Jeremy Pafford is Head of North America, Market Development, ICIS.
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Too often, the concept of businesses publicly reporting their greenhouse gas (GHG) and climate-related risks has been framed as a daunting, costly challenge whose success is only measured by whether investors and customers will still do business with a company after recognizing the environmental impacts of their production.
This holds particularly true in the chemical industry, which has long carried the label of being a dirty sector, second only to the iron/steel industry when it comes to its 3.3 gigatons of GHG emissions a year. That is a lot of carbon dioxide (CO2), but perspective is necessary, as agriculture emits up to 5.3 gigatons/year and powering buildings emits 4.1 gigatons/year. Less fuss is made about those polluters due to their undisputed importance to everyday living. But the business of chemistry is no less key to our existence.
An Invaluable Industry
Without disinfectant chemicals (isopropyl alcohol and ethanol) and building-block molecules (ethylene and propylene), human life expectancy would not have more than doubled globally since 1900. Nor would the strong, lightweight materials that enable us to travel more cost and fuel efficiently be possible. And these only scratch the surface when it comes to the good the chemical industry has brought to the world.
Undoubtedly, engineering hydrocarbon molecules into marvels of modern-day living results in various emissions that contribute to increasing levels of CO2 in our atmosphere. In recent years, pressure from the investment community and end-product consumers has ratcheted up on carbon pollution but has focused primarily on fossil fuel energy. With those fossil fuels also being the feedstocks for chemical producers’ hydrocarbons, it was inevitable that similar pressure would eventually be applied to the likes of Dow Chemical and Eastman Chemical.
Proposed Regulation Changes
That time has come and soon could be augmented by the Securities and Exchange Commission’s (SEC) proposed rule changes that, if enacted, will require registrants to disclose their climate-related risks to the business as well as information about their direct, indirect and value chain GHG emissions.
Separating GHG emissions from direct operations (Scope 1 emissions) and indirect emissions from purchased energy such as electricity (Scope 2) is a fairly simple process compared to adding up the carbon footprint from the upstream supply chain (Scope 3). But Scope 3 is the most important, as a majority of a product’s carbon footprint emanates from upstream.
Calculating the accumulated carbon footprint of a chemical for reporting may be a challenge, but one that is being supported by a partnership between my own company ICIS, a global source of Independent Commodity Intelligence Services and Carbon Minds and their forthcoming Supplier Carbon Footprints tool. The tool will be tailored towards Scope 3 emissions visibility on a plant-by-plant basis for 71 commodity chemicals globally.
The Creation Of A Database
The database will shed light on 68% of CO2 emissions for ethylene, propylene, styrene and more, helping overcome the reporting challenges facing the chemical sector. It will also be vital to uncover opportunities for reductions of climate impacts within supply chains—and within that data lies an opportunity for business growth and resilience in a carbon-focused future.
In a world where GHG emissions take center stage in supply-chain relationships, it is not hard to envision stratification within once-homogenous markets based on carbon footprints. While all ethylene is, well, ethylene, the various upstream processes associated with producing it vary regionally and internationally.
For example, the North American ethylene producer with the lowest Scope 3 emissions has about a 21% lower carbon footprint than the most carbon-intensive, according to ICIS and Carbon Minds analysis. The range in the global market is far starker, with the most carbon footprint advantaged more than 11 times less carbon-intensive in its production than the most carbon-intensive.
Emerging Opportunities In The Chemical Industry
The evolution towards carbon-footprint transparency in the supply chain offers an opportunity for those on the lower end of the carbon-intensity scale to market their products as a “premium” or even “specialty” grade that brings with it added margin.
Meanwhile, carbon-intense production of the same material will be challenged to maintain or grow in business unless it offsets its high carbon footprint material in the form of lower prices. Such stratification already occurs in many chemical markets surrounding the purity of material, with high-purity grades commanding premiums. Savvy marketing departments at the producers of low-carbon commodity chemicals will have a plethora of opportunities to differentiate or rebrand their products with an environmentally conscious message, while marketers at carbon-intense producers may look over their industry peers in envy.
Identifying Opportunity Amid Obstacles
Adapting to markets centered on carbon footprints will create winners and losers as buyers and their downstream customers decide with their dollars, and chemical producers will adjust business plans accordingly. That is how markets, in general, have operated for centuries. Here in the relatively early stages of the 21st century, the era of carbon-emissions visibility is upon us, and it can be a boon for the chemical supply chain if it embraces the opportunities this will bring.
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