Expensive oil could strengthen the case for chemical recycling

Chemical producers and other stakeholders in the Rhine-Ruhr asked whether rising crude prices would make plastic pyrolysis viable, or whether the energy needed to run it would cancel the gain. New modelling for the TRANSIENCE project finds the energy penalty does not materialise — the process is too small to register on Germany's power system. What limits the strategy is the capital required to build it.

TRANSIENCE project · 31 July 2026 · ~7 min read

Status: results from Deliverable D8.1, not yet approved by the European Commission and subject to revision.

The Rhine-Ruhr hosts one of Europe's largest chemical clusters and the region's most important industrial employer: 79,000 people worked in refining and chemicals there in 2023.

It is also under pressure. European chemical plants run at around 70% utilisation — below the long-term average, and too low to be profitable. Energy costs rose sharply after Russia's invasion of Ukraine and again during the USA–Iran war in the first half of 2026, leaving European crackers at a cost disadvantage against the United States and the Gulf. Chinese producers have meanwhile taken share even in specialty chemicals.

Feedstock is part of that exposure. The cluster's refinery supplies naphtha — the light petroleum fraction that crackers break down into ethylene and propylene — but covers less than a third of what the region's crackers need. The rest arrives by pipeline from Rotterdam and Antwerp.

Circularity offers one route out. Mechanical recycling, which reprocesses waste plastic into new pellets without breaking the polymer chains, is the first option in energy terms, but contaminated and mixed streams are hard to separate and hygiene rules for food-contact and medical uses largely exclude the output. Chemical recycling addresses what mechanical recycling cannot: pyrolysis heats plastic waste without oxygen until it breaks down into liquid hydrocarbons, yielding pyrolysis oil that can be upgraded and fed to a cracker in place of fossil naphtha.

However, no chemical recycling technology is commercially available today. Pyrolysis is the most advanced route, at a technology readiness level of 6 to 8, with industrial-scale demonstrators under construction.

At a regional workshop, Rhine-Ruhr industry representatives called the business case for this speculative, given how immature the technology remains, unless regulation creates dedicated demand. They raised one uncertainty in particular: whether rising crude oil prices would eventually make chemical recycling cost-competitive, or whether the accompanying rise in energy prices would keep it prohibitively expensive.

This study takes up this stakeholder concern as part of a broader research question tackled by TRANSIENCE: Which effect can circularity strategies have on the resilience and competitiveness of EU chemical industries?

What we modelled

Two models were used. A computable general equilibrium model of the global economy (OPEN-GEM) traces how a change in one industry's input mix propagates through production costs, trade and competitiveness. A global energy system model (OPEN-PROM) traces feedstock use, industrial energy demand, prices and emissions. Sectoral growth rates from the first calibrate the reference demand path of the second.

Four levers were varied across the scenarios, two of them present in only one of the two models.

• Chemical recycling. In the economic model, recycled feedstock replaces 50% of the conventional chemical inputs to primary plastics production between 2030 and 2050. In the energy model, pyrolysis oil replaces 50% of naphtha demand in the German petrochemical sector. The two shares apply to different quantities in models of different resolution and are not comparable.
• Investment. Economic model only. Productive capacity either expands to accommodate the new activity, or is held at its baseline level.
• Oil price. Crude prices either follow the reference path, or double from 2030 to 2050.
• Climate policy. Energy model only. Either current policies continue, or Germany follows a trajectory reaching net-zero by 2045.

The scenarios therefore describe a Germany in which demonstrator plants have scaled and — following the condition the region's own industry set out — regulation has created a market for recycled feedstock that does not currently exist.

One assumption governs much of what follows. Producing pyrolysis oil consumes electricity, and the energy model sets that requirement at 0.023 Mtoe of electricity per Mtoe of pyrolysis oil (Stallkamp et al., 2024). This is net external demand, after the process energy recovered internally by burning pyrolysis off-gases. Requirements vary considerably across recycling routes and plant configurations, so the figure represents one commercially relevant pathway rather than the technology as a class.

These are what-if scenarios: the substitution shares are imposed rather than derived from costs, and the doubled oil price is a sensitivity case. Results are national, covering Germany as a whole; the Rhine-Ruhr is the country's dominant cluster, not a separately modelled region.

Chemical recycling cuts fossil feedstock use, and expensive oil makes it more attractive

Naphtha consumption in the reference pathways barely moves, whether Germany continues current policies or follows the net-zero trajectory: demand for petrochemical products persists and alternative feedstocks remain scarce. Doubling the oil price reduces naphtha demand as higher feedstock costs erode the competitiveness of naphtha-based routes. The chemical recycling scenarios cut it considerably further. Substituting pyrolysis oil reduces dependence on fossil-based inputs while petrochemical output continues.

The economic model points the same way. When oil prices double, production costs for conventional primary plastics rise substantially, because the sector's feedstocks are fossil-based; greater penetration of recycled feedstock reduces that exposure. Measured against the high-oil-price baseline, the German primary plastics sector is comparatively more resilient when chemical recycling is widely adopted.

This is a statement about relative exposure, not about cost. Neither model reports a price for pyrolysis oil against naphtha, so the results show that the strategy insulates the sector from fossil price volatility — not the oil price at which it would pay for itself.

The energy penalty the sector feared does not appear — but neither do emissions savings

Pyrolysis raises electricity consumption in the liquids supply sector in direct proportion to the volume of oil produced. Electricity prices do not respond. They fall across every scenario as low-cost solar and wind are deployed, most steeply to 2030 under the net-zero pathway. The chemical recycling scenarios track their reference pathways almost exactly: the additional demand is too small relative to the German power system to affect market dynamics or generation costs.

Higher oil prices leave electricity prices almost unchanged as well, since oil contributes only marginally to German power generation. Prices here follow the generation mix and the depth of decarbonisation achieved, not crude oil markets or feedstock recycling.

The emissions ledger is correspondingly thin. Under current policies, German greenhouse gas emissions fall from roughly 600 MtCO₂e a year in 2025 to around 200 Mt by 2050; the net-zero pathway reaches about 100 Mt in 2045 and turns net-negative by 2050. The chemical recycling scenarios overlap their reference pathways closely. The deepest cuts come from ambitious climate policy and high oil prices, not from recycling.

The reason is structural. Chemical recycling contributes by reducing fossil feedstock requirements rather than by abating emissions directly. The deep industrial cuts in these results come from electrification, fuel switching, bioenergy and hydrogen.

The binding constraint is domestic capital

Where chemical recycling expands without additional investment, it generates substantial new demand for domestic capital and intermediate inputs. With capacity held at baseline, that demand presses on German capital markets and raises production costs across several sectors. Domestic prices rise, export competitiveness weakens, and the trade balance deteriorates.

The cost lands on sectors with no connection to plastics. Substitution in primary plastics raises demand for domestically produced inputs and pushes prices up; without investment, export-oriented industries such as equipment goods see production fall. The gain from relocating demand into sectors with higher local content is partly offset when no new capacity is built.

Where investment does expand capacity, production costs stay relatively stable, effects on trade are limited, and industrial competitiveness is largely preserved. That investment is not costless: because savings must equal investment in the economic model, higher investment demand raises the equilibrium interest rate, drawing household resources away from present consumption.

What this means

The constraint that emerges in this modelling is not the one the sector anticipated. The energy cost of running pyrolysis at scale is real but small enough to disappear into the power system. What binds instead is domestic capital — and the cost of that constraint is carried by exporters elsewhere in the economy.

That reframes what regulation would need to do. The region's industry argued that the business case requires policy to create dedicated demand. These results indicate that demand creation alone is insufficient: without capacity expansion, meeting that demand raises costs across German industry.

It also places chemical recycling on the climate ledger accurately. It is a circularity and resilience measure whose contribution runs through reduced fossil feedstock dependence rather than direct abatement. Ambitious climate policy remains the primary driver of long-term emissions reductions in the sector.

