By Yash Chawla, Chemical Expert and Strategic Project Manager at STX Group, global environmental commodity trading and climate solutions firm.
The chemical industry is integral to modern society, supplying essential materials for pharmaceuticals, cosmetics, agriculture and more. However, it also poses a significant challenge in the fight against climate change, being one of the most carbon-intensive sectors. In 2022, global ammonia production alone was responsible for approximately 150 million metric tons of CO2, and the entire chemical industry contributed over 1.3 gigatons of CO2, about 4% of global emissions, equivalent to the annual emissions of roughly 282.6 million passenger vehicles.
To align with global sustainability goals, the chemical industry must aggressively pursue decarbonisation strategies. Governments worldwide are introducing regulatory frameworks to support these efforts. For instance, the EU’s Corporate Sustainability Reporting Directive (CSRD) and the Carbon Border Adjustment Mechanism (CBAM) are pushing for greater transparency and accountability. Additionally, consumer demand for sustainable products is growing, driving industries to set ambitious net-zero targets.
Voluntary initiatives like the Science Based Targets initiative (SBTi) highlight the industry’s commitment to reducing emissions. According to S&P Commodity Insights, over 70% of the world’s top 100 chemical producers aim to achieve carbon neutrality by 2050, with some setting even nearer-term goals.
In the United States, policies such as the Inflation Reduction Act (IRA) are poised to impact the chemical sector significantly. The IRA 45V credit incentivises cleaner hydrogen production, which can lead to cleaner ammonia production—a critical decarbonisation strategy.
Meanwhile, the European Union’s Renewable Energy Directive III (RED III) mandates that 42% of hydrogen used in industries like ammonia production must come from renewable sources by 2030, rising to 60% by 2035. Navigating these policies is crucial for chemical companies to enhance their emissions reduction strategies effectively.
Decarbonising the chemical industry is challenging due to its complex value chains and reliance on fossil fuel-based feedstocks. However, these challenges present opportunities. Global chemical production is expected to grow significantly, with primary production projected to increase by approximately 13% by 2030 compared to 2022.
One promising decarbonisation method is the adoption of bio-based feedstocks. Replacing fossil fuels with renewable alternatives like advanced biofuels and biomethane (RNG) can significantly reduce greenhouse gas emissions, particularly Scope 3 emissions. While Scope 1 and Scope 2 emissions are substantial, Scope 3 Category 1 emissions—from purchased goods and services—represent about 44% of the industry’s total emissions. Transitioning to renewable feedstocks can markedly reduce these upstream emissions.
A comprehensive approach to decarbonising the chemical sector includes several strategies:
1 Renewable Energy Procurement (Scope 2): Reducing the environmental footprint by using renewable energy sources such as solar and wind power, supported by instruments like Energy Attribute Certificates (EACs).
2 Bio-based Solutions (Scopes 1 & 3): Minimising emissions by replacing conventional feedstock with bio-based alternatives like biomethane and biofuels, addressing both direct (Scope 1) and supply chain (Scope 3) emissions.
3 Energy Efficiency Optimisation (Scope 1): Implementing energy-saving technologies and measures, such as heat pumps and mechanical vapor recompression, to reduce energy consumption and emissions within production processes.
4 Carbon Capture and Storage (Scope 1): Capturing unavoidable CO2 emissions for safe underground storage, enabling the production of “blue” products like ammonia or hydrogen.
5 Voluntary Carbon Markets: Compensating for residual emissions by financing global carbon avoidance, removal, and reduction projects.
6 Regulatory Compliance: Adhering to regulations like the EU Emissions Trading Scheme (ETS), Carbon Taxes, and CBAM.
7 Material Circularity and Electrification: Promoting recycling and the electrification of processes such as crackers and compressors.
An example of our commitment to these principles is our collaboration with Germany’s largest ammonia producer, SKW Piesteritz, for eco-friendly nitrogen production using biomethane.
The introduction of CBAM this year, which imposes taxes on Scope 1 and 2 emissions for imported ammonia and fertilisers, will push importers to seek ways to reduce their emissions. Imports from countries like India, Vietnam, Taiwan and Japan will be most impacted. Similarly, the CSRD will require large companies to report their emissions from 2024, leading to increased transparency and pressure to reduce the carbon footprint of their products. This involves calculating Scope 3 emissions, and chemical companies essentially encompass their customers’ Scope 3 emissions.
In the US, tax credits like 45V, 45Q and 45Z incentivise the production of lower-carbon hydrogen, ammonia and methanol, contributing to the industry’s decarbonisation efforts. However, companies await further clarification on these schemes, including project timing requirements and lifecycle assessment methodologies.
The decarbonisation journey for the chemical industry is ambitious but achievable. The combined force of regulations, customer demand and technological advancements presents a unique opportunity to transform the industry. By embracing these changes, the chemical industry can ensure a sustainable future for generations to come.
