Dusseldorf Evonik boss Christian Kullmann is currently being courted by politicians who want to attract investments from the Essen-based chemical company to their country. “I experience that in the USA, I experience that in Asia. Only in Europe I don’t experience that,” he says. Here the industry threatens to suffocate from a dangerous mix of overregulation, bureaucracy and high energy costs. He is not surprised if chemical companies follow the call to the USA.
At the Handelsblatt annual chemical conference on Tuesday, Kullmann was not the only top manager to warn against the migration of production from Europe. As Kullmann puts it, chemistry is in the middle of an “industrial revolution”. It is the key to the green transformation of the entire economy, and the demand for sustainable chemicals is huge worldwide.
However, many industry representatives now doubt whether this revolution will take place at European locations as desired by politicians. The majority of chemistry supports the goal of making Europe climate-neutral by 2050. The plans of the companies themselves are sometimes even more ambitious.
“The idea of the Green Deal is correct and well thought out,” said Anno Borkowsky, board member of the Cologne-based chemical company Lanxess. “But we always manage to turn such important projects into a bureaucratic monster.”
How a medium-sized chemical company should plan a future-proof business based on 15,000 pages of regulatory provisions from Brussels is also a mystery to BASF board member Melanie Maas-Brunner. The industry in the USA experiences it very differently, where the government is promoting green conversion with the Inflation Reduction Act (IRA).
Maas-Brunner is convinced that Europe could learn and adopt a few things from the IRA. This is how many internationally active managers see it. From their point of view, it starts with the perception of the chemical industry.
The chemical company sees the entire industry in the US much more highly valued when it comes to the energy transition.
(Photo: AP)
“The USA sees the role of chemistry as central to solving the climate problem,” observes Julia Schlenz, Germany boss of the American chemical company Dow. This can be seen very clearly, for example, in the subsidies for industry and in the incentives provided by politics.
It is not only pure subsidies for the construction of plants that attract America. From the point of view of Lanxess manager Borkowsky, the basic principle of the IRA is market-based: the companies are made more attractive with tax breaks and the operation of green production facilities. The state does not dictate how companies are to drive forward the green transition in detail.
This business approach is in contrast to the European way of thinking that believes in the state, complains Evonik boss Kullmann. There, “officials in Berlin and Brussels wearing sleeve pads wanted to explain to companies how the best way to achieve climate neutrality should be,” he complains.
USA require local production
In fact, the Americans also make regulations for companies. In addition to the carrot in the form of tax breaks, there is the stick in the IRA: aid is only available if the majority of production takes place in the USA.
Many consider this to be a continued “America first” policy under the aegis of President Joe Biden – to the detriment of the exporting German suppliers. German foreign politicians warn against such a view, but see a need for discussion.
“We are very pleased that the USA has also recognized the need for climate protection,” said Anna Lührmann, Minister of State at the Federal Foreign Office, at the Handelsblatt conference. “We are having constructive discussions on how we can mitigate the negative effects of the IRA on Europe’s industry.”
The Green foreign politician warns of a “protectionism competition” with the USA. Rather, Lührmann envisages creating a framework of equal competitive conditions with as many industrial nations as possible in order to promote the green conversion of industries on an equal footing.
The extraction of shale gas and oil is controversial, but provides cheap energy in the USA.
(Photo: Bloomberg)
According to a survey by the German-American Chamber of Commerce, around 40 percent of companies operating in America are planning to expand their presence in the USA in the near future. It’s not just the subsidies that make the location more attractive, but the revitalization of US industry as a whole.
Because of the geopolitical tensions with China, Western companies are again focusing more on the United States, where they can plan and have legal certainty. Added to this are the lower energy prices, which are particularly important for the chemical industry. Even though gas prices in Europe have recently fallen sharply, they are currently four to five times higher than in the USA. A lot of gas is extracted there by fracking.
The overall package makes it difficult for companies to swear allegiance to Europe as a business location. The US group Dow wants to push the electrification of its plants worldwide, including in Germany. “We have important partners and customers here,” explains Head of Germany Schlenz. “But when planning uncertainty and energy costs are as high as in Europe, it is difficult to justify an investment here in an international context.”
Industry demands fast industrial electricity prices
However, most chemical managers still consider Europe’s chances of playing a leading global role in the green conversion to be high. “Good technology and concepts for the turnaround are available,” says Conrad Keijzer, CEO of Swiss Clariant. “We have to accelerate the implementation, otherwise we will lose the lead.”
BASF board member Maas-Brunner is “firmly convinced that sustainability can become a huge growth driver if you do it right”. The drivers are clear: less bureaucracy, faster approval procedures and, above all, cheaper energy. “We need a competitive industrial electricity price, and not only in 2030, but as soon as possible,” said Christian Hartel, CEO of Munich-based Wacker Chemie.
Otherwise, the chemical CEOs fear a chain reaction: if production goes ahead, research, knowledge and thus innovative strength will also be lost a little later.
More: This is how the new industrial electricity price could be introduced