Bad chemistry

The report analyzes how the EU chemical sector has avoided the costs of carbon pollution through free allowances under the EU ETS, noting that 98% of emissions since 2013 were covered. It highlights that the sector remains a major emitter, with emissions increasing in 2024, and that the Carbon Border Adjustment Mechanism (CBAM) currently only covers a small fraction of the industry. The author argues that this system protects polluters and hinders decarbonization, specifically citing BASF as an example of a company receiving more allowances than it needs while opposing carbon costs. The report recommends a clear phase-out timeline for free allowances, more ambitious benchmarking, and the introduction of decarbonization conditionalities.

• Since 2013, the EU chemical sector has had 98% of its emissions covered by free allowances, and in 2022 and 2023, the sector was overallocated, receiving 105% of its emissions.
• The chemical sector's emissions reductions are largely attributed to facility closures and production declines rather than decarbonization; emissions from installations that remained open fell by only 7% between 2013 and 2024, and emissions increased in 2024.
• The Carbon Border Adjustment Mechanism (CBAM) currently only covers fertilisers and hydrogen, leaving approximately 70% of the chemical sector's free allowances without a defined phase-out timeline.
• Emissions in the chemical sector are highly concentrated in specific subsectors, with the manufacturing of other organic basic chemicals accounting for 38% of total emissions and fertiliser production accounting for nearly 30%.
• Free allowances are geographically concentrated in the Netherlands, Germany, and France, which together accounted for half of all EU chemical sector emissions since 2021.
• A small number of companies benefit disproportionately from free allocations; since phase 4, 3% of chemical companies accounted for 50% of all free allowances, and the top seven most allocated companies received 13 million more allowances than their emissions, worth €938 million.
• BASF serves as a primary example of overallocation, receiving 28 million free allowances (worth nearly €2 billion) for 22 MtCO₂e of emissions since 2021, while simultaneously opposing carbon costs and investing €9 billion in a factory in China.

APA

Vanegas-Hernandez, M., & Tamellini, L. (n.d.). Bad chemistry. Carbon Market Watch. https://carbonmarketwatch.org/wp-content/uploads/2026/07/2026_07_Bad-chemistry.pdf

Chicago

Vanegas-Hernandez, Meili, and Lidia Tamellini. Bad chemistry. Carbon Market Watch, n.d. https://carbonmarketwatch.org/wp-content/uploads/2026/07/2026_07_Bad-chemistry.pdf.

Wikipedia

{{cite report |last1=Vanegas-Hernandez |first1=Meili |last2=Tamellini |first2=Lidia |title=Bad chemistry |publisher=Carbon Market Watch |url=https://carbonmarketwatch.org/wp-content/uploads/2026/07/2026_07_Bad-chemistry.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{vanegashernandezndbad, author = {Vanegas-Hernandez, Meili and Tamellini, Lidia}, title = {{Bad chemistry}}, institution = {Carbon Market Watch}, url = {https://carbonmarketwatch.org/wp-content/uploads/2026/07/2026_07_Bad-chemistry.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }