CEFIC urges EU ETS reform to safeguard Europe's chemical industry

30/06/2026
News

The European Chemical Industry Council (Cefic) has released an updated position paper outlining the future priorities for the chemical industry regarding the EU Emissions Trading System (ETS). While the European chemical industry strongly supports the transition to climate neutrality, Cefic warns that the sector's ability to deliver on this transition is undermined by intense global competition and a lack of enabling conditions, such as affordable low-carbon energy and infrastructure. To prevent site closures and the loss of industrial capacity in Europe, Cefic argues that the EU ETS must be urgently adapted into a more flexible and industry-supportive framework well before 2030.

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How the EU ETS Works?

The EU Emissions Trading System (ETS) operates on a "cap and trade" principle to drive down greenhouse gas emissions.

  • The cap: A strict system-wide limit is set on total emissions for covered installations. This cap decreases annually to align with EU climate targets, having already reduced European power and industry emissions by roughly 47% since 2005.
  • The trade (Allowances): The cap is divided into emission allowances (1 allowance = 1 tonne of CO2 eq). Companies purchase these at auction, receive a portion for free, or trade them on the carbon market.
  • Compliance: Annually, companies must monitor their emissions and surrender enough allowances to cover them, or face heavy fines. If an installation reduces its emissions, it can keep the spare allowances for future use or sell them for profit.
  • Market & Revenue: The steadily declining cap creates long-term scarcity, driving up the carbon price and financially incentivizing cost-effective emission reductions. Since 2013, the ETS has raised over EUR 175 billion. These revenues are reinvested into national green projects, the Innovation Fund, and the Modernisation Fund to accelerate the low-carbon transition.

The main points of Cefic's position:

  • Realistic cap trajectory: Cefic states that the current ETS cap trajectory, which is set to reach zero by 2039, is impracticable. The organization urgently asks for the cap decline to be slowed down before 2030 and recalibrated to reflect the actual pace of enabling conditions, such as low-carbon energy access and infrastructure development.
  • Strong carbon leakage protection: Maintaining a sufficient allocation of free allowances and providing compensation for indirect carbon costs remain essential pillars to protect the industry against carbon leakage and unfair global competition.
  • Appropriate benchmark values: Benchmark values must reflect realistic performance levels based on widely available technologies, rather than being based on subsidized pilot projects. Cefic warns that the recent 50% reduction in fallback benchmarks for heat and fuel is excessive and will significantly raise carbon costs for heat-intensive chemical plants.
  • Reforming the MSR: Cefic calls for an immediate reform of the Market Stability Reserve (MSR) to halt any further invalidation of allowances. This reform is necessary to safeguard adequate liquidity in the EU ETS.
  • Avoiding conditionality: Cefic urges lawmakers to avoid adding conditionality criteria for access to free allowances. Such conditionalities force companies to explore non-economically viable investments while increasing administrative burdens and regulatory overlaps.
  • Carbon removals and circularity: The revised ETS needs consistent CO2 accounting rules that properly recognize both permanent carbon removals (like CCS) and non-permanent carbon capture and utilisation (CCU).
  • Regulatory coherence: The EU must eliminate conflicting regulations across its climate and energy legislation to ensure simple, implementable rules that support low-carbon solutions.
  • International linking: Implementing Article 6 of the Paris Agreement (international credits) and bilaterally linking the EU ETS with similar systems, such as the UK ETS, are vital policy options to improve market liquidity.
  • Adequate investment framework: Cefic requests that ETS revenues be fully redirected back to the industries in scope to support their climate transition reinvestments, noting that currently only 5% of these revenues are channeled back for this purpose.

Ultimately, Cefic emphasizes that the EU needs to establish broader market-pull measures that systematically value lower-carbon goods. Without consumer demand and a realistic business case, trade-exposed industries will not be able to make the massive investments required for a successful transition at scale.