Despite making progress on climate risks, the chemical industry is failing to meet the goals outlined by the Paris Agreement, says a new report by CDP.
Catalyst for Change analyses 22 of the largest global chemical companies with a total market capitalization of $650 billion, responsible for a quarter of all emissions of the sector at 276 million metric tons of CO2 emissions per year, including AkzoNobel, DuPont, BASF and The Dow Chemical Company. The report reveals rapid process innovations will be required in order for chemical companies to have any chance of aligning with the below 2-degree goal set out by the Paris agreement.
The chemical sector is responsible for an eighth of global industrial CO2 emissions and plays a key role in the world economy, with 95 percent of all manufactured products relying on chemicals. Despite the industry’s ability to innovate on low carbon, it will struggle to fully decarbonize if it doesn’t make rapid and significant changes to its own highly polluting processes.
CDP’s report does, however, show that the sector is still providing climate change solutions on the product side and is profiting from the low carbon transition, with around 20 percent of revenues for this group coming from these products, representing close to $83 billion in revenues. Progress is also being made in their emissions and energy efficiency, with improvements of two to five percent being made year-on-year.
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“As both a large energy user itself and a crucial part of other industrial supply chains, the chemicals industry is an important, but often overlooked, sector when it comes to environmental impact. Today’s analysis shows it’s moving in the right direction across several climate metrics with encouraging signs on annual emissions and R&D, but it needs to go further and faster to invest in the technologies that will deliver efficiency and emissions improvements,” said Paul Simpson, CEO of CDP.
“Ultimately, it needs to set and achieve more ambitious environmental targets to reach a tipping point that both catalyzes progress towards the Paris Agreement goals and directly improves the bottom line.”
Potential risks for the sector include uneven regulatory risks, pending regulation in China and a so-called ‘diesel moment.’
In terms of uneven regulatory risks, companies such as AkzoNobel and BASF face tougher regulations from national carbon emission cuts and potentially higher capital expenditure as a result.
Chinese companies constitute 40 percent of global chemical sales, but many are no currently disclosing environmental data. However, big changes on the horizon, such as the launch of the Chinese Emissions Trading System at the end of 2017, could disrupt the wider industry as more Chinese based companies become regulated.
Plastic packaging is a key output of the chemicals industry, accounting for over a quarter of global plastics usage, however, nearly eight million metric tons of waste ends up polluting oceans each year. Car manufacturers across the globe are increasingly facing regulatory backlash as the link between diesel and severe air pollution becomes ever more clear. Similar action could be taken against chemical companies because of their links to plastic packaging.
“The chemical sector’s significant carbon footprint means it is not just high emitters like petrochemicals that are exposed to the impacts of the low carbon transition but the sector as a whole. Our research highlights a widespread lack of transparency and limited disclosure on how processes in particular are being improved. More transparency and tangible commitments to low carbon initiatives will be key to assess who the future industry leaders will be,” said Carole Ferguson, Head of Investor Research at CDP.
“This year, AkzoNobel stands out in the industry through its commitment to decarbonization initiatives and as one of only two of the assessed companies with a science-based target. However, long-term investors will increasingly look for all chemical companies to adjust their business strategies in line with more ambitious emissions reduction targets and a rise in carbon pricing schemes globally.”