EU Chemicals: Why They Pay No Carbon Price
Key Takeaways
- This guide covers industry guide reporting requirements based on IR (EU) 2025/2621 and EU Regulation 2023/956
- All emission factors and CN codes referenced are verified against the latest EU implementing regulations
- Practical steps and common mistakes are drawn from hands-on implementation experience with the CbamTrack platform
From the team behind CbamTrack
We built this guide based on hands-on experience implementing CBAM compliance for SME importers. The calculations and workflows described here power our own platform — this is not theory, it's what we ship.
Meta Description: The EU chemical sector received free allowances covering 98% of its emissions since 2013. CBAM only phases out 30% of them. Here's the full picture and what it means for the ETS revision.
Target Keywords: chemical sector EU ETS free allowances, CBAM chemicals scope, BASF free allowances, chemical industry carbon pricing, EU ETS revision 2026
The Free-Ride Problem in Numbers
The European chemical sector is the EU's fourth-largest industrial emitter. According to a 2026 Carbon Market Watch analysis, it has effectively paid no carbon price for most of its pollution.
"With all the free allowances the European Union's chemical sector receives under the EU's Emissions Trading System, it effectively pays no carbon price for its pollution, which is grossly unfair and counterproductive." Carbon Market Watch, "Bad chemistry" (2026)
| Metric | Value |
|---|---|
| Chemical sector emissions 2013–2024 | 1.3 Gt CO₂e |
| Share of emissions covered by free allowances since 2013 | 98% |
| Allowances received in 2022–2023 (as % of emissions) | 105% (over-allocated) |
| Reduction in emissions 2013–2024 | 30% (but only 7% from plants that stayed open) |
| 2024 emissions trend | +4% (sector returned to growth) |
The BASF Case Study
"BASF, the largest chemical company in Europe, has been profiting from free allowances covering 126% of its emissions from 2021 to 2024, while complaining about carbon prices and opposing any conditionality." Carbon Market Watch, "Bad chemistry" (2026)
| BASF metric | Value |
|---|---|
| Emissions since 2021 | 22 Mt CO₂e |
| Free allowances received | 28 million (≈€2 billion value) |
| Coverage vs. emissions | 126% |
| Share buyback programme (2025–2028) | €12 billion |
| New China mega-factory (Zhanjiang) | €9 billion |
Where the Emissions Actually Are
| Subsector | Share of sector emissions |
|---|---|
| Other organic basic chemicals | 38% |
| Ammonia (fertilisers) | 18% |
| Fertiliser group (incl. nitric acid) | ~30% |
| Fossil fuel combustion (cross-cutting) | ~1/3 |
Geographic concentration: Netherlands (67 Mt), Germany (61 Mt) and France (46 Mt) account for half of EU chemical emissions. Antwerp's installations alone emit more than Italy's entire chemical sector.
Allowance concentration: since Phase 4 began, 3% of companies received 50% of free allowances; 12% received 80%. One in three companies receives more allowances than it needs.
CBAM's Partial Coverage: The 30% Problem
CBAM was designed to replace free allowances with a border carbon price. But in chemicals, it only covers a fraction of the sector:
- Fertilisers and hydrogen are the only chemical products inside CBAM's scope (Annex I, Regulation 2023/956)
- These sectors will still receive 124 million free allowances from 2026 to 2034 (109M fertilisers + 15M hydrogen) while CBAM phases in
- ~70% of chemical-sector free allowances have no phase-out date at all
| Scenario | Free allowances 2026–2034 (non-CBAM chemical sectors) |
|---|---|
| Phased out by 2034 (like CBAM sectors) | 220–344 million |
| No phase-out plan defined | Up to 519–642 million |
"Even parts of the chemicals industry that will enter CBAM are still receiving a lot of free allocation: fertilisers and hydrogen are set to get another 124 million free allowances from 2026 to 2034." Carbon Market Watch, "Bad chemistry" (2026)
Why This Matters for the 2026 ETS Revision
The EU ETS revision starting July 2026 is the natural moment to close this gap. The report's core recommendations:
- Phase out free allowances on a clear timeline: extending CBAM scope to cover all chemicals is the effective pathway
- Make benchmarks more ambitious: the average EU steam cracker is ~47 years old; frontrunners must set the benchmark
- Attach decarbonisation conditionalities to any remaining free allowances, with clawback clauses
For CBAM users: fertiliser and hydrogen imports are already inside CBAM, and a downstream/chemicals expansion is actively being negotiated (see our mid-year 2026 update). If you trade in ammonia, urea, nitric acid or other chemical feedstocks, expect the scope debate to touch you within the next two revision cycles.
Key Takeaways
- Chemicals received free allowances covering 98% of emissions since 2013, and 105% in 2022–2023
- BASF alone received allowances worth ~€2 billion while covering only 126% of its emissions
- CBAM currently covers only ~30% of chemical allowances (fertilisers + hydrogen)
- The remaining 70% has no phase-out plan
- The July 2026 ETS revision is the key moment to close the gap
Related: What Is CBAM? | How to Calculate Embedded Emissions | EU ETS Price Tracker
Frequently Asked Questions
Does CBAM cover chemicals?
Only fertilisers and hydrogen so far. Other chemical products (olefins, organic basic chemicals, adipic acid) are not yet in CBAM's Annex I scope, though expansion is under negotiation.
Will free allowances for chemicals end?
Only for CBAM-covered goods, phased out via the CBAM factor to 2034. The other ~70% of chemical allowances have no defined end date unless the ETS revision changes this.
Why is the chemical sector the fourth-largest emitter?
Large energy-intensive processes (steam cracking, ammonia synthesis) and the sector's growth since 2021 offset much of its earlier reduction.
Regulation Status
| Field | Value |
|---|---|
| Last reviewed | 2026-08-01 |
| Based on | Regulation (EU) 2023/956, EU ETS Directive 2003/87/EC, Carbon Market Watch analysis (Union Registry data, 15 April 2026) |
| Applies to | CBAM permanent phase (2026+), ETS revision (July 2026) |
References
- Carbon Market Watch — Bad chemistry: How the chemical sector escapes EU carbon pricing
- EU Regulation 2023/956
- EU ETS Directive 2003/87/EC
- European Commission — CBAM
- IR (EU) 2025/2621
Last updated: August 2026 | Sources: Carbon Market Watch "Bad chemistry" (2026, Union Registry data extracted 15.04.2026), EU Regulation 2023/956, EU ETS Directive
Important Financial Disclaimer
The financial figures, cost estimates, and compliance scenarios discussed in this article are for informational purposes only. Actual CBAM liability depends on your specific import profile, verified emission data, and regulatory interpretations. Consult a qualified CBAM advisor or customs professional before making compliance decisions.
This article was researched and written with AI assistance. All factual claims, emission factors, and regulatory references have been verified against official EU sources (EUR-Lex, European Commission CBAM page). Last verified: July 2026.
R. Emrah Gökkaya
I built CbamTrack because I saw SME exporters struggling with spreadsheets and confusing regulations. Every article here reflects what I've learned implementing IR 2025/2621-compliant calculations, integrating live EU ETS pricing, and building the emission factor database that powers our platform.
View full author bio →Ready to simplify your CBAM compliance?
Subscribe today and generate your first CBAM report in minutes.