EUROPEAN UNIONCHEMICAL SECTOR
TRANSITIONPOLICY BRIEF

Prepared by the Climate Bonds Initiative

Table of contents

Key messages summary

Key messages summary 2

1. Chemicals are needed for more than
95% of the world’s manufactured goods,
and their environmental impact based ona life-cycle approach is much higher thancurrently reported.

1. Introduction 3
2. Decarbonisation levers for thechemicals sector 4
Energy efficiency andresource efficiency 4
Alternative feedstocks and circularity 4
Electrification 5
Carbon Capture Usage and Storage 5
3. Policy levers for the transition of the
EU chemicals sector 6Standards, taxonomies,
and sector criteria 6
Carbon pricing to improve the businesscase for decarbonisation 6
Demand reduction andcircularity policies 7
Electrification: policies to enhanceinterconnection and RE capacity 9
Developing low-carbon hydrogenproduction and use at scale 10
4. Conclusion 11
Summary Policy Recommendations 12

List of Acronyms
BAU Business as usual
CBAM Carbon Border Adjustment Mechanism
CCfDs Carbon Contracts for Difference
CCS Carbon Capture and Storage
CCU Carbon Capture and Utilisation
CCUS Carbon Capture, Usage and Storage
CO2 Carbon dioxide
CO2e Carbon dioxide equivalents
ESG Environmental, Social, and Governance
ETS Emissions Trading System
EU European Union
GHG Greenhouse Gas Emissions
GWP Global Warming Potential
IEA International Energy Agency
SBTi Science-Based Targets initiative

Chemical manufacturing
activities, the sourcing of its
raw materials (at present,
fossil fuels) and the end-of-life
treatment of chemical-based
production has a significant
environmental impact. For example, chemicals
production in Germany, the largest chemical
producer in the European Union (EU), accounts
for 5% of the country’s total emissions. Yet theseproduction-related emissions are only a thirdof the size of the emissions created by the fossil
fuels sourced for production, and the end-of-life
treatment of those chemical-based products.1
The successful transition of the chemicals sector
is important not only because of its strong
interlinkages with the fossil fuel industry, but also
in view of the major role that chemicals play inthe transition of other industrial sectors and theeconomy overall.
2. There is a small window of opportunity
until 2030 to equip the European chemicals
sector with the required green technologies
to deliver net zero by 2050.
Approximately 53% ofchemicals primary production
capacity in the EU27 willneed reinvestment by 2030,
requiring over EUR1tn ofinvestment in the transition of
the EU chemicals industry by 2050.2 To achievethis, chemicals capital expenditure must increaseby 50% over business-as-usual levels.
Many of the necessary elements for the basic
chemicals production transition to net zeroare available today or at a very advanced stageof development. The use of public budgets to
support the efforts of the chemicals industry
can accelerate this transition, while positively
impacting the competitiveness of this sector.

3. European chemicals and otherhard-to-abate sectors require a strong
policy framework to enable key
decarbonisation levers.
Most chemical emissions (inthe wide range from under
60% to over 80%, dependingon the source) are scope
3 greenhouse gas (GHG)
emissions linked to end-oflife and to fossil feedstocks used for chemical
processes. Lack of progress in abating emissions
in recent years underlines the urgency for specificaction by chemical companies, policymakers,
and investors. As plastics and fertilizers represent
the majority of overall chemicals production,
attention must be paid to finding alternative
feedstocks to virgin fossil fuels. This relies on
significantly improving circularity, materially
increasing the recycling of products at end-oflife, policies to curb demand (especially throughreduction and reuse practices), and scaling green
chemicals production. Table 1 below provides an
overview of the main regulatory initiatives at EU
level to decarbonise the EU chemicals sector.

Table 1: Supportive policy
framework in the EU forthe decarbonisation of thechemicals sector
EU Taxonomy Regulation
CSDDD (Corporate Sustainability
Due Diligence Directive)
RED (Renewable Energy Directive)
IED (Industrial Emissions Directive)
CBAM (Carbon Border
Adjustment Mechanism)
EU ETS (EU Emissions Trading Scheme)
EU Waste Shipment Regulation
PPWD (Packaging and Packaging
Waste Directive)
REACH Regulation(Registration, Evaluation, Authorisation andRestriction of Chemicals)
CSRD (Corporate Sustainability
Reporting Directive)
SFDR (Sustainable Finance
Disclosure Regulation)
TEN-E Regulation(Trans-European Networks for Energy)
ESPR (Ecodesign for Sustainable
Products Regulation)

European Union chemical sector transition policy brief Climate Bonds Initiative2

Introduction
Chemicals are categorised as either: basic
chemicals, specialty chemicals or consumer
chemicals. Basic chemicals are produced in large
volumes and sold to other industries to make awide variety of industrial and consumer goods,
particularly plastics and fertilizers which havelarge demand at global scale. Thus, chemicals
are a key sector of the European economy, andform part of most manufactured goods including
pharmaceuticals, electronics, batteries forelectric vehicles, and construction materials.

A policy framework for chemicals is therefore
critical to facilitate a delivery of the rapid reduction
in fossil gas planned by the EU following the
May 2022 REPowerEU announcements, whichplan to rapidly reduce dependence on Russian
fossil fuels and fast forward the green transition.
The policy recommendations in this report canhelp mobilise the private capital required to fasttrack the transition of hard-to-abate industries
that will enable a credible transition of the EU
chemicals sector.

Globally, chemicals production is expected toincrease to EUR6.6tn by 2030 (from EUR3.47tn
in 2017) and could quadruple by 2050.3 The EU
is a major chemicals producer, second only to
China, with 15.6% of global production in 2017,
although this is forecast to decline to 10.7% by2030.4 The increase in global production presentsa challenge when emissions need to decrease tomeet the goals of the Paris Agreement.

In January 2023, the European Commission
published its transition pathway for the European
chemicals industry.11 With crucial investment
decisions needed in the form of strategic longterm capex within the next five years given the
expiry of of a significant proportion of European
chemicals industry assets by 2030 or earlier,the sector is at a critical juncture. This policy
brief provides specific guidance and follows therecent publication of the Climate Bonds Basic
Chemicals Criteria. This policy brief will focus
on the policy tools at EU level that can drive thedecarbonisation of the chemicals sector in linewith a 1.5°C transition pathway, which examine

Between them, the chemicals, cement, and steel
sectors account for 70% of industrial CO2 emissions
globally.5 Although chemicals ranks third after steel
and cement in terms of total emissions, it is thelargest industrial energy consumer.6 Basic chemicals
are the major focus for decarbonisation as theyaccount for around 60% of energy consumption
and 75% of the chemicals industry scope 1 and 2
GHG emissions.7,8Addressing scope 3 emissions presents a further
challenge given that most chemical emissions(in the wide range from under 60% to over
80%, depending on the source) are scope 3
GHG emissions linked to end-of-life and to
fossil feedstocks used for chemical processes.
Chemicals and petrochemicals account for 40%of the EU’s industrial fossil gas demand.9,10
Therefore, the EU has declared the transitionof the chemicals sector essential to achievingcarbon neutrality by 2050. Decarbonising a
hard-to-abate sector like chemicals production
is challenging given the complex technological,
economic, and political barriers to reducing
emissions. This is further complicated by theabsence of guidance and transition pathways forthe chemicals industry until very recently, which
has hindered the efforts of industry, investors,
and policymakers to decarbonise production.

both the financing of the chemicals sectortransition as a whole as well as the financing
of low-carbon chemicals production. It will use
the case of basic chemicals decarbonisation,
due to its sizeable importance, following
the Climate Bonds Basic Chemicals Criteria.
Recommendations are based on a review of
EU policies, position papers and reports fromindustry, NGOs, management consultancy
companies and international organisations,
including other pertinent sources such as thechemical industry pathway developed in the
One Earth Climate Model, the Center for Global
Commons, and Systemiq.
Noteworthy sources include the European
Commission, Agora Industry, the European
Chemical Industry Council (Cefic), Plastics
Europe, Fertilizers Europe, the International
Renewable Energy Agency (IRENA), the Science
Based Targets initiative (SBTi), McKinsey,
the International Energy Agency (IEA), theOrganisation for Economic Co-Operation andDevelopment (OECD), ShareAction, and theUnited Nations Principles for Responsible
Investing (UNPRI) among others.

