Chemicals

The chemical sector is the largest industrial consumer of both oil and gas, accounting for 15% (13 mb/d) of total primary demand for oil on a volumetric basis and 9% (305 bcm) of gas.

Despite being the largest industrial energy consumer, 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 Sustainable Development Scenario (SDS).

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. Continued demand growth is expected in the SDS, underscoring the need for measures to reduce the energy and CO₂ emissions intensity of production.

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 track with the SDS.

As demand for plastics drives demand for high-value chemicals, which are the key precursors to most plastics, demand for these chemicals increased 4% between 2017 and 2018. Regional production capacity additions are expected 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 each account for one-fifth of the growth in high-value chemical production by 2025, with Asia Pacific making up most of the rest.

Demand for ammonia, the basis of all synthetic nitrogen fertilisers, has been relatively flat at around 175 Mt/yr in recent years. 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 half of output growth to 2025. Ammonia use is driven largely by demand for urea, its largest-volume derivative. Urea and other synthetic nitrogen fertilisers are used in approximately half the world’s food production.

Methanol production is currently rising the most quickly of all primary chemicals, with 6% growth in 2018, but its end uses are less familiar to consumers than those of ammonia and high-value chemicals.

Methanol’s 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 the above-average 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 North America and the Asia-Pacific region owing to the availability of low-cost gas (in the United States) and coal (in China) for feedstock.

To get on track with the SDS trajectory, direct emissions need to peak as soon as possible and decline almost 10% from the current level by 2030, despite a more than 25% increase in demand for primary chemicals. In the short to medium term, this is 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 significantly higher than from natural gas-based production. Methanol can be produced far more cheaply 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 2018, which is over 40% more than in 2000. The share of coal must fall to 24% by 2030 to be on track with the SDS.

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 SDS, the average process energy intensity of primary chemical production declines 13% 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 depolymerization process – in which plastics are broken down into their basic chemical components – to recycle PET plastic, which is mainly used 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 wastes into virgin-quality plastics. A pilot plant is expected to begin operation in late 2020.
• 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 wastes 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 scheduled to open in 2021 in Ohio.

Chemical production innovation is also under way, including on integrating hydrogen and CCUS technologies. For example, a large-scale demonstration plant to manufacture ammonia using hydrogen produced from solar power is under development in Australia by Yara Pilbara Fertilisers, with operation expected to begin in 2021. Meanwhile, a number of projects in China are demonstrating CCUS in high-value chemical production, including Sinopec’s Zhongyuan CCUS pilot project at a petrochemical plant in Henan Province and at two of Yangchang Petroleum’s coal-to-chemical plants.

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, the European Union approved in March 2019 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 bans on plastic bag use have been adopted by 34 African nations.

While growing concern about plastic waste in the oceans is a key driver 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 life-cycle phases. There have also been calls to ban consumption of certain plastics, particularly for single-use purposes and for which substitutes exist.

Regrettably, there has been considerably less advancement in policies to reduce chemical production emissions. One exception is in energy efficiency policy, however. In India, for example, the PAT project requires designated industry subsectors and companies to achieve energy-saving targets and provides a mechanism that allows companies to trade certificated excess compliance with companies that have not met the targets. Fertiliser and chlor-alkali manufacturers were included in the first PAT cycle (2012‑15), in which targeted savings were surpassed by 22 chlor-alkali companies (by 160%) and 29 fertiliser producers (by 70%).

Additionally, the EU ETS is ramping up ambition with faster declines in allowance availability planned for 2021-30 (phase 4), which may help spur emissions reductions from chemical production in Europe. Still, continued free allowance allocations for much of the emissions of highly trade-exposed industries will likely reduce the incentive to pursue major emissions cuts.

Accelerated policy progress covering all regions will be needed to get the chemical production subsector on track with the SDS.

Producing, using and disposing of chemicals and chemical products continue to pose a variety of sustainability challenges. The following ten 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.

Improving the collection, transparency and accessibility of energy performance and CO₂ emissions statistics on the chemical subsector would facilitate research, regulatory and monitoring efforts (including, for example, multi-country performance benchmarking assessments).

Data on energy intensity with more regional granularity is especially needed to enable better performance assessments and comparisons. Industry participation and government co‑ordination are both integral to improve data collection and reporting.