Energy Costs and Regulation Threaten Half of Europe’s Ethylene Industry

Summary – Europe’s chemical sector faces a critical juncture as soaring energy prices and strict regulations threaten to halve ethylene production, warns a new Oxford Economics report.,

Article –

Europe’s chemical industry is currently facing a significant crisis due to soaring energy costs, stringent regulatory pressures, and rising global competition. A recent report by Oxford Economics, commissioned by Ineos, warns that these challenges could potentially halve Europe’s ethylene production, a key chemical essential for manufacturing and industrial processes.

What Happened?

On 26 April 2024, Oxford Economics published an in-depth analysis highlighting the chemical sector’s critical position. The report describes a “tipping point” where energy-driven operating costs have become unsustainable. Additionally, the European Union’s regulatory measures designed to cut carbon emissions and promote sustainability have imposed extra costs on chemical producers. At the same time, competitors from regions with lower energy expenses and fewer environmental restrictions are gaining market share, putting further pressure on Europe’s chemical industry.

Who Is Involved?

• Ineos: One of Europe’s top chemical companies that commissioned the report.
• Oxford Economics: Provided the analysis and insights in the report.
• European Commission: Sets the energy and environmental regulatory framework affecting the industry.
• National Governments, Energy Suppliers, and Industry Associations: Including the European Chemical Industry Council (CEFIC), these stakeholders are actively engaged.

The report emphasizes that ethylene serves as a foundational feedstock for plastics, solvents, and other chemicals, so its reduced production could have widespread economic effects beyond the chemical sector.

Verified Data and Statements

• Energy costs for chemical production in Europe have risen by over 40% in the last two years, largely due to natural gas price increases.
• Compliance with regulations now constitutes up to 15% of operating costs for some manufacturers.

Dr. Steven Holliday, CEO of Ineos Europe, remarked: “The chemical industry is at a crossroads. Energy costs and regulatory pressures risk pushing production outside Europe, jeopardizing jobs and our position as a global leader in chemicals.”

Immediate Consequences

The chemical sector and its supply chain, which support hundreds of thousands of jobs across the EU, face job security risks. Economically, regions relying on chemical manufacturing may suffer significant repercussions. From an environmental perspective, while regulations aim to cut emissions, shifting production abroad may cause a carbon leakage effect, where global emissions remain unchanged but relocate to countries with laxer rules.

European Reactions

The European Commission has recognized these challenges and reaffirmed its commitment to balancing climate goals with industrial competitiveness. A spokesperson stated on 27 April 2024: “We are committed to balancing our climate objectives with the competitiveness of critical industries like chemicals. Our work includes targeted support measures and exploring innovations to reduce energy consumption.”

Member states such as Germany, the Netherlands, and Belgium—key chemical industry hubs—have expressed concerns and are exploring coordinated responses, including financial aid and incentives for energy efficiency improvements.

What Comes Next?

The EU is expected to review and possibly amend energy and industrial policies to promote innovation and maintain the competitiveness of the chemical sector. Industry leaders like Ineos call for increased dialogue with EU policymakers to develop balanced strategies.

Oxford Economics recommends substantial investment in new energy infrastructure, including:

1. Renewable hydrogen
2. Carbon capture technologies

These measures are vital for reducing energy costs and emissions, thereby securing Europe’s future role in global chemical manufacturing.

Stay tuned to Questiqa Europe for further updates and in-depth reports on this evolving situation.

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