Planning for a world of sustainable chemicals

There is an urgent need to develop climate-friendly ways of producing the chemicals that make life possible. In a previous study, we outlined how decarbonising the chemicals industry will be one of the biggest factors in helping the world achieve the goals of the 2015 Paris Climate Agreement and global net-zero targets. That’s because some 70,000 products are made from chemicals—and the vast majority of chemicals are produced using fossil fuels. The sector is the second-highest CO₂ emitter of all industries (steel is the highest) and is projected to produce 19.6 gigatonnes (Gt) of CO₂ between 2020 and 2050.

Research funded by PwC Germany, conducted by the University of Technology Sydney’s Institute for Sustainable Futures and based on the One Earth Climate Model (OECM), shows that if the chemicals sector were to align with the Paris Agreement goals, it would have a carbon budget for energy-related emissions of 19.6 gigatonnes between 2020 and 2050. Progress on reducing emissions will come from focusing on the seven dominant base chemicals, the production of which comprises 72% of all chemicals industry emissions. In this latest research, we have categorised the seven chemicals into four broad groups—ammonia, methanol, olefins and aromatics—and explained how decarbonisation can be achieved and what it will cost in terms of fossil fuel abatement.¹ We have done so through the construction of two principal forms of visualisations: emissions reduction pathways and marginal abatement cost curves (MACCs). One of the signal findings is that, for every chemical group, a significant portion of the emissions reductions come either at zero cost or at a negative cost (meaning a savings in spending)—due largely to the replacement of fossil fuel energy sources with cheaper renewable ones. 

Reduction pathways show how to reduce CO₂ emissions to keep the global temperature increase under 1.5 degrees Celsius. We have also calculated a business as usual (BAU) pathway that projects the growth of emissions if no zero-carbon actions are employed. In the BAU scenario, we have taken into consideration the estimated growth in production (measured in tonnes) and the emissions of the core energy sources—heating processes, non-energy (feedstock) and electricity usage—based on that growth.

MACCs illustrate which technologies are the most economically convenient and would result in the least costly reduction of CO₂ emissions for the different processes involved in chemicals production. To create each MACC, we studied a carbon footprint database and assessed the most relevant measures for each of the four chemicals groups. Our MACCs provide a transparent representation of the emissions reduction levers and their associated costs. 

For ammonia, by 2050, demand and production increase substantially, but emissions must fall by approximately 77% to stay below the 1.5-degree ceiling. By contrast, maintaining production on a business-as-usual trajectory will result in emissions growth of about 109%. Staying under 1.5 degrees will involve employing renewable energy for heat and electricity (resulting in an approximate 21% reduction by 2050); renewable feedstocks replacing fossil fuel feedstocks (an approximate 37% reduction by 2050); and reducing demand through recycling, circularity and increased life spans for consumer products (an approximate 42% reduction by 2050). A technological transition in the primary heating process is set to deliver the fastest emissions reduction by 2040, mainly due to the utilisation of heat pumps and direct electrification. By 2050, all heating will come from renewable energy. Some emissions from non-energy processes will endure through 2050 but will decrease.

In the case of methanol, by 2050, emissions must fall by approximately 62% to stay below the 1.5-degree ceiling. Maintaining the business-as-usual trajectory will cause emissions to grow by more than 150%. Staying under 1.5 degrees will involve employing renewable energy for heat and electricity (resulting in an approximate 31% reduction by 2050); renewable feedstocks replacing fossil fuel feedstocks (an approximate 54% reduction by 2050); and reducing demand through recycling, circularity and increased life spans for consumer products (a 14% reduction by 2050).

Olefins have the potential to reduce emissions by the greatest proportion of the four chemical groups, with a 93% reduction through 2050 compared to the BAU case. Emissions from process heat (which account for 60% of today’s emissions) and the consumption of electricity will be fully eliminated. The remaining emissions by 2050 will correspond to non-energy use.

For aromatics, a 75% reduction in emissions will be required through 2050. Aromatics will have remaining emissions due to the consumption of conventional non-energy feedstock. The complete elimination of emissions associated with the non-energy use of fossil fuels—which account for 69% of today’s emissions—will drive most of the progress.

The pathways charts tell us by how much emissions need to fall to stay within the 1.5-degrees scenario. The MACCs (below), on the other hand, provide a visual representation of the abatement costs for the most significant energy and technology transitions. Across the board, some components of the emissions reductions come at no cost because they stem from reduced production of the material compared with a business-as-usual case. Other components, in many instances, will have a negative cost (meaning they’ll save money) because, over time, cheaper renewable energy will replace more expensive (and more carbon-intensive) fossil fuel sources of power and energy.

As the ammonia MACC shows, by 2030, heat will mainly be decarbonised, and growth will come through the construction of CO₂-neutral production routes. After 2030, a phase-out of coal-based production routes (largely in China) is set to take place, which will further accelerate the decarbonisation of heat processes and hence result in negative abatement costs. After 2040, a large part of the conventional production routes will be replaced by renewable hydrogen–based routes. The largest remaining abatement cost for ammonia production is the energy required for the various steps up to the Haber-Bosch process. Natural gas could be replaced by biogas.

