White Paper · October 2026

I. Executive Summary

The course has been set. The chemical industry stands at the beginning of the most profound transformation in its history. And we, the German chemical industry, are better positioned than anyone else to lead it. The move away from fossil carbon is a threat, but it also means that global competition is shifting from volume to process — and that is exactly where our strengths lie: research depth, specialisation, integrated Verbund structures and an innovative Mittelstand of a density no competitor can match.

This paper is not a crisis document but a vision of the path ahead: a Theory of Change that shows how our current potential will become global technology leadership in defossilised chemistry: carbon from biomass, CO₂ and recyclate. Electrified processes. Circular products. That is the future of the chemical industry for Germany.

This paper deliberately does not call for general subsidies. Targeted funding for future technologies and open research is right; permanently preserving an outgoing model is not. Our future will not be decided by the size of public funding, but by the speed at which shared knowledge is created and put into practice. At its centre, therefore, is one concrete step: building a collective, pre-competitive research initiative — open, shared, across company boundaries.

Our Theory of Change

In one sentence: The shift from fossil to renewable carbon moves global competition from volume to process. Because we are uniquely strong in processes, we can win this competition — if we activate our strengths now through shared knowledge and lead markets.

The causal chain:

Fossil model ends → Competition shifts from volume to process → Our strengths become the decisive currency → Activation through shared knowledge + lead markets → Global technology leadership

The links:

1. The fossil model is ending — and that is actually good news. Defossilisation is our chance to shift the playing field. (→ Ch. II, IV)
2. Competition shifts from volume to process. Asia's scale and energy advantages lose weight. Ours gain. (→ Ch. III, IV)
3. Our strengths become the currency. Research depth, specialisation, Verbund, Mittelstand. (→ Ch. III, IX)
4. Activation is a choice. Shared knowledge and lead markets turn potential into leadership. (→ Ch. VIII, X)
5. 2040: global technology leadership in defossilised chemistry. (→ Ch. XI)

What could make it fail: too slow an expansion of renewables · research that stays in silos · an industry that remains on the defensive.

II. The Moment: Why Now Is the Right Time

The fossil model is coming to an end — and this loss is in fact our greatest opportunity.

We are in a period of transition. Energy-intensive basic chemicals are under pressure: capacity utilisation below 80 per cent, relocated production, a market environment that no longer sustains the old model of cheap fossil carbon and cheap energy.^[1][2] That is the diagnosis — and it is all we need to say about the present at this point.

Because the more important question is not: How bad is the situation? It is: Why is this exactly the right moment? A change of model is the rare moment when market leadership is redistributed. Whoever led under the old model does not necessarily lead under the new one. And whoever was at a structural disadvantage under the old model — because they produced not the cheapest but the best; not the biggest but the smartest — holds the better cards under the new one.

That is our starting point. The old model is not ending in spite of us, but — if we approach it correctly — in our favour.

III. Why We Can Win

Our starting position is unique. Four strengths that will become the decisive currency in the new competition.

The Mother of All Industries

Chemistry is the material foundation of almost every other industry. With around 29,000 companies, 1.2 million direct jobs and 19 million dependent jobs along the supply chains, we are Europe's fourth-largest industrial sector — not without reason called the "mother of all industries" by the European Commission.^[3] We are not a sector that one might or might not rescue. We are the precondition for the industrial performance of the continent.

Four Strengths That Count in the New Competition

The new competition will be decided not by volume but by process. And when it comes to processes, we hold four trump cards that no Asian competitor possesses in this combination:

1. Research depth. We are one of the most research-intensive industries in the world, embedded in a dense network of universities, Max Planck and Fraunhofer institutes and in-house industrial research.^[4] New processes emerge where basic research and industrial application sit close together. That is our home — and it cannot be copied elsewhere overnight.

2. Specialisation. Around 43 per cent of our production is already in specialty chemicals — paints and coatings, crop protection, specialty plastics, consumer chemicals.^[4-1] Precisely where knowledge rather than volume determines price, we are strong. And that is precisely where the transformation is shifting value creation. We are already there.

