The global chemicals industry has a huge opportunity to transform itself from a major polluter into a "planet-positive force" that could drive decarbonization across the wider economy over the coming decades, while doubling in size and creating 29 million new jobs in the process.
That is the upbeat conclusion of a major new report early this month, which argues that while the chemicals industry lags behind many other sectors of the economy in terms of climate action, it has the potential to reinvent itself as a critical climate solution and even become carbon negative by 2040.
The chemicals industry directly employs 11 million people globally, generating around $3.5 trillion in annual revenues and accounting for 4 percent of GDP by providing products that feed into almost every part of the wider economy, supplying critical materials for plastics, textiles, packaging, consumer goods, fertilizers, construction and myriad other industries.
But at the same time the sector accounts for around 4 percent of global greenhouse gas emissions and its emissions trajectory is aligned with a catastrophic 4 degrees Celsius of global warming by 2100 unless radical action is taken to wean it off its fossil fuel dependence and shift towards more sustainable, circular business models, the report warns.
The result of over 12 months research undertaken by green systems change firm Systemiq alongside the Center for Global Commons at the University of Toronto, the report also warns that without radical action to decarbonize the chemicals sector faces huge reputational and regulatory risks, which could see its license to operate rapidly eroded.
The report also warns that without radical action to decarbonize the chemicals sector faces huge reputational and regulatory risks, which could see its license to operate rapidly eroded.
However, a decarbonization pathway is available for the industry. The report estimates that capital investment of $100 billion a year between now and 2050 — totaling around $3 trillion cumulatively — in slashing emissions from polluting infrastructure and establishing new, greener forms of chemical production would be enough for the industry to achieve net zero across both its operations and its entire value chain.
According to the report, the industry could become carbon negative by the early 2040s and even a carbon sink by 2050, primarily through investments in carbon capture technologies and the wider use of sustainable biomass feedstocks to produce materials such as plastic, for example. In addition, the sector also holds the potential to become a major supplier of crucial low and zero-emissions chemicals, such as green ammonia and hydrogen for shipping and aviation fuels.
The report acknowledges that $100 billion annual capital investment is 2.5 times larger than business-as-usual requirements for maintaining the chemicals sector's existing unsustainable pathway. But it stresses that it nevertheless represents a fraction of the industry's annual revenues, while also offering a major investment opportunity that can drive growth and guard against tightening regulations, increasing carbon prices and reputational risks.
"Overall it's a positive picture for the chemicals industry," report co-author Andreas Wagner, energy transitions associate at Systemiq, told us. "These are numbers that the industry is used to playing with — this is the ballpark area of investments that this industry can handle."
The chemicals industry has little alternative but to change course towards a more sustainable future, or risk pushing the planet and the global economy towards catastrophic levels.
The report itself focuses on 10 key chemicals, which are likely to see around $30 billion a year investment on just a business-as-usual trajectory. "Overall the message is quite clear," said Wagner. "We do think there's going to be increased revenue [from investing in decarbonization] and that the industry will be able to pass on the increased production costs... and ultimately those cost increases will be minimal for the consumer. Hence we think that it is absolutely feasible."
In any case, the chemicals industry has little alternative but to change course towards a more sustainable future, or risk pushing the planet and the global economy towards catastrophic levels of climate change and environmental degradation, according to Naoko Ishii, executive vice president and director of the Center for Global Commons.
"To avoid the collapse of the complex and interdependent Earth systems on which humanity, including our economic prosperity depends, we need to transform our social and economic systems and our lifestyles," he explained. "The chemical industry has an outsized role to play, with its products used across many sectors and ubiquitous in modern life. The opportunity is clear: to bring the system back within the planetary boundaries, including net zero greenhouse gases and become a contributor to the Global Commons. We hope this report will open the debate about how the chemical industry can transform itself to grasp that opportunity."
Chemicals are ubiquitous throughout the economy but their myriad impacts on the planet are similarly significant, producing high carbon emissions during production and use of products, in addition to polluting the natural world and exacerbating air pollution.
