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Mixed Blessings In The European Union

Chemical executives place hope in some government programs but lament others

by Paige Marie Morse
October 25, 2010 | A version of this story appeared in Volume 88, Issue 43

Credit: EU
Tajani wants better cooperation between the European Union and chemical industry leaders.
Credit: EU
Tajani wants better cooperation between the European Union and chemical industry leaders.

Government generally plays a bigger role in the lives of Europeans than it does in those of Americans. For businesspeople working in a research-intensive, yet potentially dangerous, industry such as chemical manufacturing, that outsized role can be both blessing and curse.

The benefits and burdens of government policy were in evidence during industry gatherings earlier this month that focused on Europe’s future. Presentations and sideline discussions at the annual meetings of the European Chemical Industry Council (CEFIC) in Rome and the European Petrochemical Association (EPCA) in Budapest presented a bifurcated view of the government’s role in altering the course of the chemical industry there.

“Europe is well on its way to recovery,” concluded Tom Crotty, EPCA president and a director at Ineos, after observing that EPCA attendance was at its highest level ever—2,300 delegates. He called the figure “the most reliable economic indicator” of industry recovery.

But attendance figures from a petrochemical sales meeting may be too optimistic a barometer. The management-oriented CEFIC meeting was decidedly more somber in tone and seemed to reflect the tepid recovery shown in the group’s statistics. Although CEFIC forecasts that European chemical production volumes will be up 9.5% in 2010, the boost will not be enough to overcome the declines of 2008 and 2009, when volumes were down 3.3% and 11.4%, respectively.

Sales figures reflect an even greater drop and reinforce the point that the 27-country region has lost its global leadership position. The European Union now represents only 24.0% of worldwide chemical sales, down from nearly one-third 10 years ago. Asia now represents almost half, or 44.5%, of world sales. China has risen most rapidly in recent years, to 22.2% of chemical sales, thanks to growth that kept up through the recession.


For a look at differences between the U.S. and Europe on environmental issues, click on this story.

In a turbulent regional business, companies are looking for new approaches to stay ahead. “The chemical industry is being hit by many discontinuities, including large swings in growth, exchange rates, and oil prices,” Andreas Kreimeyer, BASF’s executive director of research, told the EPCA audience. “We need to find a suitable business model to match these changes.”

In his final comments as president of CEFIC, Christian Jourquin, chief executive officer of Solvay, emphasized the need for the European chemical industry to maintain its competitiveness. He said the sector is putting great hope in an EU initiative, known as Europe 2020, that promises new policies to foster innovation and modernize Europe’s industrial base.

The program, which was adopted this summer and was a recurring topic at both annual meetings, focuses on industrial enterprises as the engine of growth for the combined countries of Europe. The strategy lays out plans to boost economic growth in the region while also improving employment, productivity, and social development in member countries.

Antonio Tajani, vice president of the European Commission, the executive body of the EU, reinforced this new focus at the CEFIC meeting, calling it a “revolution” that will have a major impact on the chemical industry. “Before the crisis,” he asserted, the EU was “favoring banking and financial businesses. Now we are favoring industry, small and medium enterprises, and entrepreneurs. Without these, there are no jobs; there is no growth.”

The Europe 2020 plan has priorities with particular relevance for the chemical industry. It increases the R&D investment target to 3% of the EU’s gross domestic product, compared with the 1.85% achieved in 2009. If R&D spending reaches this level, the EU estimates, employment will rise by 3.7 million jobs, including more than 1 million in research.

Climate and energy goals in the plan have been combined into a 20/20/20 target correlating to a 20% reduction in greenhouse gas emissions, a 20% level for energy from renewable sources, and a 20% increase in energy efficiency. The chemical industry offers important tools for progress in these areas, several speakers at both meetings pointed out.

“We are at a turning point, with old technologies on life support,” noted Jeremy Rifkin, president of the Foundation on Economic Trends and adviser to European Commission President José Manuel Barroso, at the EPCA gathering. “The solution—which includes everything from renewables, to materials, to storage technologies, to smart grids—will need new chemicals.”

