It may come as no one’s surprise that Europe’s chemical sector is in the midst of a structural decline. This is only natural, given that persistently high energy costs, weakened investment, and intensifying global competition have forced many production sites to shut down or relocate, specifically in the petrochemical and ammonia sectors. At the same time, the EU relies heavily on imported feedstocks, which are crucial for a myriad of products in agriculture, pharmaceuticals, and beyond. This dependence leaves Europe increasingly exposed, hardly without awareness.
The European Commission, observing the trend, listened and responded with a plan in July to strengthen the competitiveness and modernisation of Europe’s chemical industry, to shore up domestic chemical production, and to reduce strategic dependencies.
Overview of the current situation
According to the European Commission’s “European Chemicals Industry Action Plan”, Europe’s chemical sector is in a deep slump. In the first half of 2025, revenues across Germany’s chemical and pharmaceutical industries reached €107 billion (down 0.5 % year-on-year) while industrial output fell by 1 % compared to early 2024. Output in Germany, and by extension much of Europe, remains around 15 % below 2018 levels. Production capacity, which includes critical petrochemical processes like steam cracking, has shrunk by over 11 million tonnes across 21 major sites, largely due to soaring energy prices that are 4–5 times higher than in the U.S., and ethylene production alone costs 3.2 times more than in North America.
The European Hydrogen Observatory states as well that the EU imported 2.8 million tonnes of ammonia in 2023, out of a total consumption of 13.5 million tonnes, indicating a 20% import share, with the remaining gap filled by domestic production at only 60% capacity utilisation. Even though a large portion is still produced domestically, a report confirms the EU production has declined and imports have increased, with the 27 EU member states’ (EU-27) production dropping production dropping from 17.6 Mt in 2017 to 16.7 Mt in 2020, even as apparent consumption remained stable, implying a rising import reliance. The European Hydrogen Observatory notes as well that the EU consumes ~7 Mt of methanol per year but only produces around 1.5 Mt domestically, meaning that roughly 80% of EU methanol is imported. 
All these elevated expenses, compounded by expensive import regulations, have minimised output: overall EU chemical production is down by 6–8 %, with Germany witnessing up to a 15 % drop from pre-crisis levels. This decline has exacted a heavy toll on employment and capacity. More than 20 major plants have closed across Europe in the past two years, reducing cracking capacity by 8–10 %, with thousands of jobs directly affected. In Germany alone, BASF, Covestro, Evonik, and others have announced large-scale layoffs: Evonik cut 2,000 jobs in early 2024, BASF plans to eliminate 2,600, and up to 250,000 manufacturing roles have vanished nationwide since the pandemic began. In addition, capacity utilisation sits stubbornly low at between 70 – 75 %, grossly underperforming against the longer-term EU average of around 81 %.
What is the plan?
In July 2025, the European Commission communicated a comprehensive action plan to reinforce the competitiveness and resilience of the EU chemical industry, which is Europe’s fourth-largest manufacturing sector, employing over 1.2 million people directly and supporting millions more across supply chains. The plan targets structural pressures such as high energy prices, global market imbalances, and declining investment.
One key measure: The formation of the Critical Chemical Alliance, aimed at preventing production capacity losses and safeguarding essential compounds like ammonia, methanol, and ethylene. The action plan also proposes the swift rollout of the Affordable Energy Action Plan, trade defence measures to ensure fair global competition, and incentives to stimulate market demand for clean and innovative chemical products.
In parallel, the Commission is introducing a further restriction on PFAS (per- and polyfluoroalkyl substances), with exemptions only for applications where no viable alternatives exist. To ease the regulatory burden, a dedicated simplification package, called the sixth “Omnibus”, will revise labelling rules, clarify cosmetics regulations, and simplify fertiliser registrations.