For methanol, conventional natural gas feedstock–based production remains dominant until 2040. After that, a large part of the conventional production routes will be replaced by renewable hydrogen–based sources. As a result, the abatement costs for coal-based and natural gas–based production routes will turn negative as green methanol becomes cost competitive. In addition, biomass-based methanol will play a role in green methanol production.

Turning to olefins, the electrification of production or methane-to-olefins (MtO) production will be responsible for most of the CO₂ emissions reduction. At the beginning, electrification will accelerate decarbonisation and provide most of the emissions reductions. With the cost reductions of hydrogen filtering into cost reductions of MtO, this conversion process grows to become an essential pillar for this chemical group.

For aromatics, the main CO₂-reduction pathways are direct electrification, the use of biomass, and emerging technologies, such as the methanol-to-aromatics pathway. Even though the abatement cost of biomass is almost four times the cost of electrification, biomass may enable up to 80% of the CO₂ emissions reductions of this chemical group.  

The growth of green ammonia

This dynamic chart shows how the cost of producing green ammonia will drop steadily over the next 25 years. Progress will vary across the G20 countries, given different local conditions, access to energy sources, and variation in the costs of capital expenditures and operating expenditures. By 2030, the cost of global production of green ammonia is projected to range from US$660 to $1,500 per tonne across G20 countries. By 2050, those costs will range between US$302 and $445 per tonne—a significant reduction from present levels. This transition will be driven by a shift from coal-based ammonia to green ammonia in China (the world’s largest producer of ammonia) and by the use of flexible synthesis units, which play a significant role in cost-effective green ammonia production.

One of the interesting findings of our research is the way that the costs and the emissions reductions are distributed throughout the value chain. Not surprisingly, both the greatest cost and the greatest impact come in the primary phase. That is, defossilising the production of ammonia would increase the cost of ammonia by 148.7% while reducing the emissions associated with the product by 96.3%. The impacts decline when it comes to intermediate products using defossilised ammonia, however. The cost of fertiliser would rise 133%, while emissions would fall 38.1%. But when we look at finished products such as bread, pork or nylon fabrics, the impact on the product price of defossilised ammonia is minimal (ranging from 0.2% to 1.0%), while emissions decrease at a higher percentage than the price (ranging from –3.1% to –6.6%). This represents a relevant opportunity for Scope 3 reductions in a three- to five-year time frame.

A similar pattern is evident for the other chemicals categories in this study. In the case of methanol, defossilised production would generate a 44% increase in cost in the primary phase, but would result in a 95% reduction in emissions. Costs of intermediate products using defossilised methanol would increase by more modest amounts: 4.8% for phenol-formaldehyde resin, 25.0% for methylamine, and 20.4% for methyl methacrylate (MMA). Emissions reductions for these products would range between 19% and 40%. Carbon-neutral final products employing defossilised methanol, such as plywood, acrylic glass and the medicine ephedrine, would be premium products, but with price increases of only between 0.1% and 3.1%.  

Green ethylene and green propylene would be required to manufacture a pair of shoes with a carbon-neutral sole. Manufacturing green ethylene would cost 61% more than the raw material costs today, but would reduce emissions by 92%. The price of the final product—in this case, the shoe—would rise just 0.3%. The cost of green propylene, a key input to make acrylic fibres, would be 205% that of conventional propylene. That increase would in turn drive up the cost of acrylic fibres by 35%. But the final product—in this case, the shoes—would be only 1.2% more expensive. In other words, the chemical with the most extreme price increase for the defossilised version in our study has only minimal effect on the price of the final product.

We look at the case of aromatics through the lens of xylene. Defossilising xylene would bring about an 85% decrease in CO₂ emissions and a 30% increase in cost. The polyethylene terephthalate (PET) produced using this defossilised xylene would be 19% more expensive but produce 67% fewer emissions. And the price of a PET bottle with carbon-neutral PET inputs would go up only 1%. 

PwC authors

Volker FitznerOpens in a new window, a leading practitioner in the global chemicals sector, is a partner with PwC Germany.

Jürgen PeterseimOpens in a new window, a specialist in net-zero and energy transition strategies, is a director with PwC Germany.

Also contributing to this article from PwC Germany are Marcela Camps de la Maza, Dario Galvan, Meike Leu, Tim Malich, Anselm von Urach and Moritz Zahn.

University of Technology Sydney authors

Sven Teske is an Associate Professor and Research Director at the Institute for Sustainable Futures, University of Technology Sydney, Australia.

Maartje Feenstra is a Senior Research Consultant at the Institute for Sustainable Futures.

Also contributing to this article from the University of Technology Sydney are Senior Research Consultants Dr. Sarah Niklas and Dr. Simran Talwar.

_{¹ Full decarbonisation isn’t possible in the chemicals industry, because carbon is essential to the production of many chemicals. But the sector can still pursue net-zero targets through defossilisation, defined by the Royal SocietyOpens in a new window as ‘replacing fossil-derived feedstocks with alternative, non-fossil sources of carbon.’}