A test for the European chemical industry’s green ambitions

For many European chemical companies, 2020 was one of the toughest years they’ve had, and 2021 is shaping up to be another roller coaster for the industry. But these difficult years may be only a warm-up for what’s ahead.

Companies are bracing to spend eye-watering amounts of cash to comply with a new, more sustainable industrial strategy that the European Commission (EC) is due to unveil at the end of April. At the heart of the EC’s new strategy is its target to reduce greenhouse gas emissions by at least 55% by 2030 compared with 1990 levels.

European chemical executives say the impending wave of new costs will hit just as the industry struggles to pick itself up from the economic woes created by the pandemic. Chemical production in the European Union fell 1.9% from 2019 in 2020, and even before the new industrial strategy takes effect, the economic outlook for the region is “highly uncertain due to the unknown development of the pandemic and consumer behavior,” BASF’s chief economist, Peter Westerheide, warned in a presentation.

The good news for industry is that, also at the end of April, the EU is due to start allocating €672.5 billion ($794 billion) from its Next Generation EU fund. This pot of cash is intended to help European countries recover economically from COVID-19 and become both greener and digitally more modern. About €312.5 billion of the fund will be in the form of grants; the rest will be provided as loans.

How to secure a share of this fund to help Europe’s chemical industry recover from the pandemic and make the sector more sustainable was the topic of a recent virtual forum sponsored by the European Chemical Industry Council (Cefic), an industry association. C&EN also posed follow-up questions.

One point of agreement was that the EC’s industrial strategy and the economic recovery fund will set a course for the European chemical sector for years to come. “Yes, absolutely,” this is a pivotal moment for the industry, said René van Sloten, executive director for industrial policy at Cefic. And aligning the strategy and the recovery fund to work in tandem is critical for the industry’s success, van Sloten added.

To remain competitive globally, the European chemical industry will need to secure a substantial amount of money from the Next Generation EU fund, said Dennis Kredler, director of EU affairs for the US chemical maker Dow. The construction of facilities for carbon capture and storage and low-carbon hydrogen production—potentially a key route to lower the chemical industry’s carbon footprint—is extremely capital intensive, Kredler said.

“We are talking about hundreds of millions of euros for a project, if not billions, right across Europe,” he said. Any funding shortfall would affect other sectors, according to Kredler. “If the European chemical industry doesn’t become climate neutral, then no other sector will be able to either,” he said.

But securing money from the fund looks to be anything but straightforward. Multiple industries are vying for the money, as is each of the 27 countries that make up the EU.

Additionally, unions are applying pressure for a substantial slice of the money to go to the small and medium-sized enterprises (SMEs) that are the source of most jobs. “We have seen public money mostly going to big companies. We need it to go to SMEs because lots of the regions are dependent on these,” said Judith Kirton-Darling, deputy general secretary for industriAll Europe, a trade union. But a move in that direction would siphon money away from big projects, such as carbon capture and storage, that Dow’s Kredler and others said need public funding.

Even qualifying for funding is likely to be devilishly complicated. To satisfy the EU’s sustainability goals set out under its European Green Deal collection of environmental policies, Next Generation EU’s environmental projects need to be in one of four fields: decarbonization of power and industrial production, promotion of a circular economy, protection and restoration of biodiversity, and strengthening of sustainable mobility.

Of the money that countries receive, at least 37% must go to climate-related projects, with another substantial tranche to foster digital transition, which includes digitizing supply chains and enhancing protection against cyberattacks. The plans must also strengthen the growth potential of Europe and create jobs.

Cross-border projects require additional qualification. The complexities of the funding process could be especially challenging for large projects that require multiple funding sources, Kredler said.

Even the EC acknowledges that the application process for grants, which will ultimately be distributed at the national level, will be complex. “Member states will not just get this money via bank transfer but will have to submit recovery plans to the European Commission,” said Vincent Verouden, policy officer for the EC’s recovery and resilience task force.

Nevertheless, there are early signs that a good proportion of the money will be allocated to activities that match the European chemical industry’s movement into fields such as battery materials, plastics recycling, and water treatment.

The EC says it has already tentatively allocated €160 billion to green components of the region’s recovery plan. Of this sum, 22% is directed toward clean technologies and renewable energy, including industrial decarbonization and the supply of hydrogen. About 32% is allocated to renovation-related investments, and 46% to other green investments, such as water, waste, the circular economy, and transportation, including electric vehicles.

A caveat is that the fund will prioritize European member states that are both highly affected by the pandemic and least able to recover from the resulting economic crisis, Verouden said. That means, for example, that less cash will go to Germany, Europe’s chemical industry engine. The Next Generation EU fund is not just for rich countries to finance their industries’ economic recovery and transition to more sustainable production systems, Verouden said.

Funding is just one part of the recovery story. Predictability from the new EU industrial policy is also crucial for the industry to be able to plan, Kredler said. Additionally, as van Sloten said, for the industry to thrive, the Green Deal component of the plan and the industrial strategy “need to be linked.”

Van Sloten said he’s hopeful they will indeed be interconnected in a way that enables Europe’s chemical industry to lead the industry worldwide in the transition to low-carbon production. “The European chemical industry is at a crucial moment for its future, facing important challenges stemming from the Green Deal,” he said. “But at the same time, the Green Deal also offers business opportunities for the industry.”