Multiple EU New Environmental Regulations Jolt Europe¡äs Chemical Industry
2026-2-13
In 2026, the EU¡äs intensively introduced new climate and circular economy regulations have piled additional pressure on Europe¡äs chemical industry, which is already mired in difficulties. These rules have directly driven up compliance costs and eroded the industry¡äs competitiveness, trapping it in a dilemma between meeting emission reduction targets and pursuing economic development.
Among the core climate policies, the EU Carbon Border Adjustment Mechanism (CBAM) officially took effect on January 1, 2026, with its transition period expiring simultaneously. The mechanism currently covers the fertilizers and hydrogen sectors; while most chemical products are not yet included, S&P Global Energy reports predict that an agreement to expand its scope to the oil refining and chemical sectors is expected to be reached by 2028, with the implementation to launch in 2031 alongside a transition period set to run until 2040. Meanwhile, the free emission allowances under the EU Emissions Trading System (EU ETS) will be phased out by 2034, exerting a long-term impact on chemical and petrochemical producers.
Europe¡¯s chemical industry has voiced strong opposition to the current raft of climate-related policies. In a statement, Wolfram Uentrop, Director General of the German Chemical Industry Association (VCI), noted that the CBAM mechanism is inapplicable given the chemical industry¡¯s complex industrial chains and a vast array of product categories. He called for the industry to be granted an exemption and for a ban on extending the mechanism¡¯s scope to the pharmaceutical sector. He stated that while the European Commission has announced the strengthening of CBAM anti-avoidance measures and the establishment of a temporary support scheme, these measures amount to mere tinkering and fail to address the root causes of the problem. Additionally, senior executives of European chemical companies are lobbying for a moratorium on the phase-out of free emission allowances for high-emission petrochemical installations.
The fertilizer industry has been hit particularly hard by the CBAM. Based on the EU carbon price as calculated in December 2025, the CBAM levies on three types of imported fertilizers from Turkey, Egypt and Morocco stand at $151, $87 and $21 per tonne respectively, far exceeding market expectations. Some EU fertilizer manufacturers rely on processing overseas raw materials for export, and the hefty levies have directly eroded their international competitiveness, sparking widespread concerns across the industry.
The EU Emissions Trading System (EU ETS) is also highly controversial. The EU¡¯s target of cutting net greenhouse gas emissions by 90% by 2040 compared with 1990 levels was finalized in 2025, yet it is accompanied by a host of flexibility provisions ¨C such as the delayed implementation of the new Emissions Trading System 2 (ETS2) and greater flexibility in carbon sink accounting. ETS2 was originally scheduled to launch in 2027 and expand to cover the construction and transport sectors, but its rollout has now slowed down. S&P reports point out that the EU is walking a tightrope between economic reality and climate goals; amid a fragmented political landscape and declining consumer acceptance of decarbonization costs, its climate policies may be forced to scale back, though the long-term direction remains unchanged.
Beyond climate policies, circular economy regulations will further mount pressure on the chemical industry. The Circular Economy Act (CEA), a core legislative priority for 2026, is expected to be passed within the year, with a target to double the EU¡¯s circular economy rate by 2030 ¨C namely, driving the industry to shift from a linear economic model to a circular one. The European Chemical Industry Council (Cefic) has put forward an action plan containing four recommendations, covering regulatory coordination, business model innovation, raw material supply and the development of a single market.
The EU Packaging and Packaging Waste Regulation (PPWR) under the CEA framework entered into force in February 2025 and will be formally implemented in August 2026. It mandates that 100% of packaging in the EU be recyclable or reusable by 2030, while also enforcing the addition of recycled content and the rollout of an extended producer responsibility (EPR) system. However, the lack of clear implementing rules for the regulation has created considerable uncertainty for the industry.
Europe¡¯s plastic recycling industry has long been hampered by inadequate infrastructure and technological bottlenecks, and policy uncertainty has made its development even more arduous. Provisions related to chemical recycling under the Single-Use Plastics Directive have been mired in controversy for a long time, and the European Union has delayed introducing relevant rules following consultations, leading major corporations such as ExxonMobil to put their European chemical recycling projects on hold. It was not until December 2025 that the EU announced it would clarify the relevant regulatory rules to accelerate the transition to a circular economy.
The EU¡¯s stringent and cumbersome environmental and sustainability regulations, along with its approval procedures, are regarded as the key factors eroding the global competitiveness of its petrochemical industry. Enterprises are burdened with exorbitant compliance and carbon tax costs, yet these standards have not been implemented synchronously worldwide, trapping the industry in a landscape of unfair competition. Coupled with the current downward cycle of the global petrochemical industry characterized by weak demand and overcapacity, the operational predicament of EU petrochemical companies has been further exacerbated. Chairman of the Board of Executive Directors of BASF, stated that the excessively high regulatory intensity and red tape have hindered the industry¡¯s development, and the rigid carbon trading system, surging carbon costs, and the asynchrony of carbon prices in other parts of the world have combined to create unfair competition. While the EU has rolled out the Chemical Industry Action Plan, committing to cutting the industry¡¯s annual compliance costs by at least 363 million euros and reaching an agreement to simplify sustainability due diligence, enterprises are still calling for the continuous optimization of regulatory efficiency.
