Brussels (Brussels Morning Newspaper) November 02, 2026 – European chemical manufacturers are warning of a deepening structural crisis as uncompetitive energy prices, regulatory compliance burdens, and intensifying market competition from China severely depress production volumes across the continent. Trade bodies and industry leadership report that capacity closures across European Union member states have escalated significantly, threatening value chains that supply automotive, pharmaceutical, and construction sectors. Companies continue to call for comprehensive industrial policy measures to address energy cost disparities and safeguard strategic domestic manufacturing capabilities.
The European chemical sector is confronting a prolonged period of economic contraction driven by a combination of elevated energy tariffs, weak domestic demand, and an influx of lower-cost chemical products manufactured in China. Reports released by the European Chemical Industry Council (Cefic) and the German Chemical Industry Association (VCI) indicate that total output in key manufacturing hubs remains significantly below pre-crisis levels, accelerating concerns over the broader deindustrialisation of the European continent.
Chemical production in Germany, Europe’s largest chemical producer, stands nearly 19 percent below 2021 levels, according to industry data provided by the VCI. Over the same period, chemical production in China expanded by 26.6 percent. China currently accounts for approximately 45.7 percent of total global turnover in the chemical industry, leveraging subsidized energy supplies, expanding domestic infrastructure, and lower operational overheads to increase its market dominance.
Disparity in Energy Costs and Carbon Pricing Mechanisms
The central factor eroding the competitiveness of European chemical facilities is the persistent structural gap in energy prices compared to competing international markets. Industrial power prices and natural gas tariffs in Europe remain among the highest globally, standing up to three to four times higher than costs incurred by manufacturers based in the United States and China.
Natural gas serves a dual purpose within the chemical sector, functioning both as a primary energy source to generate heat and power and as an essential feedstock for producing basic chemicals such as ammonia, methanol, and ethylene. The sustained price gap has forced multiple European facilities to permanently shut down energy-intensive production lines or idle operations. Cefic data reveals that production capacity closures across EU member states have surged sixfold since 2022, reaching cumulative closures of 37 million tonnes.
In addition to base energy costs, European chemical companies face substantial compliance expenses associated with the EU Emissions Trading System (ETS). Industrial analysts point out that European manufacturers pay considerably higher prices per tonne of carbon dioxide emissions compared to international competitors. In China, carbon pricing mechanisms remain significantly lower in cost and apply to a narrower range of industrial activities.
Industry associations have raised concerns regarding the effectiveness of protective regulatory instruments, such as the EU Carbon Border Adjustment Mechanism (CBAM). The VCI noted that the current iteration of CBAM does not cover the vast majority of complex down-stream chemical products, leaving European exports vulnerable in global markets while failing to fully insulate domestic manufacturers from cheaper, high-emission imports.
Relocation of Capital Investment and Job Losses
Due to shifting cost dynamics, major European chemical corporations are redirecting capital expenditure toward jurisdictions outside Europe. German chemical manufacturer BASF recently inaugurated its €8.7 billion Zhanjiang Verbund site in China as part of an explicit corporate strategy to invest in growing markets with lower production costs. Executives noted that regulatory demands, prolonged grid-connection timelines, and high power prices in Europe make large-scale electrification and new capital investments increasingly unviable without substantial structural policy reform.
The broader economic impact of the slump in energy-intensive industries is evident in employment figures across the region. Data tracking energy-dependent manufacturing sectors indicates that overall employment across these industries has dropped by more than 6 percent since early 2022, resulting in the loss of over 53,000 direct industrial jobs.
Furthermore, the reduction in primary chemical synthesis threatens adjacent manufacturing ecosystems. Basic chemicals form the foundation for critical supply chains, including agricultural fertilizers, high-performance polymers, semiconductors, hygiene products, and active pharmaceutical ingredients. Industry leaders warn that the loss of primary manufacturing capabilities leaves European manufacturing end-users increasingly dependent on external supply lines, exposing domestic economies to potential geopolitical disruptions and international trade bottlenecks.
Calls for Strategic Industrial Policy Interventions
In response to the deteriorating business environment, chemical industry leadership is pressing European governments and the European Commission to implement emergency industrial policies aimed at restoring cost parity.
The primary demands outlined by trade associations include:
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Direct Energy Cost Relief: Implementation of targeted, long-term industrial energy price caps and the reduction of state-induced taxes, levies, and network fees on electricity.
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Infrastructure Acceleration: Synchronized expansion of renewable energy generation alongside rapid modernization of power grid connections to facilitate industrial electrification.
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Regulatory Streamlining: Comprehensive reform of carbon pricing mechanisms and the reduction of administrative reporting burdens that disproportionately impact European operations compared to global rivals.
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Effective Trade Defense: Extension of trade protective measures to cover intermediate and downstream chemical derivative imports that bypass existing tariffs.
Without systemic policy changes to lower energy costs and maintain a viable operating framework, industry representatives warn that further plant liquidations will occur. As global production continues to concentrate in North America and Asia, the European chemical sector faces the permanent loss of essential manufacturing infrastructure.
