Industrial Decarbonisation and Carbon Taxation in the EU

In efforts to meet Net Zero targets, regulators have tracked the carbon intensity of manufacturing firms and the marginal abatement costs (the cost of reducing emissions by one additional metric tonne of ${CO}_2$). Table 1 shows the average carbon tax rate per tonne of ${CO}_2$ equivalent (${tCO}_{2}e$) in a selected industrial cluster from 2015 to 2024.

Table 1: Carbon Tax Rate per ${tCO}_{2}e$ (EUR), 2015–2024

Source: European Environment Agency

Table 2 shows the annual cluster-wide carbon emissions (in millions of ${tCO}_{2}e$) alongside the average marginal cost of carbon abatement for these firms.

Table 2: Annual Emissions and Average Marginal Abatement Cost (MAC), 2015–2024

Source: European Environment Agency

To accelerate industrial decarbonisation, policymakers are considering several policy interventions, including:

• Implementing a rising marginal penalty rate on emissions exceeding a firm's baseline quota;
• Providing targeted subventions for firms whose marginal cost of abatement exceeds the market price of carbon;
• Setting a dynamic marginal carbon tariff on carbon-intensive imports from non-regulated jurisdictions.

Understanding where decisions are made is crucial. In microeconomics, firms do not typically make all-or-nothing decisions about production or emissions; instead, they optimize by analyzing the effects of small, incremental adjustments.