Climate Bonds Initiative and the net-zero transition
Climate Bonds hasembarked on an ambitioustransition programme
to provide the industrial
pathways, sustainablefinance standards, policies,
and investment guidance
required to deliver credible
transition in the hard-toabate sectors.
The Climate Bonds Standard
and Certification Scheme is an easy-to-use
screening tool that provides a clear signal toinvestors and intermediaries on the climate
integrity of Certified Climate Bonds. A key
part of the Standard is a suite of sectorspecific eligibility Criteria. Each sector-specific
Criteria sets climate change benchmarks
for that sector that are used to screen debt
instruments, assets and/or entities, sothat only those that have climate integrity,either through their contribution to climate
mitigation, and/or to adaptation and resilience
to climate change, will be certified.
The Basic Chemicals Criteria lay out
the requirements that basic chemicals
production assets and projects must meet toEuropean Union chemical sector transition policy brief Climate Bonds Initiative

be eligible for inclusion in a Certified Climate
Bond and for companies on a credible
transition path to issue transition labelled
debt.12 The Criteria contain Mitigation
Requirements, Adaptation & Resilience
Requirements and Transition Requirements.
The second key part of the Climate Bonds
Standard (CBS) is the overarching Climate
Bonds Standard V4.0 which describes the
cross-sectoral criteria all certified instruments/
assets/ entities must meet, in addition tomeeting the sector specific Criteria. In April
2023, Climate Bonds expanded its Standards
and Certification Scheme to the certificationof non-financial corporates, assets, andsustainability-linked instruments.
The financial markets must implement
the results of this work to support the
decarbonisation of the chemicals sector.
Financial instruments (bonds and loans)linked to these eligible assets, activities,
and entities will be aligned with the Paris
Agreement and the goal of keeping global
temperature rises to no more than 1.5°C above
pre-industrial levels.

3

2. Decarbonisation levers for the chemicals sector

The January 2023 EU Transition Pathway
was published without any sector-specificdecarbonisation targets for EU chemicals.14
However, the French Agency for EcologicalTransition (ADEME) published a Sector
Decarbonisation Roadmap for chemicals in
March 2021 with an emissions reduction targetof 26% by 2030 and 81% by 2050 (compared to2015) and transition plans for ethylene, chlorine,
and ammonia production.15 At a more granularlevel, however, the EU Taxonomy does provide
carbon intensity thresholds that define low-carbon
chemicals, which are intended to decrease overtime in line with decarbonisation pathways.16 To
achieve this, a range of decarbonisation levers
are required including energy efficiency, resource
efficiency, electrification, use of alternative
feedstocks and increased use of carbon capture,
usage and storage (CCUS).

Summary table: Technicallevers for the transition of thechemicals sector
Energy Efficiency
Resource efficiency
Alternative feedstocks: Use of biomass as
feedstock for organic chemicals production
and low-carbon hydrogen as feedstock
Circularity
Electrification: Low-carbon electricity fromrenewable origin to phase out fossil fuel use
as energy carrier.
CCUS: Carbon capture and usage (CCU) as
substitute for virgin carbon feedstock offossil origin

Figure 1. Scenarios for diversification of carbon feedstock sources by 205026
800

831

600

Waste

Point source

Biomass

FossilDirect air capture

490
Million tonnes (Mt)

As mentioned, the chemicals sector ranks
third, after cement and steel, in terms of global
industrial CO2 emissions but is the largest
industrial energy consumer.13 Primary sourcesof emissions are direct energy use for heat andpower, feedstock use for products, and electricity
use. Chemicals manufacturing is, at present,
reliant on fossil fuels for heat and power source,
feedstock, and electricity.

434

400

200

0
BAU-ME
Business as usual + new
net-zero applications
demand, mosteconomic scenario

LC-ME
Low circularity, mosteconomic scenario

Energy efficiency andresource efficiency
Maximising energy efficiency
in chemicals manufacturing
can achieve emissions
reductions quickly. Given
the recent rise in energy
prices, most energy efficiency
measures have already been exploited withfurther gains likely to be limited in comparison
to other levers available.
Resource efficiency, however, is a decarbonsation
lever that requires investment. In February2022, Systemiq and the University of Tokyo
unveiled seven alternative pathways for the fourmain chemical groups. These pathways rely on
implementing resource efficiency and circularity
to reduce global chemicals demand by 23-33%
as compared to a business-as-usual scenario
of 1692 Mt (excluding methanol demand formethanol-to-olefins/propylene/aromatics) from693 Mt in 2020.17

Alternative feedstocks
and circularity
Scope 3 emissions for thechemicals sector amount toapproximately 64% of total
emissions with some estimateseven higher.18 The ScienceBased Targets initiative (SBTi)
requires the inclusion of science-based targets for
scope 3 emissions if these are greater than 40%
of total emissions. Hence, any transition pathway
or decarbonisation objective for the chemicals
sector or a chemical company must include
scope 3 emissions. The majority of scope 3
emissions come from the release of GHGs stored

European Union chemical sector transition policy brief Climate Bonds Initiative

LC-NFAXLow circularity, no fossil
capacity installation
after 2030
Source: Planet Positive Chemicals

within the chemical product until disposal, either
through incineration or landfill, at which point
GHG and other emissions are released into theatmosphere. For some products, this may occur
soon after production (e.g., single use plastics
that are incinerated) while for other more durable
products, the GHGs may be emitted years later.
Addressing scope 3 emissions requires a shift
from virgin fossil feedstock to alternative carbon
sources and the use of captured CO2 as afeedstock involving point source capture (PSC)
of CO2 that would otherwise have been released
into the atmosphere. Biomass grown for the
purpose of chemicals manufacture also avoids theextraction of fossil carbon from the ground. Figure
1 demonstrates the importance of point-sourceand biomass by 2050 as a substitute for virgin
fossil feedstock in chemicals manufacture underbusiness-as-usual (continued reliance on fossil
fuels), and two alternative scenarios taking different
assumptions on circularity and demand reduction.
Production of ammonia, which is the main
component of fertilizers, can substitute greenhydrogen for fossil feedstock without need of acarbon component. Moreover, circularity reduces
the amount of virgin feedstock required andcan be achieved through chemical recycling
processes such as pyrolysis, gasification or
incineration combined with carbon capture andusage (CCU) of emissions.
End-of-life solutions also have a significant
impact on reducing scope 3 emissions, especiallyfor certain chemical products such as olefins
and aromatics production (used to manufacture
plastics) which generate 35% of total scope 3
emissions for the chemicals sector. Currently,
end-of-life of treatment methods rely on landfill
disposal and unabated incineration.

