Chemicals

The chemical sector is the largest industrial consumer of both oil and gas, as well as the largest industrial energy consumer overall. However, it is the third industry subsector in terms of direct CO₂ emissions, behind cement and iron and steel. This is largely because around half of the chemical subsector’s energy input is consumed as feedstock – fuel used as raw material input rather than as a source of energy. 

Nevertheless, chemical sector emissions need to peak in the next few years and decline towards 2030 to stay on track with the Net Zero Emissions by 2050 Scenario. 

The sector’s substantial energy consumption is propelled by demand for a vast array of chemical products. Demand for primary chemicals1 – which is an indication of activity in the sector overall – has increased strongly in recent years, although a decline occurred in 2020 due to the Covid-19 crisis. Demand is expected to resume growth and then continue increasing strongly in the Net Zero Emissions by 2050 Scenario, underscoring the need for measures to reduce the energy and CO₂ emissions intensity of production.

Demand for plastics has been rising quickly and will continue to do so. Key plastic end-use sectors are packaging, construction, and automotive applications. In many parts of the developing world, demand for plastics has just recently begun to gain momentum. 

Demand for plastics drives demand for high-value chemicals, which are the key precursors to most plastics. Although demand for these chemicals declined 2.4% in 2020 due to the Covid-19 crisis, it grew at an annual average rate of 3.5% from 2015 to 2019.  

Demand growth is expected to resume and regional production capacity additions are anticipated predominantly in North America, the Middle East and the Asia-Pacific region2. North America (led by the United States) and the Middle East are projected to together account for nearly 30% of the growth in high-value chemical production by 2025, with Asia Pacific making up most of the rest. 

Recycling of thermoplastics counterbalances a small proportion of global demand for virgin plastics, thereby reducing demand for virgin primary chemical production. Although recycling meets only a small share of plastic demand globally, in Europe the amount of plastic collected for recycling exceeded that going into landfills for the first time in 2016. Collection rates must increase globally over the next decade to get on the Net Zero Emissions by 2050 track. 

Demand for ammonia, the basis of all synthetic nitrogen fertilisers, has been relatively flat at around 180 Mt/yr in recent years. Synthetic fertilisers are used in approximately half the world’s food production. Demand for other synthetic fertilisers critical to modern agricultural systems (including those that deliver potassium and phosphates) has been increasing steadily, but they are less important from an energy standpoint. 

Ammonia production capacity is projected to expand fairly evenly across the globe in the coming years, with the exception of Asia Pacific, which accounts for 35% of output growth to 2025. Ammonia use is driven largely by demand for urea, its largest-volume derivative. Strengthening nutrient use efficiency measures on farms, including the 4 R’s of fertiliser application (right source, right rate, right time and right place), helps lower demand in the Net Zero Emissions by 2050 Scenario, contributing to reduced emissions. 

Methanol production is currently rising the most quickly of all primary chemicals, with the exception of a 7% production decline in 2020 prompted by the Covid-19 crisis. In 2015-2019, production expanded an average 7% each year. 

Methanol’s end uses are less familiar to consumers than those of ammonia and high-value chemicals. Its main end use is for formaldehyde, which is employed to produce several specialised plastics and coatings. Methanol is also used for fuel applications (a key driver of its above-average demand growth) and as an intermediary to produce high-value chemicals, mainly when oil is not available as a feedstock. 

In IEA projections to 2025, methanol production capacity additions are highly concentrated in the Asia-Pacific region owing to the availability of low-cost feedstock.

To get on track with the Net Zero Emissions by 2050 Scenario, direct emissions need to peak as soon as possible and decline almost 10% from the current level by 2030, despite a 25% increase in demand for primary chemicals. In the short to medium term, this can be achieved primarily by decreasing coal use and raising energy efficiency. 

The coal-based chemical industry, particularly prevalent in China, poses a significant environmental challenge, as emissions intensities are considerably higher than from natural gas-based production. Methanol can be produced far more affordably from coal in China, which in turn has facilitated the large-scale (and rapidly growing) route of producing plastics from coal. 

Coal accounted for an estimated 28% of process energy used in primary chemical production in 2020, which is over 50% more than in 2000. The share of coal must fall to 22% by 2030 to be on track with the Net Zero Emissions by 2050 trajectory. 

Increased energy efficiency – through both incremental improvements to existing methods and step changes resulting from switching to fundamentally more efficient methods (e.g. from coal- to natural gas-based processing) is another key mitigation mechanism to be exploited in the near term. In the Net Zero Emissions by 2050 Scenario, the average process energy intensity of primary chemical production declines 12% from the current level by 2030. 

Improved recycling has multiple benefits, including reducing the need for virgin production, reducing downcycling (in which a material is recycled into a lower-value end use), and reducing plastic waste.  

