Ernst Stetter / Jun 2026
Photo: Shutterstock
The European Union aspires to become the first climate-neutral continent by 2050. To accomplish this, it has set a target of reducing greenhouse gas emissions by 55% by 2030 and 90% by 2040, backed by a set of policies and sub-targets.
Achieving such a significant reduction in greenhouse gas emissions within a short timeframe poses a challenge, particularly when considering the EU’s major industrial sector: the chemical industry. Currently, nearly all chemical products depend on fossil-based carbon. While carbon will stay a fundamental building block of chemical products, the industry can shift towards alternative carbon sources. However, ‘’defossilising” the feedstock in the chemical industry necessitates a fundamental transformation of its value chains.
This becomes even more pertinent in light of the ongoing war in Iran and the ensuing geopolitical instability. This situation clearly demonstrates the impact on Europe’s fossil fuel supply, highlighting the continued dependence of the European economy on fossil fuels. The extra-EU energy import dependency rate remains at 60%, showing a substantial reliance on imports to meet its current fossil fuel needs.
In a recent in-depth analysis, CEPS, a leading Brussels-based think tank, explored how targeted policies can stimulate demand for alternative feedstocks to reduce reliance on fossil carbon.
It is clearly shown that there are alternative carbon pathways from both a technological and market perspective. The transformation requires a shift in both the methodological and policy frameworks. The current political debate centres much around policy options to scale up alternative carbon sources. These options include voluntary labelling, public procurement, mandatory targets but consider less certification, and credit-based mechanisms.
However, the study emphasizes that there is no straightforward path to establishing lead markets for non-fossil carbon in the chemical industry. The EU’s climate targets are hindered less by technological limitations than by the absence and, above all, uncertainty of demand signals for more sustainable products. Therefore, the primary question remains how targeted policies can generate a scalable demand for non-fossil carbon sources.
The existing European Emissions Trading System (ETS) stands as a valuable reference point in the ongoing debate. As Bruegel aptly points out, the ETS system has proven that credible long-term carbon pricing can effectively reduce emissions while minimizing economic costs. By further aligning the ETS with strategic industrial support, Europe’s path to decarbonization will undoubtedly be anchored. Weakening the system would undermine investment signals and penalise early movers that have already started to decarbonise. ETS revenues are among the most powerful tools to finance Europe’s clean industrial transformation. A clear commitment to greater transparency, closer alignment of national revenue use with decarbonisation objectives, and the expansion of EU-level initiatives through the creation of a strong industrial decarbonisation bank to scale up low-carbon investment, can turn the ETS from a cap-and-trade into a cap-and-invest framework.
Hence, for the energy sector the EU ETS serves as a well established instrument. Taking this as an example, it is worth examining newly proposed schemes and concepts that leverage certificates for the chemical industry. As for the material use of carbon, a comparable framework is lacking. One particularly intriguing system is proposed by the Südzucker Group. It centres around alternative carbon in chemicals and materials. The proposed system employs a certificate system utilizing a book-and-claim accounting framework that distinguishes between physical material flows and sustainability claims.
These concepts are introduced as a response to the disadvantages faced by alternative carbon under the current regulatory framework and market conditions. The primary objective of such trading systems is to generate demand on a large scale and channel financial resources across value chains into investments in clean production upstream. This could ultimately enhance the long-term competitiveness of low- and alternative carbon products.
Nevertheless, such mechanisms require robust and unified legislation to be implemented swiftly enough to influence investment decisions by various companies in the chemical industry. Additionally, administrative requirements remain a critical concern, as new registers, certifications, and verifications are necessary.
Certificate systems have evolved beyond their initial purpose of generating demand. Strategically designed to enhance cost-efficiency, they hold the potential to establish industry-level mechanisms crucial for transitioning to climate targets. By intensifying policy debates on seamlessly integrating these proposals into existing frameworks, particularly the EU ETS, double regulation can mitigate potential challenges and facilitate a smoother transition.
The primary responsibility of EU policy makers lies in the process to ensure regulatory coherence in a realistic long-term trajectory. As for the chemical industry, the responsibility lies in a long term engagement to contribute in line with realistic targets in the shaping of the pace and the scale of the clean transition.
Hence, a consistent industrial, energy and climate policy framework is needed. Only in this way can necessary demand instruments be effectively implemented and investments in alternative carbon pathways can be triggered to a necessary and relevant extent. Therefore the proposed Industrial Accelerator Act (IAA) could be a serious attempt to establish necessary demand-side measures for products from sustainable carbon sources.
Europe’s chemical industry is crucial for achieving sustainable growth and maintaining competitiveness in the global market. However, these sectors face significant challenges in reducing material-related emissions due to their reliance on carbon as a feedstock. Fossil carbon remains more cost-effective compared to any renewable alternative in chemical applications. Consequently, Europe requires innovative and complementary instruments that not only reduce emissions but also encourage the advancement of sustainable and resilient raw material cycle