3. The Verbund. The German model of integrated Verbund sites, where the by-products of one plant become the feedstock of the next, is uniquely efficient worldwide. In a circular economy, this infrastructure is worth its weight in gold: material and energy cycles can be closed nowhere more easily than in an existing Verbund.

4. Mittelstand and customer proximity. Alongside the large corporations, we have a deep, highly specialised Mittelstand with close customer relationships and short decision-making paths. Agility, a willingness to experiment, speed — these are the virtues of transformation, and they are structurally anchored in the Mittelstand (see Ch. IX).

We Win Against Asia Differently

On economies of scale, energy prices and the pace of investment in mass capacity, we will never win against Asia — and that is not our playing field of the future anyway.^[5] Our decisive question is: Who will be the first to master defossilised, circular chemistry? Who will define the processes of tomorrow instead of defending the products of yesterday? Who will build the bridge between top academic research and industrial application faster than everyone else?

That is where we win. The National Chemicals Agenda 2045 addresses the acute cost situation;^[6] this paper complements it with the strategic level: cost relief eases the symptom, technology leadership cures the cause.

IV. The Necessary Feedstock Transition

Carbon without crude oil. Defossilisation shifts the playing field to our strength. This is the core of the transformation.

Not Decarbonisation: Defossilisation

The climate debate has brought one term to the fore that is misleading for us: decarbonisation. Steel, cement and the energy sector can become carbon-free — they need carbon only as an energy carrier. We are different. Many of our products contain carbon as an element, well beyond 2045. For us, therefore, it is not about decarbonisation but about defossilisation: the carbon remains in the product; only its origin has to change.^[7]

This is not a cosmetic distinction. It defines why the transformation of chemistry is a process challenge — not a question of abolition. We are reinventing ourselves, not shutting down.

The Portfolio of the Future: Three Sources, One Goal

An evaluation of 24 scenarios from 15 studies by the nova-Institute paints a clear picture of the feedstock base in 2050:^[8]

Source: nova-Institute / RCI, mean values across the scenarios evaluated.^[8-1][9]

The future is a portfolio — no single process solves everything; all three sources will be needed. What these figures mean strategically: CCU, the use of CO₂ as a feedstock, accounts for one third and thus the largest single share of our future feedstock base.^[8-2] The technology that turns CO₂ from a problem into a resource will become the central competitive factor — and it is a process technology in which research depth is decisive.

Biomass is the most established source and already widely used today in natural oils and resins. Its limits are set by competition for land; cascading use and efficiency determine its ecological balance.

Recycling closes the loop most directly. In the plastics sector it becomes the dominant source at 42 per cent.^[9-1]Chemical recycling overcomes the quality limits of mechanical recycling but is still scaling up.

CCU turns emissions into feedstock. The greatest long-term potential, the greatest technological momentum — and the field on which it is being decided today who will lead tomorrow.

The Playing-Field Argument

As long as carbon comes from crude oil, mass and price win. As soon as it comes from biomass, CO₂ and recyclate, process wins. This shift is the strategic core of our Theory of Change — and the reason why we must actively drive it rather than hesitantly go along with it. The decisive lever here is not only technology but the creation of lead markets: binding minimum shares of renewable carbon create the demand our processes are waiting for.^[10][11]

From Practice: The Coating as a CO₂ Sink

What sounds like a distant future is already happening in our Mittelstand today. Individual manufacturers of ecological wood coatings are developing processes in which microorganisms convert CO₂ from industrial off-gas streams into carbon building blocks — from which the coating itself is then built. The goal: not just a single raw material made from bacterially derived carbon, but the coating as a whole as a CO₂ sink.

This connects two transformation strands of this paper: the feedstock transition (CCU) and white biotechnology (microbial synthesis). And the exploitation approach shows how the industry of the future works: as an open-source project whose results are open to the entire industry — knowledge is shared, competition takes place on application and quality, not on fundamentals.

V. The Energy Transition in the Process

Green electricity is the fuel of our transformation, and its availability is the most important external condition.

Electricity as a Strategic Resource

Renewable carbon from CO₂ and biomass requires more energy than the fossil route — that is thermodynamics, not a weakness of the technology. Electrifying our processes requires three to five times, and the H₂ route eight to eleven times, as much renewable energy as today.^[12] It follows that whoever wants the transformation must want the expansion of renewables with equal determination. The two belong together.

