EU must mirror US to build an attractive green climate for chemicals – Cefic DG

MADRID (ICIS)–The US has managed to build a green business case for chemicals companies with the Inflation Reduction Act (IRA) and the EU should emulate it, the director general (DG) at Europe’s chemicals trade group Cefic said.

Marco Mensink said the EU’s Emissions Trading System (ETS) reform and the proposed Carbon Border Adjustment Mechanism (CBAM), two tools for companies to reduce their emissions, should include friendlier measures towards chemicals, currently not on the table, to maintain their global competitiveness.

He added that high energy costs in Europe, and its reliance on natural gas to produce electricity, will continue to pose a challenge in the winter 2023-2024, with small- and medium-sized enterprises (SMEs) across Europe “rightfully concerned” about their survival and will need support from the state.

Cefic’s DG added that “after several meetings with officials” the EU now recognises chemical recycling as a valid recycling method for waste streams that cannot be recycled mechanically, as shown this week with proposals to revise the Waste and Packaging Directive.

US JUMPS AHEAD IN GREEN RACE
According to Mensink, the passing of the IRA in the US has totally changed the landscape for the global race to decarbonise.

Since the bill was passed by the US Congress in August, contemplating multi-billion tax breaks for clean energy and chemicals projects, investments have been pouring into the US from global chemical companies.

Strict EU rules on state aid, which in most cases prohibit direct subsidies or tax breaks, now threaten to stymie the EU. Several voices are calling for the 27-country bloc to revise this if it does not want to fall behind.

“We need to see that the US is building a business case on climate, and we need to do the same in the EU. That means indeed that some of the current thinking or some of the current structures need to go,” said Mensink.

“We’re in a global competitive race, and on top of it we have the challenge to be net zero by 2050 and, for this, need massive breakthroughs by 2030. Clearly, this is the time to invest in the next generation of industry. And that is where the US is now taking the lead, and China is moving along. The EU needs not to follow, but lead.”

The European chemicals industry’s global competitiveness will also be decided by carbon costs. The EU pushed ahead with the ETS and now wants to implement the CBAM as another measure to protect its industry.

According to the European Commission, the EU’s executive body, CBAM would implement an import levy on imports into the bloc of energy-intensive materials, depending on the emission content of production and the difference between the EU ETS price and any carbon price paid in the production country.

It is due to be implemented in 2026.

“The core question is the free allocation of emissions to industry [currently contemplated in ETS]: what percentage of the carbon credits it will get free. The European Parliament wants to reduce that faster than the Commission, but we can be clear: especially with the US’ IRA on the table, removing the free location in Europe is not a good idea because we would need to match the offer which is on the table for US industry,” said Mensink.

“CBAM should take care of several issues that are not contemplated now. Export competitiveness is the key challenge. The problem is not that you tax the incoming goods, but the fact that if you are within CBAM, you lose your free allocation. If this remains, our exports will be more expensive as our costs will go up.

“This is the stumbling block right now in the negotiations. We need a CBAM that brings solutions in the value chain, covers indirect emissions, and solves the export issue. That’s not on the table so far.”

TWO HARD WINTERS AHEAD
Fears that natural gas rationing across the EU this winter could force chemicals plants to reduce output or shut down are receding, as gas storage inventories are nearly full despite the lack of Russian natural gas.

However, challenges remain, and an energy import-dependent EU may still have to grapple with the 2023-2024 winter being the hardest to deal with.

It will all depend, said Cefic’s DG, how fast gas storage can be filled up from 1 April 2023, the so-called summer period in the natural gas markets.

“That’s what the industry needs the clarity on. We are concerned about SMEs. We should make a difference between the large companies, which can find solutions in the global ecosystem, and the SMEs located in less favourable locations. These are the people who now are rightfully concerned about their future,” said Mensink.

“Large companies’ global turnover and margins can still be good, but very often none or only a little of that profit is earned in Europe, which is a very worrying sign for long-term investments in European operations. But it is the smaller companies who are not having this global ecosystem, that will get impacted the most and that’s where solutions need to be found by governments.”

State and government support, Mensink went on to say, is justified on this occasion, because extraordinary circumstances would require extraordinary measures.

But once the crisis recedes, he said, the market “needs to take over” again.

“I think that’s the fundamental. But all options should be considered by the EU, and that should include using every power plant we have in the EU, should include pipelines connecting countries – we need to make truly European energy approaches,” he said.

CHEMICAL RECYCLING IN
The chemicals and polymers industry has been lobbying for years for chemical recycling to be considered a valid method for recycling. Lobbying has paid off: this week, proposals on waste and packaging met those demands.

In the K Fair plastics trade fair in October, chemical recycling became the buzz word for many companies.

However, like in all EU affairs, there will now be a period up to 2026 when the EU will consider the technical details of chemical recycling.

“They are now deciding how to calculate the recycled percentage of product and what can count and what cannot count. We’d like clarity earlier. What they need to decide, rightly, is if the technological solutions we are proposing are sound,” said Mensink.

“What they asked for is clarity that chemical recycling doesn’t compete with mechanical recycling in the sense they go for the same waste flows. In my view, the market will sort that out. The cleaner your waste flow is, the more valuable it becomes, the higher the price will be, and the more logical is to mechanically recycle it. That will be a natural development.”

Front page picture: A chemical park in Marl, Germany; archive image
Source: imageBROKER/Shutterstock

Interview article by Jonathan Lopez