Among the many innovation initiatives under way to improve recycling are several highlights:  

• The American chemical company Eastman has developed a depolymerisation process – in which plastics are broken down into their basic chemical components – to recycle PET plastic, which is used mainly to make drinks bottles. After completing pilot testing at its site in Tennessee, commercial operation of the plant began in late 2019. 
• In late 2019, BP announced the formation of a consortium to hasten the commercialisation of BP Infinia, a technology to recycle opaque and difficult-to-recycle PET plastic waste into virgin-quality plastics. A pilot plant is planned to come online in the United States. 
• Norwegian company Quantafuel, with backing from companies such as the major chemical producer BASF, has developed a technology that uses heat-based processes (pyrolysis) to convert mixed plastic waste into synthetic fuels. Its first commercial plant started operating in late 2019 in Denmark and will process 18 kt of plastic waste per year. 
• In 2019, PureCycle completed a successful first run of its process to recycle PP plastic (used in various applications including packaging, clothing and piping) into virgin-quality plastic, using a solvent to purify the plastic. Its first commercial-scale plant is expected to be commissioned by the end of 2022 in Ohio. 

Chemical production innovation is also under way, including on integrating hydrogen and CCUS technologies. For example, multiple companies – including Feriberia, Yara, Enaex and Balance Agri-Nutrients – are developing projects to produce ammonia from solar and wind energy, with plans to scale up by 2030. In 2020, Canada’s Alberta Carbon Trunk Line CCS project began operations, and its activities include transporting CO₂ from Nutrien’s fertiliser plant for permanent storage.  

A number of projects in China are also demonstrating CCS in chemical production, including Sinopec’s Zhongyuan pilot project operating at a fertiliser plant, a pilot project operating at a Xinjiang Dunhua methanol plant, and Yangchang Petroleum’s demonstration project under construction at a coal-to-chemical plant. 

Policies targeting increased plastic recycling and other material efficiency strategies, such as product reuse and life extensions, have advanced significantly in recent years. 

There has been a considerable increase in policies restricting single-use plastics, with more than 60 countries introducing bans or levies in the past five or so years. For example, in March 2019 the European Union approved a ban on single-use plastic cutlery, cotton buds, straws and stirrers by 2021, and a requirement for plastic bottles to contain 30% recycled content by 2030. Canada announced a similar ban in June 2019 that would come into effect in 2021 at the earliest, and 34 African nations have adopted bans on plastic bag use. 

While growing concern about plastic waste in the oceans is a key motivator of these policies, China’s 2018 ban on imports of most waste plastics and other materials also likely had an influence, considering that it had previously been processing a considerable portion of global recyclable waste. 

As of 2016, Korea, Switzerland, Austria, Germany, the Netherlands, Sweden, Denmark, Luxembourg, Belgium, Norway and Finland all had landfill restrictions in place, which appears to be associated with higher rates of plastic waste-to-energy production and recycling. In fact, in 2016 plastic recycling overtook landfilling in Europe for the first time. Korea and Japan had achieved this feat several years earlier, with landfill rates in each country being in the single digits. 

The Ecodesign Directive developed by the European Commission provides guidance on reducing the environmental footprint of consumer products in their various lifecycle phases. There have also been calls to ban consumption of certain plastics, particularly for single-use purposes and for which substitutes exist. 

There has been considerably less advancement in policies to reduce chemical production emissions, although a few major ones are notable. For example, the EU Emissions Trading System, which covers the chemical sector, is ramping up ambition, with faster declines in allowance availability planned for 2021-2030 (phase 4). Meanwhile, India’s PAT Scheme, a market-based mechanism to improve energy efficiency, has covered chlor-alkali and fertilisers since its first cycle that began in 2012 and the rest of petrochemicals since its fourth cycle that began in 2018.  

Accelerated policy progress covering all regions will be needed to get the chemical production subsector on track with the Net Zero Emissions by 2050 Scenario.

As producing, using and disposing of chemicals and chemical products continue to pose a variety of sustainability challenges, the following recommendations – presented and elaborated upon in The Future of Petrochemicals – warrant early and consistent attention.

• Directly stimulate investment in RD&D. 
• Establish and extend plant-level benchmarking schemes. 
• Pursue effective regulatory actions to reduce CO2 emissions. 
• Require the chemical industry to meet stringent air quality standards. 
• Adjust fuel and feedstock prices to reflect actual market value. 

• Reduce reliance on single-use plastics other than for essential, non-substitutable functions. 
• Improve waste management practices around the world. 
• Raise consumer awareness about the multiple benefits of recycling consumer goods. 
• Design products with disposal in mind. 
• Extend producer responsibility. 

A clear institutional framework defining stakeholder responsibilities throughout the value chain (from chemical production to the use and disposal of chemical products) is a prerequisite to ensure cost-efficient, concerted action. 

• Improve the collection, transparency and accessibility of energy performance and CO₂ emissions statistics on the chemical subsector to facilitate research, regulatory and monitoring efforts (including, for example, multi-country performance benchmarking assessments).  
• Increase the regional granularity of data on energy intensity to enable better performance assessments and comparisons. Industry participation and government co‑ordination are both integral.