Three Levers, Clearly Prioritised

Our process decarbonisation follows a clear logic:^[13]

1. Efficiency first — from variable-speed drives to heat recovery, with payback periods of one to two years. An underestimated lever.
2. Electrification — power-to-heat, electrically heated plants. The flagship: the world's first electrically heated steam cracker by BASF, Linde and SABIC in Ludwigshafen.^[13-1]
3. Green hydrogen — used selectively where high-temperature heat and molecular energy are needed; not as a universal solution that wastes scarce renewable energy.^[14]

VI. Circular Economy as a Design Principle

Circularity is not a waste-disposal issue — it is process innovation and a competitive advantage.

Thinking from the Product

The circular economy does not begin at the end of the value chain. It begins at the start of product development. A product whose materials can be separated by type, are biodegradable or can be recycled at high quality closes the carbon cycle instead of interrupting it — and thereby creates a feedstock source for the next cycle. Recycling is one of the three sources of renewable carbon (Ch. IV). Circular design is feedstock strategy.

Regulatory Tailwind

The EU is actively driving this change: the Circular Economy Act 2026 creates reliable markets for secondary raw materials and uniform end-of-waste criteria.^[15] The goal: the circular material use rate is to rise from 11.8 to 24 per cent by 2030.^[16] The Digital Product Passport turns circularity into a documented, marketable product attribute.^[17]Regulation, read correctly, is not an obstacle — it is market demand for what we build.

From Practice: Cradle to Cradle as a Formulation Decision

Examples from our Mittelstand show that circularity is a decision made at the beginning of formulation development — not at the end. Manufacturers who rely on renewable, regional raw materials design products so that at the end of their life they return biologically to the cycle instead of ending up as hazardous waste. That is Cradle to Cradle as a design principle.

VII. The Tools: White Biotechnology and AI

Two cross-cutting technologies that shift our value creation from volume to knowledge.

Biology as a Synthesis Route

White biotechnology — microorganisms and enzymes as production tools — converts biomass and even CO₂ into chemical building blocks: often under milder conditions, with less energy and less waste than classical synthesis. And its potential is growing faster than the chemical market as a whole, with the greatest leverage in fine chemicals.^[18]

The technology is already industrial today: Covestro produces aniline from plant biomass instead of crude oil; LanzaTech and BASF use industrial off-gases as feedstock.^[19] White biotechnology does not replace classical chemistry — it opens up new feedstock sources and new selectivity for it.

AI as an Accelerator

Artificial intelligence accelerates the transformation above all where time is still being lost today: in the search for new molecules, catalysts and formulations. AI models predict promising candidates before an experiment takes place. They control processes on a data-driven basis, reduce energy and material consumption and stabilise yields. And they make the growing volumes of supply-chain and life-cycle data analysable — the prerequisite for a functioning circular economy (Ch. VI).

The common denominator: both technologies shift our value creation from volume to knowledge. And knowledge is the strength in which we lead.

VIII. Regulation

From brake to tailwind. The converging thrust of regulation points, at least, in the direction we want to go.

A Framework That Pushes in Our Direction

Regulatory density is increasing — but its direction is clear: all relevant frameworks push towards defossilised, circular, transparently documented products. For now, this is still bureaucracy that slows us down. In the long term, however, it can also become market demand that emerges for our transformation.

CBAM makes fossil imports more expensive — and thereby improves the relative position of defossilised production in Europe. The Digital Product Passport turns circularity into a saleable feature. End-of-waste criteria create reliable markets for secondary raw materials. Each of these rules is an opportunity for us — if we comply earlier than our competitors.

In addition, the Omnibus Package signals that the EU wants to actively reduce administrative burdens — by at least €363 million per year, according to the Commission.^[3-2] Regulation creates lead markets and reduces bureaucracy at the same time. That is the tailwind we should make use of.

IX. The Mittelstand as an Innovation Lab

In the transformation, innovative capacity and company size are decoupled.