4

Yet the chemicals industry has done very little, sofar, to address scope 3 emissions, partly due tolimited availability of upstream and downstream
emissions data. SBTi reports that only 25%of chemical companies have information on
their product end-of-life emissions and advises
companies to make the best of imperfect data
by using assumptions to calculate scope 3
emissions. For example, a split of 80% to 20% in
end-of-life treatment through landfill disposal
and incineration respectively.19 While companies
in other economic sectors are making progress,chemical companies lag in the inclusion of scope
3 targets when issuing sustainability-linked bonds(SLBs) and their sustainable finance frameworks.

Figure 2. Scope 1, 2 and 3 emissions across the chemicals value chain27

CO2

CH4

N2O

HFCs

SF6

NF3

Scope 1
DirectScope 2
Indirect

Scope 3
Indirect

PFCs

Scope 3
Indirect€Electrification

Leased assets

Chemical manufacturing
processes are predominantly
powered by fossil energy.
While electrification
remains challenging forhigh-heat processes acrossindustry sectors, there are a range of low-heatrequirements in the chemicals sector which
could be electrified using technology currently
available.20 The One Earth Climate Model
concluded that globally the chemicals sector
can achieve a 1.5°C-aligned pathway by rapidlytransitioning to renewable energy. A 2022 reviewof their model included sector transition pathways
for 12 major industries, including chemicals, toprovide the granularity required by the financial
sector to guide on net-zero investments.21

BusinesstravelInvestments

Purchased electricity,
steam, heating andcooling for own use

Company facilities
Franchises
LeasedassetsEmployeecommutingCompany vehicles

Transportation anddistribution
Fuel- and energy-

Use of soldproducts

related activities

Purchased goods
and services

Transportation anddistribution

Capital goods

Upstream activities

End-of-life
treatment of soldproducts

Reporting company

Processing ofsold products

Downstream activities
Source: Greenhouse Gas Protocol

Carbon capture usage
and storage
The UN Intergovernmental
Panel on Climate Change(IPCC) identified carbon
capture usage and storage(CCUS) as essential to keeping
global warming under 1.5°C
and vital for hard-to-abate industrial emissions,such as those from the chemicals sector.22
Carbon capture usage (CCU) may be either
point-source (PS) or direct air capture (DAC) andis instrumental to phasing out fossil carbon use
as feedstock. An important application is the
reduction of process emissions of CO2 from the
manufacture of ammonia for fertilizers, released
when fossil fuel is used to produce hydrogen.
However, plants also provide the means tocapture CO2 from the atmosphere, throughbioenergy with carbon capture and storage(BECCS), which together with CCU provide themain alternative to carbon feedstock sources.

European Union chemical sector transition policy brief Climate Bonds Initiative

CO2

Even so, BECCS and CCUS present a new setof challenges which impact their impact onemissions reduction. Carbon capture (PS or
DAC) is extremely energy intensive and requires
transportation and additional infrastructure,depending on the source and process for
capturing the CO2.23 It is estimated that aroundhalf the CO2 captured by 2030 will be fromtechnologies and applications still underdevelopment.24 Moreover, as industrial processes
are decarbonised, PS CO2 will be less abundant
as a feedstock. The use of biomass competes
with land use for food production and bioenergy
production (most importantly biofuels fortransport), which presents biodiversity anddeforestation considerations.25

5

3. Policy levers for the transition of the EU chemicals sector
To decarbonise the chemicals sector, a strong
policy framework is required to facilitate andsustain the private sector investments that areneeded for the sector to transition.

Standards, taxonomies,
and sector criteria
Standards and taxonomies
are important practical tools
for sectoral and company
level transition to net zero,
which determine the metrics,
thresholds and other criteriathat define what a low-carbon chemical is. Oncein place, they can then be used to regulate or
guide corporate disclosures, policy making,setting of incentives and establish trade windows
with low tariffs for low-carbon trade.28
The EU Taxonomy aims to guide the growing
sustainable finance flows to achieve the EU’s
climate objectives by regulating disclosures forlarge corporates and financial institutions, andrequiring member states to utilise the Taxonomy
in setting policy.
While the EU Taxonomy puts forward thresholds
to define what sustainable production ofchemicals looks like, it does not sufficiently
encourage the use of low-carbon basic
chemicals. As the EU Taxonomy’s scopebroadens to include new economic activities,
such as the manufacture of intermediate
and advanced chemicals, this may become
integrated into the value chain given that
decarbonising intermediate chemicals requires
the decarbonisation of basic chemicals.29
Due to the large variety of chemical products, aone-size-fits-all approach to setting standards is
not feasible. This makes it necessary to categorise
chemical products and processes according toalternative approaches such as energy intensity,
carbon emissions, or using a value chain
perspective. The latter can identify the very few
molecules that form the basis of all chemicals
production and allows the use of low-carbon
basic chemicals in intermediate and specialty
chemicals production, which can ultimately
decarbonise the entire chemicals value chain.
Standards often utilise emission intensity
thresholds to identify chemical products witha lower carbon intensity when compared tothose manufactured with the carbon intensive
processes heavily dependent on fossil fuels.
At EU level, the EU Taxonomy defines a list ofenvironmentally sustainable or green economic
activities by establishing thresholds or technicalscreening criteria for each of its six objectives,
most importantly in terms of emission intensity(i.e., the mitigation objective). While this is useful,
there are issues relating to the usability of the EU

Taxonomy which need to be resolved for future
iterations. For example, at present less than 3%of the installed capacity for chlorine productionin Europe meets the EU Taxonomy criteria, which
restricts the application of the EU Taxonomy inthis specific case. Furthermore, the EU Taxonomy
does not sufficiently encourage the use of lowcarbon basic chemicals, for example, olefinsin plastics manufacture, which is one of thesustainable economic activities already includedin the EU Taxonomy.

Carbon pricing to improvethe business case fordecarbonisation
Carbon pricing mechanisms
such as carbon taxes andthe EU emissions trading
system (ETS) can promote thetransition of the chemicals
industry.30,31 These mechanisms
favour the use of low-emission technologies,
which are often more expensive than fossil-based
production and require significant upfront capital
expenditure. Carbon pricing generates revenue
that can be used to subsidise capex to adopt
energy-efficient technologies.

€

Such mechanisms are also effective because theircosts can be passed to end consumers. Recent
research on the impact of a 100% increase inbasic chemicals carbon prices on final consumer
prices found the impact is quite low (e.g., 0.7 to
3.2% for soft drinks), even factoring in additional

indirect price increases from other sectors.32 The
Global Centre for Commons and Systemiq argue
that chemical companies should not wait for
public policy action but take advantage as firstmovers to establish premium markets for their
low-carbon production.33
In 2021, the OECD estimated that a price of
EUR120 per tCO2 would be required by 2030 for
the chemical sector to reach carbon neutrality
by 2050. However, currently only 3% of industry
in 44 OECD and G20 countries pays this price asmeasured by the Carbon Pricing Score (CPS), whichis the percentage of carbon emissions priced at agiven level.34 The OECD suggests that changes inpublic policy could increase CPS and improve theefficiency of carbon pricing mechanisms.
To date, carbon pricing has not been
implemented effectively in the EU. Many sectors
have been exempted from the EU ETS due tothe risk of losing competitiveness against trade
partners not subject to carbon pricing. The
chemicals sector was included under the EU
ETS but received free allocations for most of its
emissions as seen in Figure 3.
Yet this did not prevent a reduction of 60% in
the EU’s share of global chemical investment
between 2000 and 2020.35 The rapid developmentof non-European chemical producers has
increased competition and driven down the profits
of European chemical companies with China
currently the world’s largest chemicals producer,
pushing Europe into second place.36

