LONDON (ICIS)--Government policy is key to driving the innovations necessary to achieve the goals of a net-zero Europe and underpin the green reconstruction of the bloc’s economy in the wake of the coronavirus pandemic, according to the new president at EU trade group Cefic.
Martin Brudermuller, the CEO of chemicals major BASF, was confirmed for a two-year stint as president of Europe’s largest chemicals trade body, replacing Versalis' chief Daniel Ferrari.
Ferrari set out his priorities when he was named as Cefic president in 2018 as helping the European chemicals sector to maintain competitiveness and adapt to the growing momentum behind the sustainability agenda.
Those issues have only intensified since then, with the IMF projecting that eurozone GDP will have collapsed 8.2% this year, far in excess of the most dramatic falls of the global financial crisis last decade.
Despite the historically volatile environment companies are currently navigating, commitments to net-zero emissions and the circular economy remain pressing, meaning that managers are required to navigate the short-term storms while keeping one eye on the horizon.
Many of the technologies and materials needed for decarbonisation are likely to come from the chemicals sector, Brudermuller noted, with the European Green Deal also expected to be a windfall for the sector in some respects.
Policymakers need to look beyond the headline goals into what is required from a policy perspective, to help companies determine what changes need to be made, he said.
“I think the European chemical industry has a good starting position, but the make or break is whether our technology development gets the right policy framework and renewable energy infrastructure,” he said.
The point echoes remarks Brudermuller made at this year’s European Petrochemicals Association (EPCA) summit earlier this month, where he was more explicitly critical of the lack of clarity underpinning some of EU's sustainability targets.
“I’m a little bit sick of these big super targets, but now let’s get concrete about how you get them happening… In an industry that stays internationally competitive and that can manage and finance all this transition,” he said, speaking in his capacity as BASF CEO.
One of the key priorities for his tenure as Cefic president will be to act as an intermediary between industry and Brussels - the EU capital - to more concretely establish green strategy as part of industrial policy, he said.
“It is important that policy makers treat the green deal and the idea of climate neutrality as part of a strong industrial strategy,” he said.
“This has to go in a synchronised way. I think my role in this new position is to look at how to facilitate this process, and to make clear what the framework conditions are that the chemical industry needs to operate in to make this whole journey work,” he added.
With more than half the technologies needed to reach net-zero still in the pre-commercial phase, according to the International Energy Agency (IEA), there is a strong opportunity for European chemicals firms to establish a strong foothold in the nascent space, both as a provider of materials and driver of innovation in spaces such as insulation and batteries.
“We have a very clear view already of what technologies are needed to make the transition. In BASF we call that the carbon management programme where we have brought all the different ingredients together to manage this move into climate neutrality,” Brudermuller said.
Although the EU has become accustomed to seeing itself as at the vanguard of the sustainability transition, a groundswell of public support and government action in other regions means that 27-country bloc's lead is eroding, and global players could easily overtake EU firms in the race to develop materials and technologies, he said.
“The policy framework is like an engine that will drive our innovation and means we also have the chance to set industry standards to invest in this tech but also export it,” he said.
“But China has recently announced its own climate decision that is just 10 years behind Europe and we can be sure that they are not sleeping."
PRESERVING THE VALUE
European chemicals firms have increasingly focused shoring up competitiveness on pushing up the value chain, with Arkema setting its sights on 100% of revenue from specialties by 2024 and even more traditionally cyclic players like Covestro establishing sustainability innovation at the heart of its growth strategy.
Specialties will continue to drive European chemicals sector growth, but crackers and other large commodity assets are still necessary for the ecosystem as a whole to function, meaning that European policymakers need to preserve the lower-margin strata of the sector for the more rarefied players to function, Brudermuller said.
“We have to ensure that value chains are intact in Europe, we cannot afford to just do specialties, we also need a healthy petrochemicals industry. Most companies are global, which means they don't depend solely on Europe, but the solution cannot be that firms have to give up Europe because it is no longer possible to be competitive there,” he said.
Energy pricing continues to work against European producers, with a tonne of ethylene costing more locally than in most of the rest of the world over the last decade, added Brudermuller.
The chemicals sector is one of the most energy-intensive in the world – Shell operates one of the largest solar farms in the Netherlands at its Moerdijk site, but its 27 megawatt capacity makes up just 3% of the energy demands of the complex – so the cost of power is pivotal for the sector.
The European Commission - the EU's executive arm - has identified the chemicals sector as a potential stakeholder in its push on hydrogen power, setting out plans to develop a pipeline of projects to support the decarbonisation of the sector through a public-private platform to be known as the European Clean Hydrogen Alliance.
Cefic has welcomed the plan and such mixed government-industry channels, but more is needed to shore up industry competitiveness, he said.
“I think a key issue for me is energy pricing. Germany in particular has the highest energy prices in Europe, but many countries in the region have high costs compared to elsewhere.
“I think if you look forward into this massive carbon neutrality transition, this can only be achieved with attention to energy pricing, because energy demand will grow tremendously for the new CO2-free technologies that we need,” Brudermuller said.
RESEARCH SPENDING IN A
A challenge for firms has been the need to maintain research spending at a time when capital expenditure in the face of the crisis.
Company performance has improved as lockdowns eased, with the crop of third-quarter financials released so far largely showing strong improvement, but pandemic belt-tightening had impacted on research earlier in the pandemic.
According to Germany's trade group VCI, a third of the country's chemical and pharmaceuticals players have delayed some research and development (R&D) projects.
“I think the companies who think long-term will not dramatically cut their R&D because they know it is the lifeblood of the company. If you need to innovate for tomorrow you might adapt to the current circumstances but you don't go for a huge policy change,” Brudermuller said.
“This is not just one or two investments for a company, it's hundreds of decisions, smaller and larger, where you have somehow to work together to make this a success, and we have to keep an eye on competitiveness and operational cost,” he added.
While the chemicals sector has largely rebounded from the second-quarter economic crash, the recovery has been volatile, with demand patterns opaque and the growing threat of a fall back into recession as coronavirus infection numbers surge in Europe as winter approaches.
The road back to pre-Covid financial performance is likely to be a long one, and the industry will need to adapt to stay competitive and survive through the current journey, according to Brudermuller.
“Demand is coming back, but it is coming back slowly, which means most companies are still below last year in their performance. It might take two years to be fully back to pre-Covid levels, that also depends very much on end-consumer industries,” Brudermuller said.
“We should use the time to focus on our strengths, but we should also use it for certain restructuring because very clearly in such a period it cannot be that everything that was there can survive."
Front page picture: EU press conference
about the Green Deal in Brussels in
Source: John Thys/AP/Shutterstock
Interview article by Tom Brown