The Real-World Laboratory

The transformation needs both: the investment power of large corporations and the agility of the Mittelstand. Large plants are optimised for stable mass production — that is their strength, and in a phase of change, their inertia. A mid-sized specialist changes formulations faster, tests new processes earlier and enters into unconventional partnerships. It is the natural real-world laboratory: here, new processes can be validated quickly, cheaply and with manageable risk before they move to industrial scale.

From Practice: What the Pioneers Show

Individual manufacturers with only a few dozen employees have taken steps that are rare even among much larger players: carbon neutrality across all three scopes as an achieved status, B Corp certification with high scores by industry standards, their own openly run CCU research with academic partners, public technology roadmaps as living strategy documents.

The lesson is not that individual companies are acting in exemplary fashion. The lesson is structural: whoever understands climate protection as the core of their business model can pursue a technologically ambitious transformation agenda — regardless of headcount. What works on a small scale is no utopia on a large scale, but a question of determination.

X. Recommendation: A Collective Research Initiative

The concrete next step: turning potential into leadership.

The Decisive Lever Is Knowledge, Not Money Alone

Targeted funding of research and transformation is right and necessary — we emphasise this explicitly. But the real bottleneck lies elsewhere: in the implementation gap between laboratory innovation and large-scale application.^[11-1]This gap will not close by each company solving the same fundamental problems again behind closed doors. It closes through shared, pre-competitive knowledge. Defossilisation is a generational task — and simply too big for proprietary individual solutions. Here lies the crux of our Theory of Change: the lever that decides leadership is not primarily money, but the speed at which we learn together.

Our Proposal: An Open Research Platform

We recommend establishing a collective, pre-competitive research initiative for the defossilisation of chemistry, jointly supported by industry and academia:

1. Open-source principle. Fundamental knowledge on CCU, white biotechnology and circular materials is shared. Competition takes place on application, quality and scale-up — where it belongs.

2. Bridge between academia and industry. Demonstration and pilot projects are pooled, and results are made available across company boundaries. Research hubs as a format that turns our greatest strength — research depth — into speed of application.

3. Open to companies of all sizes. The Mittelstand gains access to research it could not finance on its own; its agility and real-world-lab insights flow back into the shared pool.

4. Lead markets and targeted technology funding. Policymakers support the initiative with simple, reliable instruments: unbureaucratic minimum shares for renewable carbon, consistent CBAM enforcement, sustainable public procurement. Public funds flow into research and transformation — not into structurally preserving an outgoing model.

Proof that this principle works already exists: openly run CCU projects from our Mittelstand show that shared knowledge scales what proprietary knowledge cannot.

XI. Chemistry 2040

The picture we want to achieve.

Let us conclude the Theory of Change with the picture it leads to.

In 2040, the German chemical industry looks fundamentally different from today. Our carbon comes predominantly from biomass, CO₂ and recyclate. Our processes run on electricity wherever thermodynamically possible; green hydrogen supplements where molecular energy is needed. Our products are designed for circularity from the outset and fully documented via digital passports. White biotechnology and AI are no longer promises but production reality. And our value creation has shifted from volume to knowledge — exactly where our strengths lie.

Europe is not the cheapest chemical location in the world. It is the most advanced.

This future is not guaranteed, and a Theory of Change must state what could make it fail:

• Too slow an expansion of renewables. Without large volumes of affordable green electricity, the feedstock and energy transition remains theoretical, because it simply does not pay off (Ch. V).
• Research that stays secret. If everyone guards their knowledge, the implementation gap will not close — and link 4 of the chain will not hold (Ch. X).
• An industry that remains on the defensive. If we only fend off regulation instead of using it as a lead market, we give away the second activation lever — and with it our head start (Ch. VIII).

These fault lines are no reason for resignation, but the precise list of what we need to work on. That is exactly what makes a Theory of Change valuable: it turns a vague hope into a verifiable agenda.

We have the scientific depth, the industrial experience and — as examples from our Mittelstand show — the entrepreneurial imagination to lead this transition. Against Asia, we will not win the race for the cheapest tonne, but the race for the best process.

The picture of 2040 is waiting to be built by us. How this story ends is not a matter of fate, but of our decision to close the chain.

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