European industry warns of ‘deindustrialisation risk’ under current EU climate rules

Brussels – An alliance of 80 leading European industrial companies, including chemicals majors such as Ineos, BASF, Evonik, DuPont and Lanxess, has warned that current EU climate rules risk driving energy-intensive production out of Europe.

In a joint letter to the EU institutions and the German federal government, the grouping said that the EU emissions trading system (ETS) and carbon border adjustment mechanism (CBAM) “are jeopardising the economic viability of this transformation – and thus the continued existence of energy-intensive industries and their value chains in the EU.”

Stressing the industry’s commitment to climate protection, the letter “we are increasingly concerned that the current rules of the ETS and CBAM are threatening both competitiveness and the transformation ahead.”

The signatories warned that the ETS reduction path leading to zero emissions by 2039, together with the phase-out of free allowances by 2034 or 2039, poses a “practically insurmountable challenge for many companies.”

They said the resulting CO2 costs could reach the “multi-billion-euro range annually” for the alliance, “often exceeding operational cash flow and profit.”

According to the letter, the necessary conditions for industrial decarbonisation — “large-scale availability of low-carbon electricity and hydrogen, related infrastructure, market-ready CCU/S technologies, and a comparable level of ambition in key competing regions” — will not be in place across all member states by the mid-2030s.

“CBAM is further exacerbating the pressure on industrial value creation in the EU,” the group added.

“In its current form, it does not provide effective protection against carbon leakage. It only covers a small fraction of the value chain and undermines the competitiveness of exports.”

The alliance called for several immediate reforms, including: Extending free allocations beyond current phase-out dates; suspending the phase-out of free allocation through CBAM “for the time being”; avoiding ETS benchmark adjustments and stabilising and expanding electricity price compensation.

“Without these measures, we risk further relocation of energy-intensive production steps to countries outside the EU – with negative consequences for employment, value creation, and climate protection,” the letter warned.

“Transformation must not lead to deindustrialisation – it must be designed to be economically viable and technologically realistic.”

The appeal follows an Oxford Economics report commissioned by Ineos, which found a sharp contraction in Europe’s chemicals base.

Between 2019 and second quarter of 2025, chemical output fell 30% in the UK, 18% in Germany, 12% in France, and 7% in Belgium.

The study also highlighted a 34% rise in Chinese imports into the EU between 2019 and 2024.

China’s rapid capacity build-up of around 9% a year, the report noted, had led to inventories of 51% above 2019 levels, leading to “surplus product being pushed into Europe.”

Ineos Chairman and CEO Jim Ratcliffe warned that “we are entering the 11th hour for Europe’s chemical industry,” citing high energy costs, growing import pressures, and rising trade imbalances.