Chemicals

The chemical sector is the largest industrial energy consumer and the third largest industry subsector in terms of direct CO₂ emissions. This is largely because around half of the chemical subsector’s energy input is consumed as feedstock – fuel used as a raw material input rather than as a source of energy. 

About a quarter of CO₂ emissions in the chemical sector are generated as a result of chemical reactions inherent to the materials being produced – industrial process emissions – with the remainder due to fuel combustion. Ammonia production is responsible for the highest share of emissions, followed by high-value chemicals (i.e. ethylene, propylene, benzene, toluene and mixed xylenes) and methanol. 

Chemical sector emissions need to peak in the next few years and decline towards 2030 to get on track with the Net Zero Scenario. The sector’s emissions decline in this scenario by about 15% relative to current levels by 2030, despite strong growth in demand for its outputs. To get on track, government and industry efforts need to address CO₂ emissions from chemical production, as well those generated during the use and disposal of chemical products. 

The sector’s substantial energy consumption is propelled by demand for a vast array of chemical products. Demand for primary chemicals – which is an indication of activity in the sector overall – has increased strongly in recent years. The Covid-19 crisis caused a year of stagnation, but the sector fully recovered with high growth rates in 2021.  

To summarise key demand areas: 

• Ammonia: forming the basis of all synthetic nitrogen fertilisers, ammonia has seen relatively modest growth over the past decade (1.6% annually). China is the largest producer today (28% of global production).  
• High-value chemicals: being key precursors to most plastics, high-value chemical demand has grown 3.2% annually over the past decade but its growth slowed down in 2020 due to the Covid-19 crisis. The United States, China and the Middle East are the largest producers today, together accounting for 54% of global production. 
• Methanol: the main end uses are for formaldehyde, fuel applications and intermediaries to produce high-value chemicals replacing oil as feedstock. Its demand has grown very fast in the last decade (7.2% annually). China, being the largest methanol producer, accounts for 57% of the world's production. 

Material efficiency measures – including increasing plastics recycling, more efficient nutrient use in the case of ammonia fertiliser use, and reducing the use of single-use plastics – are important in the Net Zero Scenario to reduce the growth in chemicals demand relative to baseline trends. Recycling, in particular, will be important to reduce the need for primary production. Recycling rates vary widely, but globally only about 10% of plastic is recycled. While the share is increasing, progress needs to accelerate. 

Oil and gas are the main feedstocks used in the chemical sector, and their use is set to grow to meet material demand.  

The coal-based chemical industry, particularly prevalent in China, poses a significant environmental challenge, as emission intensities are considerably higher than in natural gas-based production. Methanol can be produced far more affordably from coal in China, which has in turn facilitated the large-scale (and rapidly growing) route of producing plastics from coal. Coal accounted for an estimated 36% of process energy used in primary chemical production in 2021, but its use must decline by about 26% by 2030 to get on track with the Net Zero Scenario milestones. In that scenario, oil use, already accounting for a very small share of process energy, further declines by 2030.  

Increased energy efficiency – achieved both through 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 also important in the Net Zero Scenario. 

Carbon capture, utilisation and storage (CCUS) and electrolytic hydrogen are the main ways to decarbonise chemical production. Important steps have been taken recently on the development of the possibilities these two technologies have for each main chemical product. Recent innovations related to chemical production include: 

• Methanol: the first commercial-scale emissions-to-liquids plant, the Shunli plant, is to be commissioned in Q3 2022 and the world’s largest commercial-scale e-methanol plant in Finnfjord, Norway, is expected to be commissioned in 2024. The plant will use CO₂ captured from the Finnfjord ferrosilicon plant and hydrogen generated from the electrolysis of water using renewable electricity. 
• Ammonia: the first commercial green hydrogen plant using variable renewable electricity has been operating in Spain since May 2022 to produce green ammonia and the world’s first industrial dynamic green ammonia demonstration plant is due to launch in 2023 in Denmark. 
• High-value chemicals and plastics: innovation is also continuing on low-emission alternative materials to produce plastics, the so-call “bioplastics”. The Italian company Aquafil and its “Effective” project is just one of the multiple examples in this field. Nonetheless, concerns about poor biodegradation and the availability and management of bio-resources have slow the uptake of these technologies. 

Additionally, innovation is ongoing in the field of plastics recycling. 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. Still, only 6% of current plastic production is done with secondary plastic. Many different methods are being developed to recycle plastics. Mechanical recycling is preferable, but it is limited by the purity of the plastic waste. Pyrolysis is one of the leading technologies being explored today to deal with the increasing complexity of the plastic streams. The process consists in breaking down the material at high temperatures in the absence of oxygen. Next to pyrolysis, gasification might also be an option. Another option is solvent dissolution, such as PureCycle’s process for propylene plastic recycling. In April 2022 Aptar and PureCycle achieved a testing milestone, when Aptar used prototype material from the PureCycle process with performance similar to conventional resin. 

