Seven Steps to Saving the EU Chemical Industry

A recent comparative analysis of the European chemical industry against its competitors makes for shocking reading.

Conducted by Cefic, the industry body for Europe’s industrial chemical companies, the study hopes to get to the root cause of the problems and build on the work of the Antwerp Declaration which had already outlined the significance of the crisis. Depressingly, the study found that more than eleven million tons of EU chemical production capacity had closed between 2023 and 2024, and has led to many chemical industry analysts asking, “What can be done to save the EU chemical sector?”

As Marco Mensink, Director General at Cefic, notes, “If our industry falls, entire value chains fall with it: healthcare, automotive, renewable energy, and the breakthrough Green Deal technologies that are essential for the transition. We say it again, louder and clearer: for the future of Europe, we need our new EU decision makers to act now!”

Specifically, the study compares the prospects of chemical industries across different regions, such as China, the US, Brazil, the Middle East, India, and Japan, and outlines the challenges and competitive advantages each country faces. These include costs and input factors, such as energy prices and access to raw materials, as well as systems in place, such as technology, access to funding, and regulations.

Perhaps unsurprisingly, the European chemical industry failed to beat its competitors in many of these areas.

“Lowering energy costs, ensuring access to critical raw materials, and fostering innovation are absolutely critical,” said Mensink.

Ultimately, the study found that, “the competitive position of Europe's industry – a fundamental building block of everyday life – has weakened on both cost and non-cost factors varying from high energy, environmental and regulatory costs to administrative hurdles around innovation and human capital. The latter often resulting in delayed investments or decisions to invest outside of Europe.”

European political leaders, both within the EU and at national government levels, play a pivotal role in shaping the future of the chemical industry. While analysts may not always agree on the exact recipe for European chemical industry success, there is broad consensus for some or all of the following steps which political leaders can take in areas such as regulatory reform, innovation support, sustainable development, and trade facilitation.

1.Streamlining and Harmonizing Regulations

Regulatory complexity and inconsistency across borders within the EU can burden chemical companies, particularly smaller enterprises, with high compliance costs. The EU’s regulatory framework, including REACH (Registration, Evaluation, Authorisation and Restriction of Chemicals), has been a cornerstone of ensuring chemical safety across member states. However, political leaders must work to streamline these regulations by harmonizing standards across the EU, ensuring that compliance requirements are clear, transparent, and proportionate. This would reduce unnecessary red tape, lower costs for businesses, and make it easier for companies to innovate and operate across national borders.

2. Supporting Green Innovation and the Circular Economy

The transition to a more sustainable chemical industry is essential for the future of both the sector and the environment. The EU has set ambitious green goals, such as achieving carbon neutrality by 2050, and national governments are also increasingly focusing on sustainability. Political leaders can accelerate this transition by providing funding and incentives for research, development, and implementation of green technologies.

Additionally, promoting the circular economy, where waste is minimized and resources are reused, could play a critical role. Leaders can introduce policies that encourage recycling, reusing, and remanufacturing in the chemical sector, thereby reducing the need for raw materials while also lessening environmental impact.

3. Enhancing Public-Private Collaboration on Research and Development

The chemical industry is heavily dependent on innovation and R&D to maintain its competitiveness. European political leaders can foster closer collaboration between the public and private sectors to boost investment in R&D. This could include increasing funding for public research institutions, offering tax credits and grants for businesses investing in cutting-edge technologies, and encouraging universities and research bodies to work closely with industry players.

4. Reducing Energy Costs and Improving Energy Security

Energy is a significant cost for the chemical industry. It is therefore no surprise how high energy prices, especially since the Russian invasion of Ukraine, have put considerable strain on chemical manufacturing in Europe.

Consequently, political leaders should prioritize policies that reduce energy costs for industry, such as providing subsidies or incentives for energy-efficient technologies, promoting the use of renewable energy, and encouraging energy diversification. Furthermore, investing in energy infrastructure and ensuring energy security can help companies avoid disruptions in production and reduce exposure to global energy price volatility.

5. Strengthening Trade Relationships and Ensuring Fair Competition

The EU's chemical industry competes in a global marketplace, where producers in countries with lower labour and energy costs can undermine European companies. Leaders can work to ensure that trade agreements protect European manufacturers from unfair competition, such as subsidies in non-EU countries that artificially lower the cost of production. They could also negotiate trade agreements that facilitate the free flow of chemicals and raw materials, simplify customs processes, reduce tariffs, and promote international collaboration on standardization.

6. Addressing Skills Shortages

The chemical industry faces significant challenges in attracting and retaining skilled workers, particularly as the sector becomes more technologically advanced and demands a highly skilled workforce. National governments can further increase investment in education and training programs focused on the STEM fields (science, technology, engineering, and mathematics), offering incentives for young people to pursue careers in chemistry, engineering, and related disciplines.

7. Promoting Resilient Supply Chains

Supply chain disruptions, whether caused by pandemics, geopolitical tensions, or natural disasters, have highlighted vulnerabilities in the chemical industry. Political leaders can take steps to enhance the resilience of supply chains by investing in infrastructure, digitalization, and diversification strategies. Initiatives that promote supply chain transparency and the use of digital tools for logistics management could also help chemical companies better manage their resources and respond more quickly to external shocks.

How these steps are to be taken and in what specific form remain the biggest questions. However, the state of the entire EU chemical industry and all those connected to it are at risk if nothing is changed. As one of the continent's most vital sectors, contributing significantly to the economy, jobs, and technological innovation, the chemical industry faces numerous challenges that require coordinated action. Only by taking some or all of the steps prescribed can European chemical companies hope to survive in an ever increasingly competitive and global environment.

As Mensik concluded, “For the sake of our industry and the 1.2 million of workers it directly employs, we need bold and urgent action today.”

Photo credit: Freepik, Kulpoligika, Freepik, Andreas, Freepik, & Freepik