While many EU producers have reduced emissions in recent years, these gains have been offset by growing emissions from imports – a phenomenon known as “carbon offshoring.” As free allowances under the EU Emissions Trading System (ETS) are phased out, costs for EU producers and competition from imports are likely to rise further, especially considering that the Carbon Border Adjustment Mechanism (CBAM) remains vulnerable to circumvention.

While conventional production faces strong import competition, the transition to sustainable alternatives is not economically viable yet. The cost gap between conventional and sustainable production is substantial and unlikely to close through market forces or technological advances alone. It is also well beyond what public subsidies or industry profits can support. Without alternative funding mechanisms, sustainable investments are not likely to be made, while the EU risks continued deindustrialization and growing dependence on higher-emission imports.

Yet if the additional costs were passed through to end consumers, retail prices would increase only modestly - typically less than 1%. This is because materials like steel, plastics, and fertilizers represent a small fraction of the cost of finished products. Modest price increases could enable significant emissions reductions without major impact on affordability. 

Stakeholders involved in this study call for a broader policy shift – combining supply-side support and an improved CBAM with targeted demand-side mandates. These mandates would require increasing shares of sustainable materials in selected products, giving producers the certainty needed to invest at scale. Examples in other sectors show that clear demand signals can accelerate sustainable investments.

Demand-side mandates should be guided by the principles of scale, effectiveness, feasibility, and competitiveness, and should be developed in cooperation with stakeholders from across the value chain. These principles inform key design choices: selecting large, homogenous end-markets with limited import circumvention risk; placing obligations on companies close to end-users, which account for a large share of the product volume; and using metrics and compliance mechanisms that balance environmental ambition with practicality. Origin requirements, such as mandating a share of sustainable inputs to come from the EU, can support local investment, if they can be implemented in alignment with trade rules.

This study offers tangible proposals for the design choices which could be made in each of the four sectors. While these are preliminary and the work is still ongoing, it demonstrates that designing such mandates is feasible and can be made both practical and effective.

This study offers tangible proposals for the design choices which could be made in each of the four sectors. While these are preliminary and the work is still ongoing, it demonstrates that designing such mandates is feasible and can be made both practical and effective.