Among the core climate policies, the EU Carbon Border Adjustment Mechanism (CBAM) officially took effect on January 1, 2026, with its transition period expiring simultaneously. The mechanism currently covers the fertilizers and hydrogen sectors; while most chemical products are not yet included, S&P Global Energy reports predict that an agreement to expand its scope to the oil refining and chemical sectors is expected to be reached by 2028, with the implementation to launch in 2031 alongside a transition period set to run until 2040. Meanwhile, the free emission allowances under the EU Emissions Trading System (EU ETS) will be phased out by 2034, exerting a long-term impact on chemical and petrochemical producers.
Europe¡¯s chemical industry has voiced strong opposition to the current raft of climate-related policies. In a statement, Wolfram Uentrop, Director General of the German Chemical Industry Association (VCI), noted that the CBAM mechanism is inapplicable given the chemical industry¡¯s complex industrial chains and a vast array of product categories. He called for the industry to be granted an exemption and for a ban on extending the mechanism¡¯s scope to the pharmaceutical sector. He stated that while the European Commission has announced the strengthening of CBAM anti-avoidance measures and the establishment of a temporary support scheme, these measures amount to mere tinkering and fail to address the root causes of the problem. Additionally, senior executives of European chemical companies are lobbying for a moratorium on the phase-out of free emission allowances for high-emission petrochemical installations.
The fertilizer industry has been hit particularly hard by the CBAM. Based on the EU carbon price as calculated in December 2025, the CBAM levies on three types of imported fertilizers from Turkey, Egypt and Morocco stand at $151, $87 and $21 per tonne respectively, far exceeding market expectations. Some EU fertilizer manufacturers rely on processing overseas raw materials for export, and the hefty levies have directly eroded their international competitiveness, sparking widespread concerns across the industry.
The EU Emissions Trading System (EU ETS) is also highly controversial. The EU¡¯s target of cutting net greenhouse gas emissions by 90% by 2040 compared with 1990 levels was finalized in 2025, yet it is accompanied by a host of flexibility provisions ¨C such as the delayed implementation of the new Emissions Trading System 2 (ETS2) and greater flexibility in carbon sink accounting. ETS2 was originally scheduled to launch in 2027 and expand to cover the construction and transport sectors, but its rollout has now slowed down. S&P reports point out that the EU is walking a tightrope between economic reality and climate goals; amid a fragmented political landscape and declining consumer acceptance of decarbonization costs, its climate policies may be forced to scale back, though the long-term direction remains unchanged.
Beyond climate policies, circular economy regulations will further mount pressure on the chemical industry. The Circular Economy Act (CEA), a core legislative priority for 2026, is expected to be passed within the year, with a target to double the EU¡¯s circular economy rate by 2030 ¨C namely, driving the industry to shift from a linear economic model to a circular one. The European Chemical Industry Council (Cefic) has put forward an action plan containing four recommendations, covering regulatory coordination, business model innovation, raw material supply and the development of a single market.
The EU Packaging and Packaging Waste Regulation (PPWR) under the CEA framework entered into force in February 2025 and will be formally implemented in August 2026. It mandates that 100% of packaging in the EU be recyclable or reusable by 2030, while also enforcing the addition of recycled content and the rollout of an extended producer responsibility (EPR) system. However, the lack of clear implementing rules for the regulation has created considerable uncertainty for the industry.
Europe¡¯s plastic recycling industry has long been hampered by inadequate infrastructure and technological bottlenecks, and policy uncertainty has made its development even more arduous. Provisions related to chemical recycling under the Single-Use Plastics Directive have been mired in controversy for a long time, and the European Union has delayed introducing relevant rules following consultations, leading major corporations such as ExxonMobil to put their European chemical recycling projects on hold. It was not until December 2025 that the EU announced it would clarify the relevant regulatory rules to accelerate the transition to a circular economy.
The EU¡¯s stringent and cumbersome environmental and sustainability regulations, along with its approval procedures, are regarded as the key factors eroding the global competitiveness of its petrochemical industry. Enterprises are burdened with exorbitant compliance and carbon tax costs, yet these standards have not been implemented synchronously worldwide, trapping the industry in a landscape of unfair competition. Coupled with the current downward cycle of the global petrochemical industry characterized by weak demand and overcapacity, the operational predicament of EU petrochemical companies has been further exacerbated. Chairman of the Board of Executive Directors of BASF, stated that the excessively high regulatory intensity and red tape have hindered the industry¡¯s development, and the rigid carbon trading system, surging carbon costs, and the asynchrony of carbon prices in other parts of the world have combined to create unfair competition. While the EU has rolled out the Chemical Industry Action Plan, committing to cutting the industry¡¯s annual compliance costs by at least 363 million euros and reaching an agreement to simplify sustainability due diligence, enterprises are still calling for the continuous optimization of regulatory efficiency.