Many governments have introduced policies addressing industrial emissions specifically – these are discussed further on the IEA’s tracking page for industry. Several major policies and commitments have also been made recently to specifically address pollution stemming from chemical sector products:  

• Many countries have been taking action to curb plastic pollution, with over 60 countries introducing bans and levies on plastic packaging and single-use items. Recent developments include a ban on many single-use plastic items in India taking effect in 2022, and a ban on several new items announced in Canada. 
• France has laid out a new roadmap for the decarbonisation of its chemical industry, including a new target of 31% lower emissions by 2030, and concrete steps for lowering emissions across the sector – the UK and Germany laid out a similar roadmap in 2015 and 2019 respectively.  
• Many countries are devoting considerable funds to improve plastic recycling technology and ensure that it is widely deployed, including Austria, Denmark, Finland, Japan and Sweden.

Many encouraging international developments relating to chemicals have recently been announced, including the following:  

• In March 2022 the UN adopted a historic resolution to end plastic pollution, committing to create an international legally binding agreement by 2024. A binding agreement in this area would be the first of its kind.  
• Japan has recently announced two joint agreements – one with Australia and the other with Indonesia – in which the countries have committed to jointly support initiatives to accelerate the development and commercialisation of low- and zero-emission technologies, towards the transition to net zero emissions. These technologies including clean fuel ammonia, clean hydrogen and derivatives produced from renewable energy. 
• The European Union has launched the Chemicals Strategy for Sustainability as part of its European Green Deal – the strategy involves restrictions to protect Europeans from the hazards of chemical pollution, as well as initiatives to promote the decarbonisation of the industry. 

Many private-sector and non-governmental actors in the chemical industry are beginning to take important actions towards decarbonisation. The First Movers Coalition, which is tackling emissions across a number of emissions-intensive sectors, is developing an initiative aimed at reducing chemicals emissions, and is due to be launched at COP27. Furthermore, global chemical companies in collaboration with the World Economic Forum are entering an agreement to formally create the Low-Carbon Emitting Technologies Initiative, an organisation devoted to decarbonising the chemical industry through the proliferation of clean technology. The organisation has already released a white paper on policy priorities for deploying clean technology. 

As with industry overall, decarbonisation of the chemical industry will require multiple measures, including:  

• Adopting mandatory CO₂ policies covering industry and expanding international co-operation – domestically this might include carbon prices, while carbon border adjustments or international sectoral agreements might be considered to limit carbon leakage. 
• Managing existing assets and near-term investment in order to create a smooth energy transition (e.g. mandating refurbishment to near zero-emission technology to avoid stranded assets). 
• Maximising energy productivity by accelerating progress in energy efficiency, recycling and material efficiency. Deploying best available technologies and material efficiency strategies can facilitate this, and policy makers can incentivise these actions. 
• Increasing investment in R&D and deployment for low-carbon technologies, for example through finance mechanisms that mobilise increase private investment. This is essential to decarbonising process emissions from industry and eliminating some emissions, including through investment in hydrogen and methods of reducing plastic waste.  
• Investing in and planning for supporting infrastructure, including for CO₂ transport and storage and low emission hydrogen production and distribution. 
• Creating a market for near zero-emission industrial products – initially through carbon contracts for difference or direct public procurement. For chemicals, this might include companies using alternatives to fossil fuels as feedstocks.  
• Improving data collection, tracking and classification systems, in which industry participation and government co‑ordination are both important. 

Energy costs make up a substantial proportion of the overall costs faced by chemical producers. Policies subsidising certain fossil fuel uses distort the market, leading to inefficient energy use and inhibiting shifts towards feedstocks that are less carbon-intensive or renewable. Eliminating these policies can help lead to more energy-efficient and less emissions-intensive chemical production. 

Increasing plastic recycling rates will be essential to lowering chemical emissions, as it will reduce the need for fossil fuel for new plastic production. A further benefit is that increased recycling can avoid the air and water pollution that commonly results from other disposal methods like landfilling and incineration. Additionally, reducing overall plastic consumption where possible, particularly single-use plastics that have easy alternatives, will help reduce emissions. 

Actions can be taken all along the supply chain to reduce plastic waste and increase recycling. Institutional frameworks defining stakeholder responsibilities should be created to ensure cost-effect and concerted action. Single-use plastic bans should continue to be implemented where they have not been already, and their stringency increased where they have. Awareness of the importance of plastic recycling should also be raised among consumers. Among producers, design codes and practices can be implemented to make it easier for the materials in products to be extracted and sorted, reducing the need for disposal and new production. Extended producer responsibility policies are a further option, making producers accountable for collecting, sorting and processing products after use. Policies that put a price on recyclable waste going to landfill have also proven to be effective.  

Continued innovation in plastics recycling methods, to enable the recycling of a broader range of plastics and prevent downcycling, will also be important.