The Future of European Chemicals: The carbon tax conundrum - updated for last week‘s ETS changes

Research evidence excerpt

The Future of European Chemicals: The carbon tax conundrum - updated for last week‘s ETS changes

22 July 2026

European Chemicals

The Future of European Chemicals: The carbon tax conundrum -

updated for last week's ETS changes

We started a series on the Future of European Chemicals, with the aim of determining to James Hooper

+44 20 7676 6995 what degree the chemicals industry in Europe is investable longer-term. After all, why would

james.hooper@bernsteinsg.com investors endure the inevitable cycles if the pot of gold at the end of the rainbow is empty?

The first report in the series was on carbon taxes: The Future of European Chemicals: The

Sebastien Afoy carbon tax conundrum. With last week’s ETS revisions announcement from the European

+44 207 762 1032

sebastien.afoy@bernsteinsg.com Commission, we update our carbon emissions burden model (available to clients on request).

We believe the new rules do little to change the investment case of a European chemicals

Specialist Sales company in the 2020s, and do not address any issues with relative costs and productivity

versus other regions.

James Brady

+44 20 7762 5272

james.brady@bernsteinsg.com We see the key changes to the rules from the European Commission’s revisions

(see link) as: 1) A 70bps cut in the Linear Reduction Factor from 4.4% to 3.7% for the

Steve Song emissions cap over 2031-35; 2) an extension for the end of free allocation for CBAM

+1 917 344 8401 sectors (including fertilisers) from 2034 to 2037; and 3) the possibility of some extensions

steve.song@bernsteinsg.com

of free allocations past the previous 2039 end in hard to abate sectors. There appears

little policy support for chemicals in the near-term, and some of the funding theoretically