The second half of 2025 could mark a turning point for Europe’s pyrolysis oil market, as regulatory clarity begins to emerge following years of hesitation. In early July, the European Commission set out its approach to mass-balance accounting, opting for a fuel-exempt model. A consultation on the proposals concluded in mid-August, and the Commission is now reviewing feedback before presenting a final draft to its technical committee. The aim is to adopt the proposals under an implementing decision this autumn. For now, however, the extent of any changes to the Single-Use Plastics Directive (SUPD) proposals remains unclear.
The lack of clarity has weighed heavily on the sector. In 2024 and the first half of 2025, delayed investment decisions underscored the risks of moving ahead without a secure policy framework. The latest move from Brussels is therefore being watched closely, as it provides at least partial clarity on one of the most important regulatory uncertainties.
Still, several areas of doubt continue to cloud the investment climate. Market participants remain wary of definitions under the Waste Framework Directive, questions around whether chemical recycling will be counted under the End-of-Life Vehicles Regulation, and uncertainty over how the Packaging and Packaging Waste Regulation will treat pyrolysis oil. These concerns are not abstract. On August 5, OMV’s CEO told ICIS that without a more secure regulatory environment, the company is unwilling to risk large-scale investment in chemical recycling.
Europe’s decision to adopt a fuel-exempt approach also raises competitive questions. If other regions adopt more lenient practices, such as free allocation, European players may face higher costs at home and a tougher fight abroad. Profitability, already under strain, could come under further pressure.
By contrast, the regulatory environment for renewable fuels is clearer and more supportive. Legislation such as RED III and the Fit for 55 package continues to encourage the use of pyrolysis oil as a feedstock for fuel, particularly sustainable aviation fuel (SAF), provided strict emissions criteria are met. This is pushing tyre-based pyrolysis producers to separate bio-attributed content from polymer content, with the bio-attributed fraction commanding a premium. This trend is expected to gather pace through late 2025 and into the medium term.
Despite the uncertainties, pyrolysis oil has shown resilience. Prices for plastic-derived grades have held up against the broader macroeconomic malaise weighing on Europe’s chemical sector, largely due to structural shortages. Europe’s installed input capacity for plastic-derived pyrolysis oil stands at around 150,000 tonnes per year, with more than 300,000 tonnes per year in the pipeline under construction or commissioning. Yet bringing projects online has not been smooth. Delays linked to waste quality, feedstock variability, permitting hurdles, lengthy commissioning phases, and financing constraints have slowed progress.
The knock-on effects are already visible. Many waste managers expanded agglomeration capacity in anticipation of rising pyrolysis demand, but with new plants delayed, much of this feedstock has no home. Some agglomeration lines have been idled, raising concerns about how the industry will match upstream waste supply with downstream processing capacity as it scales.
Even with these challenges, momentum for pyrolysis oil remains strong. Market players expect demand, particularly for plastic-derived grades, to pick up gradually over the next 12–24 months. The sharper inflection point, however, is expected around 2027–2028, as companies prepare to meet both voluntary commitments and binding regulatory targets for 2030.
For now, Europe’s pyrolysis oil industry stands at a crossroads, bolstered by its potential to become the world’s largest chemical recycling technology by capacity, yet still constrained by regulatory gaps and operational bottlenecks. The months ahead could prove decisive in determining how fast investment finally returns.
