'Relocating industry won’t solve the climate crisis'

The report, Valuing industries: the trade-offs of industry strategies in a changing energy landscape, by the World Energy Council Netherlands (WEC) addresses growing concerns about the competitiveness of Northwest European industry. Tezel: 'You can read it in the news almost daily—energy-intensive industries are struggling. In the Netherlands, but also in countries like Germany. Production is declining, and factories are shutting down. This is partly due to high energy costs, but also because of an uneven playing field. For example, Dutch companies face national climate regulations that don’t apply elsewhere in Europe. This is one of the scenarios our report explores factually.’

The researchers looked at different parts of the industry such as ammonia (fertilizers), steam cracking, refining, and steel. One key finding: there is no single ‘industry.’ Differences between subsectors—and even individual companies—are substantial. ‘This proves there are no simple answers. To determine which industries are future-proof, we need to zoom in deeply.’

WEC 2025: future scenarios and trade-offs

The report outlines four scenarios for 2040, weighing three main themes: economic impact, environmental effects, and strategic autonomy. The first scenario is full retention – green path, where Industry remains in Northwest Europe and fully transitions to sustainable energy. The second scenario is full retention – blue path, where industry stays, using natural gas and carbon capture (CCS). The third scenario is partial relocation, where only the most energy-intensive processes move abroad. And the final scenario is full relocation, where industry leaves Northwest Europe entirely.

Each scenario has pros and cons. The first requires a profound ‘greening’ of the Northwest European energy system with high investments, but it contributes to control over making our consumption more sustainable as well as to strategic independence. The other extreme – departure – leads to significantly less energy demand in Northwest Europe and thus to a shifting of the necessary sustainability investments to other parts of the world, exporting our climate problems, and also to less European control over the sustainability process and less strategic autonomy. Tezel: ‘This is a question for politicians and policymakers: how important is it to us to be independent from foreign countries and to keep control over the process of making things more sustainable? And what value do we attach to this?’

The report calls on policymakers to make pragmatic choices based on a thorough societal cost-benefit analysis (SCBA). This analysis should take sectoral differences into account, provide a comprehensive overview, and be firmly supported by empirical evidence.

Furthermore, the researchers offer three policy recommendations.

• Recommendation 1: Let markets work—with full environmental pricing
  The first recommendation is to let the market do its work as much as possible when it comes to allocating scarce resources like land and labour. ‘Scarcity is best resolved via the market,’ says Tezel. ‘That means it's better if supply and demand determine where resources go, rather than the government deciding centrally. There is no evidence that governments make better choices than the market when it comes to allocating resources. It is also neither fair nor logical to exclude certain sectors, such as industry, from access to those resources in advance. To achieve the best economic and societal outcomes, it is crucial that the government ensures a proper pricing of environmental damage—such as pricing CO2 emissions through the European Emissions Trading System. This way, markets remain functional, but they are corrected when necessary.’
• Recommendation 2: Stronger European climate and energy policy
  The second recommendation is to improve coordination of climate and energy policy at the EU level. 'Currently, you see various distortions in the Netherlands as a result of national policy. For example, the national CO2 tax that is being widely discussed. Or the high grid costs for the industry, which are much lower across the border in countries that either electrify more slowly or socialise these costs more. Another example is legislation that forces companies to electrify, while the necessary infrastructure is lacking,' Tezel lists.
  
  Strong European coordination on climate and energy policy is crucial for Europe's competitive position against the rest of the world, the energy expert emphasises. Certainly, because the effects of a robust independent policy can achieve a positive spin-off that should not be underestimated, such as leading the way in new technology and innovation. Tezel: 'Instruments such as the EU Carbon Border Adjustment Mechanism must be effectively designed to provide the European industry with a level playing field on the internal market compared to competitors based outside the EU. This way, the market will determine which industry is efficient and therefore has a right to exist within Europe.'
  
  'If a level playing field is not created both within and outside Europe and, as a result, efficient industrial companies get into trouble, it is simply a matter of capital destruction. That is not a market failure, but a government failure. In that case, the government contributes to undermining the sector. Whereas the role of the government is precisely to ensure a level playing field.'
• Recommendation 3: Sector-specific economic analysis
  The third recommendation is to conduct in-depth economic analyses by subsector and technology to assess long-term viability. ‘Structural subsidies for less efficient organizations should only be granted when there’s a clear societal need—such as for strategic independence or sustainability. Preferably, subsidies should be awarded through tenders or market mechanisms, especially at the EU level, to avoid wasting taxpayer money.

‘Relocating industry doesn’t help climate change’

Finally, when asked which scenario she personally prefers, Tezel responds: ‘That’s complicated because as mentioned before it differs per sector and company. But let’s not forget—relocating industry doesn’t solve the climate problem. Emissions just shift elsewhere. So my personal belief is: let’s produce cleanly here, as long as it’s not prohibitively expensive.’