EPCA ’22: EU energy crisis points to ‘major’ role for fossil fuels, need for staggered regulations – EPCA pres

Tom Brown


BERLIN (ICIS)–The reinvention of the EU’s energy mix in the wake of the Russia-Ukraine war is likely to keep fossil fuels as a key energy source and raw materials until the late 2030s and should prompt a re-examination of new chemicals legislation, according to the president of the European Petrochemicals Association (EPCA).

For years, the EU has been overwhelmingly dependent on natural gas supplies from Russia, catalysed by the shift away from higher-carbon power sources and Germany’s phase out of nuclear power at the start of the 2010s.

Just as nobody would have predicted the onset of a land war in Europe in 2022, the odds of having to phase out stocks from Europe’s main supplier in the space of less than a year was not on many economists’ forecast lists at the end of 2021, but it does underline how exposed the region has been to any fluctuation in Russian deliveries.

The total reinvention of energy policy for the region in such a compressed timeframe is likely to be a painful process for all energy consumers.

It is also likely to mean a more prominent role for other fossil fuels in the energy mix for the foreseeable future, according to EPCA President Hartwig Michels.

“Besides significantly accelerating the path to renewable energy generation, Europe needs to build new international energy partnerships to overcome this dependency and to keep cost burdens as low as possible,” he said.

“This includes partnerships on fossil feedstocks because no matter how greatly we increase our ambitions to speed up the transition to renewable energy systems, they will remain a major part of our energy systems and the raw material basis for our industry for the next 15 years roughly,” he added.

“And there should be no illusion about the fact that these partnerships will come at significant additional costs.”

The growing maturity of bio-based and recycled feedstocks for petrochemicals production could stand to mitigate the climate impact from industry output, but more regulatory clarity is needed on those technologies, as well as on the status of content in products when both recycled and conventional feedstocks have been used.

“Our industry certainly can mitigate some of this risk, for example by speeding up the transition away from fossil feedstocks, using more biobased and recycled feedstocks. However, it is crucial that policy makers finally agree to regulatory acceptance of chemical recycling and the mass balance approach,” Michels said.

The chemicals sector is facing a tripartite challenge at present, with the need to cut emissions coinciding with the most substantial reform of production processes since the invention of the cracker, balanced against the challenges of the post-pandemic operating environment and rising energy costs.

The escalating scale of those challenges since the onset of the war should prompt more measured expectations of the pace of regulatory reform in what is already an extremely tightly regulated market, according to Michels.

“We – industry and legislators – are well advised to start thinking about a more staggered approach in this journey,” he said.

“One example is the question of when to tackle ‘Chemicals Strategy for Sustainability’, which sets out to tighten the existing chemicals legislation in the EU, which is already one of the strictest policy frameworks in the world.”

The decision to phase out free carbon dioxide (CO2) allowances from the European Commission’s Emissions Trading System (ETS) and implement the Carbon Border Adjustment Mechanism (CBAM) in June this year should also be re-examined in light of the current crisis, according to Michels.

Intended to level the playing field between Europe and other regions by placing an import price on certain products, including many chemicals, the CBAM is still awaiting final approval in European Parliament, and should be watered down or paused to take account of the impact on global value chains, Michels said.

“Before further steps are taken for the chemical industry with CBAM, climate diplomacy must focus on broad global participation in transformation costs and on harmonizing global regulations,” he said.

“The envisaged CBAM does not provide solutions for exports and long value chains. Until an environment has been created in which a CBAM can have the desired effect without serious negative side effects, it should be suspended, or at least limited in scope,” he added.

New EU legislation for the sector should set clear and consistent goals for the sector to use as a predictable weathervane for the future evolution of the sector, according to Michels.

“Let me be clear: I don’t think we should aim for a moratorium of EU legislation,” he said.

Since companies indeed need predictability to invest in Europe to achieve climate-neutrality.

“Therefore, what we need is a clear path, a ‘Chemicals Transition Pathway’ which prioritises and sequences all the Green Deal measures, in a way that allows for a successful transformation while preserving our industry’s competitiveness,” he added.

Europe has maintained competitiveness despite high employment and energy costs, and the ever-tightening regulatory framework.

But an iceberg on the horizon is Europe’s own demographics, with chronic labour shortages already beginning to be felt in sectors such as road transport.

The issue is likely to continue to grow unless measures are taken to future-proof Europe’s workforce, Michels added.

“I see the need for policy makers to start addressing a simple, yet crucial hurdle: there will likely be a lack of skilled workforce to implement the heavy transformation agenda. We will require more planners, engineers, skilled workers, etc. than ever before against the backdrop of an aging European population,” he said.

Interview article by Tom Brown

The conversation with the EPCA president took place in the run-up to the event


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