Given higher costs, making plastic production more environmentally friendly would be a challenge even in good times. But, unfortunately, times are not good at all. At the beginning of this year, BASF announced that it would cut its investment budget amid the crisis. And influential Bloomberg analyst Javier Blas even recently warned that the European petrochemical industry is heading towards death row. In his words:
“European consumption of gasoline, the cornerstone of the petrochemical industry that produces plastics, will fall in 2023 to its lowest level in almost 50 years, 40% less than its historical maximum. As a result, the industry’s workhorses, called steam crackers, are operating at uneconomic rates between 65% and 75% of capacity. Due to the huge fixed costs, anything less than 90% is cause for concern; 85% is bad and below 80% is considered catastrophic.“
We do not believe that petrochemical companies in Europe face an existential threat, as many are multinationals that can move production elsewhere outside Europe, at least to some extent. However, Blas is right that production prospects at European plants are far from optimistic.
Production prospects at European plants are not at all optimistic
Given the higher costs of greener plastics and the difficult economic environment, it is difficult to see very rapid sustainable progress on the supply side. One could argue that this is irrelevant since Europe’s Emissions Trading scheme forces petrochemicals to reduce emissions anyway, as long as politicians do not weaken the scheme. If emissions cannot be reduced sufficiently through cleaner production, plastic production must be reduced to meet ETS emissions targets. Lower production could be seen as a policy of degrowth, a concept that is gaining importance in economic and climate literature. But it runs counter to recent trends in Germany and France that want to protect their energy-intensive industries, not only by helping them go green, but also to protect production and jobs and increase strategic autonomy.
The fact that petrochemicals have not yet entered the carbon border adjustment mechanism does not help either. Therefore, its activities in Europe are not protected from imported plastic whose CO2 The footprint is usually larger. And they have difficulty exporting plastic as before, since their competitiveness has been damaged despite the smaller footprint.