REACH and its impact on the transition of the
EU chemicals sector
The EU Directive forRegistration, Evaluation,
Authorisation andRestriction of Chemicals(REACH) dates from 18
December 2006 and isa mandatory standard the EU chemicals
industry needs to comply with to addresshuman health and environmental protection(as opposed to the voluntary nature of the
EU Taxonomy). In early 2022, the European
Commission consulted stakeholders on areview of REACH, after the October 2020
Chemicals Strategy for Sustainability had
defined the path to counter emerging risks
for chemicals production.41 In April 2022,
the European Commission presented its
Restrictions Roadmap under the Chemicals
Strategy for Sustainability to prohibit
thousands of the most problematic chemicals
as part of the zero-pollution commitment fromthe EU Green Deal.42

European Union chemical sector transition policy brief Climate Bonds Initiative

The European chemical trade body, Cefic,
deemed compliance with the EU Chemicals
Strategy for Sustainability an added challenge
to the requirement to fulfil transition to
net-zero emissions, given the economic
effect of REACH on the sector and its wider
impact on other industries with value chainsdependent on chemicals.43 Nevertheless,higher European standards on hazardous
substances can also bring benefits to thechemicals industry. In December 2021, agroup of 23 investors managing USD4.1tn
in assets urged chemical companies tophase out production of products damaging
the environment and human health.
These investors stressed that sustainable
management of chemicals is key to financial
outperformance and referred to litigation
cases linked to hazardous substances, which
in some cases led to fines and payouts.44

6

The EU chemicals sector accounts for 8% of theemissions covered in the EU ETS with discussions
to extend CBAM scope further by 2030 to include
other chemical products such as polymers.40 In
2022, European institutions agreed on the reformof the EU ETS, and the new CBAM to tax non-EU
imports of selected products based on theircarbon intensity. The EU chemicals industry had
long demanded safeguards, due to higher costs
derived from compliance with European rules,
which should also support their decarbonisation
efforts. Without such measures the risk of carbon
leakage (i.e., chemical production moving out
of Europe to avoid the costs of carbon schemes)
would remain very high.
Following the previous EU ETS reform in 2018,
carbon prices increased so that by 2020, thechemicals industry was facing a EUR600m
carbon bill. In the fourth trading period of the
EU ETS beginning in 2021, free allocations forthe chemicals industry decreased by 24% for
the 2021–2025 period and the sector faced an
expected short position of 35 million tonnes
CO2e. In addition to the cut in allocations, pricesrose to a high of EUR45/tCO2e, resulting in anannual carbon bill of EUR1.5bn for the chemicals
industry. Figure 3 underscores the need for the
EU chemicals industry to accelerate its transition
to become climate neutral well before 2050.
CBAM entered into force under a transitional
phase as of 1 October 2023. It will initially apply
to imports of cement, iron and steel, aluminium,
fertilisers, electricity production, and hydrogen,covering 50% of emissions of the sectors
under the EU ETS.46 During the transitional
phase to December 2025, before CBAM isfully operational, the European Commission
will have to assess its potential expansion tocover polymers and organic chemicals withthe objective to fully include EU ETS-covered
sectors under CBAM by 2030.

Free allocation (forecast as of 2021)

Chemicals short position

EmissionsChemicals CO2 bill, assuming €m

120

1600

90

1200

60

800

30

400

0

0
2016

2017

2018

2019

2020

2021

2022

2023

2024

CO2 bill € m

Figure 3. EU chemical sector emissions and EU ETS
credit allocation, 2016–202545

m tonnes CO2e

By 2030, China is forecast to account for morethan half of global chemical production, with the
EU and United States accounting for only one
quarter.37 Over time, the European chemicals
industry is expected to shift its focus to specialty
chemicals and formulated materials, while
economies like China will focus on high-volume
basic chemicals. The Middle East and UnitedStates have a competitive advantage over othereconomies due to the availability of fossil fuels at
lower cost and, in the case of United States, due
to recent investments in ethanol steam crackingof shale gas.38 By way of example, production ofnaphtha-based olefins in Europe is 2.5 times more
expensive than from ethanol in the USA.39 This
could incentivise European ethylene producers
towards a fast transition to non-fossil-based
ethylene production. Hence, the implementationof the new CBAM and the reviewed EU ETS is
critical to ensuring that increased investment
in decarbonisation does not lead to reduced
competitiveness and offshoring.

2025
Source: ICIS Analytics

The inclusion of polymers within the scopeof CBAM would create an important spill overeffect in the global chemicals sector. To date, thechemical industry does not pay a carbon tax forusing fossil fuels as feedstock anywhere in theworld.47 The full inclusion of indirect emissions
from electricity in CBAM, however, should
incentivise non-EU chemical companies toincrease the use of renewable energy. Chemical
imports from countries with very high carbon
intensity of electricity, such as China which is
the largest chemical producer globally, would
be penalised. This would have a significant
impact on China’s trade with the EU since organic
chemicals account for up to 3% of Chinese
exports to the EU, with plastics 2.9%.48
Fertilizer production (and ammonia whichconstitutes 97% of nitrogen fertilizers) are also
directly impacted by CBAM, given that the EU islargely reliant on Russia for imports, as well as
Egypt and Turkey.49,50 Sanctions and record-highgas prices resulting from the Russian invasionof Ukraine temporarily halted ammonia andfertilizer production in the EU, which was also
largely dependent on Russian fossil gas imports.51
This prompted calls from within the EU for
the transition to low-carbon ammonia-based
fertilizers and a demand from the EU chemicalindustry body (Cefic) for strong tax incentives,
following the United States Inflation Reduction
Act (IRA) stimulus. However, as taxation is notharmonised at EU level but determined atnational level, the European Commission took
aim at greening the production of fertilisers
by encouraging EU countries to support
investments in clean hydrogen and biomethane
for ammonia production.52

European Union chemical sector transition policy brief Climate Bonds Initiative

Demand reduction andcircularity policies
The production of basic
chemicals represents 72% of all
chemical emissions, of which
scope 3 represents 64%. This isdriven by high upstream scope
3 emissions from oil and gas
extraction (0.5 Gt CO2eq), as well as carbon-dense
products such as plastics and urea resulting inhigh associated downstream scope 3 emissions(1.0 Gt CO2eq).53 This is why the implementationof waste hierarchy principles is critical (Figure 4).

