Tackling the decline of the European chemicals industry

Posted: March 21, 2025

Recent headlines about the European chemicals industry are full of doom and gloom about an industry in crisis. In December, Cefic, the European Chemical Industry Council, issued a warning that the industry is at “breaking point.” Just last month, global chemicals company Ineos’s boss Sir Jim Ratcliffe declared that the sector is “facing extinction.” It’s not just stark warnings: “Chemical plants are up for sale and closing on an unprecedented scale in Europe,” Richard John Carter, an independent consultant and former senior executive at BASF told C&EN last month.

Chemicals represent 5-7% of EU manufacturing turnover, but rising energy costs and pressure to meet net zero targets have plunged the industry into crisis.^[1] No other region is under pressure to produce net-zero chemicals, and combined with energy bills much higher than American and Chinese counterparts, Europe is struggling to remain competitive. Sir Jim Ratcliffe claims that Ineos’ gas and electricity bills are €140m higher than its U.S. equivalents, and the business also faces high carbon taxes^[2]: under the European Commission’s Emissions Trading System, European chemical plants must pay for each metric ton of CO₂ they emit beyond an allowance.^[3]

Compared to other regions, Europe’s chemical cost competitiveness is under pressure in almost every area. In contrast, China, the U.S., India, the Middle East, Japan and South Korea are planning chemical capacity expansion.^[4]

What’s next for the European chemicals industry?

Chemicals are a strategically significant industry for Europe, not only in terms of jobs and exports, but as fundamental ingredients in many other industries. They’re also key to achieving European climate neutrality, helping to reduce emissions and increase energy efficiency across other sectors. The chemical industry produces vital ingredients for EV batteries, green hydrogen, solar panels and wind turbine blades.

Various ideas have been mooted in the quest to restore the European chemical industry to its former success. Seven European countries have backed France’s suggestion of declaring 15 strategic chemical compounds as ‘critical’ to enable extra funding and ensure that the EU remains self-sufficient.^[5] Ratcliffe has demanded policy change, including the abolition of carbon taxes on industry. Cefic thinks affordable energy is the answer.^[6]

In February 2024, the European Industry Summit proposed ten critical steps to support the industry. These included restoring energy competitiveness, access to competitive feedstocks, and financing innovation and modernization of existing assets. Chemicals businesses are beginning to invest in some of these steps: increasing their proportions of energy from renewable resources and developing new techniques to improve and decarbonize old processes.

 Chemicals’ transition to renewable energy

SABIC, a global chemicals company, is working to switch some of its European operations over to renewable energy. In October last year, it opened what it claims is the world's largest circular solar installation using recycled materials at its plant in Genk. The installation will produce about 2,000 megawatt-hours of renewable electricity each year, which will be used almost entirely by the plant and will help SABIC reduce its CO₂ emissions.  Sabic is committed to using renewable energy to power its operations and is working to electrify its energy-intensive manufacturing processes.

In partnership with Vattenfall and Allianz, BASF recently inaugurated Hollandse Kust Zuid, one of the largest offshore wind farms in the world. Sited in the North Sea, just off the Dutch coast, it has 139 wind turbines with annual electricity production expected to equal the consumption of 1.5 million households. BASF will use about half of the renewable power to support chemical production in its sites across Europe, with the rest going to local businesses and households. Dr. Martin Brudermüller, Chairman of the Board of Executive Directors of BASF SE said “Hollandse Kust Zuid plays an important role in our transition toward net-zero. We continue to be a pioneer in the industry, securing green energy via direct investments. I’m looking forward to more such projects, as we at BASF stand firmly by our climate-neutrality commitment.”

Upgrading chemical plants: How Europe is modernizing existing assets

Meanwhile, these businesses are also working to modernize existing assets. Sabic has partnered with BASF and Linde to build the world’s first demonstration plant for large-scale electrically heated steam cracker furnaces. Steam cracking is one of the most energy-intensive production processes in the chemical industry. Using renewable electricity instead of natural gas has the potential reduce the CO₂ emissions by at least 90%, which would help chemicals companies reduce their carbon taxes.

BASF’s demonstration plant is fully integrated into the existing steam crackers and two separate demonstration furnaces will help gather data about material behavior under commercial operating conditions. “With the development of electrically operated steam cracking furnaces, we are getting our hands on a key technology that will help to significantly reduce greenhouse gas emissions in the chemical industry.” said Dr Martin Brudermüller, BASF SE in a press release.

The future of the European chemicals industry

Europe’s proposed Clean Industrial Deal focuses on decarbonization and affordable clean energy, but is still in the consultation stages. “We need to transform Europe’s ambition ‘to be’, into a determination ‘to do’”, commented Ilham Kadri, President of ICCA and Cefic, and CEO of Syensqo in a press release.

Many in the chemicals industry believe they need further investment and policy changes to successfully decarbonize and survive. Compared to other regions, the key barriers facing European chemicals competitiveness are energy cost and availability, followed by environmental and regulatory costs, labor costs, and a lack of subsidies.

As industry waits for policy change to address the secondary factors, it seems that some businesses are taking matters into their own hands, working to generate their own clean energy to use across their processes. The alternative is to follow the 11 million metric tons-worth of plant closures that were announced in 2023 and 2024, with implications both up and down the supply chain.^[7]

Renewable energy cannot currently compete with fossil fuel prices, but companies investing in renewable energy can decrease their carbon footprint, become more self-sufficient, save money on carbon taxes, and contribute to Europe’s net-zero goals. By embracing renewables and fostering innovation, perhaps Europe can still turn the tide.

^{[1] Cefic/Advancy study: The Competitiveness of the European Chemical Industry, page 5
[2] https://taxfoundation.org/data/all/eu/carbon-taxes-in-europe-2023/
[3] https://cen.acs.org/environment/greenhouse-gases/Europes-chemical-industry-survive-net/102/i26
[4]Cefic/Advancy study: The Competitiveness of the European Chemical Industry, page 41
[5] https://www.politico.eu/article/eu-critical-chemicals-act-save-shrinking-industry-france/
[6] https://cefic.org/media-corner/newsroom/cefic-statement-on-the-competitiveness-compass/
[7] Cefic/Advancy study: The Competitiveness of the European Chemical Industry, page 41}