Unlocking industrial decarbonisation: investment risk, policy uncertainty, and value chain opportunities
Doctoral thesis, 2026
The deployment of capital-intensive technologies, such as Carbon Capture and Storage (CCS) in the cement industry and for hydrogen-based direct reduction of iron (H-DRI) in the steel industry, presents a unique challenge for industrial decarbonisation. These technologies require substantial up-front investments, while their site-specific nature limits learning effects and cost reductions. The large-scale deployment of decarbonisation technologies also relies on co-ordination across multiple actors to ensure the availability of an enabling infrastructure, which includes electricity grids (for H-DRI) and CO2 transport and storage networks (for CCS). As a result, production costs increase relative to conventional emissions-intensive processes.
The European Union Emissions Trading System (EU ETS) plays a central role in addressing the cost gap between low-emissions production and conventional production. However, uncertainty regarding the future development of allowance prices limits the effectiveness of the EU ETS as a stand-alone driver of investment. While low-emissions materials are significantly more expensive at the production stage, this thesis shows that cost increases are considerably diminished when passed down-stream along the value chain, resulting in relatively modest impacts on the end-users. Thus, adopting a value chain perspective provides a more-comprehensive understanding of the implications of industrial decarbonisation, while demonstrating that deep emissions reductions can be achieved with comparatively small increases in the costs of the end-products.
Despite this, current policy incentives are insufficient to trigger large-scale investments, and in addition this work shows that the required investment volumes for transitioning the EU cement and steel industries to near-zero emissions over the next 25 years far exceed historical levels in the EU. This thesis shows how co-ordination of actors along the value chains provides an opportunity in sharing the costs and risks associated with transformative technologies. It proposes a Value Chain Transition Fund (VCTF), which will leverage down-stream cost pass-through to help finance capital-intensive investments and overcome market barriers. The analysis shows that the imposition of small premiums on end-products could enable the recovery of CCS and H-DRI investments within a few years.
Finally, this thesis shows that differences in firms’ willingness to make investment decisions under conditions of uncertainty play an important role in shaping the pace of industrial decarbonisation. While predictable policy frameworks are essential, investment decisions depend on the risk tolerance levels of companies, with frontrunners investing under uncertainty and others delaying until stronger incentives emerge. In addition, consumer willingness to pay for low-emissions materials acts as a complementary “pull” mechanism, accelerating adoption, particularly among risk-averse firms, and reinforcing the effect of long-term contracts. Overall, combining policy “push” with demand-side “pull” mechanisms is significantly more effective than solely relying in either of these.
The European Union Emissions Trading System (EU ETS) plays a central role in addressing the cost gap between low-emissions production and conventional production. However, uncertainty regarding the future development of allowance prices limits the effectiveness of the EU ETS as a stand-alone driver of investment. While low-emissions materials are significantly more expensive at the production stage, this thesis shows that cost increases are considerably diminished when passed down-stream along the value chain, resulting in relatively modest impacts on the end-users. Thus, adopting a value chain perspective provides a more-comprehensive understanding of the implications of industrial decarbonisation, while demonstrating that deep emissions reductions can be achieved with comparatively small increases in the costs of the end-products.
Despite this, current policy incentives are insufficient to trigger large-scale investments, and in addition this work shows that the required investment volumes for transitioning the EU cement and steel industries to near-zero emissions over the next 25 years far exceed historical levels in the EU. This thesis shows how co-ordination of actors along the value chains provides an opportunity in sharing the costs and risks associated with transformative technologies. It proposes a Value Chain Transition Fund (VCTF), which will leverage down-stream cost pass-through to help finance capital-intensive investments and overcome market barriers. The analysis shows that the imposition of small premiums on end-products could enable the recovery of CCS and H-DRI investments within a few years.
Finally, this thesis shows that differences in firms’ willingness to make investment decisions under conditions of uncertainty play an important role in shaping the pace of industrial decarbonisation. While predictable policy frameworks are essential, investment decisions depend on the risk tolerance levels of companies, with frontrunners investing under uncertainty and others delaying until stronger incentives emerge. In addition, consumer willingness to pay for low-emissions materials acts as a complementary “pull” mechanism, accelerating adoption, particularly among risk-averse firms, and reinforcing the effect of long-term contracts. Overall, combining policy “push” with demand-side “pull” mechanisms is significantly more effective than solely relying in either of these.
Producers
Value chains
H-DRI
Materials
Policy
Value Chain Transition Fund
Capital-intensive technologies
Decarbonisation
Consumers
CCS
Industry
HC4
Opponent: Prof. Lars J Nilsson, Department of Technology and Society Transport and Roads, Lund University, Sweden.