Figure 4. The waste management
hierarchy presents a systematicorder for waste management81
PREVENTREDUCE
REUSE
RECYCLERECOVER! DISPOSE !
Source: Axil

Demand reduction policies can decisively tackle
excessive production and use of the two mainchemical end products: fertilizers, commonly
based on ammonia which is the main inorganic
chemical product; and plastics, which arecarbon-based organic compounds. These two,
fertilizers and plastics, represent up to 74% ofchemicals production globally.54
7

Circular economy measures aimed atrecovering carbon from end products canprovide an increasing proportion of feedstock
inputs for the basic chemicals industry while
significantly reducing carbon end-of-lifeemissions. Currently, chemicals manufacturing
is predominantly linear and its carbon feedstock
originates almost entirely from virgin fossil
sources, which is set to be replaced by feedstockfrom biological sources. Recirculated carbon
represents only a minor share of the feedstock
used by the chemicals industry but this needs
to be increased due to the limited availability offeedstock from biological sources.
The EU has focused on plastics recycling,
particularly packaging, to promote chemicals
circularity. Packaging is responsible for 40% of
plastic use in the EU, over 60% of plastic waste
generated in the EU, and 36% of solid municipal
waste, with its use increasing at a faster rate thanGDP. The EU 2018 Circular Economy Package
contains four legislative proposals on waste andrevised the existing Waste Framework Directive(WFD), the Landfill Directive, and Packaging
and Packaging Waste Directive (PPWD), among
others.56 The PPWD contains recycling targets
for plastic contained in packaging waste of 50%
by 2025 and 55% by 2030, which are the sametargets established by the previous Directivefrom 1994. Plastic packaging recycling rates
vary enormously across EU member states,
ranging from under 30% in France to over 70%
in Lithuania and Slovenia.57 This demonstrates
the significant potential to improve recycling
efforts within the EU by applying known solutions
already put into practice in other member states.
Despite these measures, global plastics
production is soaring. Future forecasts vary
greatly, depending on assumptions on the
success of demand reduction and circularity
policies, with some estimates at four times
current production levels (e.g., 1,230 Mt by 2060
under BAU according to OECD).58 However,circularity policies could drastically reduce
this with estimates ranging from 589 Mt by
2050 according to the IEA, to the low plastics
consumption scenario of 400 Mt by 2050 fromthe Overseas DeveIopment Institute.59 Given
that plastic waste in the EU could reach 45
million tonnes, the EU 2018 Strategy on Plastics
sets a 100% recyclability objective for the EU
packaging market with a 60% target for plastic
recycling by 2030.60 The updated Ecodesign for
Sustainable Products Regulation (ESPR) fromMarch 2022 establishes requirements that permit
greater circularity, including limits to substances
inhibiting circularity, and mandatory minimum
recycled content in products. The ESPR will also
contribute to curbing demand by promoting thereuse, repair, and durability of products.
EU member states are free to set more ambitious
objectives for plastics circularity. For example,
Denmark established an Action Plan for Circular
Economy with objectives that include the removalof 80% of plastic waste from incineration plants
by 2030.61 Currently, Denmark generates thegreatest waste per capita in the EU, up to 800kg
a year, and imports plastic waste from abroad for
its incineration plants to generate electricity. As
Denmark has an overcapacity of 700,000 tonnes
compared to its domestically generated waste,seven incinerators will be closed to match waste
volumes, and municipalities will be obliged totreat all recyclable waste.62,63
In October 2020, the European Court of Auditors(ECA) warned that the EU risks missing its plastic
recycling targets for 2025 and 2030.64 The ECA
stressed the need for more accurate recycling
reporting and a tightening of plastic waste
export rules. In November 2021, the Commission
presented its proposal for the revision of the
EU Waste Shipment Regulation to ban intra-EU
shipments of waste for disposal, while facilitating
waste shipments for reuse and recycling within the
EU to promote economies of scale. This regulation
follows the Basel Convention Plastic Waste
Amendments that required changes to EU law to
ban most plastic waste shipments to non-OECD
countries from 2021 onwards. The new EU Waste
Shipment Regulation also aims to ensure thatwaste shipped outside the EU is managed in anenvironmentally sound manner, as nearly a thirdof the EU’s plastic packaging recycling target isachieved through shipments to non-EU countries.
EU plastic waste exports accounts for up to 28.7%
of total plastic waste exports in OECD countries and70.3% in non-OECD countries, which makes the EU
one of the main contributors to the trade in global
plastic waste. Plastics comprise most of the waste
exported outside the EU, together with metals, paper,
textiles, and glass. As the EU lacks recycling capacity,
it has so far mostly relied on exporting to non-EU
countries to reach its recycling targets. However,this trend is changing with more plastic waste
being recycled domestically, and less exported by
OECD countries to non-OECD countries.65
In November 2022, the European Commission
released its second Circular Economy Package,
which included a communication on bio-based,biodegradable, and compostable plastic, and a
proposal for review of the regulation on packaging
and packaging waste.66 The aim was to promotea better functioning of the EU internal market for
packaging. It establishes high thresholds for what
constitutes recyclable packaging, with requirements
such as design for recycling at scale and easysorting. Crucially, it includes a demand reduction
policy by targeting practices such as excessive
empty space in packaging, single-use packaged
items, and superfluous packaging.67 However,what is lacking is an update of recycling calculation
methodologies, which overestimate real recycling
rates that could fall from 42% to 30%.
In addition to this, a key priority for EU policy
should be harmonising and reinforcing theexisting Extended Producer Responsibility(EPR) schemes across EU member states, which

Figure 4. Sustainable carbon life cycle
Atmosphere

CO2

CO2

Biosphere
C I R CU LA R I TY
C a r b o n u t i l i s at i o n

CO2

Reuse

tion CO
2
IncineraMe ch an i cal recycling

Industrial
symbiosis
Chemical recycling

Geological carbon capture and storage
to balance unabated emissions

Fertilizer production and use can be reduced
significantly without generating any impact giventhat up to 50% used on crops does not generate
additional agricultural output.55 In May 2019, aspart of the Green Deal, the EU released its Action
Plan: Towards a Zero Pollution for Air, Water andSoil, which targeted a 50% reduction in nutrient
losses by 2030 with no deterioration in soil
fertility and a 20% reduction in fertiliser use.

EFFICIEN CY

Technosphere

CO2

Geosphere
Low-carbon energy

European Union chemical sector transition policy brief Climate Bonds Initiative

Source: CEFIC

8

Non-recyclable waste, which is mainly collectedby municipalities and contains a large amount ofplastic, can be used in waste-to-fuels and wasteto-chemicals initiatives. The EU’s Innovation
Fund, which aims to scale-up new circular
economy technologies, awarded EUR106m to
Enerkem and Suez to convert municipal waste
into green methanol. This will increase recycling
rates to up to 70%, and possibly to 100% in the
future, from current levels of 10%.68
While chemical recycling drastically increases
plastic recycling rates, it requires vast amountsof electricity and is a highly toxic and potentiallypolluting activity. Currently, around 24 million
tonnes of EU plastic waste is burnt to generateenergy for hard-to-abate sectors, mainly cement,
and to generate electricity. Although burning
plastics replaces fossil fuels, as power and heat
systems shift to clean energy sources, burning
plastic for energy increasingly displaces clean
energy sources instead of fossil fuels.69
Therefore, the reform of the EU ETS at the of end
2022 has the potential to bring the incinerationof municipal waste under its scope. The
European Commission has until 31 July 2026 todecide whether to include the municipal waste
incineration sector in the ETS from 2028 onwards,
and establish an opt-out until 31 December
2030.70 Given the labour-intensive nature ofincineration, subjecting it to carbon pricing
should further incentivise recycling by making
it comparatively cheaper, which would reduce
emissions and has the potential to create jobs.71
Landfill for plastic waste, which is not recycled
or incinerated, is the least preferred method of
disposal. Therefore, the EU aims to limit thispractice as much as possible using the EU Landfill
Directive. When exposed to solar radiation, plastic
emits methane as it decomposes. This gas, which
also originates from agriculture and fossil fuelextraction, is responsible for about 30% of global
warming. As recycling capacity is expanded in theEU, landfill and incineration will likely be further
restricted while stepping up efforts to reduce theamount of plastic waste overall.
Finally, The European Commission Communication
on Sustainable Carbon Cycles projects thatindustrial carbon capture of between 300mt and
500mt of carbon from power generation, industrial
processes or directly from the air will be required tomeet the EU’s climate neutrality objective. By 2050,
the energy transition will be at a very advanced
stage leaving few industrial process emissions
remaining. Therefore, the EU will need to source
most of its carbon feedstock industrial needs(especially, for chemicals manufacture) directlyfrom the air and from biogenic sources, considering
environmental limitations, by 2050.

