Since 2007, the European cement and steel sectors have been characterized by substantial surplus production capacity. Hence re-investment in primary production of many materials remains limited and endangers the longer-term economic viability of many plants. Opportunities for innovation and modernization could over- come these challenges. They are linked to new demands for more ef cient and lower-carbon production processes, higher-value ma- terials with less weight and carbon intensity, and new applications in construction, transport and the energy sector. Only a limited share of these opportunities has been captured so far, which can be attributed to the policies implemented to date. For the future realization of innovation and modernization opportu- nities, a clear longer-term perspective is required in three policy ele- ments. First, an effective carbon price emerging from the European Union Emissions Trading System (EU ETS) that is relevant both for producers, to facilitate switching to lower-carbon production, and also for intermediate and nal consumers to create a viable long-term business case for large-scale investments in lower carbon processes, materials, and ef cient use. Second, public funding for the innovation and demonstration of breakthrough technologies. Third, institutional arrangements including aspects like norms and standards as well as provisions for training of craftsmen need to be adjusted to enable the use of new production processes and materials.