Last month, the European Union announced its proposal for Phase 3 of the European Union Emissions Trading System (ETS), an expanded emissions cap and trade program that will add chemical manufacturers to its list of regulated industries by 2013. EU officials have declined to estimate the likely cost to newly-captured chemical manufacturers, but considering the government’s estimate that the larger proposal may cost €60 billion ($88 billion US) by 2020, chemical executives and investors have a strong incentive to monitor the progress of this proposal closely to ensure that any final decision is workable for an industry already struggling with record-high hydrocarbon feedstock and energy prices.

Perhaps more importantly, the Proposal gives no attention to the fact that under the current ETS implementation schedule, many chemical manufacturers will face ETS requirements for the first time, while simultaneously struggling to comply with yet another multi-billion dollar regulatory program known as “REACH” (Registration, Evaluation, Authorization and Restriction of Chemicals).

Individually, these programs may make policy sense. In combination, however, these two new programs, if not implemented carefully, may damage one of the EU’s most important industries. In today’s global economy, that would be bad news for the EU and for its trading partners.

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