Rifkin’s tone of cooperation and opportunity was echoed at the CEFIC meeting, where the EU’s Tajani told the audience that “the chemical industry is very important for Europe 2020.”

But several attendees at that event were skeptical of Tajani’s message. He drew stern looks from panel members, including CEFIC leadership, and even some snickering among the seated industry crowd. For many, Tajani represents an EU regulatory burden that has been disproportionately heavy on chemical producers.

“The most important need for the European chemical industry is better regulations,” warned Giorgio Squinzi, CEO of Italy’s Mapei Group and incoming CEFIC president, noting that a whopping 168 regulations exist for regional producers.

The primary regulation impacting European companies right now is the Registration, Evaluation, Authorization & Restriction of Chemical substances (REACH) program. This phased program targets chemicals that were in use before regulations were updated in 1981. It requires companies to submit detailed paperwork and, in some cases, conduct animal testing to determine toxicity. The first deadline for chemicals registration is Nov. 30, and many firms are struggling to meet it (C&EN, June 7, page 30).

Seated near Tajani on the dais, CEFIC’s Squinzi called the REACH requirements “onerous,” although he confirmed that “the industry will do its job” and comply with them. “But the EU must remove the bureaucratic obstacles, or it will be increasingly difficult for the small and medium-sized enterprises in our industry,” he said.

And the resource demands of REACH have proven to be significant. “Many companies take resources from research and development to meet REACH deadlines,” noted Hubert Mandery, CEFIC’s director general and a former BASF executive. “I know of one member company that estimates its REACH cost at 700 [million] to 800 million euros”—$1 billion or more—“from now until final deadlines in 2018. Imagine what they could do if they could put that money into research,” he said.

The greenhouse gas reduction targets managed under the EU’s Emission Trading Scheme are another challenge for the industry. ETS is a cap-and-trade system that requires companies to buy allowances to cover their greenhouse gas emissions. CEFIC claims that European chemical producers have managed to cut emissions by 42% from 1990 to 2008 while increasing production volumes by 69%. But executives say they are overwhelmed by the costs and record keeping required, especially in the absence of a global agreement—and in the expectation that reduction targets will be raised.

“We need action by other big economic areas,” Squinzi warned. “Otherwise a further reduction will mean a big loss in competitiveness in Europe that we cannot afford.”

Tajani agreed on this point and emphasized that the EU is willing to engage with industry on climate change.

As an alternative, Solvay’s Jourquin proposed incentive-based targets. “Instead of unilaterally raising the emission reduction bar from 20% to 30%, which could mean the end of some of our activities, why not create incentives for the most efficient technologies, processes, and products that will deliver [results] fast?” he asked.

Indeed, one theme of the meetings was positive motivation as a new tool for progress. “We have to go from punishment to opportunity,” Rifkin said at the EPCA meeting. “There are ways to make opportunities that combine the carrot with the stick in an intelligent way.” He cited environmental tax programs in Scandinavia that require high payments for emissions but then reserve the funds for each company to use in upgrading its emissions reduction systems. “We need to incentivize a company to move from laziness to innovation,” he said.

A renewed focus on innovation seems like a good fit for the European chemical industry as it moves to the next stage of development.

“Innovation is a prerequisite for sustainable growth,” BASF’s Kreimeyer said, noting that “the future will be defined more by functional materials rather than new molecules.” He stressed the need for European producers to focus on specialty products and systems rather than the basic chemicals of the past.

At the same time, Kreimeyer cautioned companies not to “develop expensive solutions that many cannot afford.” He cited examples of biobased refineries and fuel-cell-powered cars that offer solutions at prices above what the consumer will bear.

Jeffrey Sachs, a professor at Columbia University and director of the Earth Institute, encouraged the industry to be “problem solvers.” At the EPCA meeting, he suggested efforts to improve fertilizer and pesticide efficiency, develop renewable energy, and resolve pollution issues in developing regions.

A key take-away from the two events was that the European chemical industry has clear challenges that can be met only with technology and research. “You are a source of some of the problems,” Sachs admonished industry leaders, “but also a big part of the solution.”


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