Figure 5. Baseload power prices should fall across Europe’s
five largest power markets
300

225

Italy
FranceUnited Kingdom

150

Germany
Spain
Average75€/MWhpromote recyclability through fee modulation(i.e., fees based on the percentage of recycledcontent in packaging), promoting deposit-returnschemes, and other similar practices.

Forecast

0
2021

2022

2023

2024

2025

2026

2027

2028

2029

2030

Source: Standard & Poor’s Financial Services LLC

The European Commission Communication on
Sustainable Carbon Cycles has set the aspirational
objective that at least 20% of the carbon used in thechemical and plastic products is from sustainable
non-fossil sources by 2030. This aspiration is also
conditional on the EU’s biodiversity goals, hencecarbon from biomass needs to be responsibly
sourced and its availability is limited. The result
is that carbon directly obtained from waste andbiomass will be more expensive and less available
than captured carbon dioxide. The criteria under
the Climate Bonds Standard also has limitations
on the use of biomass.
Examples of EU support for technologicaldevelopment in this area include the funding
received by Recycling International (CRI) to scale
up CO2-based methanol after their first Icelandic
demonstration plant in 2012.72 The EUR2m Horizon
funding will also allow CRI to expand its Finnfjord
plant in Norway to reach a yearly production
capacity of 100,000 tons of methanol using a yearly
146,000 tons of carbon dioxide and clean energy.

Electrification: policies toenhance interconnection andRE capacity
Due to high dependence on
fossil fuels, chemical sites
are often located close torefineries. To ensure thesupply of clean energy from
where it is produced, electrical
grid infrastructure will need to be strengthened
and connectivity between EU electricity
markets improved.
European institutions will need to raiseelectrification-related ambitions, including
renewable energy generation and electricity
interconnection targets, especially for countries
like Portugal and Spain with poorly linked
networks.73 Reform of the EU electricity market isalready proceeding as announced in the European
Commission’s 2023 work programme.74 This should
be carefully designed to improve the access to clean
and affordable electricity by transitioning industries.

European Union chemical sector transition policy brief Climate Bonds Initiative

The European Commission also aims
to promote renewable purchase power
agreements (such as, for example, Solar PPAs
or SPPAs) given that take-up in recent years has
been slow. It has urged EU member States toremove barriers for renewable purchase power
agreements as part of their national energy
and climate plans since, to date, only eight EU
Member States have done so.75 Nonetheless,future electricity prices in the EU are expected todecrease significantly from 2026 onwards, in linewith double-digit growth rates in wind and solar
capacity.76 This should facilitate the ramping up
of industrial processes electrification.
The 2023 revision of the Renewable Energy
Directive (RED III) increases targets forrenewable energy use to 42.5% and sets anindicative target of 1.6% for annual increases inrenewable energy use by the industry. RED III
originally envisaged a renewable energy share
increase to 40% by 2030, but this was revised
upwards as a result of the war in Ukraine. Unlessthe EU can significantly increase its productionof renewable energy, or import clean electricity
from outside the EU, existing electrification
targets will not be feasible.
Any support for the chemicals industry from EU
institutions or national governments should beon condition that companies adopt credible
transition plans. Fossil fuel substitution byelectrification is relatively straightforward for
activities requiring low- to medium-grade heat.
Therefore, electrifying chemical processes
up to 500 degrees Celsius by 2035 throughthe deployment of electric boilers and heatpumps should be a priority..77 Electrification of
manufacturing processes requiring high grade
heat is also possible, such as steam cracking
which is the highest energy-consuming process inthe chemicals industry. Although the substitutionof fossil fuels with low-carbon hydrogen firing ispossible, it would be a suboptimal solution, as
direct electrification is more efficient.

9Developing low-carbonhydrogen production anduse at scale
Low-carbon hydrogenproduction and use mustbe rapidly scaled up since
its use as feedstock by the
EU chemical industry is arequired transition element,
particularly in the production of low-carbon
ammonia, but also other basic chemicals suchas methanol. RED III establishes a binding target
for industry to reach 42% of renewable hydrogenin total hydrogen consumption by 2030. The EU
Hydrogen Strategy targets a 40GW electrolyser
capacity and 10 million tons of green hydrogenproduction yearly by 2030. Hydrogen strategies
at national level and the diverse public financing
instruments (most significantly, through the
EU Green Deal) have been put forward by
public institutions. President von der Leyen has
unveiled plans to create a EUR3bn hydrogenbank following the May 2022 REPowerEU plan toend energy dependence from Russia.

The EU chemicals industry currently consumes
10 million tons of hydrogen per year.78 Abouthalf is used to produce ammonia and methanol,and the other half to refine oil, with almost all of
it being grey hydrogen derived from fossil fuels.
EU annual demand for hydrogen is expected to
exceed 100m tons by 2050 and be driven mainly
by demand from the transport and industry
sectors. Hydrogen demand in the EU will growto 35mt by 2030, 86mt by 2040, and to 113mt
by 2050 from which 51% of demand (58mt) will
come from sustainable fuels for transport, 40%(45mt) from industry (including 6mt specificallyfor chemicals),and 9% (10mt) as feedstock forchemicals. Figure 6 below provides an overview
of the main green hydrogen initiatives developedby the EU chemical industry in the EU.
Carbon contracts for difference (CCfDs) present
an important means by which to scale up
the hydrogen economy. To ensure access tohydrogen for its energy-intensive industries,
including chemicals production, Germany has
introduced a subsidy scheme establishing priceguarantees for technologies related to transition.

However, support via CCfDs for the productionof steel, ammonia and cement which amountto between EUR10bn and EUR43bn would besignificantly reduced by adopting German and
EU climate policy and limit the need for publicfinancing of this scheme to EUR10bn.79,80 On
30 August 2023, the European Commission
released the terms and conditions for its plannedhydrogen bank pilot auction following theinclusion of an EU-wide CCfD scheme in its 2023
work plan. European institutions will need topursue an ambitious, EU-wide CCfD scheme
following success of the UK scheme, which has
proved its effectiveness in developing the UK
offshore wind sector. EU resources will haveto be frontloaded to speed up investments
in renewables-based, low-carbon hydrogenproduction and minimise the role of fossil-based
grey and blue (with carbon capture) hydrogen,avoiding any public funding of these.

Figure 6: Main ongoing hydrogen projects related to the chemical industry in the EU82
Construction of “power tomethanol” demo plant in theport of Antwerp (BE).

NortH2
Setting up a 10GW offshore
windfarm combined with anelectrolysis plant to produce
green hydrogen (NL).

Green Ammonia
Production of “green ammonia”
based on green hydrogen andnitrogen (DN).
Power to Fuel
Production of e-methanol by
combining green hydrogen with
captured CO2 (SE).

Project Centurion
Feasibility study to look at
new hydrogen generation andstorage options, including a
potential plan to build a 100MW
power to gas energy storage
facilities at Runcorn (UK).

Offshore wind andhydrogen project
BASF and RWE propose 2GW
offshore wind and hydrogenproject. BASF plans to use
approximately 300MWof the power produced by
the wind farm to produce
green hydrogen (DE).

