World Energy Council NL report 2025: The trade-offs of industry strategies

"Valuing Industries: The trade-offs of industry strategies in a changing energy landscape"

Following last year’s study on ‘The future of energy-intensive industry in Northwest Europe’ WEC Netherlands took another close look at the significant challenges the energy-intensive industry (EII) faces in Northwest Europe (NW-Europe) due to higher energy prices and energy transition costs. This new study highlights the existential challenges for businesses in NW-Europe, including decreasing production and plant closures. It questions both whether relocating EII activities to other parts of the world is beneficial for long-term welfare and if there is societal merit in retaining substantial parts of it.

Social-cost-benefit analysis needed

To ground societal discussions about the EII’s future, the report emphasizes the need for a thorough, empirical social cost-benefit analysis (SCBA). It outlines three methodological choices for conducting an SCBA: 1) defining scenarios, 2) market demarcation, and 3) selecting private and societal costs and benefits.

The report introduces four scenarios for 2040:

· full retention with renewable energy and green hydrogen;

· full retention with natural gas and CCS;

· partial relocation;

· full relocation.

Trade-offs between retaining and relocating production

Economic insights reveal that decarbonizing the EII involves broader adjustments to the energy system, including investments in renewable energy generation, electricity and hydrogen transport, and flexibility enhancement. The deep-dive analysis shows that the investments in for instance the electricity grid that are related to decarbonizing the EII in the Netherlands are very substantial. However, relocating production outside Europe will still lead to decarbonization costs which affects product prices and will ultimately be borne by European consumers. In addition, the relocation of competitive local industries due to temporary distortions of the level playing field causes negative social impacts.

Environmental impacts depend on the destination of relocation. With NW-European producers being among the most efficient in CO2 emissions globally, relocation outside of Europe will

likely lead to higher global CO2 emissions. Strategic autonomy is highlighted as increasingly important due to geopolitical tensions and the weaponization of international trade. These benefits should be weighed against possible higher production costs in NW-Europe.

Main role market mechanisms

The market mechanisms should play a leading role in determining the allocation of scarce resources and production factors. Climate policies should be coordinated at the European level to avoid distortions and corrected for differences with the rest of the world.

While further quantitative research is needed, this report clearly outlines the main challenges and makes it clear that the future competitiveness of the EII in NW-Europe balances on a knife’s edge and requires action now.

WEC-NL consortium:

Rabobank, Shell, EBN, TNO, Vopak, Port of Rotterdam, Gasunie, Vattenfall, PwC, New Energy Coalition, Nouryon