The Green Premium: Industrial Decarbonization Is Technologically Feasible but Economically Unviable Without Market Intervention
Problem Definition
The technologies to decarbonize heavy industry exist. Green steel, low-carbon cement, and electrified chemical production are all technically proven. The problem is that they cost 20–150% more than conventional alternatives — and in commodity markets with thin margins, no individual company can absorb that premium without losing market share.
This is a collective action problem: every company would prefer that all companies decarbonize, but none wants to go first. Without policy intervention to eliminate the green premium or mandate decarbonization, the market equilibrium is continued emissions.
Root Causes
No carbon price or price too low to bridge the green premium gap
Industrial companies face global competition — unilateral decarbonization means offshoring production and emissions (carbon leakage)
Long asset lifetimes (30–50 years) mean new low-carbon capacity must compete with already-depreciated fossil infrastructure
Green hydrogen, the key decarbonization enabler for most sectors, is not yet cost-competitive at scale
Public procurement — which buys vast quantities of steel and cement — has no low-carbon purchasing mandate
Scope
Discussion
Discussion (1)
The green premium is the central political economy problem of industrial decarbonization. The reason corporate net-zero pledges mostly fail is that they run into the green premium — the moment a competitor doesn't pay it, the pledging company loses market share. This is a classic collective action problem that only policy can solve. Green procurement mandates + CBAM together close the loop: procurement creates demand, CBAM prevents competitive disadvantage. The EU CBAM going live in 2026 is the real-world experiment that will demonstrate whether this model works at scale.