Chemical makers call for more effective energy transition investment policies in 2024

Chemical products and innovations act as enablers of energy transition as advanced materials for lower-emissions technologies like advanced battery storage and solar and wind power. But the fact remains that the chemical industry is also a massive industrial manufacturer based almost exclusively on hydrocarbon-based feedstocks with large energy needs, making its decarbonization path complex and reliant on cutting-edge—and sometimes even nascent—technologies. And with climate progress well off the pace necessary to meet the Paris Agreement goals, there is growing sentiment that more funding and policy support should center on the industries that are by nature the hardest to abate.

"Building out a lower-emissions economy will require a rapid, unprecedented investment in energy and manufacturing infrastructure and a commitment to prioritize these projects by policymakers at all levels," said American Chemistry Council (ACC) senior director of energy, climate, and environment Charles Franklin. "Chemical manufacturing is an energy-intensive industry. Meaningful emissions reduction will require a portfolio of technologies and approaches; there is no one-size-fits-all solution," he added.

According to a December report from S&P Global Commodity Insights, over $500 billion has been deployed in the last 18 months in energy transition financing, with "significantly more announced investments still filling out the sector's capital stack." But even as investment scales and accelerates, "supply chains, permitting and regulators [are] struggl[ing] to keep up with the growing queue of both financed and planned projects," it said. Private investment is expanding, but is disproportionately focused on electrification and associated deployment of renewable power, with less than a fifth earmarked for decarbonization technologies for heavy industry, S&P Global Commodity Insights said.

For its part, US chemical makers are focusing on reducing emissions through combined heat and power and other process efficiency technologies; lower-emissions hydrogen; carbon capture, utilization, and storage; and advanced recycling of plastics while looking ahead to advanced nuclear and process electrification, Franklin said. ACC members reported that 25% of their capital budgets are allocated toward sustainable manufacturing.

Globally, over three-quarters of the Billion-Dollar Club — Chemical Week's annual ranking of the world's top chemical makers with publicly disclosed revenues — have committed to carbon-neutral or net-zero goals by 2050 in accordance with the Paris Agreement.

In the US, policies such as the Inflation Reduction Act (IRA) and Infrastructure Investment and Jobs Act (IIJA) have unlocked billions of dollars to catalyze innovation and economy-wide emissions reductions. The IRA represents the most significant climate action ever taken in the US, with over $350 billion earmarked for clean energy.

However, Franklin said it is unclear if the laws, as implemented, will be able to spur the necessary paradigm shift. "ACC members have had mixed results in seeking funding under the IRA and IIJA," he said. "Our sense is that the Administration's project selection process could be clearer and simpler. For example, the standards and requirements outlined in [funding opportunity announcements] and guidance are often complex and involve many factors beyond the climate benefits of a specific project. This can make it difficult for companies to assess whether the project will be competitive."

ACC recommends policymakers modernize the permitting process for energy infrastructure and manufacturing projects. This is "crucial for effective and timely implementation" of the IRA and IIJA, Franklin said.

In the European Union, companies have similarly struggled with 2020's Green Deal. Meant to make the EU climate neutral by 2050, European chemical makers said the policy initiative increase costs, stifles technology, and reduces competitiveness. They said the IRA's clean energy funding, subsidies and tax breaks do a better job at creating a business case for clean-energy investment.

In October, the European Chemical Industry Council, Cefic, together with other associations representing Europe's clean technology industries and their key material suppliers, sent a joint letter to the European Commission president Ursula von der Leyen calling for "urgent and comprehensive action" to maximize the growth potential of the European Green Deal and ensure a "compelling business case" for clean energy supply chains in Europe. They suggested an "EU industrial deal" with new, agile and EU-level finance for easier access to existing EU financial tools and the addition of new sources of EU-level funding specifically allocated to clean energy supply chains. They also recommended fast-track permitting for production and deployment, enforced at the national level; competitive energy prices; and a level playing field for open strategic autonomy.

Global policy mechanisms need to be refined if governments hope to accelerate the massive investments chemicals must make to reach decarbonization goals. This scenario puts industry at risk of falling behind in the climate race, even as its central role in developing materials to enable the energy transition does not enjoy any room for error or time to course correct. "[T]here is no energy transition without the chemical industry," Mitsubishi Chemical president and CEO Jean-Marc Gilson said at the recent GPCA meeting in Doha, Saudi Arabia.

This article first appeared in Chemical Week by S&P Global.

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