Over the past decade, the chemical industry has been on an economic streak, supported by falling domestic prices for natural gas (both a source of energy and a feedstock for chemical production) and a growing demand for chemicals used in packaging, building materials and automobiles. Over the next two decades, it is poised to expand further, with tens of billions of dollars already earmarked for the expansion of petrochemical plants in the United States, Asia-Pacific and the Middle East.
Far from decarbonizing, the International Energy Agency has estimated that petrochemicals could consume around 60% of oil demand over the next decade. As a result, the chemicals sector has been a solid investment for asset managers and shareholders, and senior industry executives have been generously rewarded for their efforts.
What could go wrong?
Leaders in the chemical industry face drastic choices if their strategy is to perpetuate the status quo.
Three legacy issues – plastic waste, climate change and pollution risks in low-income and minority communities – have each been transformed by new facts and new narratives. These stories directly challenge the industry’s existing growth plans, expose chemical companies to major financial risk, and potentially disrupt relationships with downstream customers and the consuming public.
The changing narrative of plastics. In the 1980s, the American Plastics Council released a series of print and broadcast advertisements with a message that “plastics make it possible”. The aim of this ad campaign was to favor plastics over competing materials such as aluminum, paper and steel. Industry officials deemed this effort a success, and earlier this century extended it to the broader range of chemicals touted as “essential2” – a variety of outcomes, including energy efficiency, pharmaceuticals and information technology.
This discourse on the “benefits” of plastics has since been undermined by the steady accumulation of plastic waste around the world. While the media initially focused on vulnerable sea creatures with plastic straws implanted in their nostrils and the drippings of plastic waste accumulating in the waterways of Asia-Pacific countries, the dimensions of the problem are now world. As of 2015, over 8.3 billion tonnes had been generated (since 1950) with an expectation of over 25 billion tonnes disposed of in landfills and the natural environment by 2050, according to a 2021 assessment published by The Economist Impact.
In a decade, the discourse on plastics has shifted from communicating the benefits of products to a growing belief that, as The Economist Impact puts it, “plastic is not the only pollution problem in world, but is arguably the most important”. This growing perception presents a triple set of risks: that plastic waste becomes a lens through which the investment community assesses chemical companies, that politicians view the industry as a more unacceptable political risk, and that millennials or other early career professionals conclude that the chemical industry is a less attractive place to work.
The chemical industry has become an extension of the fossil fuel industry. Since the Rio Earth Summit in 1992, the chemical industry has largely avoided the greenhouse gas radar of government negotiators, non-governmental organizations and the scientific community. No more. Driven by broader stakeholder and public understanding of the high levels of energy consumption associated with the production of plastics and other chemicals, climate change has landed right at the front door of the industry. It has become the next big sector to concentrate greenhouse gas reductions.
The chemical industry currently has the third largest carbon footprint after steel and cement, but its production is expected to grow at a faster rate than these other two sectors until 2030. While chemical producers have embarked on a number of significant improvements in energy efficiency — with an efficiency gain of more than 55% in the European Union between 1991 and the mid-2010s — its high growth volumes exceeded these efficiency gains . The fact that about half of industry’s energy consumption comes from the use of raw materials also means that hydrocarbons are incorporated into chemicals rather than consumed as energy. According to the Science Based Targets initiative, this leads to much higher end-of-life emissions due to recycling, incineration or landfill.
For most of this century, the chemical industry has enjoyed a narrative in which it is seen as “enabling” solutions to a host of problems, including better packaging to reduce food waste, the development of more light for aircraft and other transport vehicles, and chemicals used in pharmaceutical innovations. But that narrative is superseded by statements that “plastic is carbon” (Center for International Environmental Law) and “plastic is climate change” (geographer Deirdre McKay).
Chemical pollution aggravates inequalities. Disproportionate pollution risks in American communities of color have persisted in several industrial sectors for many decades. More recently, it has become a central issue in the US national conversation on inequality and environmental justice and has received high-level presidential attention through executive orders and other initiatives.
EPA Administrator Michael Regan, following his November “Journey to Justice” visit to communities in Louisiana, Mississippi and Texas, announced in January that the agency would step up efforts to enforcement and significantly expand pollution monitoring to respond to complaints from local residents about contaminations. drinking water and toxic air quality. Mobile air pollution monitoring equipment that will cover an 80-mile stretch of the Mississippi River, for example, will provide environmental samples in an area populated by chemical plants, oil refineries and other industrial facilities. .
This initiative is expected to provide real-time, high-quality data to inform enforcement actions and future regulatory controls. The EPA will also have the opportunity to take advantage of the burgeoning field of citizen science in which local citizens and voluntary organizations can be trained and mobilized to collect valuable environmental data, thereby providing local “boots in the field.” considerably enlarged.
Tying local conditions of environmental justice to a national conversation about inequality raises the bet on the disproportionate influence of business in plant communities and in states that are not known for their rigorous environmental oversight. At the national level, the chemical sector does not have an environmental justice strategy. Individual businesses make charitable contributions and support educational causes, but otherwise seek to perpetuate the operating conditions of the status quo.
Choices for the future
Taken individually, plastic waste, climate change and inequitable pollution risks each deserve the attention of the CEO and Board. The separate narratives of these three issues, however, have converged into an even more powerful combined portrayal that directly contradicts the chemical industry’s presentation of itself to employees, investors, regulators, the media and the public. This new unified narrative connects the polluting legacy and behavior of chemical producers with a future that is harmful to people and the planet.
Leaders in the chemical industry face drastic choices if their strategy is to perpetuate the status quo. They can, instead, convert business risk into opportunity within a time frame that can realistically be negotiated with governments and stakeholders.
Chemical manufacturers must make three fundamental commitments:
- Decouple the manufacture of chemicals (including plastics) from the use of fossil fuels. This is a decades-long endeavor, but investments and collaborations initiated now can begin to yield both technologies and management strategies to reduce the industry’s carbon footprint and develop new innovations at scale. market (green hydrogen, renewable energies, carbon capture).
- Phase out single-use plastics that contribute to high waste volumes, while collaborating with supply chain partners and downstream customers. The common goal is to design next-generation plastics that use materials with inherently lower risks and hazards, that have a commercial shelf life, and use secondary or bio-based raw materials, as recommended by the Organization for Cooperation and of economic development.
- Develop, in direct collaboration with stakeholders, a plan for social justice in chemical plant communities. Such a plan would focus on collecting data on pollution exposures from credible third parties, modifying plant operating conditions to comply with nationally/internationally recognized health and environmental standards, creating gainful employment opportunities for local residents and participation in prenatal and child care, nutritional and educational programs in conjunction with philanthropic and government organizations.
Continuing with the status quo will lead to disruption in business planning as activists, community groups, investors and regulators respond to the common crises of climate change, plastic waste and inequities related to chemical pollution risks. If CEOs want to retain their strategic degrees of freedom in running their businesses, they must move beyond these environmental and social legacies and co-create a new social contract that preserves their license to operate.