Altogether, these measures are expected to reduce administrative costs by over €360 million annually. Aligned with the EU’s broader Clean Industrial Deal and Competitiveness Compass, this new strategy emphasises a strong shift toward viewing chemical production as a matter of autonomy and innovation leadership, not merely industrial maintenance. Yet, it also speaks to a broader ambition: to restore Europe’s ability to produce vital industrial chemicals domestically, in ways that are both competitive and materially future-ready.
Why It Matters
At the heart of this push lies a tough scientific challenge: many of the compounds Europe seeks to secure require energy-intensive synthesis routes, rely on fossil-based feedstocks, and are deeply embedded in legacy production systems. One cannot steer a parked car, meaning that rebuilding these processes from the bottom up in both a sustainable and resilient way will require a reinvention of chemical plant design itself.
Now at this point, innovation must take over. From electro-catalysts that can operate at lower temperatures, to membrane separations that cut energy use, to thin-film reactor materials that enable better heat and mass transfer, Europe’s chemical revival hinges on its ability to leap ahead technologically. In the same sense, this also means diversifying feedstocks. Circular carbon, biomass derivatives, and green hydrogen that can be generated domestically must increasingly replace fossil-based inputs, not only for the climate’s sake, but again for strategic autonomy. Doing so profitably will require deep R&D into more selective catalysts, robust materials, and integrated process designs, but without these breakthroughs, production will struggle to compete globally.
Geopolitical & Economic Context
The urgency is not just technical. The United States enjoys a major energy cost advantage, thanks to domestic shale gas. China, meanwhile, has captured a dominant share of global production capacity in key segments through scale, state support, strategic vertical integration and steady technological scaling. According to the Information Technology and Innovation Foundation, China accounts for over 44% of global chemical production and 46% of capital investment in the sector
Europe, by contrast, has lost more than it gained in chemical production sites since COVID, particularly in the energy department, with a loss of 11 million tonnes of capacity due to shut downs, which is becoming increasingly more important for the maintenance of a modern society. An explanation for this decline could very well lie in the dependence on imported rare earth elements (REEs), which are essential for advanced catalysts, membranes, and electrochemical materials used in both clean and conventional chemical processes. China notably controls over 85% of global REE refining capacity, making supply chains for green chemistry and smart materials increasingly exposed.
On top of this material dependency comes the issue of human knowledge capital. Cross-border talent mobility particularly within chemistry and process engineering remains limited. This is in part due to the persistence of national research systems rather than an overall integrated one. But majorly, international talents see problems with short-term contracts and limited alignment between academic labs and pilot-scale industrial R&D. CESAER’s latest report on this issue confirms this and explicitly calls for reversing Europe’s “brain drain” to the U.S. by 2035 through a more coordinated approach, since international recruitment is deemed essential for industrial innovation.
The Four Priorities for Europe’s Industrial Backbone
In that context, the Critical Chemical Alliance is more than industrial policy; it is industrial defense. It can be seen as an acknowledgment that Europe can no longer assume its access to critical compounds will remain stable or cheap in a fragmented global economy in the immediate future. Chemical independence is now a prerequisite for food security, electronics manufacturing, defense readiness, and the green transition itself.
For the Critical Chemical Alliance to succeed, Europe must act on multiple fronts: politically, scientifically, and financially. This means embracing a proactive agenda that strengthens its foundations. Among the most urgent priorities should be:
- A reduction in rare earth element (REE) dependency in catalyst systems and membranes by investing in alternative materials and recycling pathways.
- Scale electrified and low-temperature reaction systems, particularly those powered by green hydrogen or renewable electricity, to reduce exposure to fossil fuel price volatility.
- Support young researchers and cross-border knowledge transfer, especially in electrochemistry, materials design, and process intensification. Talent mobility across European labs and pilot plants must become the norm, not the exception.
- Create demand-side incentives (e.g., green procurement, carbon contracts for difference) that make clean chemicals financially viable and attractive, especially during the scale-up phase.
Chemistry is infrastructure, and a thriving chemical sector is no longer optional. It’s in everything from agriculture, microchips, transportation, to military – in absolutely everything. Europe must treat it as such.
