A new study published by Carbon Market Watch found that the chemical industry emitted approximately 1.28 GtCO₂e between 2013 and 2024 while receiving free emission allowances covering around 1.26 GtCO₂e. As a result, the industry effectively paid for only around 2% of its total emissions, while receiving free allowances worth an estimated €36 billion.

The report also indicates that the chemical sector continues to avoid the full impact of EU carbon pricing, with no evidence that this trend is slowing. In both 2022 and 2023, the sector remained overallocated, receiving free allowances equivalent to 105% of its verified emissions.

All chemical subsectors continue to benefit from free allowances that cover nearly all of their emissions, with some receiving allocations that exceed their actual emissions. At the same time, the persistence of free allocation weakens decarbonisation incentives, as emissions from the chemical sector have declined by only 30% since 2013.

The authors caution that this 30% reduction may not be attributable to genuine decarbonisation within the sector. Instead, they note that several major facilities have closed since 2014. As a result, emissions from installations that remained operational declined by a much more modest 7% between 2013 and 2024.

Since the start of Phase 4, one in three companies has received more allowances than needed to cover its actual emissions. Over the same period, the seven most highly allocated companies in the chemical sector received a combined surplus of 13 million allowances, exceeding their verified emissions and amounting to an estimated €938 million.

Last week, a spokesperson for BASF, Europe’s largest chemical producer, criticized the current design of the EU ETS, stating that it “is not driving us ​to the next stage of new technologies, they are ​far too expensive, and the CO₂ price ⁠is too high to bear for an industry that is facing a global competition.”

However, the findings of the Carbon Market Watch report suggest a different picture. Between 2021 and 2024, BASF emitted approximately 22 MtCO₂e while receiving around 27.8 MtCO₂e in free emission allowances. As the study states, “BASF has been profiting from free allowances covering 126% of its emissions from 2021 to 2024, while complaining about carbon prices and opposing any conditionality.”

The study also found that three countries—the Netherlands (67 MtCO₂e), Germany (61 MtCO₂e), and France (46 MtCO₂e)—have accounted for nearly half of all emissions from the EU chemical sector since 2021. In Romania, chemical installations emitted 2.8 MtCO₂e while receiving approximately 4.5 MtCO₂e in free emission allowances, meaning that free allocations substantially exceeded their verified emissions.

The report concludes that the continued over-allocation of free emission allowances has significantly limited the effectiveness of the EU Emissions Trading System in driving decarbonisation within the chemical sector, raising renewed concerns about whether the current allocation system provides sufficient incentives for emissions reductions.