Europe’s once‑dominant chemical industry is under siege, beset by soaring energy bills, burdensome carbon levies and fierce global competition. Over the past decade, hundreds of plants have closed, production has fallen by double digits, and major players warn that without swift intervention the continent risks losing its industrial backbone. From Brussels to Berlin, executives and policymakers are now rallying behind a slate of relief measures—from targeted state aid and tax breaks to affordable‑energy plans and trade defenses—hoping to arrest the sector’s decline before it’s too late.

Escalating Costs and Eroding Competitiveness

At the heart of Europe’s chemical malaise lie dramatically higher operating expenses compared with peers in the United States and Middle East. Most European steam crackers—facilities that convert hydrocarbons into ethylene and propylene—are more than 40 years old, forcing them to use naphtha feedstock at costs of around \$800 per metric ton. By contrast, U.S. plants leveraging abundant shale‑gas ethane pay less than \$400, while Middle Eastern producers see feedstock prices closer to \$200. On top of raw‑material penalties, power and gas tariffs in Europe run three to five times above U.S. levels, according to industry studies. These energy differentials alone have driven utilization rates of EU plants below 80 percent—far beneath the 90 percent threshold needed for economic viability.

As energy and feedstock costs have soared, so too have carbon‑pricing burdens. Under the EU Emissions Trading System, chemical producers face rising allowance prices that can add tens of millions in annual costs. With third‑quarter carbon permits trading near record highs, companies report quadrupled carbon expenses since 2018—outpacing any efficiency gains they’ve made through process upgrades or energy‑efficiency projects. The cumulative effect is stark: between 2019 and 2023, European chemical output declined by roughly 12 percent, with revenues in major markets such as Germany down by half a percent year‑on‑year despite stabilization efforts.

Weak global demand has compounded these structural headwinds. As China and the Middle East rapidly expand capacity—adding more than 20 new crackers in just the past two years—European firms find themselves unable to match volume or price. According to industry data, up to 40 percent of the EU’s ethylene capacity now sits at medium to high risk of closure. The result: Europe has become a net importer of primary chemicals such as ethylene and propylene, reversing decades of self‑sufficiency and exposing downstream industries—from plastics and pharmaceuticals to automotive and consumer goods—to supply‑chain risks and higher import bills.

New Policy Proposals Aim to Stem the Tide

In response to growing alarm, the European Commission unveiled an action plan this summer designed to shore up domestic chemical production. At its core lie three pillars: ensuring affordable energy, strengthening trade defenses and catalyzing investment in modernization. Brussels proposes carving out chemicals deemed “critical” for EU strategic interests—such as ethylene, propylene and certain specialty polymers—and offering them priority access to state aid under revised EU competition rules. That could translate into direct grants for plant upgrades, subsidized energy contracts and tax breaks for capital expenditures in green‑chemistry processes.

To alleviate the energy burden, the Commission aims to fast‑track its Affordable Energy Action Plan, which would cap electricity levies for energy‑intensive industries, suspend carbon costs for strategic volumes, and negotiate long‑term power‑purchase agreements for plants willing to adopt renewable sources. Supporters argue that temporary relief on energy surcharges and carbon levies is critical to closing the price gap with non‑EU competitors. Meanwhile, trade‑defense measures—encapsulated in the new Critical Chemicals Alliance—would include anti‑dumping duties and safeguard tariffs on imports of chemically identical products sold below fair value, plus quotas to prevent market flooding.

Several member states have already signaled readiness to back these interventions. Germany’s finance ministry is preparing an infrastructure fund of €500 billion that could include dedicated lines for chemical‑industry modernization, while Berlin has proposed cutting the electricity tax by 50 percent for the sector through 2029. France and Italy are advocating an extension of preferential public‑procurement rules, similar to recent measures in the metals and minerals sector, ensuring that government purchases favor European‑made chemical products. Collectively, these moves could unlock tens of billions in private and public investment over the next five years.

Industry Demands: Sovereignty, Subsidies and Structural Reform

Beyond emergency relief, Europe’s chemical leaders are pushing for longer‑term structural reforms. Chief among them is the call for a “Critical Chemicals Act,” mirroring the EU’s Critical Raw Materials Act, which would codify strategic stockpiles, mandate redundancy in supply chains and streamline permitting for new cracking units. Proponents argue that granting the Commission the power to fast‑track environmental approvals—while maintaining high safety standards—could reduce project lead times from a decade to under five years, enabling Germany, Belgium and the Netherlands to remain credible global producers.

The European Chemical Industry Council (Cefic) has also demanded clarity on upcoming regulations around plastics recycling, green hydrogen mandates and carbon‑border adjustment mechanisms. While supportive of the EU’s Green Deal objectives, companies contend that overlapping rule‑sets risk creating legal uncertainty and deterring investment. They seek harmonized timelines, predictable compliance costs and transitional carry‑over provisions that recognize early adopters of carbon‑capture, utilization and storage (CCUS) technologies.

Some firms are already moving ahead with their own adaptation strategies. INEOS, for instance, is building the first new ethane cracker in Europe in nearly 30 years—an €4 billion facility in Antwerp slated to start in 2026. Designed for a lower carbon footprint and leveraging U.S. feedstock imports, the plant will produce 1.45 million metric tons of ethylene annually, aiming to tilt the regional balance back toward self‑sufficiency. Yet these green‑field investments remain rare; most incumbents lack the capital or regulatory certainty to embark on such large‑scale projects without robust policy guarantees.

A Pivotal Moment for Europe’s Industrial Future

As Brussels and national capitals debate the scope of aid, the clock is ticking. Industry analysts warn that without decisive measures, Europe could lose up to half of its steam‑cracker capacity by 2035, endangering 50 000 jobs in chemical plants and ancillary sectors. Beyond direct employment, the chemical industry underpins entire value chains—supplying advanced materials to automakers, pharmaceuticals, agriculture and consumer‑goods manufacturers. Its decline risks a cascade of factory closures, reduced innovation and greater reliance on geopolitically fraught import sources.

Policymakers face a stark choice: commit to concerted relief and reform, or accept a gradual erosion of Europe’s chemical might. The stakes extend beyond economics to questions of sovereignty and strategic autonomy. As global power dynamics shift, ensuring control over critical chemical supplies—vital for everything from medical devices to renewable‑energy technologies—could prove as important as any defense or technology policy. For now, the sector’s plea is clear: a combination of energy‑cost relief, targeted state aid, streamlined regulations and trade‑defense tools may offer the lifeline Europe’s chemical industry desperately needs. Without it, the continent risks slipping from industrial heavyweight to import‑dependent bystander.

(Adapted from Investing.com)

Categories: Economy & Finance, Regulations & Legal, Strategy