EPG: The decarbonisation of Romanian industry requires the financial support of the state
To reach Romania’s greenhouse gas emissions targets, the domestic industry will have to transform profoundly. This transformation involves the adoption of technologies and processes with significant costs and long implementation periods, with few windows of opportunity remaining until 2050. Also, the cost of emissions and competition in the new market for low-carbon industrial products is exerting increasing pressure on the operators. The financing of industrial decarbonization measures is therefore a major challenge for heavy industry in Romania, according to an analysis by Energy Policy Group (EPG).
The decarbonisation of heavy industry often involves the application of technologies at an early level of maturity, which present an associated commercial risk, which makes them difficult to finance by the private sector. For this reason, state intervention to finance industrial decarbonisation, at least at an early stage, is necessary, and is already practiced in many countries, such as France, Germany and Slovakia. Although it has a small fiscal space, the Romanian state has ample opportunities to allocate funds to support industrial decarbonization:
• The Temporary Crisis and Transition Framework, which allows until the end of 2025 to relax the rules on state aid for industrial decarbonization;
• The Modernization Fund, where the support schemes related to the decarbonization of the industry have not yet been opened;
• Revenues from the sale of emission allowances under the EU-ETS system, which could be channeled through instruments dedicated to heavy industry, in addition to the schemes currently implemented by the Environmental Fund Authority.
The Romanian state can also take the initiative in creating financial instruments for the mobilization of private capital. An example can be the carbon price contracts for difference (CCfD) system (implemented in the Netherlands through the SDE++ system). Other incentives for decarbonisation can be introduced by establishing a Green Public Procurement framework for intermediate products used in infrastructure, cement and steel projects.
All these opportunities require a proactive involvement with a long-term vision of the Romanian state. This is necessary both to demonstrate the commitment to the decarbonisation of the industry and to send a positive signal to investors, as well as to be involved in the negotiations at the European level on this topic.
The first step is the formulation of a national industrial decarbonization strategy, integrated with economic development policies and supporting the competitiveness of Romanian industry. The strategy must consider the formulation of effective industrial policies, carefully choosing the sectors to target and how they will be supported. The support schemes related to this declared support must be aligned with the sustainability standards developed together with the companies, based on the criteria of the EU Taxonomy and other existing national standards.
At the same time, the strategy for industrial decarbonisation must include a clear plan for the coordination and even state financing of the necessary infrastructure, especially for electricity, hydrogen and carbon capture and storage. On the European level, Romania should support the adoption of the Net-Zero Industry Act and the reorganization of the EU’s multiannual financial framework, which could support the attraction of new industrial value chains through the already existing instruments for economic convergence. Also, Romania should support the introduction of ecological public procurement criteria for Structural and Investment Funds and Cohesion Funds, to stimulate domestic demand for low-emission products.
There are a multitude of opportunities and examples of good practices for the financing of industrial decarbonisation, applicable to Romania. The national government must urgently address this subject in a pragmatic and holistic manner, without resorting to ad hoc support measures dictated by recent crisis periods. This is the only solution for the survival of domestic industry in a net-zero world.