Bad maths
US chemicals giant LyondellBasell will have to pay almost five times as much for European decarbonisation projects as it gets back in free allowances under new EU proposals, its CEO tells Alice Hancock and Ian Johnston, making it hard to justify the economics.
Context: The EU is debating a major revision to the bloc’s landmark emissions trading system. The ETS underpins the continent’s efforts to reduce greenhouse gas emissions to net zero by 2050 by charging companies for what they emit.
The European Commission has proposed that companies continue to receive free allowances if they invest in cutting emissions, obtaining 80 per cent of the free allowances they are entitled to after submission of a five-year plan to decarbonise. The European parliament’s lead negotiator on the issue, German conservative Peter Liese, has suggested lowering the upfront handout to 75 per cent.
But LyondellBasell’s calculations show that the proposal could mean it has to invest €600mn between 2031 and 2035 to retain some €120mn in free allowances.
Peter Vanacker, the boss of the chemicals company, which produces key polymers and olefins, said that he was not against decarbonisation but needed a business case to justify it to shareholders.
“The current system clearly puts also the financial risk of decarbonisation only on the producer,” said Vanacker. “Where is the business case?”
Officials have warned that the chemicals sector and others have received free allowances for years without making necessary investments to decarbonise, and that the changes are needed to force companies to invest in Europe.
Europe was not an uninvestable region, Vanacker said. In fact, LyondellBasell’s biggest investment is in a chemical recycling plant in Wesseling, Germany. That project was made possible via €40mn of EU funding but also by Brussels setting targets for plastic recycling, something it should also consider doing for greener products, including chemicals, he said.
It’s “very clearly stipulated what the percentage of recycled material is that needs to be used in 2030 — 10 per cent — and then it goes up as we move to 2040”, he said. “So you have a long-term creation of market demands and we have invested and continue to invest in our site in Germany . . . And this is a huge investment.”
“So here you see . . . the market is being created, so there is predictability and as a consequence, we see that we have a very good business case and we invest,” Vanacker added.