The EU Council’s High Level Group on Competitiveness will discuss the future of the chemicals industry in the EU on Thursday 29 January, on the basis of a discussion note prepared under the trio of EU Council Presidencies - Cyprus, Denmark and Poland.
“The chemical industry is the industry of the industries. With €655 billion in turnover (2023), the chemical industry is the 4th largest manufacturing industry in Europe. It supports nearly 96% of all value chains”, explains the note.
The EU’s chemical industry is thus a cornerstone of industrial resilience and competitiveness, and “a prerequisite for the functioning of key sectors critical from a security and defence perspective. Failure to maintain critical chemical production in Europe, therefore, would mean a high risk of losing entire value chains to other regions of the world and increasing our dependence on more and more unpredictable trade partners”.
The most pressing challenge for the sector is the immediate risk of “permanent loss of existing production capacity”, with 21 major plants closed in 2023-2024 (11 million tonnes of capacity).
Cumulative closures are estimated at around 15 million tonnes in three years (2023-2025).
The reasons include structural cost disadvantages, subdued demand, market distortions and insufficient incentives for innovation and investments. “Complexity and lack of regulatory predictability” is another factor.
The Commission’s Chemicals Industry Action Plan and the launch of the Critical Chemicals Alliance have clearly identified the problems (see EUROPE 13740/8, 13676/11), according to this note.
The discussions on 29 January will therefore focus, among other things, on the “insufficient competitiveness considerations in the EU regulatory framework” and the “insufficient integration of competitiveness considerations in chemical safety legislation”. This includes “not only the planning for future legislative adaptations but also and in particular the day-to-day implementation of key chemicals legislation such as REACH authorisation and restrictions”.
The industry is also calling for “a pragmatic approach to achieving the EU’s decarbonisation goals, ensuring technological neutrality, and feasible provisions in terms of cost efficiency, technological, and logistical capabilities, in the context of future EU initiatives, in particular revisions of existing legislation, such as (the) ETS Directive (emissions trading system)”.
Without a “careful alignment of climate ambitions with competitiveness considerations, there is a real risk of emissions leakage and the relocation of chemical production outside the EU”.
While the Action Plan already aims to achieve better alignment, “further reflections are needed”.
Current energy prices in the EU, combined with the phase-out of free allowances under the EU ETS, “raise serious concerns about the ability of European producers to remain competitive”.
“Furthermore, the interplay between the ETS and the Carbon Border Adjustment Mechanism (CBAM), whose effectiveness has not yet been empirically tested, introduces further uncertainty, particularly if free allowances are withdrawn faster than CBAM can effectively protect the EU market”.
Revising RED III. Some legislation could also be revised to ensure technological neutrality. Given the demands of the chemicals industry, particularly the fertiliser sector, the “RED III Directive should be re-considered” (directive on the promotion of energy from renewable sources). (Original version in French by Solenn Paulic)