INSIGHT: Chemical industry has to lobby hard behind post-Brexit options

By Nigel Davis

LONDON (ICIS)–There is a growing understanding in Europe that things are going to have to change. The Brexit vote in the UK has sharpened minds and is likely lead to greater resolve in the chemical industry to address more forcibly some of the sector’s gripes with Brussels.

Energy has to top that agenda. EU energy policy, established some in the industry will say, with a $200/bbl oil price in mind, has become particularly damaging to energy-intensive sectors. A number of companies in Europe are of the opinion that “enough is enough”.

So producers will be watching for signs of how EU policy makers react to the implications of a post-Brexit world. The UK could be out of the EU’s Emissions Trading System in 2018, for instance, should its withdrawal from the EU proceed as the legal timetable suggests

A hard stance within the EU on trade (with the UK), and an acceleration towards greater fiscal and political union, might be on the cards, although voices will be raised loudly in opposition, particularly to the latter. However, there is a view in industry that the Brexit vote has put the brakes on greater Europeanisation.

Chemical companies operating in the UK will be polishing their post-Brexit scenarios but developing plans to buffer themselves against the worst case where tariff barriers arise and non-tariff barriers become a longer-lasting headache.

In the coming months a Brexit pathway will begin to take shape. It is highly likely that Article 50 of the Lisbon Treaty will be triggered by the UK in January next year meaning that the UK will leave the bloc then within two years.

The industry’s position on trade, energy and employment at least will have to be re-stated, possibly modified as the UK withdraws voluntarily, or is forced to withdraw, from important pan-European rules, regulations and agreements.

There are threats and opportunities. The UK Chemical Industries Association (CIA) identified its three priority areas in a letter to senior UK politicians on 1 July.

It said this week that it will soon have a committee in place to take on work on the key areas – trade, energy and employment. “The outcome of all that will be a chemical industry position for a post-Brexit world,” said CIA president Tom Crotty.

Crotty believes that eventually there will be a British model within which the UK’s relationship with the EU can develop.

If the UK wants access to EU markets then there will have to be some form of harmonisation across those multiple tariff and non-tariff areas. The country’s 60m consumers give it a very powerful bargaining tool although a hardened attitude from the EU on trade might be expected.

But in Brexit negotiations, the UK government also has to be aware of the barriers which directly influence trade and the smooth running of business such as Reach chemicals control legislation compliance and the EU’s modified generalised system of preferences (GSP) which allows free entry for goods from some developing countries and not from some others.

Britain’s negotiators have to ensure that the UK is not in a less competitive position in future trading with the EU than countries such as China and South Korea, industrialists stress.

Various EU directives have been implemented in British law – the Seveso III directive as the Control of Major Accident Hazards (COMAH) 2015 legislation, is one example. But the CIA believes that Brexit could mean that chemical producers in the UK begin to benefit from what is widely known as smarter, or more industry-aware, regulation.

On the energy front, the UK industry trade group senses a real opportunity. EU energy policy has been developing with Europe viewed in isolation, apart from the rest of the world. That may no longer be the case.

Few in the UK, whether in industry or in environmental groups, are supportive of the UK-only carbon price floor and the chemical industry believes it should be scrapped. For large users, UK energy prices are uncompetitive, it says.

“We are going to hammer home the energy message,” Crotty said this week. His company, INEOS, is at the forefront of shale gas exploitation in the UK. It has plans to encourage further upstream UK chemicals investment at its cracker site at Grangemouth in Scotland.

“There is a growing realisation in government that manufacturing is essential,” he added.

In the UK, government ministers change this week as a new prime minister appoints her cabinet and the various secretaries of state. The CIA will be agreeing the detail behind its three key areas too. It needs forcibly to present the UK’s options.