A. Khanlari, Aspen Technology, Houston, Texas; and R. BECK, Aspen Technology, Bedford, Massachusetts
The chemical industry has shown resilience in addressing economic turbulence and supply chain disruptions after the COVID 19 pandemic. In 2022, chemical producers faced challenges that included a slower-than-expected recovery in China after the pandemic and high inflation worldwide, as well as the Ukraine war and the related energy security crisis in Europe.
Even with these headwinds, the industry suffered only marginal losses. Despite higher sales revenue (coming primarily from price increases), producers experienced destocking and lower-volume sales, resulting in a decline of approximately 7% ($8 B) in the top 50 chemical manufacturers’ profits.
While striving to remain profitable against market uncertainties, the chemical industry must comply with environmental regulations designed to offset climate change and handle the current pressure to address plastics circularity. Consumer activism and preference have created a market force to reward green products and processes. Consequently, the industry is pursuing new business models to address both environmental and profitability challenges in its near- and long-term plans. However, the exact path to net-zero emissions and plastics circularity remains unclear. What is crucial—and essential to winning this fight—is rethinking how we produce, use and reuse energy and materials. To accelerate sustainability efforts, governments are actively engaging with industry to set achievable milestones. This engagement comes in the form of generous incentives in the U.S. and more prohibitive measures with caps and tax implications, as observed in the European Union (EU), Canada and China.
The effect of net-zero and carbon-neutrality policies on the chemical industry. The U.S. has made a strong push for energy and infrastructure legislation under President Biden’s administration. While these policies aim to address and minimize climate change, they also set the stage for U.S. leadership in a new net-zero economy. In the U.S., the Bipartisan Infrastructure Law ($1.2 T), the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act ($280 B), and the Inflation Reduction Act ($740 B), which were passed between November 2021 and August 2022, make up the largest American infrastructure investments, of which chemical and energy companies are the primary beneficiaries. These pieces of legislation offer incentives for electric vehicle (EV) manufacturing and semiconductor production, as well as pathways toward de-risking clean energy investments, guaranteeing energy security and controlling climate change through carbon capture solutions.
The European Climate Law, realized in July 2021, is the cornerstone of the European Green Deal. This law targets a 55% reduction in emissions by 2030, and a neutrality objective for 2050. This translates to a 50% reduction in energy consumption by 2040. The primary mechanisms foreseen for this transition are the extension of public transportation networks and EV fleets, electrification in energy-intensive industries and a transition to renewable sources for remaining energy needs. This policy seeks to lessen emissions through carbon tariffs [Carbon Border Adjustment Mechanism (CBAM)] or emissions trading systems (ETSs). This law also includes a circular economy action plan, sustainable and smart mobility, and a reevaluation of fossil fuel subsidies.
Similar to the U.S. and Europe, climate-change and energy-transition policies have also been introduced in other parts of the world. Article 6 for voluntary carbon markets between countries (agreed upon during the 26th United Nations Climate Change Conference, known as COP26, in Glasgow, Scotland in 2021) plans to phase out coal in South Africa and Indonesia; and there are other examples, such as the ETS in China and Canada’s greenhouse gas (GHG) offset credit system.
Even though governmental policies to control climate change are encouraging for industry, uncertainties around these policies cast a shadow on their long-term effectiveness. Any change in the U.S.’s approach to climate change affects policies in other parts of the world, as well. These policy uncertainties make clean energy investments riskier and are barriers to meeting net-zero targets.
Shifting business models for energy transition, carbon neutrality and plastics circularity. Achieving sustainability targets is no simple task—it demands a collaborative and innovative approach. The approach must address the entire value chain of products’ carbon footprint, including raw materials sourcing, supply chain management, manufacturing, and the repurposing and recycling of waste.
In a 2021 study, the International Energy Agency (IEA) provided a net-zero estimate (NZE) for the cumulative carbon dioxide (CO2) emissions released globally. According to this study, to move from a cumulative CO2 release of about 43 gigatons (Gt) to net-zero by 2050, a broad range of policy and technological changes are needed. According to the IEA, the primary decarbonization pillars are energy efficiency; behavioral changes; electrification; renewables; hydrogen (H2) and H2-based fuels; bioenergy; and carbon capture, utilization and storage (CCUS). The IEA categorizes plastics circularity as part of behavioral changes and increased material gains.
FIG. 1 summarizes the potential effects of each major category. It is evident that, for any meaningful change toward decarbonization, all means must be deployed, requiring new integrated business models that have not existed previously. These new business models will involve multilateral collaborations among small, innovative technology developers and established, well-capitalized producers.
To achieve net-zero and carbon-neutrality targets for chemical producers, a number of these initiatives are relevant:
The role of innovation and digitalization. Looking at the broader net-zero pillars, innovative new technologies such as green H2, carbon capture and plastics upcycling technologies must be optimized and scaled up to become mainstream. Digital solutions will be a game changer to develop new technologies, as well as to scale up and accelerate deployments. Digital solutions can reduce the time to market for new technologies by allowing for the screening of numerous operational conditions and materials in a fraction of time. Digital twins, real-time data collection and contextualization, smart process control, economic analysis and bridging gaps leveraging machine-learning (ML) and artificial intelligence (AI) bring tremendous value to a project that might otherwise be almost unattainable.
The following are some of the challenges associated with net-zero goals and how digitalization is helping chemical producers.
