Lead markets: Unlocking European demand for industrial decarbonization

Europe’s industrial sector is at a crossroads. Producers of steel, cement, chemicals, and other energy-intensive products face rising costs and increasing global competition. As outlined in the first article of this series, technologies that enable decarbonization are rapidly maturing and scaling. The key challenge for policymakers is to encourage large-scale investment by industrial producers. 

For this transition to take place, there must be credible demand for low-carbon products. Without predictable market uptake, producers remain hesitant to commit capital, even where the public sector offers support. They need to see clear, reliable evidence of demand to persuade them to scale up while keeping Europe’s industrial sector competitive. 

The EU Emissions Trading System and complementary Carbon Border Adjustment Mechanism have delivered important progress so far but haven’t yet created strong market pull for low-carbon products in Europe. Recognizing this gap, the European Commission launched the Clean Industrial Deal to explicitly highlight lead markets as a strategic lever. 

To advance that vision through a practical execution framework, the Industrial Accelerator Act marks an important first step toward demand creation through public procurement and support schemes. But it doesn’t provide investors with the demand scale and predictability needed to justify large-scale transformation. For instance, it doesn’t establish any definitions or thresholds to define “low-carbon” products or ensure a clear link between the “Made in EU” label and low-carbon criteria. 

It will take a coordinated European approach to translate climate ambition and industrial competitiveness into bankable investment signals. Lead markets and market pull mechanisms can only enable early, reliable uptake of low-carbon products if they’re backed by credible public and private sector commitment, sector-specific policy frameworks, and coherent sequencing. Close coordination at both the EU and national levels—and between public authorities and private sector leaders—is essential to create demand at sufficient scale and predictability to unlock widespread industrial investment. 

How policymakers can build demand for low‑carbon products 

Given current policy gaps, a more thorough approach by policymakers can create low-carbon product demand and enable market ramp-up by: 

• Setting product standard requirements for a minimum proportion of low-carbon materials similar to the EU Packaging and Packaging Waste Regulation’s minimum recycled content targets 
• Committing to buying low-carbon materials for government infrastructure projects, which sends a strong demand signal and aligns with the Industrial Accelerator Act’s public procurement requirements 
• Instituting market-based ramp-up mechanisms by gradually increasing the legally required amount of low-carbon materials to be used within certain key sectors, similar to the ReFuelEU Aviation’s sustainable aviation fuel quotas 

Each industry requires a tailored demand-creation approach that reflects differences in value chains, buyers, and public procurement exposure. For example, cement is well-suited to public procurement thanks to its homogeneous value chain and significant public sector demand. Steel, on the other hand, may benefit more from market-based mechanisms at the European level due to its diverse product uses and complex supply chains. For chemicals like ethylene, minimum content requirements for packaging could be an effective first step as long as clear labeling is developed to indicate clean products. 

How private sector initiatives can create demand for low-carbon products 

Policy is crucial, but private sector action is equally important. Many businesses are motivated by sustainability goals and the desire to be frontrunners in the transition to net zero. This broad support for market-driven decarbonization is reflected in the 2024 Call for Demand Creation signed by a coalition of corporations, industry associations, knowledge institutions, and nongovernmental organizations.  

Private sector options to foster demand for low-carbon products include: 

Voluntary labels—Companies can adopt and promote labeling and certification systems like the international nonprofit LESS aisbl’s low emission steel standard and the German Cement Works Association’s Cement Carbon Class standard. Designations like these help buyers identify clean products. 

Offtake agreements—Major firms can pledge to buy all or a substantial portion of individual producers’ output of green steel, cement, or chemicals for their products and supply chains.  

Matchmaking and partnerships—Coordinated, multi-stakeholder efforts can facilitate connections between producers and buyers, who can share best practices and co-develop solutions. 

Private sector initiatives need regulatory support, robust carbon footprinting, credible labels, and effective matchmaking platforms. Industry experience shows that early engagement between producers and purchasers is critical. Clear standards and reporting frameworks help buyers make informed choices and avoid greenwashing. 

Tipping the balance through effective lead markets 

Successful creation of lead markets for low-carbon industrial products ultimately hinges on: 

• Sector-specific policy frameworks that are tailor-made for each sector to reflect differences in value chains, demand structures, competitiveness, and technological maturity while maintaining consistency at the European level 
• Careful policy and private sector initiative sequencing, with common standards and definitions developed first, followed by public procurement commitments, quotas, and corporate commitments that scale demand in a predictable manner 
• Strong coordination across different levels of governance and between public and private sector leaders to ensure that national measures, EU frameworks, and corporate strategies reinforce rather than undermine each other 
• Serious commitment from both public and private sector decision-makers that’s expressed through enforceable policies on the European and national levels, along with credible investment decisions and a willingness to accept near-term costs in support of long-term transformation 

If these conditions are met, lead markets can reduce risk and accelerate investment—enabling Europe to combine climate ambition with industrial competitiveness. For policymakers and corporate leaders alike, the task ahead is to act decisively and in concert to turn existing ambition into market reality. 

This is the second in a series of articles examining how decarbonization delivery challenges can be successfully overcome in practice. The first explores considerations for turning decarbonization ambition into execution.