Rethinking the EU ETS and CBAM for energy-intensive industries

I have been at Dow for almost five years. As a global player in the chemical industry, Dow has a major production footprint in Europe, with 25 manufacturing sites across nine countries.

I am writing this less than a week after the third Antwerp European Industry Summit (11 February 2026), an event that rightly brought much‑needed attention to the serious challenges facing European industry — and the chemical sector in particular. It is striking how much has changed in just five years.

When I joined Dow, the company was developing plans to decarbonise its Terneuzen site in the Netherlands, our largest manufacturing site in Europe. For now, those plans have had to be abandoned. The challenges we faced stem from a complex interplay between EU and national regulations, creating uncertainty that has led to persistent permitting deadlocks.

This experience clearly demonstrated that industrial decarbonisation cannot succeed without the right enabling conditions. 

Critical third‑party infrastructure gaps — including CCS storage, CO₂ transport pipelines, high‑voltage grid connections, and insufficient market demand for low‑carbon products — continue to block progress today and for the foreseeable future. 

These challenges are compounded by the difficulty of securing public funding and coordinating EU and national applications, including under the oversubscribed EU ETS Innovation Fund.

Climate policy reality check

One key lesson is the sheer level of complexity and dependence on a climate‑services ecosystem beyond the control of industrial operators — a reality that has so far been underestimated in EU climate policy. In stark contrast, Dow is currently investing in the world’s first net‑zero petrochemical complex in Canada, where enabling conditions were well aligned, allowing a final investment decision to be taken.

The fact that many of these obstacles are not caused directly by EU climate policy does not make them any less damaging. Their impact on policy effectiveness is real and must be addressed head‑on in the upcoming EU ETS review.

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Carbon pricing is often presented as the key lever for industrial decarbonisation. In practice, however, it can only work where the necessary enabling conditions are in place — and many chemical sites across Europe are still operating without them. 

As a result, the chemical industry is increasingly exposed to carbon costs that undermine competitiveness and risk accelerating deindustrialisation, rather than incentivising decarbonisation. While this may reduce emissions on paper, it is not the intended objective of EU climate policy and risks being recognized in hindsight as a policy failure.

For our sector, the current climate policy framework is neither delivering the Green Deal’s climate objectives nor preventing greater reliance on imports, at a time when other EU policies rightly aim to strengthen domestic production capacity.

This call for action should not be interpreted as questioning the EU ETS as such. The system has proven highly effective in the power sector. Having worked in that sector for many years, the contrast is clear. There, key enabling conditions were in place: limited trade exposure, the ability to pass through carbon costs, and substantial public support to scale up low‑carbon technologies. In this context, the EU ETS can rightly be considered a success.

The challenge is that these same conditions do not exist yet for energy‑intensive industry — and that difference matters.

Sector‑by‑sector approach

At this stage, successful decarbonisation will require a sector‑by‑sector approach. The chemical industry is highly complex and diverse, with multiple production pathways. 

The levers needed to incentivise decarbonisation, therefore, differ not only between sectors, but also within our own. Energy‑intensive upstream activities are far more exposed than downstream speciality sectors. In many cases, the use of CCS will be indispensable to address unavoidable process emissions inherent in chemical reactions.

Where enabling conditions are missing, policy action must focus on accelerating their delivery — not only through increased investment, but also through better coordination of infrastructure roll‑out, so that all critical enablers become available at the same time and at competitive cost.

As long as operators lack indispensable infrastructure beyond their control, a mechanism should exist to exempt them fully from ETS costs. This would prevent unintended deindustrialisation and place operators in a temporary holding pattern until decarbonization becomes feasible. 

The resulting fiscal impact would itself create a strong incentive for Member States to accelerate infrastructure deployment, as the exemption would end once enabling conditions are in place.

At the same time, the ETS should continue to operate as designed for sectors and operators where enabling conditions are already available.

Stronger demand measures will also be needed to support capital‑intensive decarbonisation investments upstream.

Europe's Carbon Border Adjustment Mechanism

Finally, a word on CBAM. Since the early stages of the debate, Dow has viewed CBAM as potentially supportive of our net‑zero ambition in Europe, provided four conditions were met: full value‑chain coverage, inclusion of indirect emissions, feasible and effective compliance, and a solution for exports.

Today, however, the current CBAM framework lacks the flexibility and granularity needed to reflect the complexity of chemical value chains — a complexity far greater than in most other sectors. 

While full value chain coverage would be an ideal outcome in theory, we have significant doubts whether this is manageable in practice in an industry that is as complex as the chemical industry. As a result, CBAM is unlikely to provide an effective solution to the chemical industry’s exposure to rising carbon prices.

Faced with the inability to decarbonise due to missing enabling conditions beyond our control — and with limited protection against carbon leakage in the absence of a workable CBAM solution — the only responsible option is to revisit the current design of the EU ETS.

Certainty of investment and decarbonisation for some cannot come at the cost of certainty of closure for others. That is neither a sustainable industrial policy nor a credible path to climate neutrality.

The opinions expressed in this article by Hélène Lavray are her own.