Zero Carbon Humber
Construction of a large scale
blue hydrogen production
plant and a pipeline network
connecting the industrial sites ofthe Humber region (UK).
800MW greenhydrogen project
Spanish utility Iberdrola
and chemical manufacturer
Fertiberia have formed a newpartnership that, with a €1.8
billion investment, aims
to install 800MW of greenhydrogen production capacity
in Spain by 2027 (SP).

Carbon2ProductAustria
Construction of an industrial
scale carbon capture capacity
where CO2 will be combinedwith green hydrogen to produce
renewable hydrocarbons (AT).
Galp
Portugal’s Galp Energia plans to
install a 100MW electrolyser topower its refinery in Sines withgreen hydrogen by 2025 (PT).

Total, Engie team up on Green Hydrogen project
Total and Engie have signed a cooperation agreement to design, develop,
build and operate the Masshylia project, France’s largest renewablehydrogen production site in Châteauneuf les Martigues in the southern
Provence Alpes Côte d’Azur region (FR).
Source: Sources: Deloitte Analysis

European Union chemical sector transition policy brief Climate Bonds Initiative10

4. Conclusion
Green and transition finance can enable the
EU chemicals industry transition towards
carbon neutrality, provided an appropriate
policy framework is in place to establish theright incentives for issuers and investors.
Achieving net-zero emissions by 2050 will requirevarying levels of effort in terms of required
investments and technological development
across hard-to-abate sectors. The transition of
the EU chemicals sector to net-zero by 2050 isachievable, but requires significant action by
policymakers, companies, and investors.
The lack of transition pathways for chemicals,
until very recently, partly explains the limited
progress achieved by chemical companies.
Transition debt instruments issued by chemicalcompanies (mainly, Sustainability Linked Bonds)
have only included scope 3 emissions targets
to a very limited extent, which undermines thecredibility of the sector’s transition and deters
commitment from investors to finance theindustry’s efforts. The new Basic Chemicals
criteria contained in the Climate Bonds Standard
should decisively help investors and issuers
address this and boost issuance in the sector tofund the key investments needed in the shortand medium term, following the example of earlymovers in the chemicals sector.
The completion of the Fit-for-55 package will
provide a strong framework for decarbonisingchemicals production, even if ambition mustbe raised in the particular case of the CBAM to
include a large part of production (i.e., organic
chemicals and polymers) currently out of scope.
Chemicals transition must accelerate, given the
expected increase in costs derived from the new
EU ETS and the energy crisis linked to the war
in Ukraine, which limits the availability of fossilgas (currently the main input to the chemicals
industry) and hinders the industry’s electrification
efforts. Additionally, strong provisions aroundtransition plans as currently negotiated under the
Corporate Sustainability Due Diligence Directive(CSDDD) will enable chemical companies toensure credibility on their commitments toaccess much-needed green and transition
finance flows.

Policymakers, companies, and investors
in the chemicals sector must consider that
scope 3 emissions reduction has the greatest
abatement potential and will be primarily
based on circularity and demand reduction
policies. The substitution of virgin carbons offossil origin as feedstock with renewable carbon
sources and low-carbon hydrogen is particularly
urgent but requires scaling up existing and newtechnologies, and most importantly carbon
capture. Targets for recirculated carbon use in

the chemicals industry would make the casefor investment in these areas by the chemicals
sector. Currently available circularity measures
can deliver much needed results in the short andmedium term until other measures are mature
enough for its mass implementation. Other
circularity innovations such as chemical recycling
are not yet available at mass scale but can further
increase circularity once the easier to implement
solutions are exploited.

Summary Policy Recommendations
1. Incentivise low-carbon
basic chemicals production
and demand, most importantlyin the manufacture of plastics
and fertilizers, through official
standards such as the EU taxonomy.
2. Prioritise demand
reduction policies tackling
overproduction and overuseof plastics and fertilizers
to curb feedstock demand.
Alternative carbon feedstock must be scaled
up to achieve a phase-out of fossil fuels use forchemicals production in the longer term.
2.1 Optimise fertilizer production anduse through joint action from fertilizer
companies and the agricultural sector
and scale up ammonia-based low-carbon
fertilizers production to substitute fossilbased ammonia fertilizers.
2.2 Adopt plastics demand-reduction
policies (especially of single use plastics
and packaging) and boost chemical
circularity by achieving increased plastics
recycling rates, greater recyclability andstrengthened minimum recycled content
requirements.
3. Ensure the supply of
renewable energy at stable
and affordable cost andthe required investments inelectrical grids to guarantee anincreased use of electricity in the EU industry.
Strengthen efforts for the electrificationof manufacturing processes requiring low
to medium heat in the short term, while
also supporting electrification of processes
requiring high-grade heat where barriers forelectrification are higher and technology is
being developed.

European Union chemical sector transition policy brief Climate Bonds Initiative

4. Support the productionof low-carbon hydrogen bybridging the cost gap between
renewable and fossil hydrogenthrough Carbon Contracts forDifferences (CCfDs), prioritising its use as
feedstock by the chemicals industry, andespecially for basic chemicals manufacture.
Specific chemical sectoral targets for hydrogenuse must be implemented.
5. Promote recycling ofplastics at end-of-life.
Incineration should not become
the go-to option for municipal
waste, even if in future carbon
capture for incineration is expected to generalise.
6. Facilitate the use of
captured carbon from hard2
to-abate sectors by
the chemicals industry throughdedicated public investment
and appropriate regulatory frameworks suchas standard-setting for the use of captured
carbon and CO2 infrastructure.

CO

7. Public policy and financeshould give preference toelectrification rather than to acontinued use of fossil fuels, evenwith carbon capture, to powerindustrial processes.
8. Promote scope 3 emissions
disclosure and target setting
by chemical companies
following voluntary sectoral
standards from organisations
such as SBTi, which should be reinforced
across the supply chain though partnerships
with clients and suppliers.
9. Strengthen carbon pricing
by broadening the scope of
CBAM to include polymers
and organic chemicals.

