From Ambition to Action: What the Net-Zero Path for Hard-to-Abate Sectors Means for German Industry

Opening: The Decarbonization Dilemma of Hard-to-Abate Sectors and Germany's Industrial Crossroads

Steel, cement, aviation, shipping—these hard-to-abate sectors contribute about 40% of global carbon emissions. Although green hydrogen and carbon capture technologies are seen as key solutions, the high costs, lagging infrastructure, and imperfect policy frameworks are widening the gap between ambition and reality. For German industry—especially energy-intensive sectors such as steel, chemicals, and mechanical engineering—this challenge is particularly urgent. As of 2026, with only four years left until the 2030 climate milestone, Germany's industrial decarbonization path not only concerns national climate targets but will also reshape its global manufacturing competitiveness.

Event Background: A Global Perspective on Hard-to-Abate Sectors

In an analysis article on edie.net, Mohamed Bousseta, CEO of Green Energy Park, pointed out that the emission reduction progress of hard-to-abate sectors lags far behind commitments. He emphasized three key elements: localization (tailoring transition pathways according to each country's resource endowment), innovation hubs (opening channels from pilot to scale), and the restructuring of global energy markets (low-carbon energy trade like hydrogen reshaping supply chains). The UK focuses on offshore wind and green hydrogen; Spain's solar energy is growing rapidly; Japan obtains hydrogen through overseas supply chains. These cases show that there is no one-size-fits-all solution.

Underlying Reasons: Why Are Technologies Feasible but Action Slow?

The technical solutions driving the transformation of hard-to-abate sectors have proven feasible in laboratories and pilot projects, but scaling up faces three barriers:

1. Cost disadvantage: The current cost of green hydrogen is about 2-3 times that of gray hydrogen, and the capital and operating costs of carbon capture and storage (CCS) remain high, without yet achieving economies of scale. 2. Infrastructure gaps: The construction of supporting facilities such as hydrogen transport pipelines, CO2 transport and storage facilities, and dedicated port terminals requires substantial investment and time. 3. Policy uncertainty: The evolution of carbon pricing, subsidy mechanisms, and import carbon tariffs (such as the EU CBAM) is unclear, making it difficult for companies to make long-term investment decisions.

Impact on German Industry: Localization and Innovation Hubs in German Practice

Germany's energy-intensive industries are facing a unique dilemma. On one hand, as an export-oriented manufacturing powerhouse, German industry must maintain cost competitiveness; on the other hand, the EU's strict climate policies and the domestic energy transition (Energiewende) demand deep decarbonization.

Localized energy mix: Germany's resource endowment means it cannot replicate Spain's solar model, nor can it rely on hydropower like Norway. Germany must depend on a combination of offshore wind in the North Sea and green hydrogen, while developing natural gas-green hydrogen mixed pipeline networks (such as the GET H2 project). This localization strategy requires industrial users to be closely integrated with the power grid and hydrogen infrastructure.The Role of Innovation Hubs: Germany has established multiple "real-world laboratories" (Reallabore), such as the North Rhine-Westphalia Energy Transition Lab and the Industrial Transformation Center (ITZ). These platforms bring together research institutions, energy companies, and industrial users to test industrial decarbonization solutions. Similar to the Green Energy Park mentioned in the text, Germany's innovation hubs help bridge the "valley of death" between pilot projects and scaling up. However, the speed of funding and policy coherence remain challenges.

• Impact on Typical Industries:
• Steel Industry: ThyssenKrupp plans to build a direct reduced iron (DRI) plant in Duisburg, replacing coke with green hydrogen; Salzgitter's SALCOS project is also progressing. However, the cost of renewable electricity is key to project feasibility. Currently, German industrial electricity prices remain higher than those of major global competitors.
• Chemical Industry: BASF's Ludwigshafen site is piloting electrically heated steam crackers, relying on green electricity and green hydrogen. However, if Germany's energy costs remain high, chemical giants may shift investments to the United States or the Middle East.

European and Global Impacts: Carbon Border Adjustment and Industrial Competition

The advancement of the EU Carbon Border Adjustment Mechanism (CBAM) is both a pressure and a protection for German industry. CBAM requires importers to pay a carbon price equivalent to that of the EU carbon market, which will mitigate the cost disadvantage of German companies due to high domestic carbon prices. However, if other regions (such as the US Inflation Reduction Act subsidizing green manufacturing) attract investment, German industry may face "investment leakage" in addition to "carbon leakage."

A global hydrogen trade landscape is taking shape. The text mentions Australia, the Middle East, and Morocco positioning themselves as hydrogen exporters. Germany has signed hydrogen partnership agreements with Morocco, Chile, and other countries, planning to rely on imports to meet about 50% of its hydrogen demand (2030 target of approximately 130 TWh). This external dependence may increase supply chain vulnerabilities, but also means that Germany needs to develop its own hydrogen technology and equipment exports (such as electrolyzer manufacturing) to maintain its industrial leadership.

Long-term Trend Assessment: Germany's Industrial Decarbonization Path in the Next 3-10 Years

1. Before 2030: German heavy industry will rely on direct substitution of renewable electricity and some green hydrogen pilots. The steel industry may achieve small-scale green steel production, but large-scale transformation will need to wait until after 2030. Carbon capture may be first applied in the cement industry. 2. 2030-2035: The European hydrogen backbone network takes shape, and German industrial zones are connected to the hydrogen pipeline grid. The direct reduced iron process becomes widespread in the steel industry, and the chemical industry achieves low-carbon feedstock substitution. However, cost reduction will depend on technological progress and carbon market support. 3. After 2035: If policies remain stable, German industry may complete its first round of decarbonization transformation, but it must be wary of changes in the global competitive landscape. If China and the US scale up green manufacturing faster, German industry may lose some market share.In the long run, the competitiveness of German industry will increasingly depend on the cost of renewable energy and the efficiency of hydrogen infrastructure. The integration of localized innovation and global hydrogen trade is key for Germany to achieve net zero while maintaining its manufacturing advantage.

Conclusion

Decarbonization of hard-to-abate sectors is by no means a simple technology substitution; it entails a profound restructuring of energy systems, supply chains, and global trade. German industry is at the heart of this transformation: its deep engineering expertise, strong industrial clusters, and increasingly mature climate policies provide a first-mover advantage, but high energy costs and intense international competition pose severe challenges. In the next decade, whether Germany can turn the green transition from a cost burden into a competitive advantage will determine the new connotation of "Made in Germany" in the era of decarbonization.