Demand-pull policy framework for emission intensive industries
- By Rafael Segrera, Vincent Petit, & Thomas Alan Kwan
- 11 Nov 2025
- 5 min
“Our nation's renewable energy matrix, abundant natural resources, and growing industrial base uniquely position us to benefit from well-designed demand-side policies.” - Julia Cortez da Cunha Cruz, Secretary of Green Economy, Decarbonization and Bioindustry Ministry of Development, Industry, Trade and Services (MDIC) Brasília, Brazil
The world's heaviest industries face an existential paradox. Steel, cement, aluminum, chemicals, aviation, and shipping collectively generate 40% of global industrial emissions—roughly 14 gigatons of CO₂ annually—yet received barely 3% of energy-transition investment in 2022. Meanwhile, these sectors require an estimated $30 trillion in capital by 2050 to decarbonize, with 70% needed before 2040.
As Brazil prepares to host COP30 and design its National Policy for Industrial Decarbonization, a critical question emerges: how do governments convert climate ambition into bankable investment at the scale these industries demand?
The answer lies not in more technology subsidies alone, but in a fundamental policy rethink centered on demand-pull mechanisms—instruments that create, enlarge, and stabilize markets for low-carbon industrial products. Our latest report, developed in partnership with Brazil's Ministry of Development, Industry, Trade and Services (MDIC), provides the most comprehensive roadmap yet for emerging economies seeking to combine industrial competitiveness with climate leadership.
For decades, industrial policy has relied on supply-side interventions—research grants, demonstration projects, and tax credits designed to advance clean technologies. These approaches have succeeded in proving technical feasibility:
- Hydrogen-based steel production works.
- Carbon capture on cement kilns achieves 90% capture rates.
- Sustainable aviation fuels meet performance standards.
Yet pilot projects remain stranded at small scale, unable to cross the valley of death into commercial deployment.
The barrier is not technological readiness but market demand. Capital-intensive industries operating on thin margins in globally competitive commodity markets will not invest billions in retrofits without confidence that customers will pay for low-carbon products. Technology-push creates supply without guaranteeing buyers.
Key barriers include:
- Timing mismatches – pilot-scale facilities cannot secure project finance.
- Coordination failures – steel producers need hydrogen before committing to new furnaces, while electrolyzer manufacturers need anchor customers.
- First-mover disadvantages – early entrants face higher costs while competitors free-ride or import cheaper conventional alternatives.
This is where demand-pull policies transform the equation. Rather than simply subsidizing innovation, these instruments underwrite market formation itself—guaranteeing that clean products will find buyers at predictable prices over timeframes matching industrial asset lifetimes.
The policy toolkit encompasses five complementary mechanisms, each addressing specific market failures while operating most effectively in combination:
Green public procurement
Leverages government purchasing power to create protected early markets. By specifying maximum embodied-carbon thresholds for materials in public infrastructure, procurement programs normalize carbon accounting while guaranteeing offtake. The U.S. Buy Clean Initiative demonstrated this before its federal rescission; nine states continue expanding their programs.
Carbon contracts for difference (CCfDs)
Address revenue uncertainty by guaranteeing fixed prices for avoided emissions. Germany’s program offers 15-year guarantees paying producers the verified cost gap between low-carbon and fossil-based production, net of carbon prices. The two-way structure limits fiscal exposure while preventing windfalls.
Advanced market commitments (AMCs)
Overcome chicken-and-egg coordination failures by pledging future purchases once technologies meet performance criteria. The H2Global mechanism illustrates this through a double-auction model where a public intermediary purchases hydrogen long-term and resells it through short-term auctions, absorbing price differentials to create bankable offtake.
Performance standards
Establish declining carbon-intensity thresholds across industries, creating compliance demand for low-carbon materials. Building codes and mandatory environmental product declarations enable buyers to differentiate based on verified performance.
Carbon pricing and border adjustments
Internalize climate externalities and prevent carbon leakage. Carbon markets provide the reference prices against which CCfDs guarantee revenues, linking cost floors for emissions with revenue floors for abatement.
When deployed together, these tools reinforce one another. Germany’s coordinated package—combining CCfDs, EU emissions trading, green procurement standards, and hydrogen infrastructure—has already catalyzed over €4 billion in clean-industrial project announcements since 2023.
This schematic from the Schneider Electric Sustainability Research Institute report shows when and how demand-pull tools—procurement, CCfDs, AMCs, standards, and carbon pricing—are most effective across the industrial transition lifecycle.
Effective policy deployment follows a three-phase progression, each triggered by observable market indicators rather than arbitrary timelines.
Phase 1
Before governments can effectively procure low-carbon materials or allocate contracts, they must:
Foundation Building- Establish carbon-measurement systems and third-party verification capacity.
- Build industry consensus on declining carbon-intensity benchmarks.
- Create dedicated program authorities for procurement, contracts, and standards.
Phase 2
Once foundations exist, competitive mechanisms can mobilize private capital.
Market Creation and Scaling- CCfDs are awarded through reverse auctions that reveal abatement costs.
- Public procurement expands with declining carbon thresholds following transparent roadmaps.
- Shared industrial assets—such as hydrogen production and CO₂-transport networks—reduce costs through coordination.
- Performance standards tighten on fixed schedules to sustain transformation.
Phase 3
As technologies near cost parity:
Market Maturity and Transition- Support tapers predictably, shifting from guaranteed strike prices to competitive premium auctions.
- Carbon pricing strengthens through allowance reductions and phase-outs of free allocations.
- Green procurement mainstreams into routine purchasing.
- Secondary markets for performance credits enable price discovery and self-sustaining investment.
The transformation of hard-to-abate sectors represents both unprecedented challenge and critical opportunity. The $30 trillion capital requirement, the narrowing carbon budget, and the long asset lifecycles of heavy industry leave no room for incrementalism. Yet the tools now exist to bridge ambition and investment.
Brazil’s decision to embed this framework in its Nova Indústria Brasil initiative shows how emerging economies can turn decarbonization into a competitive advantage. The country’s renewable energy base and industrial capabilities make it ideally positioned to demonstrate that sustainability and prosperity reinforce one another.
Go further into how demand-pull policies can spur a transition in industry that is both technically possible and economically inevitable.
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