Lead markets in chemicals

The European chemical industry is facing a period of profound structural pressure. Intensifying international competition, rising geopolitical volatility, and growing trade tensions are reshaping global production dynamics, while the imperative to address climate change adds further urgency for transformation. Yet the sector remains foundational to Europe’s industrial base, underpinning economic prosperity, high-quality employment, and strategic resilience. A decline in domestic production would not eliminate demand, but rather risk shifting production and associated emissions abroad. At the same time, Europe’s dependence on fossil-based feedstocks presents a structural vulnerability for a resource-constrained continent.

This moment therefore represents both a challenge and an opportunity. Europe is well positioned to lead in the transition towards sustainable chemicals. It combines deep industrial expertise, strong innovation capabilities, and access to capital with a regulatory environment that systematically prices carbon along the lifecycle. Adjacent mandated demand in green fuels like SAF for aviation and green methanol and ammonia for shipping can contribute critical scale in production. Harnessed effectively, these strengths can enable the development of a competitive, low-carbon chemicals sector that aligns with Europe’s broader economic and climate objectives.

This report contributes to that vision by examining which end markets can act as lead markets to support the emergence of sustainable chemicals production. It provides strategic framing, conceptual structure and analytical guidance to underpin multistakeholder discussions, align the system around which end markets can best support bankability and strategic aims and how to link these insights to designing effective demand instruments. The central question addressed is how to identify those end markets best positioned to act as lead markets, based on scale, contribution to European strategic objectives and impact implementation feasibility. Rather than prescribing a single pathway, the analysis aims to inform decision-makers by clarifying key rationales, trade-offs, and design considerations.

The report does not seek to define or assume a preset transition pathway for the chemicals sector, nor does it favour specific sustainable production routes or feedstocks. However, it recognises that the development of lead markets must be grounded in the realistic paths to industrial supply which differ depending on time horizons. This includes navigating the inherent trade-offs between retrofitting existing assets and infrastructure and scaling emerging technologies and alternative feedstocks that may offer longer-term advantages.
More broadly, this work can be understood as an exercise in industrial strategy applied to a specific sector and policy lever. Starting from overarching strategic objectives, it analyses how different end markets contribute to these goals and how policy can be tailored to align market dynamics with strategic priorities. While the findings are grounded in the particularities of the chemicals sector, many of the underlying considerations and trade-offs have wider relevance for European industrial policy. In this sense, the report also serves as a practical case study in the design and implementation of forward-looking industrial strategy.