Chemical recycling is therefore best understood as a complementary strategy within a broader industrial transition: its economic benefits are maximised when supported by additional investment, and its climate contribution is most effective alongside ambitious decarbonisation policy and a rapidly evolving low-carbon energy system.

Limitations

Imposed substitution. The 50% substitution shares are set exogenously, with no account taken of feedstock availability, waste collection and sorting constraints, technology deployment rates, investment requirements, or lifecycle environmental impacts.

A single energy parameter. The finding that electricity prices are unaffected rests on one stylised value for the electricity required to produce pyrolysis oil, and requirements vary considerably across routes and plant configurations.

A framework under construction. This case study was designed first to test whether the two models can address the question at all, and representing chemical recycling required extending the economic model, which does not carry it as standard. Only two components of the wider framework were used: material flow models could assess whether the plastic waste exists to supply the substitution, while industrial models and life-cycle assessment could add technology, investment and environmental detail.

How this was modelled

OPEN-GEM is a computable general equilibrium framework built on the GTAP-CE database and documented in TRANSIENCE Deliverable D4.1. It represents the global economy in monetary terms, capturing intersectoral production, consumption and trade linkages across regions with emphasis on energy-intensive industrial value chains, and is designed to trace how structural changes in production technologies and input use propagate through the economy.

In its standard configuration, GTAP-CE represents recycling as the only explicitly modelled circular economy strategy operationalising material circularity in plastics, and represents mechanical recycling alone. Other strategies — redesign, reuse, demand reduction, material substitution — are not modelled as separate technological options and appear only indirectly through changes in demand or cost structures. For this study a new sector, [IND36] Chemical Recycling, was added. It produces secondary chemical feedstocks domestically within Germany that compete directly with conventional chemical products, allowing chemical recycling to affect upstream chemical production, capital allocation, trade flows and production costs across the German economy.

OPEN-PROM is a global open-source energy system simulation model based on the PROMETHEUS framework and documented in TRANSIENCE Deliverable D4.6. It is recursive dynamic, representing year-by-year developments in energy demand, supply, technology deployment and emissions while accounting for path dependencies. Chemical recycling is represented through adjustments to feedstock and energy balances: a share of naphtha input is replaced by pyrolysis oil, and the additional electricity required is added to the own consumption of the liquids sector at 0.023 Mtoe per Mtoe of pyrolysis oil.

The two models are soft-linked through the baseline: sectoral activity growth rates from OPEN-GEM calibrate the reference energy demand trajectory in OPEN-PROM, ensuring energy system developments are consistent with the socioeconomic projection. Circularity and oil-price scenarios are then explored within each framework using harmonised assumptions on feedstock substitution and market conditions. Within the wider MIC3 framework this link is intended to become bidirectional, with fuel mix, carbon prices and emissions intensity feeding back into the macroeconomic framework.

Scenarios. OPEN-GEM: a baseline with no chemically recycled feedstock; chemical recycling with and without additional investment at reference oil prices; a high-oil-price baseline; and chemical recycling with and without additional investment at doubled oil prices. OPEN-PROM: two climate pathways — National Policies Implemented, and an NDC and long-term-target pathway reaching net-zero by 2045 — each crossed with reference, chemical recycling, high oil price, and combined variants.

Data and citation

• Scenario results are available on IAM PARIS
• Models: OPEN-GEM · OPEN-PROM · Region: Germany · Years: 2025–2050 · Climate policy pathways: NPI and NDC-LTT
• Full methodology: TRANSIENCE Deliverable D8.1 (will be soon available on the TRANSIENCE website)
• Licence: CC BY 4.0 — charts and text may be reused with attribution.

This explainer accompanies work carried out under the TRANSIENCE project, funded by the European Union. The underlying deliverable has not yet been approved by the European Commission and its findings may be revised.

The AI assistant Claude (Opus 5, Anthropic) was used to support the writing of this explainer. All findings, figures and interpretations derive from Deliverable D8.1 and have been reviewed and approved by the authors, who take full responsibility for the content.