Improving energy efficiency and managing Scope 1 emissions. Improving energy efficiency, along with the accurate monitoring of emissions, is the first logical step toward carbon neutrality for chemical manufacturing. Ensuring optimal operational conditions through real-time monitoring enables plant managers to run operations with minimized energy cost. Creating a dashboard view of the entire operation’s carbon footprint provides valuable insights to high-level decision-makers for the purpose of reporting and mitigating emissions. For example, by implementing the authors’ company’s planning and scheduling tools, SABIC has mitigated CO2 emissions across 11 crackers by 20% without compromising ethylene production rates. A global top five chemical company has reduced energy efficiency by 9% across its global operations through optimization. Further opportunities can be found across the chemical value chain.
Biofeedstocks. Historically, biomass has been used to produce biofuels that rely on first-generation feedstocks (i.e., edible crops). Investments in developing new processes from second-generation biomass have been inconsistent, depending on the price cycle of fossil fuels. Converting these biofeedstocks to high-value chemicals would produce sustainable chemicals while lowering the carbon footprint of the final product. Presently, these processes are mostly at laboratory scale, and commercialization efforts are insufficient. Digital solutions enable accurate and rapid scale-ups to bring these chemicals to market at speeds not possible before. In Malaysia, for example, process modeling has improved economics of oleochemicals processing significantly.
CCUS. Tax credits from the U.S. Inflation Reduction Act, along with similar tax breaks, carbon taxes and financial incentives in the EU, Canada, China and other nations, have provided an abundance of financial incentives for CCS/CCUS projects. However, the underlying technologies, while technically proven, are still in the early stages of maturity. Significant investments—in the form of carbon credits and straight investments—have been recently announced by players ranging from operators of global cloud computing centers (e.g., Microsoft, Amazon, Google) to global airlines (e.g., United), which have established a de-facto carbon price that makes these projects economically viable today. Ongoing innovation, research and development, and learnings from earlier projects are needed to continue to improve CO2 capture efficiency and optimize large-scale plants. Embedding digital—which the authors’ company calls “born digital”—into these endeavors will continue to drive down the break-even costs of all forms of carbon capture, including direct air capture (DAC). In addition, embedding digital into project workflows will enable faster, repeatable project execution, accelerating scaling as called for by IEA carbon capture reports.
Geological storage certainty needs to accompany the innovation on the surface capture side of projects. This will reduce the uncertainty around the impact on carbon storage with respect to geology and petrology, the movement of CO2 in target formations and injection strategies. All of this will reduce permitting friction and delays and improve storage certainty. Digital solutions are powerful enablers for project evaluations, optimized designs and successful project executions. As an industry example, the world’s largest plant for testing and improving CO2 capture technologies—Technology Centre Mongstad in Norway—leveraged the authors’ company’s digital twin technology to build a realistic process model that would maximize CO2 absorption rates. Several announced and operating DAC projects are doing the same.
Waste management and plastics circularity. For chemical manufacturers, generated waste streams are inevitable. Besides the negative environmental impacts, these waste streams have a carbon footprint and recurring costs to reprocess or dispose of. Preventing waste formation (such as flaring or liquid waste) in the first place via advanced process control or predictive maintenance is a proactive approach that can positively impact the bottom line and footprint of chemical manufacturing.
Conversely, plastics circularity is a relatively new topic requiring many research and development hours for process development. Even with proper raw materials sourcing, sorting, processing and upgrading, the plastics loop is still barely closed. Huge gaps in proper collection and sorting methods hinder raw materials supply. Advanced recycling technologies are still immature, requiring validation and capital investments. Here, digital solutions can play a prominent role by vetting technologies and accelerating scale-up work.
Supply chains. Even though supply chains have begun to detangle in this post-pandemic era and some of the freight issues have been resolved, chemical supply chains are still far from ideal. Transparency, leanness and structured supply chains are the keys to success for chemical companies. With the added complexities of products comes the complexities of supply. Net-zero targets mean that the role of supply chains is essential to creating an operation with the smallest carbon footprint. When it comes to achieving a circular economy, chemical supply chains are at the heart of closing the loop by re-utilizing bringing back materials to create a new life for them. Intelligent supply chains fed by operations and equipment data can help to minimize waste and production time, and to manage inventories consistent with lean operations. Built-in tracking features in supply chain management tools also enable green certification to ensure the incorporation of sustainable raw materials to make new products.
In practice, a U.S.-based specialty chemicals company used the authors’ company’s supply chain planner tools to predict enterprise-wide, long-term GHG emissions, and evaluated different capital and operational expenditure scenarios to achieve short- and long-term emissions reduction goals. Leveraging these same supply chain management solutions, a Japanese client company recycled 440,000 t of food packaging waste into new packaging material.
Microgrids. For bulk chemical manufacturing facilities, the proactive management of microgrids creates operational resiliency. Forecasting and managing peak demand enables a balanced generation. By controlling distributed energy sources, renewable energy can be introduced to the plant—energy stored, or excess generation through turbines or heat recovery steam generators, can be resold to the grid, and the renewable energy contribution to end products can be traced.
Takeaway. The chemical industry is striving toward keeping carbon out of the atmosphere. Along with this momentous task, industry is making hydrocarbons available in the form of products for a growing population. Executives are navigating through flurries of new laws and regulations, incentives, prohibitive measures, innovative technologies and new models of business operations. Partnerships among emerging technology makers and well-established producers are creating new business models.
Continuing the path of operational excellence to face economic headwinds and adopting sustainability measures to address pressing environmental challenges represent the future of industry. Digital solutions play a prominent role as the industry faces these challenges. Depending on manufacturing priorities, digital solutions can be customized to unify entire monitoring and operational necessities. HP