Author
Anna Hörbe Emanuelsson
Chalmers, Space, Earth and Environment, Energy Technology
Financing high-cost measures for deep emission cuts in the basic materials industry – Proposal for a value chain transition fund
Energy Policy,;Vol. 196(2025)
Journal article
The Cost to Consumers of Carbon Capture and Storage—A Product Value Chain Analysis
Energies,;Vol. 16(2023)
Journal article
Deployment of carbon capture and storage in the cement industry – Is the European Union up to shape?
International Journal of Greenhouse Gas Control,;Vol. 146(2025)
Journal article
Hörbe Emanuelsson, A., Beiron, J., Johnsson, F. From demand to decarbonisation: The roles of industry, consumers, and policy-makers in the transition of materials production systems.
Hörbe Emanuelsson, A., Rootzén, J., Johnsson, F. Investment perspectives of the feasibility of the basic materials transition to net-zero emissions in the European Union.
Cement and steel play a central role in Society, from the homes we live in to the infrastructure we rely on every day. Yet, the industrial sector as a whole generates about a fifth of Europe’s greenhouse gas emissions. The European Union aims to reach net-zero emissions by 2050, meaning that any remaining emissions must be balanced by removing greenhouse gases from the atmosphere. Achieving this goal requires deep decarbonisation of industries such as cement and steel, and this thesis explores this transition.
Low-emissions cement and steel can be produced in several ways. One approach is to replace fossil resources with renewable or low-emissions energy sources. Another is to reduce the need for producing new materials by using them more efficiently and by recycling those already produced. However, even with these measures, emissions cannot be eliminated entirely. To achieve deep decarbonisation, meaning to produce materials with net- or near-zero emissions, more transformative measures are needed. In the cement industry, this means capturing the remaining carbon dioxide emissions (CO2), since CO2 is released as part of the chemical process when making cement which cannot otherwise be avoided in the current production process. In the steel industry, it involves shifting to new production methods that replace coal with hydrogen, which can be produced from water without generating emissions. However, this process requires large amounts of low-emission or renewable electricity to ensure truly low-emissions materials production.
These technologies are, however, expensive. Building new production facilities or retrofitting existing ones can require investments of several hundreds of millions of euros, making low-emissions cement and steel significantly more costly than conventional emission-intensive alternatives. As a result, their large-scale deployment remains challenging.
This thesis examines the gap in both costs and financing between low-emissions and conventional production, and how this gap is affected by future uncertainties such as climate policy and consumer demand and willingness to pay for low-emissions materials.
The findings show that removing CO2 from the production of cement and steel increase their production costs substantially, while the impact on the final products in which they are used, such as railways and cars, is relatively small, typically around 1%. At the same time, the total investment required to scale up these technologies is far greater than historical investment levels in these industries. Addressing this challenge will require new approaches to financing, which are explored in this thesis.
Low-emissions cement and steel can be produced in several ways. One approach is to replace fossil resources with renewable or low-emissions energy sources. Another is to reduce the need for producing new materials by using them more efficiently and by recycling those already produced. However, even with these measures, emissions cannot be eliminated entirely. To achieve deep decarbonisation, meaning to produce materials with net- or near-zero emissions, more transformative measures are needed. In the cement industry, this means capturing the remaining carbon dioxide emissions (CO2), since CO2 is released as part of the chemical process when making cement which cannot otherwise be avoided in the current production process. In the steel industry, it involves shifting to new production methods that replace coal with hydrogen, which can be produced from water without generating emissions. However, this process requires large amounts of low-emission or renewable electricity to ensure truly low-emissions materials production.
These technologies are, however, expensive. Building new production facilities or retrofitting existing ones can require investments of several hundreds of millions of euros, making low-emissions cement and steel significantly more costly than conventional emission-intensive alternatives. As a result, their large-scale deployment remains challenging.
This thesis examines the gap in both costs and financing between low-emissions and conventional production, and how this gap is affected by future uncertainties such as climate policy and consumer demand and willingness to pay for low-emissions materials.
The findings show that removing CO2 from the production of cement and steel increase their production costs substantially, while the impact on the final products in which they are used, such as railways and cars, is relatively small, typically around 1%. At the same time, the total investment required to scale up these technologies is far greater than historical investment levels in these industries. Addressing this challenge will require new approaches to financing, which are explored in this thesis.
Providing access to cost-efficient, replicable, safe and flexible CCUS ( ACCSESS)
European Commission (EC) (EC/H2020/101022487), 2021-05-01 -- 2025-04-30.
Areas of Advance
Energy
Subject Categories (SSIF 2025)
Energy Systems
Environmental Management
DOI
10.63959/chalmers.dt/5888
ISBN
978-91-8103-431-8
Doktorsavhandlingar vid Chalmers tekniska högskola. Ny serie: 5888
Publisher
Chalmers
HC4
Opponent: Prof. Lars J Nilsson, Department of Technology and Society Transport and Roads, Lund University, Sweden.