INSIGHT: Chemicals ‘the alpha and omega’ of industry, driving need for Transition Pathway legislation
LONDON (ICIS)–The chemicals sector was described as “the alpha and the omega” of industry by an EU Commissioner last week who outlined some near-term targets as part of the EU Chemical Industry Transition Pathway.
Director General of DG Grow for the European Commission, Kerstin Jorna, said there is a strong case for policy making in the chemicals industry, because of its scale and the sustainability challenges surrounding it.
“It is like the alpha and omega, because it is at the beginning of all the substances that are being used and it is at the end when it is being recycled, so there is a policy case for the chemicals industry,” said Jorna in an interview with Cefic Director General, Marco Mensink.
“At the same time, it is important to see the business case because it is an industry that is totally connected into global value chains, so we need to find a process where the policy perspective and the business perspective can meet.”
In a year’s time, Jorna hopes the pathway has enabled headway on renewable energy at the factory gate, that there is increased access and a decline in price, as well as an increase in hydrogen (both for use as a fuel and a feedstock in chemicals processes).
If there is an identifiable trend in 12 months’ time, this will encourage investment decisions on the manufacturing side, as energy availability and security remain prescient concerns for European producers.
Cefic has recently changed its statutes so that the industry body can carry out projects, not just research and advocacy for its members, to tackle the many challenges facing the sector, but more information is needed to enable progress.
“The available information on electricity around Europe is where we need much more information, as some companies want to electrify but there is no copper wire,” Mensink cited as an example.
Ultimately, the course of action boils down to going to Member States and asking what the national plan is for the chemicals industry, and then using the Transition Pathway document to work out the future with unions and other stakeholders.
“That is the philosophy for going to the Member States. It is not that a technology is good or bad…we need to go from primes and models to countries and clusters, and maybe in the end have company and regional pathways,” he added.
By laying the groundwork this will allow for all-round de-risking – of supply chains, inputs and regulation to allow companies to scale up innovation.
“We talk about raw materials in Europe, but what is really our European business case is innovation, so how do we scale that quicker? It will require cooperation between the public and private sectors,” said Jorna.
Taking this action will not just encourage investment but will challenge the industry to think about how to upgrade skills in the sector, and benefit society more broadly.
While the single market has previously been seen as a ‘big regulatory machine’ according to Jorna, and in its 30th year, and the transition pathway can be used as an opportunity to declutter some of the bureaucracy.
“We see the single market is not only about removing barriers, it is about making sure that there are critical inputs available – chips or raw materials – and it is the execution of the single market,” she added.
A key part of this is in shoring up supply chains, the significance of which have been highlighted in the wake of the pandemic and the Russian invasion of Ukraine.
The challenge in rolling this pathway out across member states corresponds to the challenge of viewing the single market as one entity rather than a group of 27 economies.
While engagement on a macroeconomic level has varied between nations, Jorna believes that the Commission holds some responsibility in coordinating the implementation of the transition pathway.
Mensink cited that thinking about the single market in an holistic way would benefit European competitiveness, as from a US perspective, “the difference between Antwerp and Rotterdam is one gate.”
Mensink acknowledged that when the Green Deal was launched, no one realised the extent of regulations, with the four transitions tackling climate neutrality, circularity, the chemicals strategy for sustainability, and digitalisation.
“This will be the start of a long journey for us with our members to explain what comes out of Brussels. We have just dropped the rock in the pond, the ripples have started to move, before it is out there,” he said.
“We have said that if we accept the Green Deal, you need to trust us that we will make it workable over time, as the initial reaction is to say, ‘make it go away’.”
The challenge for both Cefic and the EU Commission is looking at the issues from an aggregate level and seeing how this break down into every company’s perspective for the business case: inputs, skills, investments, and markets in the future.
The transitions facing the chemicals sector is long lasting and will not be covered by the current investment cycle but will endure over the next five to ten business cycles, according to Jorna.
By having a longer-term perspective, Mensink advised that sequencing measures in the right order could prevent short-lived investments – in a boiler for a chemistry that would disappear, for instance – it would provide clarity.
The chemicals industry is the second sector after tourism to get the Transition Pathway treatment from the Commission, and the previous rollout has highlighted the need for shared databases to enable more efficient policy making.
Both Jorna and Mensink were keen on the longevity of the Transition Pathway as a way of sustaining meaningful changes.
Jorna said good policy making should make sense on the ground and from a company perspective, and this has sometimes been where communication has broken down between public and private sectors.
The legislative guide aims to breakdown the overall transition into operational steps to enable coordination between regulatory timelines and company investments to see clearly what the next steps should be.
While the incoming of a new Commission or government has previously disrupted progress towards long-term goals due to legislative change, Jorna stated that changes in unions or companies can also interrupt work towards these targets.
“If we can own the Transition Pathway to shape our future on the basis that there will be enough room to innovate, that would be a good ambition to have,” she said.
Insight by Morgan Condon
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