High Energy Prices, Regulatory Complexity Raise Specter of EU Deindustrialization

The European chemical industry is at a critical juncture, grappling with high energy prices, weak demand, and a complex regulatory environment that threatens its global competitiveness. According to CEFIC, the European Chemical Industry Council, urgent policy interventions are required to prevent long-term damage, including deindustrialization in key parts of the sector.

Faced with high business costs in Europe, the 2025 CEFIC-Advancy Competitiveness Report found that 11 million metric tons of capacity were announced for closure in Europe between 2023 and 2024. As of 2025, 40% of the EU's ethylene crackers face closure and major international companies are reviewing and, in some cases, shutting down their European assets. Most prominently, Dow plans to close an ethylene cracker in Böhlen, Germany; chlor-alkali and vinyl assets in Schkopau, Germany; and a basics siloxanes plant in Barry, UK. Chemical business Versalis is on track to complete the shutdown of two crackers in Italy by the end of 2025, and TotalEnergies is shutting down a Belgium cracker by the end of 2027, among others.

In its recent Q1 update, CEFIC highlighted a combination of structural and cyclical challenges affecting the industry: persistently high energy costs, sluggish demand both within and outside Europe, and regulatory fragmentation across EU member states. These factors are further exacerbated by increasing global competition, particularly from regions with lower energy and regulatory costs.

High Energy Costs Driving Industry Strain

CEFIC warns that energy prices in Europe, especially for natural gas and electricity, remain significantly higher than in competing regions like the U.S., China, and the Middle East. European gas prices are 3.3 times higher than those in the U.S. These costs have become a defining competitiveness issue for the sector, which is one of the EU's most energy-intensive.

To mitigate this, CEFIC advocates for both immediate and long-term policy support. In the short term, direct energy cost relief, such as targeted subsidies or tax credits, could help prevent further plant closures and job losses.

“Such policies are already being considered or implemented in other global regions, and their adoption in the EU would help level the playing field,” Sylvie Lemoine, CEFIC deputy director general, told 3E.

Over the medium term, accelerating the rollout of renewable and low-carbon energy infrastructure is critical. CEFIC also calls for innovative financing mechanisms to ensure industrial access to affordable green electricity, while preventing those savings from being offset by soaring grid and system charges.

Beyond energy relief, Lemoine emphasizes the need for structural reforms that address the cost burden of carbon policies and boost investment in decarbonization technologies. This includes scaling up solutions like chemical recycling, carbon capture and storage (CCS), carbon capture and utilization (CCU), and bio-based feedstocks. However, regulatory uncertainty and lengthy permitting processes currently hinder deployment.

“Regulatory clarity and streamlined approval processes for these innovations are essential to stimulate industry action,” she said.

Regulatory Overload Harming Competitiveness

Emilia Vassileva, 3E senior regulatory research analyst, said that the recent crisis in the EU chemical industry is not reflective of new regulatory trends, but rather “long-standing setbacks that have accumulated over decades.”

“Major EU regulatory acts such as Registration, Evaluation, Authorization, and Restriction of Chemicals (REACH) and Classification, Labeling, and Packaging (CLP) have significantly improved the regulation of chemicals, not only within the EU, but globally. However, they have also introduced additional administrative and financial burdens that continue to weigh heavily on the industry,” said Vassileva.

According to CEFIC's competitiveness report, regulatory compliance now accounts for up to 13% of the industry's total added value - double the share of R&D expenditure. The report highlights that regulatory uncertainty, fragmentation among EU member states, and an ever-growing administrative burden are major deterrents to investment.

To address this, the European Commission unveiled the Chemicals Omnibus VI package and the Chemical Industry Action Plan (CIAP) in July. These initiatives aim to streamline key pieces of legislation such as the CLP Regulation and the Cosmetics Products Regulation, while deferring some new requirements until 2028. They also propose new digital labeling measures to ease compliance burdens, especially for small and medium-sized enterprises.

“Overall, 'simplification' is the clear regulatory trend driving these reforms,” Vassileva said. “However, the approach taken by the European Commission is marked by urgency and acceleration, as it seeks to fast-track legislative changes that align the EU's ambitious environmental objectives with the increasingly challenging economic conditions faced by its chemical sector.”

Trade Diversion and Import Pressure

Amid shifting global trade dynamics, concerns are also mounting about increased import pressure on the EU market. The European Commission launched an Import Surveillance Task Force in June to monitor potential trade diversions stemming from recent U.S. tariff and trade policy changes. Early data suggests a notable uptick in chemical product imports to the EU, though it's too soon to confirm a sustained trend.

Lemoine said CEFIC is concerned about the growing import pressure on the EU market that had already started in the last years, and the organization is already seeing a sharp increase of trade defense measures being launched related to chemical products in the EU.

Risk of Deindustrialization Looms

Perhaps the most pressing concern is the risk of permanent deindustrialization. CEFIC's data reveals that more than 11 million tons of chemical production capacity were announced for closure across 21 major European sites between 2023 and 2024. Germany, the EU's largest chemical producer, saw a 20% drop in production over the past year, accompanied by a sharp decline in domestic investment. As Lemoine said, “When companies leave, they don't come back.”

The closures can have cascading effects due to the interconnected nature of chemical production hubs, known as “chemical parks,” where the shutdown of one facility often disrupts several others.

CEFIC concludes that a “full menu” of policy solutions is essential to secure the future of the EU chemical industry. This includes:

• Immediate financial relief for energy-intensive businesses
• Structural investments in low-carbon energy
• Regulatory simplification and harmonization
• Support for innovation and decarbonization
• Trade measures to monitor and address import surges
• Stimulating demand for sustainable, circular products

“There is no time to waste,” Lemoine said. “The goodwill now needs to be turned into urgent relief for the business.”