Ethylene Production in the Petrochemical Industry: Competitive Risks and Impacts of the EU Emission Trading Scheme

Abstract

The European petrochemical industry is facing significant challenges that threaten its global competitiveness. Key challenges are the rising energy costs and a global increase in overcapacity for critical petrochemical building blocks, including ethylene, propylene, butadiene, benzene, mixed xylol, and toluene (Berry C., 2024). The European Union Emissions Trading Scheme (EU ETS), established with the aim to facilitate the reduction of greenhouse gas emissions in the face of climate change, also imposes further economic burdens on the industry. European emitters must purchase CO2 allowances (EUAs), while the Carbon Boarder Adjustment Mechanism (CBAM) does not provide full compensation for imports of chemicals from non-EU countries, exacerbating competitive disadvantages. This study conducts a comparative analysis of the competitiveness between the EU and the US in 2023, focusing on naphtha- and ethane-based steam cracking. The calculation of variable production costs for 2023 shows a competitive disadvantage for EU producers, with variable production costs in Europe being $200–$380 higher per ton compared to the US. The situation is further exacerbated by the cost of EUAs, which could increase production costs by up to 11.5% by 2030. The introduction of the EUAs for European CO2 emitters without cost compensation by considering imports via the CBAM leads to a further deterioration of the competitive situation. EUAs costs could represent up to 11.5% of variable production costs by 2030, depending on the technology and forecast. This study highlights the compounded impact of rising production costs and environmental regulations on the competitiveness of European ethylene production