EPCA ’23: Chems industry faces higher carbon prices, heavier CO2 targets – Cefic

VIENNA (ICIS)–The EU chemicals industry is likely to be hit by substantially higher carbon prices and a more ambitious wave of CO2-reduction reduction targets from the European Commission in the years ahead, the director general of industry body Cefic said on Tuesday.

Carbon prices have increased rapidly and far exceeded projections made a few years ago, but a lack of carbon credits in the current emissions trading system (ETS) directive beyond 2036 means that prices could spike even higher than expected, Marco Mensink said at the opening panel of the annual European Petrochemicals Association (EPCA) meeting.

“By 2036 in the EU ETS directive there is no more credit in the system, which means by 2036 if you still emit carbon, you’re going to pay through the nose, there is no other way,” Mensink added.

Higher carbon pricing is likely to be exacerbated by European Commission 2040 targets, which are expected to be determined in early 2024.

The European Scientific Advisory Board on Climate Change (ESABCC) has recommended that policymakers target 2040 greenhouse gas reductions of 90-95% compared to 1990 levels, from 2030 targets of minus-55%.

Policymakers are leaning towards an 85% reduction, according to Mensink, but that would also constitute a major shift for the chemicals sector.

“Brussels has to come out with the 2040 targets,” Mensink said. “The science panel says minus-95% and politicians say minus-85%. Minus-85% might as well be minus-100%.”

The potential for a substantial increase in carbon pricing beyond the mid-2030s raises the pressure on companies to make the right bets in their next investment cycle, Mensink added, particularly as higher costs will also impact consumers, creating pressure for parliament to support either industry or households.

Developing sectors such as electric vehicles (EVs), batteries and semiconductors is a priority for the European Commission – and are all value chains that the chemicals sector supplies to – but it has yet to benefit significantly from subsidies flowing to those industries, Mensink said.

The changing competitive dynamics and the additional pressures from higher carbon costs and intensified greenhouse gas reduction targets are likely to drive a shake-up in the chemicals sector, with substantial advantages to the first movers into the

“10% will die… 10% might get state aid, and the middle will suffer. The message is to be among the 10%,” Mensink said.

INEOS Project One CEO John McNally recently said that European chemical firms need to  be prepared to make major investments in assets that can help lower carbon intensity and have a competitive cost base.

““I think we’re at a crossroads – we’re either going to start reinvesting in Europe or we give up,” he told ICIS.

The 57th annual EPCA meeting takes place in Vienna, Austria, from 25-28 September

Front page picture shows view of Vienna’s cityscape from Vienna International Airport in Schwechat, Austria (image credit: CHRISTIAN BRUNA/EPA-EFE/Shutterstock)