Decarbonising the chemicals sector


Decarbonising the chemicals sector 

Lowering carbon emissions is both a challenge and an opportunity

If the chemical industry lowers its emissions, it could create a new competitive landscape in which the winners are leaders in sustainable business processes, and producers of a whole new portfolio of products to meet changing consumer needs.

The chemicals sector (encompassing plastic production, pharmaceuticals and other commodities, such as cleaning products, foodstuff ingredients and fertilizers), is estimated to make a $5.7 trillion contribution to global economic output, or seven percent of world GDP. In the Netherlands, chemical sales represent six percent of national GDP (€60bn of €1tn), and the Dutch chemicals industry represents two percent of global production.  

The chemical sector’s impact is so pervasive that over 96 percent of all manufactured goods have roots in the industry, and key markets such as health care, transportation, agriculture, communications and retail would cease to function without chemical production. However, globally, the industry consumes over 10 percent of the world’s fossil fuels, and emits over two gigatons of greenhouse gases (GHG) a year. Stakeholder and societal pressure to reduce these numbers is mounting, not only at the points of extraction and production, but also further down the value chain. Consumers are increasingly demanding lower-carbon products.

Lowering carbon emissions is both a challenge and an opportunity

Beyond the challenges of decarbonising lie many opportunities for collaborative innovation between chemical producers, their suppliers and end consumers, to shift the industry towards low- and zero-carbon alternatives. Chemical producers are ideally placed to act, as the hub of market developments between new demand and supply options within a circular economy featuring improved waste management, green energy and new product technology. Chemical companies therefore have a choice to make. As sustainable technologies grow, developing a sustainable product portfolio will be at the heart of a successful chemical enterprise, and so companies should regularly review their product portfolio to support the transition to verifiable lower-carbon products. Industry leaders can do this by addressing three critical questions: What are the longer-term growth opportunities available to the company in different end markets? Which product mix will likely give superior value to end-market customers? Does the company have a robust sustainable product portfolio to perform well in the future? 

Alongside green energy, decarbonisation needs to focus on the circularity of materials and products

An effective, holistic solution would mean addressing emissions over each product’s complete lifecycle; a ‘cradle to cradle’ approach in which products are designed and produced in such a way that they can be recycled and upcycled at the end of their life. This circular approach looks to rework existing business models – and the patterns of consumption and emissions associated with those models – to make small, incremental improvements to the efficient use of resources and reduction of waste, which in aggregate make significant inroads to decarbonisation targets, and even open up whole new market segments. The collaborative approach within circularity involves sharing R&D – particularly within a vertical market – to build on the work of all across the sector towards a common purpose of greening the industry as a whole. 

Vision for the future

The envisioned future will be one of diverse stakeholder ecosystems working towards co-created solutions across resource extraction, production methodologies, product design, emissions management and consumer engagement. In Northwest Europe, for example, the leading hub for thinking and action for the chemical industry is the Antwerp-Rotterdam-Rhine-Ruhr Area (ARRRA), which is set for innovation, cooperation and specialisation. The ARRRA cluster represents a tightly integrated network of large and small plants, pipelines, suppliers, co-sited producers and manufacturers, and strong end-user markets across Northwest Europe. Those end-consumer markets are sufficiently versatile to adapt to changing production outputs; the area is a centre for innovation, and has a clear regulatory framework to govern future development. 

Call to action

The chemical industry needs to act now to lower its scope 1 (direct GHG) and scope 2 (indirect) emissions and downstream end-market scope 3 emissions. The action starts with an unambiguous strategy with sustainability at its heart, and an unswerving ambition to transform markets and business models throughout the product lifecycle.  The capability and expertise to catalyse these changes and create a new competitive landscape is already within the industry; one in which the winners are leaders in sustainable business processes, and producers of a whole new portfolio of products to meet new consumer needs. Deloitte’s Energy, Resources and Industrials (ER&I) team plays a central role in helping clients support the transformation to net zero. If you’re looking for fresh ideas to address your decarbonisation challenges, we should talk. 

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