Renewable energy projects for a low-carbon future and how to support them?

Luxembourg's industrial sector is transitioning to renewable energy and has to overcome challenges like high electricity costs and infrastructure investments. Strengthening manufacturing capacities and promoting green reindustrialization is crucial for the economy. We spoke to Dr. Gaston Trauffler, head of industrial policy at FEDIL who provided insight and five useful tips for our readers.

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1. What current projects and actions by the industry contribute to Luxembourg’s climate objectives?

Luxembourg's industrial sector is actively striving to reduce its reliance on fossil fuels, progressively transitioning to renewable electricity sources. Significant investments have been directed towards replacing natural gas for heat production with electricity. According to STATEC, in 2022, electricity accounts for 48% of the industry's total energy consumption, marking a notable 20% surge from levels observed in 2002. Furthermore, recent years have seen the industry embark on self-generation initiatives, notably by installing solar panels across available surfaces within production sites. These panels adorn production hall roofs, outdoor parking lots, and south-oriented building facades, enabling on-site electricity consumption. These concerted endeavors and sustained energy efficiency enhancements to curb energy consumption have yielded substantial environmental benefits. According to the EU Commission, Luxembourg's energy-intensive industrial sector, which is subjected to the EU carbon pricing (EU ETS), has achieved a remarkable reduction of -61% in CO2 emissions relative to 2005 levels.

2. What are the significant challenges companies face when decarbonizing their industrial processes by electricity, and how can they be mitigated to achieve a low-carbon future?

Electrification often necessitates significant investments in retrofitting or replacing existing industrial infrastructure and production equipment. This renewal process can be costly and time-consuming, particularly for heavy industries such as steelmaking, cement or glass production, chemical manufacturing, and other applications where high temperatures are standard.

In addition to the need for investment, a significant barrier to electrification is the operational costs of electricity compared to fossil fuels. In Europe, electricity prices are more than double that of natural gas, the preferred energy source for industries due to its cost-effectiveness. The higher cost of electricity can raise concerns about the economic feasibility of electrifying industrial processes, especially in energy-intensive sectors.

To prevent a stall in the energy transition within the industry, it is essential to provide access to large volumes of renewable or low-carbon electricity at competitive prices. In essence, what is needed is an industry power pricing that enables companies to electrify their processes while remaining competitive. In its electricity market reform, the European Commission has introduced some interesting instruments that Luxembourg could use to design an attractive power price.

3. How can strengthening industrial capacities contribute to making the European economy more resilient and sustainable?

Today, the decarbonization of Europe is accelerating, unfortunately, mostly due to deindustrialization. However, European and Luxembourgish deindustrialization is neither economically sustainable nor climate-friendly, as some industries are relocating to countries with less stringent climate regulations to ship the same products back to the EU over longer distances, potentially increasing their carbon footprint.

At a time when Europe is faced with the question of whether it will still have access to semiconductors, batteries, solar cells, raw materials, and the energy it needs to maintain its economic growth and achieve its ambitious environmental goals tomorrow, strengthening its own manufacturing and industrial capacities has become essential.

Do we want to limit ourselves to being merely a "consumer country" or do we also aspire to be a "producer country"? This debate raises strategic questions about industrial and economic autonomy. Excessive dependence on imports, especially for critical products and technologies, can make economies vulnerable to external disruptions, such as political, economic, or pandemic crises.

Therefore, strengthening manufacturing and industrial capacities in Europe has become a strategic imperative to ensure economic prosperity, social cohesion, and security. By developing local production capacities, Luxembourg can reduce its dependence on external suppliers, stimulate innovation, and create jobs, thus contributing to a more resilient and sustainable European economy.

4. How can we promote green reindustrialization?

Throughout its history, the industry has been a crucial cornerstone of the Luxembourgish economy, fostering prosperity and growth. Today, the looming specter of deindustrialization poses a tangible threat domestically and within the broader European context. To address this challenge, decisive action is imperative from the European Union and national policymakers, necessitating a robust industrial policy. Such a policy must facilitate the necessary transition of the industry in response to the climate crisis while safeguarding our enterprises' competitiveness.

As a small yet dynamic economic force, Luxembourg must actively cultivate an environment conducive to attracting innovative investments and skilled labor. Key factors such as the availability and affordability of energy, robust infrastructure, availability and access to industrial land, efficient permitting issuance, mobility, affordable housing, flexibility of work organization, and new talent development, among others, serve as critical mechanisms for preserving this allure and fostering the rejuvenation and diversification of the industrial landscape.

5 conseils utiles on how to achive a low-carbon future:

Significantly expand renewable energy sources and low-carbon electricity generation: Achieving reductions in carbon emissions and transitioning away from fossil fuels can only be successful when new, clean energy sources ensure both security of supply and affordability.
Adopt a technology-neutral attitude toward climate solutions: Technology-neutrality ensures that all viable technologies for reducing emissions are considered and implemented rather than favoring specific technologies. It allows for flexibility and innovation in finding the most effective solutions.
Introduce an industry power price: Recognizing that the decarbonization of industries will occur through direct or indirect means (e.g., hydrogen) electrification, it is crucial to implement pricing mechanisms that render low-carbon electricity competitive for companies to replace fossil fuels.
Develop skilled labor and talents in STEM: Building a workforce with expertise in science, technology, engineering, and mathematics (STEM) is essential for driving innovation that contributes to solving the decarbonization challenges in various industries.
Accelerate the green reindustrialization of Europe and Luxembourg: It is vital to attract new, local industries that develop the technologies and manufacture the products we need to reduce carbon emissions while generating economic growth for a sustainable future.

About the blog:

There is an urgent need for rapid transition to global sustainability. Business and industry have enormous social and environmental impacts. "Why does it matter?" is a bi-monthly blog that aims to elucidate this important topic through the eyes of our experts.

Don't miss out our experts' practical tips for your daily life and be part of the positive change.