Chemicals are ubiquitous throughout the economy but their myriad impacts on the planet are similarly significant, producing high carbon emissions during production and use of products.
As such the report contends that delivering net zero and achieving the goals of the Paris Agreement worldwide will be impossible for many sectors without mitigating the climate impact of the chemicals value chain.
The report therefore sets out several potential pathways for the global chemicals sector, offering a blueprint for how it could reinvent itself from a climate laggard into a leading driver of decarbonization and environmental progress across the wider economy.
In order to deliver a sustainable, net-zero economy, chemicals production will need to double between now and 2050, requiring significant investment in new industries, processes and infrastructure, but also opening massive opportunities for the sector, the report argues.
In particular, it highlights the huge potential of non-fossil fuel-based ammonia, the production of which it estimates would need to grow by around 440 percent over the coming decades in order to feed growing demand for sustainable fuels, mainly for shipping. Similarly, ammonia production would need to grow by 330 percent in order to help create plastic without using fossil fuels as a feedstock, it estimates.
The sector will need to transition its feedstocks away from fossil fuels, which the report argues could largely be delivered by it becoming the largest global consumer of green hydrogen, switching to renewable energy sources, and investing in carbon capture and storage technologies, and greater efficiency. Moreover, the report estimates that investing in circular approaches such as reusing and recycling chemicals or switching certain chemicals for lower emissions alternatives could reduce total demand for chemicals by up to 31 percent by 2050.
The sector will still be dependent on a few key abatement technologies — such as carbon capture and storage (CCS) — if it is to achieve net zero emissions.
Even so, expected growth in chemicals production is expected to be significant in order to meet global economic demands, which means the sector will still be dependent on a few key abatement technologies — such as carbon capture and storage (CCS) — if it is to achieve net zero emissions, particularly given some residual emissions are likely to be unavoidable, the report cautions. Without these technologies, it adds that the sector risks becoming a major drag on economy-wide net zero transition plans.
The report estimates up to 640 million tonnes of CCS capacity will be needed across the chemicals every year by 2050 in order to tackle emissions from the sector, while it will also likely need to invest in alternative carbon feedstocks — such as through direct air capture (DAC) of CO2 or bioenergy with CCS — to drive down reliance on fossil fuels.
Yet overall, such major changes across the sector represent a huge opportunity for growth in terms of revenues and jobs, while making chemicals a more attractive career for high-skilled workers seeking environmental and social purpose, according to the report.
And indeed, with new manufacturing approaches based on bio-based feedstocks and DAC, it is technically feasible that the non-ammonia chemical system could become a carbon sink that absorbs 500 million tonnes of CO2 per year by 2050.
Paul Polman, former CEO of Unilever and founder of the sustainability group Imagine, said that while the chemicals sector had perhaps fallen under the radar in the drive to decarbonize the global economy, it help huge potential to accelerate the pathway to net zero emissions worldwide.
The chemicals industry's transformation into a net zero and nature-friendly business is not only technically feasible, but also hugely financially beneficial.
He described this report as a "clarion call" to the chemicals industry to lead a major transformation of its business models, feedstocks and investment strategies over the next 30 years.
"It sets out tangible pathways for the sector to become the enabler of a sustainable economy, a climate solution and a planet-positive system — but in order to access the growth and value associated with this future path, the industry must decouple itself from the fossil fuel dependence of the past," said Polman.
He told us that the report marked "the beginning of an urgent and business-critical conversation for the industry and its value chain", requiring both transformational individual leadership from companies, as well as cross-sector partnerships.
"If coming out of this report we can get the Dows, BASFs, LyondellBassells and others in to one room, I think we have a basis for discussion and a real chance," he said. "A lot they can do themselves, and some of it we have to forge these partnerships."
As the source for uncountable numbers of products and services that human society relies on to function, the chemicals sector is sure to play a monumental role in determining whether the world achieves its climate goals. But this report demonstrates that, while undoubtedly complex and requiring significant investment, the chemicals industry's transformation into a net zero and nature-friendly business is not only technically feasible, but also hugely financially beneficial.