A shifting political centre

2026 is shaping up to be a defining year for Europe’s chemicals sector. We’re seeing competitiveness politics, a push for ‘simplification’ and security concerns converge in ways that could either accelerate or derail the transition to a cleaner sector.

Some concerns are real. Energy costs, infrastructure gaps and geopolitical risks are genuine constraints. But we’re also seeing these dynamics leveraged to justify delays and dilution of climate policy. The question is whether Europe will use this moment to modernise its chemicals sector or preserve the status quo under the banner of pragmatism.

The political centre of gravity has shifted. The scientific and societal case for climate action is clear, but climate ambition is now contested and negotiated primarily within competitiveness, cost-of-living and security framing. Europe is trying to be two things at once: a climate leader and a defender of incumbent industry. You can see this tension everywhere, from the Clean Industrial Deal to how the Commission has structured its portfolios.

How chemicals sit at the centre

Nowhere is this tension more visible than in chemicals. They underpin almost every industrial value chain, from clean energy and mobility to construction, food systems and defence. Around 96 per cent of all manufactured products involve industrial chemicals at some stage. After China, the EU is the world’s second-largest chemicals producer, accounting for around 13 per cent of global output – placing the sector at the heart of Europe’s industrial base.

Europe remains a global leader in high-value specialty chemicals and advanced materials. It has strong positions in polymers, industrial gases, fertilisers and performance chemicals. The sector is anchored by large integrated producers and globally competitive firms, alongside dense regional clusters in Germany, the Benelux, France and Northern Italy.

The sector provides around 1.2 million direct jobs in Europe and supports a further 19 million across downstream value chains. This economic and political weight makes every policy decision consequential.

A complex mixture of challenges

But chemicals are also among the most emissions-intensive, energy-dependent and pollution-heavy sectors of the economy. In the EU, the chemicals industry is the third-largest industrial CO₂ emitter after steel and cement. It accounts for around five per cent of the bloc’s net greenhouse gas emissions.

This makes the chemicals sector a litmus test. Can Europe translate high-level climate ambition into durable industrial transformation? Or will it choose to manage uncertainty by upholding existing systems?

Unlike other heavy industries, chemicals policy isn’t only about decarbonisation. It sits at the confluence of climate mitigation, hazardous chemical use, environmental pollution, resource use and industrial transition risk. EU policymaking has developed sophisticated tools in each of these domains, but often in isolation.

The political challenge isn’t a lack of objectives. There’s no shortage of those. It’s the absence of an integrated theory of change that reconciles these goals rather than trading them off against one another. Together with the complexity of chemical value chains, this has allowed the sector’s climate impact to remain largely unchecked compared to other heavy industries.

Long investment cycles, fragmented policy frameworks and mounting climate and health risks mean chemicals now represent one of the highest-stakes transition challenges in Europe’s industrial landscape. Without deliberate intervention, there’s a real risk that today’s production model is preserved through incremental flexibility rather than transformed.

This is why we’ve built a new European programme on chemicals. We’re working to push the sector onto a net-zero pathway that delivers on climate as well as human and environmental health by 2030.

Strong frameworks, weakened signals

On paper, the EU has one of the most comprehensive climate and industrial policy frameworks in the world. Carbon pricing, border measures, innovation funding, state aid rules and product regulation together form a powerful toolkit.

In practice, however, these instruments are increasingly shaped by short-term political pressures. Recent debates on free allocation under the EU Emissions Trading System and flexibility demands around implementation timelines directly affect the strength and predictability of decarbonisation incentives for industry.

Concerns about energy prices, international competition and investment leakage are real. Often addressed through temporary exemptions, extended free allocation or softened benchmarks. These weaken the long-term signals needed to unlock investment in new production models.

This is particularly visible in how competitiveness is framed. Rather than focusing on how policy certainty can drive modernisation and innovation, competitiveness is frequently reduced to a question of cost containment for existing assets.

This dynamic isn’t unique to the EU. Similar debates are playing out in the UK, where industrial strategy is increasingly shaped by short-term pressures rather than long-term transition pathways.

The risk is clear. Europe could confuse industrial resilience with industrial preservation, prioritising the survival of today’s production model over the creation of tomorrow’s. For a sector like chemicals, with long-lived capital stock and investment cycles stretching over decades, this approach locks in risk rather than reducing it.

Simplification or dilution?

Simplification has emerged as another dominant narrative. There’s a legitimate case for reducing unnecessary administrative burden and improving policy coherence. But too often, simplification is interpreted narrowly. It focuses on reducing obligations rather than improving environmental, health and climate outcomes.

In the chemicals sector, this is increasingly visible in debates around the REACH revision, the Chemicals Industry Action Plan and associated omnibus proposals. Similar dynamics are now emerging in discussions on ETS and CBAM implementation, where calls for simplification risk weakening safeguards and diluting long-term investment signals.

Here’s the thing about chemicals. Regulatory complexity often reflects real environmental, health and climate risks. This is particularly true in energy-intensive basic chemical production involving hazardous substances, emissions and long asset lifetimes.

Simplification that weakens these safeguards risks prolonging high-emission, high-pollution production models. It ultimately works against both climate and competitiveness objectives.

Security without transformation

Security considerations further complicate the picture. Geopolitical instability, disrupted supply chains and concerns about strategic dependencies have pushed chemicals higher up the political agenda.

This has strengthened the case for maintaining domestic production capacity, particularly in the context of CBAM and intensifying competition from producers in the US and Asia. But it hasn’t always been accompanied by a credible strategy for transforming that capacity in line with climate and health objectives.

Security framing can create political space for industrial policy. You can see this reflected in the Clean Industrial Deal’s emphasis on resilience, re-shoring and strategic autonomy. It’s been sharpened by renewed global trade tensions following the return of a Trump administration and a more confrontational US trade stance.

But without strong climate and health guardrails, it can just as easily justify public support for high-emitting, high-pollution infrastructure with limited future viability.

A decisive moment

Taken together, these dynamics keep the chemicals sector stuck. There’s enough political and economic stability to postpone change, but not enough pressure or certainty to force a real transition. Decarbonisation remains the stated direction, but the pace, scope and credibility of that transition are increasingly contested.

For the chemicals sector, the key question is no longer whether change is coming. It’s on whose terms.

Will policy frameworks be used to accelerate investment into clean production, safer materials and genuinely circular systems? Or will they be stretched to accommodate continued reliance on ageing, emissions and pollution-intensive assets?

We see this moment as decisive. The next phase of EU decision-making will shape investment signals well beyond 2030 and, therefore, Europe’s ability to deliver sustained climate progress. What happens with the EU ETS and CBAM will matter. How the Chemicals Industry Action Plan is put into practice will matter. How the newly formed Critical Chemicals Alliance is steered will matter.

Choices made now will determine whether Europe builds a competitive, low-carbon and low-toxicity chemicals sector fit for a net-zero economy, or drifts into managed decline under the guise of pragmatism. 

We’re working to ensure 2026 becomes the year Europe chooses transformation over preservation. If you’re interested in our work on chemicals in Europe, learn more here or get in touch.

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