decarbonisation Bank (IDB) is a new funding programme to support the decarbonisation of European industry. Drawing on a variety of EU funding sources, it comes at a critical moment for a sector under pressure from high energy prices, global competition, and growing exposure to carbon pricing. This support must be deployed effectively, so high-impact projects get built - not just announced.
Europe has no shortage of ambitious plans to lessen the climate impact of heavy industry. Around 276 projects have been selected under the EU's current Innovation Fund, including roughly 166 in energy-intensive sectors, totalling over 15.8 billion in EU support. Yet, by the end of 2024, only 36 projects had secured the full funding required to move forward to construction.
Why projects remain stuck
Industrial decarbonisation projects require massive upfront investment and often entail higher operational costs. Existing support schemes, including the Innovation Fund, can reduce these additional costs, but the prevailing carbon prices are often not high enough to justify the remaining extra cost of low-carbon production. This is particularly true for early-deployment technologies such as carbon capture and storage, hydrogen-based production, and electrification. Production costs significantly exceed those of conventional, carbon-intensive incumbents, with costs of up to 75% higher estimated for near-zero emissions' steel and up to 125% higher for cement. Future demand for these low-carbon products remains uncertain in both willingness to pay and volume.
These economic challenges are compounded by uncertainty around critical shared infrastructure. Projects often lack clarity on when CO transport and storage, hydrogen networks, or grid upgrades will be delivered, at what capacity and at what cost. At the same time, infrastructure investment depends on firm commitments from potential users. When timelines don't align, delays push costs up and estimates quickly go out of date.
What the Industrial Decarbonisation Bank needs to address
EU and national funding is substantial, but it remains fragmented across multiple instruments with different assessments and timelines for industrial assets and shared infrastructure.
By providing a more coordinated source of funding, the IDB could reduce this fragmentation. That means tackling three closely linked constraints: timely delivery of shared infrastructure, project readiness supported by credible cost estimates, and early demand for low-carbon products.
How the Industrial Decarbonisation Bank could move projects forward
Use carbon contracts for difference (CCfDs) to deliver investable, long-term support
CCfDs, which pay projects the difference between their abatement costs and the prevailing carbon price, have emerged as a popular tool within national policy in Europe. Competitively allocated CCfDs should also form the core of project funding under the IDB, providing long-term operational support and bankable' investments. The IDB should complement this operating support with targeted project-development funding, so that bids are based on realistic costs and delivery plans before support is allocated. This will help projects move quickly onto a credible pathway to construction.
Prioritise projects that unlock wider decarbonisation
Priority should go to anchor projects' that make it cheaper and less risky for other plants to decarbonise once the first investment is in place.
While many plants in an industrial hub can benefit from shared infrastructure, investment in one or two major projects can be sufficient to finance infrastructure at the right scale to meet future demand. In Rotterdam's Porthos' project - currently under construction - early users provide the initial demand needed to build a shared CO pipeline that other plants can connect to later.
Funding should also be sufficiently concentrated to bring projects to the construction stage, focusing on those that can make a binding investment decision within a defined timeframe.
Align industrial projects with shared infrastructure
A critical mass of funded projects can help drive investment in infrastructure, but appropriately future-proofed' networks typically rely on additional support. Project funding from the IDB should be matched by closely aligned funding for CO transport and storage, hydrogen production and delivery, and grids to access clean electricity.
This support can be allocated through competitive rounds for shared infrastructure. A prior selection process would allow dependent projects to bid based on credible assumptions around access, cost and delivery timelines, while keeping successful project bids conditional on the infrastructure being delivered. This would reduce overall costs, make more efficient use of shared infrastructure, and lower risks for both project developers and infrastructure investors.
Strengthen early demand signals
The future of decarbonised industry in the EU will ultimately depend on strong market demand for low-carbon products, such as steel, cement, and plastics, which will enable projects to move away from direct subsidies.
While policies to encourage or mandate public and private sector procurement of these products sit largely outside the IDB's remit, the IDB can also help grow the end user demand in the product value chains it will create. Through the IDB or another platform, the EU should aggregate demand from companies and governments, which can commit to procuring industrial products which meet a well-defined, ambitious decarbonisation standard. The IDB could also act as an offtaker of last resort for certified products when market demand is insufficient.
A clear test for success
The IDB should be judged by its delivery, not its ambition. The Draghi report estimates the cost of decarbonising steel, cement, chemicals and refining at around 500 billion over the next 15 years - well beyond the IDB's 100 billion headline figure. That is why the European Commission will need to design the IDB around investment-ready projects that align infrastructure and future demand, while better coordinating EU and Member State funding to mobilise additional national resources and crowd in private capital.
