EU policy

The main element of the EU’s policy for reducing greenhouse gas emissions (GHG) cost-effectively is the EU emissions trading system (EU ETS) that was set up in 2005.

The EU ETS works on the ‘cap and trade’ principle. A cap is set on the total amount of certain greenhouse gases that can be emitted by installations covered by the system. The cap is reduced over time so that total emissions fall. Within the cap, companies receive or buy emission allowances, which they can trade with one another as needed.

In 2018, the European institutions revised the legislative framework of the EU ETS for the next trading period (phase 4 – 2021-2030) in order to meet the EU’s 2030 emission reduction and Paris Agreement targets. By 2030, the sectors covered by the EU ETS must reduce their emissions by 43% compared to 2005 levels.

Our view

Cefic and Petrochemicals Europe congratulate world leaders for the signature of the Paris agreement. The European (petro-) chemicals industry contributes to reaching its goal by reducing continuously its own GHG emissions and by enabling other industries to become greener.

The European chemicals industry has a strong record of cutting its GHG emissions. The European chemicals industry has decoupled decouple its GHG emissions from production growth. From 1990 to 2016, it reduced its GHG emission by 60,5% while increasing its production by 85%. Furthermore, the European (petro-) chemical industry is the key enabler industry to allow other industries to reduce their proper carbon footprint. Products derived from petrochemicals also enable downstream users to innovate in low-carbon technologies such as windmills, solar panels, insulation materials and electric cars.

Thanks to its outstanding performance, the European (petro-) chemical industry participated actively in the discussion on the future of the EU ETS. Petrochemicals Europe welcomes the initiative since a market-based mechanism like the EU ETS can deliver carbon emissions reduction at the lowest possible cost.

In the early ETS negotiation phase, a discussion took place on a so called “tiered approach”, a proposal that would reserve free allowances for some sectors at the expense of others. The European (petro-) chemical industry as an energy intensive industry competing on price in global commodity markets is highly exposed to carbon leakage. Therefore, it is of the utmost importance that policy-makers provide a global level-playing field for the (petro-) chemical industry. Including a “tiered approach” in the EU ETS reform would have been discriminatory for the (petro-) chemical sector. It could have cost around 400 – 500 million Euros per year from 2021 onwards to the European petrochemicals industry alone. Petrochemicals Europe welcomes the fact that this approach was abandoned.

From 1990 to 2016, the chemical industry reduced its GHG emission by 60% while increasing its production by 85%.