The refinery-plastics link
When we started the work behind our paper, the research question was a technical one: which production processes matter most for a climate-neutral chemical industry? We planned to compare alternative processes for plastics production, quantify their costs and emissions, and identify the most promising options.
The first finding was the close link between plastics and refineries. Most plastics today are made from naphtha, a refinery product derived from crude oil. As road transport electrifies, demand for petrol and diesel is expected to fall, while demand for plastics is likely to remain high. This raises an important question: will declining fuel production make naphtha scarcer and more expensive, and how would that affect the transition of the chemical industry?
Answering this question required us to look beyond chemical plants alone. Refineries are integrated systems: changing the output of one product also changes the availability and economics of others. A simple process-by-process comparison was therefore not enough.
Our first modelling attempt tried to connect individual process chains step by step, but the system quickly became too complex. We therefore moved to a full mass and energy balance: defining possible processes, inputs and outputs, and using an optimisation model to identify the low-est-cost way to meet demand. This became the analytical backbone of the paper.
The hidden policy signal
Once the model was running, another question became unavoidable: what does current EU regulation actually reward?
This is where the central problem appeared. Under today’s EU Emissions Trading System accounting, fossil carbon embedded in plastics is not priced when the plastic is produced. A refinery can turn crude oil into naphtha, sell it for plastics production, and face no carbon cost for the carbon stored in that product, even though it may contribute substantially to lifecycle emissions later on.
At the same time, captured CO2 used in plastics is treated as if it were emitted, so producers still face costs. Renewable carbon stored in products receives no equivalent credit.
The result is a misaligned price signal. Virgin fossil feedstock is effectively treated as if its carbon were safely stored forever. Products from captured carbon are penalised. Bio-based products receive no direct reward.
Within our research community, this issue was known. But in discussions with colleagues, NGOs and ministries, we realised that it was not widely understood beyond the petrochemical niche. That convinced us to make carbon accounting a central focus of the paper and to quantify how much these rules matter.
From linear pricing to flow-based accounting
We compared the current approach, which we refer to as linear pricing, with a flow-based approach. Linear pricing charges emissions at selected points in the value chain but does not consistently consider carbon stored in products. Flow-based accounting instead tracks carbon flows: carbon is credited while it is stored in a product and charged when it is released.
The results were clear. Crediting temporarily bound carbon reduced emissions, lowered fossil oil use and cut total system costs. It made bio-based feedstocks and plastic recycling attractive at much lower carbon prices. In our scenarios, it could even enable a fully fossil-free system.
Under current rules, by contrast, large amounts of fossil oil remain locked into chemical production even at very high carbon prices, because producers have too little incentive to switch feedstocks.
A timely policy debate
When we shared the preprint, the interest among NGOs and policy makers was strong. Then, on the day the paper was accepted, the European Commission published its plan to reform the EU ETS, and the proposal addressed some of the problems we had identified.
There is good news. The proposal aims to move product-related carbon accounting further down-stream, which would close an important gap for carbon capture and utilisation. Using captured CO2 in plastics or chemicals would no longer create a surrender obligation at the point of capture. This removes a real barrier for hard-to-abate sectors and is a genuine step forward.
However, one weakness remains under-discussed.
Bio-based and direct-air-capture-derived plastics may be zero-rated when eventually incinerated. In theory, this gives them an advantage over fossil naphtha. In practice, however, the incentive is indirect: the benefit only arises when the fossil alternative becomes more expensive at end of life, and only if that cost is passed back up the value chain.
For producers, this matters. A company choosing between fossil and bio-based feedstock sees the higher cost of the renewable option today, but may never see the carbon benefit, because some-one else pays for emissions years later at the incinerator.
The Commission points to Extended Producer Responsibility, to be developed through a future Circular Economy Act. But that law does not exist yet, and without a mechanism to transmit the end-of-life carbon cost back to producers, the investment signal for renewable carbon remains weak.
This is the broader lesson of our study. Carbon accounting is not a technical detail at the margins of climate policy. It shapes markets, investment decisions and the feasibility of industrial trans-formation. If Europe wants climate-neutral plastics and chemicals, it needs accounting rules that follow carbon through the value chain and reward the alternatives that keep fossil carbon out of the system.