VINACHEM

The industrial base in Europe will look completely different by 2050 if the EU is to meet the Paris climate change targets and the chemical industry, together with public investment, will be a key sector to fulfil those targets, the director general (DG) at the European Chemical Industry Council (Cefic) said this week.

Marco Mensink (pictured), just four months into his tenure, said however European chemicals are not currently as competitive as they could be due to energy and regulatory costs and growth has proved elusive in the last years, but he remains “optimistic about the overall prospects” for the sector.

“Europe has a stable population and stable GDP growth and the only answer [for chemicals to grow] is increasing consumption. How can government programmes help us innovate and how can they help us create those markets?” said Mensink.

“Our real worry is that Europe needs to get the innovations potentially coming out from Europe invested here. We need investments in the region, not only maintenance investments but real new technologies in order for those investments to come to Europe. That should be the number one political challenge.”

The EU set in 2014 a target for manufacturing of 20% as of total GDP by 2030. However, most major countries (France, the UK, Italy or Spain) lag behind and their industrial bases only account between 10% and 12% of GDP, while Germany fares better with around 19% of its national output coming from manufacturing.

Cefic’s DG said the manufacturing targets are welcome but conceded however there has not been enough practical measures for them to become reality.

Moreover, he passionately defended the role of the state and its funding to develop breakthrough technologies. The role of the state funding innovation has largely diminished in the west over the last decades, and many experts even claim the big advances in technology all came from military research in the US.

Mensink agrees: “Governments used to take risks when investing in new technologies, but in the last decades that has not been the case anymore. If we were to get a major breakthrough technology in Europe, which I hope will happen, I hope governments facilitate the conditions to keep that technology investments in Europe.

“They [governments] are turning slightly on that one [lack of public innovation investment]. We are in a different era and public investment will play a big role, like it always did in breakthrough technologies.”

However, to the voices who claim the main technologic advances have been developed, and the pace could only slow down now, Mensink claims the opposite might be just round the corner with the right incentives, all as a result of the climate change targets.

“Containing the earth’s temperature rise to well below 2 degrees Celsius [by 2100, as per the Paris agreement, compared to pre-industrial levels] will mean large investments around the world. Although we have taken the first step, we haven’t realised how big the changes will be - every industrial base in Europe will look very different in 2050,” said Mensink.

“We need to focus and put the money in key innovations which will create the markets. And keeping the key innovations here in in Europe, helping renew and modernise the industrial base, is what politicians need to realise.

“The €100bn climate change investment fund set up by the UN will look like peanuts by 2050. We are talking about rebuilding completely the industrial base in Europe. It is a big challenge to go, and the only answer is breakthrough technology, not only making plants more efficient alone.”

Mensink’s optimism comes from the fact the two largest polluting economies, the US and China, both have ratified the Paris agreements, with the EU expected to follow suit soon.

Cefic’s DG went on to say the research funding from governments in the EU should be directed towards key, large projects like energy storage, hydrogen or carbon capture and storage (CCS) technologies so the region can focus “on the big things” to bring the European economy to the next step.

The International Energy Agency (IEA) petrochemical analyst, Fabien Kesicki, said to ICIS in July that as long as China and other countries in Asia continue devouring coal for energy and chemicals production without applying CCS technologies, the ambitious targets set in the Paris’ climate change agreement may be difficult to achieve.

Mensink conceded “some of the bigger commodity chemicals investments” might not take place in Europe due to higher costs but in places like the US or the Middle East, but he said specialty chemicals have a key role to play for the sector to develop further.

“And we are seeing it happening already – the investments of [German chemical major] BASF in Ludwigshafen or the expansions in [Dutch and Belgium chemical hubs of] Rotterdam and Antwerp are examples of this. These clusters will be state-of-the-art chemical parks and will compete globally,” said Mensink.

Areas in which innovations towards a more efficient economy could play a vital role are the creation of new markets, effectively creating demand, said Cefic’s DG, and that only can be achieved with policy makers’ rulings on greener policies.

However, the legislation should be enforced, and not just set targets, he added. For instance, the EU could create demand for markets like designing new electricity conductors or batteries or from residential and office refurbishment programmes to insulate and save energy, as well as creating more renewable energies to make them self-sufficient.

“We have had EU set targets for a number of years but not measures have been applied in practice,” said Mensink.

Cefic’s new DG was appointed in order to give the trade group a “better voice” in Brussels, according to its president Jean-Pierre Clamadieu (also CEO of Belgium major Solvay), so the industry could bring its concerns to the EU policy makers by improving its lobbying.

Although only in his position since 1 May, Mensink said in its first public event as DG the current European Commission’s stance towards the chemical industry was more receptive, arguing the publication of a cumulative cost assessment (CCA) analysing the burden the EU strict chemical regulation Reach places on the sector would be a first good step showing a better understanding of the industry’s problems.

However, the EU is facing daunting tasks and Mensink recognised industrial policy might struggle to make top of the agenda. The refugee crisis, the crisis with Russia after the country annexed Crimea in 2014 or the UK’s vote to leave the EU in June (Brexit) are putting pressure on politicians, impeding a central focus on industrial policy.

Brexit will surely take a lot of time in the months and years to come. Mensink said the vote will not mean "the beginning of the end of the EU [but] the start of new model for Europe” but insisted the UK needs to make its negotiating position to leave the 28-country bloc clear.

“We have had big statements but all the work still needs to be done. The European chemical industry wants as much as free trade as we can get [between UK and the EU]. It may not be completely possible, but the discussions to solve the UK’s exit from the EU should go towards keeping the current market as much as we can,” he said.

“Looking at the newspapers, I don’t think it would be possible for the UK to keep access to the single market but restrict free movement of people. Equally, could UK chemical products be traded in the European single market without complying with Reach? I don’t think so.”

The UK’s Chemical Industry Association (CIA) said in July keeping access to the EU’s single market was key for the country’s industry, as around 60% of its output is sold to the other 27 countries within the bloc.

However, the UK’s vote to leave the EU was widely understood as a call of attention to London leaders about one of the fundamental rights within the bloc – free movement of people. Keeping access to the single market but trying to restrict free movement will be the main Gordian knot to resolve in the negotiations.

Another key issue the EU has been working on for more than three years but seems set to fail is a free trade agreement with the US, the Transatlantic Trade and Investment Partnership (TTIP).

While Cefic and its peer in Germany VCI have been strong supporters of the deal, the chief economist at the German trade group recognised in July the window of opportunity to approve TTIP was “closing”.

Mensink remains more upbeat, although recognises emotions about free trade are changing as western working and middle classes feel they have not been the main winners from the last decades of globalisation, which on the other hand have lifted millions in emerging markets out of poverty.

“The public opinion's emotions about free trade agreements are different from before, although I don’t think the EU is turning against free trade as such. We believe both TTIP and CETA [Canada/EU free trade deal] will bring the chemical industry reduced costs, helping keep jobs in Europe,” said Mensink.

“TTIP is not dead but there is a big question mark of when it could be concluded if negotiations are not finalised before the US elections [in November]. Optimism wouldn’t be the right word to use here.” - ICIS