Frontier Economics and Economic Trends Research have conducted a study for the European Industrial Gases Association (EIGA), which has found the industrial gases sector has generated €21bn in value added for Europe.

The study also shows how evolving carbon-cost policies risk distorting competition within the EU.

Industrial gases are gaseous chemical elements and compounds – such as oxygen, nitrogen, hydrogen, argon, carbon dioxide or helium – which are produced, purified, compressed or liquefied and supplied to industrial, medical and commercial users. Because of the breadth of their use, industrial gases are not merely auxiliary inputs – they are strategic enablers across the European economy and society

Two production and supply models coexist: insourced (captive) production at the user’s site and outsourced (merchant) production supplied by specialised providers. Because production is highly energy and capital-intensive, evolving carbon cost and state aid regimes will materially shape competitiveness and sourcing choices across these models.

The study quantifies the sector’s economic footprint and assesses how recent and forthcoming policy changes – EU ETS free allocation reform, the Carbon Border Adjustment Mechanism (CBAM), national indirect cost compensation (ICC), and the new Clean Industrial Deal State Aid Framework (CISAF) – affect the level playing field between insourced and outsourced supply of industrial gases within the EU-27.

A small sector with an outsized impact

Industrial gases such as oxygen, nitrogen, hydrogen and CO₂ are essential to Europe’s economy – enabling production in manufacturing, chemicals and metallurgy, and underpinning strategic sectors like healthcare, food, electronics and clean-tech.
Our study finds the EU industrial gases sector:

• generates €21bn in value added and supports ~190,000 jobs across the economy, considering direct, indirect and induced effects,
• is critical for decarbonisation (e.g. low-carbon hydrogen, oxygen-enabled processes), and
• proved vital for resilience, notably during the COVID-19 oxygen surge.

Why policy now maters

Europe’s carbon-cost and state-aid frameworks are changing fast:

• free allocation under the EU ETS is tightening;
• the Carbon Border Adjustment Mechanism (CBAM) is phasing in;
• Member States operate indirect cost compensation (ICC); and
• the new Clean Industrial Deal State Aid Framework (CISAF) introduces temporary electricity-cost relief.

These instruments aim to prevent carbon leakage. But the study shows they often treat insourced industrial-gas production differently from outsourced (merchant) supply, even when identical technologies are used.

Where distortions arise

• Hydrogen: Outsourced hydrogen supplied to refineries faces faster benchmark reductions and CBAM phase-out, while insourced refinery hydrogen does not. Potential distortion: €1–2bn (NPV) over 2026–2034.
• Oxygen, nitrogen, argon: Many industries receive ICC for insourced ASU/PSA production, but outsourced suppliers are not eligible, creating significant cost gaps.
• CISAF: If temporary electricity relief is granted only to insourced users, distortions could widen further.

What needs to happen

The study recommends three key actions to restore neutrality:

• First, hydrogen used in refineries should receive equal free allocation, irrespective of whether it is produced in-house or sourced externally.
• Second, eligibility for indirect carbon cost (ICC) compensation for oxygen, nitrogen and argon should be aligned across different production routes to ensure consistent treatment.
• Third, CISAF electricity relief should be applied symmetrically to avoid creating new competitive distortions.

Taken together, these measures would help establish a level-playing field for the industrial gases which strengthens Europe’s industrial resilience and supports its decarbonisation objectives.

Read the full report, The Role of the European Industrial Gases Sector for the European Economy, here.