11Endnotes
1. https://static.agora-energiewende.de/fileadmin/
Projekte/2022/2022-02_IND_Climate_Positive_Chemistry_DE/AEW_300_Chemicals_in_transition_EN_WEB.pdf
2. https://static.agora-energiewende.de/fileadmin/
Projekte/2020/2020_10_Clean_Industry_Package/A-EW_194_CleanIndustry-Package-EU_WEB.pdf
3. https://cefic.org/a-pillar-of-the-european-economy/facts-andfigures-of-the-european-chemical-industry/our-contribution-to-euindustry/
4. https://www.unep.org/explore-topics/chemicals-waste/what-wedo/policy-and-governance/global-chemicals-outlook
5. https://www.iea.org/reports/energy-technology-perspectives-2020
6. https://www.iea.org/reports/energy-technology-perspectives-2020
7. https://www.iea.org/reports/energy-technology-perspectives-2020
8. https://sciencebasedtargets.org/resources/files/SBTi-ChemicalsScoping-Document-12.2020.pdf
9. According to CEFIC, “A petrochemical is an organic compound thathas been derived from petroleum or natural gas and there are almost
200 chemicals that can be so described and they include many
simple hydrocarbons (e.g. methane, ethane), aromatic hydrocarbons(e.g. benzene, toluene), naphthenes and several of their derivatives”.
https://www.petrochemistry.eu/glossary/
10. https://caneurope.org/content/uploads/2022/06/CANEurope_2022_Recommendations_Chemicals_Transforming-thesector.pdf
11. https://www.climatebonds.net/2023/02/eu-chemical-industrytransition-pathway-good-kick-transition-european-chemicalstowards-net
12. https://www.climatebonds.net/files/files/standards/
Chemicals%20-%20Basic/Sector%20Criteria%20-%20Basic%20
Chemicals%20%28April%202023%29.pdf
13. https://www.iea.org/reports/energy-technologyperspectives-2020.
14. https://ec.europa.eu/docsroom/documents/54595
15. https://librairie.ademe.fr/changement-climatique-etenergie/4730-chimie-memo-d-analyse-des-enjeux-de-decarbonationdu-secteur.html
16. For exemple, https://ec.europa.eu/sustainable-finance-taxonomy/
activities/activity/156/view
17. http://www.eng.cam.ac.uk/news/planet-compatible-pathways
18. planet-positive-chemicals.pdf (u-tokyo.ac.jp)
19. https://sciencebasedtargets.org/resources/files/SBTi-ChemicalsScoping-Document-12.2020.pdf
20. A-EW_300_Chemicals_in_transition_EN_WEB.pdf (agoraenergiewende.de)
21. https://www.oneearth.org/updated-one-earth-climate-model/
22. https://www.ipcc.ch/report/ar6/wg3/downloads/report/IPCC_
AR6_WGIII_FullReport.pdf
23. https://www.iea.org/reports/ccus-in-clean-energy-transitions/accelerating-deployment
24. https://www.iea.org/reports/ccus-in-clean-energy-transitions/accelerating-deployment
25. https://pubs.rsc.org/en/content/articlelanding/2023/ee/
d3ee00478c#!
26. https://cgc.ifi.u-tokyo.ac.jp/research/chemistry-industry/planetpositive-chemicals.pdf
27. https://ghgprotocol.org/sites/default/files/standards/CorporateValue-Chain-Accounting-Reporing-Standard_041613_2.pdf
28. https://www.climatebonds.net/files/reports/cbi_101_
policy_01b_1.pdf

29. https://cefic.org/app/uploads/2021/03/Cefic-Views-on-EUTaxonomy-Transition-Finance.pdf
30. https://www.worldbank.org/en/programs/pricing-carbon
31. https://www.sciencedirect.com/science/article/pii/
S0098135422001338
32. https://cgc.ifi.u-tokyo.ac.jp/research/chemistry-industry/planetpositive-chemicals.pdf
33. https://cgc.ifi.u-tokyo.ac.jp/research/chemistry-industry/planetpositive-chemicals.pdf
34. https://www.oecd.org/tax/tax-policy/effective-carbon-rates-2021highlights-brochure.pdf
35. https://cefic.org/app/uploads/2022/01/Cefic-position-on-CBAMThe-Carbon-Border-Adjustment-Mechanism-CBAM-proposal-needsupgrading-for-chemicals.pdf
36. https://cefic.org/a-pillar-of-the-european-economy/facts-andfigures-of-the-european-chemical-industry/profile/
37. https://cefic.org/app/uploads/2019/06/Cefic_Mid-Century-VisionMolecule-Managers-Brochure.pdf
38. https://www.climatebonds.net/files/files/PUBLIC%20
CONSULTATION_Background%20paper_Basic%20Chemicals_
April%202022.pdf
39. https://librairie.ademe.fr/cadic/5693/memo-pts-chimie-2021.pdf
40. https://globaltaxnews.ey.com/news/2023-0925-final-regulationspublished-for-new-eu-carbon-border-adjustment-mechanism-cbamand-eu-emission-trading-system-revisions-cbam-transition-periodbegins-1-october-2023
41.
https://environment.ec.europa.eu/news/chemicals-commissionseeks-views-revision-reach-eus-chemicals-legislation-2022-01-20_en42.
https://single-market-economy.ec.europa.eu/news/sustainablechemicals-commission-advances-work-restrictions-harmfulchemical-substances-2022-04-25_en
43.
https://pfascentral.org/news/investors-push-worlds-top-chemicalcompanies-over-hazardous-substances
44.
https://www.macaubusiness.com/us-giant-3m-agrees-big-payoutin-belgium-chemical-scandal/ and https://www.reuters.com/article/
investors-chemicals-letter-idCNL8N2ST5OJ
45. https://www.icis.com/explore/resources/
news/2021/05/06/10635840/european-chemicals-industry-faces-15bn-carbon-bill/
46. https://taxation-customs.ec.europa.eu/carbon-borderadjustment-mechanism_en
47. https://renewable-carbon-initiative.com/wp-content/
uploads/2020/09/20-09-21_Paper_12-on-Renewable-Carbon.pdf
48. https://www.spglobal.com/commodityinsights/en/ci/researchanalysis/as-cbam-comes-into-sight-direct-impact-on-chinas-tradelimited.html
49. https://agriculture.ec.europa.eu/common-agricultural-policy/agrifood-supply-chain/ensuring-availability-and-affordability-fertilisers_en
50. https://taxation-customs.ec.europa.eu/system/files/2023-08/
CBAM%20Guidance_EU%20importers_0.pdf
51. https://www.aa.com.tr/en/economy/energy-crisis-in-europe-hitsfertilizer-production/2697912
52. https://cefic.org/app/uploads/2022/10/Cefic_Position_energy_
crisis.pdf
53. planet-positive-chemicals.pdf (u-tokyo.ac.jp)
54. https://phys.org/news/2023-02-carbon-emissions-fertilizers.html
55. https://eos.org/articles/index-suggests-that-half-of-nitrogenapplied-to-crops-is-lost
56. https://www.europarl.europa.eu/RegData/etudes/
BRIE/2018/614766/EPRS_BRI(2018)614766_EN.pdf

57. https://ec.europa.eu/eurostat/web/products-eurostat-news/-/
ddn-20211027-2
58. https://www.oecd.org/environment/global-plastic-waste-set-toalmost-triple-by-2060.htm
59. https://cdn.odi.org/media/documents/odi-et-cp-synthesis-reportsep20-proof02_final2.pdf
60. https://static.agora-energiewende.de/fileadmin/
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Plastics/Material_Economics_Europes_Missing_Plastics.pdf
61. https://www.en.mim.dk/media/223010/alle-faktaark-1.pdf
62. https://stateofgreen.com/en/news/new-political-agreement-toensure-a-green-danish-waste-sector-by-2030/
63. https://www.politico.eu/article/denmark-devilish-waste-trashenergy-incineration-recycling-dilemma
64. https://www.eca.europa.eu/Lists/ECADocuments/INRW20_04/
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65. https://www.oecd-ilibrary.org/docserver/39058031-en.pdf
66. EU: Part 2 of Circular Economy Package published, Bolko Ehlgen,
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articles/the-potential-of-hydrogen-for-the-chemical-industry.html

Author: Juan Manuel Viver Gargallo, Climate Bonds Initiative
Acknowledgements: Sean Kidney, Rachel Hemingway, Bridget Boulle,
Marian Rodriguez, Climate Bonds Initiative
Paul Münnich, Agora Energiewende

Prepared by the Climate Bonds Initiative

Gbemi Oluleye, Imperial College London
Dimitrios Koufos, Sam Maauyf, European Bank for Reconstruction
and Development - EBRD

© Published by Climate Bonds Initiative, November 2023

Editorial support: Stephanie Edghill, Caroline Harrison

www.climatebonds.net

Design: Godfrey Design, Joel Milsted

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European Union chemical sector transition policy brief Climate Bonds Initiative

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