The chemicals industry is crucial to decarbonisation because it’s a major supplier of products to other industries. Many are very high profile – such as automotive, construction, food, and personal-care – so scrutiny will be high. It’s why two-thirds of Europe’s largest chemical end users in Europe are committed to reducing greenhouse-gas emissions by 2030, and over a third have pledged net-zero targets by 2050. But although chemicals industry strategies include energy efficiency, CCS, green energy and advanced recycling, these measures alone will not get firms to net zero, explain Tom Brennan, Wen Chyan, Maximilian Göbel, Per Klevnäs, Tapio Melgin, Clara Pakari, Markus Pley, Axel Spamann and Christof Witte at McKinsey’s Chemicals Practice. So one important way to close the gap is the use of sustainable feedstocks like biomass and CO₂-to-X. The authors run through the different solutions: they all have their strengths and weaknesses. The message is that to create a competitive advantage, firms should invest in novel technologies, sustainable feedstocks and conversion technologies. And decisions need to be made now.
The drive for sustainability is revolutionising the chemical industry. Our research shows that as of early 2023, 66 percent of the largest chemical end users in Europe—including players in the automotive, food, and personal-care industries—had committed to reducing greenhouse-gas (GHG) emissions by 2030, and 37 percent have pledged net-zero targets by 2050.
Manufacturing chemicals is highly energy-intensive, often resulting in substantial CO₂ emissions. The carbon-based nature of many chemicals means they can emit CO₂ or methane when incinerated or decomposed during waste management, complicating the chemical industry’s efforts to achieve net-zero. Although there are steps to create greener solutions – such as achieving energy efficiency, CCS, switching to green energy and advanced recycling -these measures alone will not get the industry to net zero.
One solution to close the gap is the use of sustainable feedstocks, such as biomass and CO₂. However, this approach is not without challenges, particularly when it comes to matching the right feedstocks and conversion technologies with the right products in the right regions of the world.
The chemical industry is crucial due to its role in supplying products to other industries such as the automotive and construction industries – two of the highest emitters of global GHG emissions.
Our research shows that two broad moves can help address approximately one-third of the chemical industry’s total GHG emissions by 2030 (Exhibit 1). What’s more, both moves involve low CO₂-equivalent (CO₂e) abatement costs, have no substantial downsides, and are widely accepted by the public and regulators.
- Increasing energy efficiency and use of green energy. Adopting green energy and enhancing energy efficiency in the chemical industry, including heat integration and green-electricity procurement, could reduce emissions by up to one-third by 2030. Costing under €100 per ton of CO2 saved, these measures should be a priority for all chemical companies.
- Recycling. Proven recycling technologies, including mechanical and chemical methods for plastics and textiles and gasification for non-recyclable organic waste, can be deployed at a large scale. By avoiding waste incineration and enabling circularity, the industry could reduce emissions by up to 5% by 2030, with greater reductions possible in the future.
Nevertheless, as attractive and important as these measures are, they are not sufficient to reach net-zero emissions in chemicals or to offset emissions from currently practiced end-of-life activities, such as waste incineration.
Don’t rely on your upstream suppliers
Furthermore, our research shows that those that adopt only these options will often still depend on others to reduce their own emissions, particularly upstream players. This consideration is relevant because many upstream players aim for large-scale reductions only by 2040 or 2050. For chemical companies that serve markets in which customers have committed to aggressive decarbonisation targets (such as automotive and consumer goods), additional action is required to meet customers’ near-term demand for low- or zero-CO₂e options.
The limitations of CCS
Two paths to reduce emissions include capturing and sequestering CO2 emissions at the source via carbon capture and storage (CCS), and switching to non–fossil fuel feedstocks, such as biomass or CO2, which can be converted into chemical feedstocks and intermediates. For major sources of CO2 emissions, such as large crackers, CCS is often one of the clearest and most economical ways to substantially cut emissions (for crackers, the only alternative is electrification). According to our analysis, however, CCS alone addresses only 30 to 50 percent of total emissions.
That said, CCS cannot address end-of-life emissions in chemicals, which could affect players that want or need to offer net-zero products. In addition, CCS is unsuitable for smaller sources of emissions and depends on access to CO2 transportation and storage infrastructure, which is frequently lacking. This means that although CCS could be an important technology to bend the overall industry emissions curve, players that want to quickly move to net zero will need additional technologies.
Chemical companies can further reduce emissions by adopting new feedstock routes, such as plant biomass or mechanical-chemical CO₂ capture and conversion, known as “recarbonisation” practices. These methods use atmospheric CO₂ instead of fossil-based carbon, offering early adopters a competitive edge due to increasing demand and supply build-up times.
Sustainable Feedstocks: Biomass and CO₂-to-X
Two processes can be used to extract CO2 from the atmosphere and turn it into chemical feedstocks: biomass and CO₂-to-X. The latter is a term that refers to CO₂ conversion into products, such as methanol and ethanol, that can be used to synthesise a large number of chemical products.
Harnessing the power of plants: Biomass
- Plants take in atmospheric CO2 as they photosynthesise, enabling them to grow and yield sugar, oil, and woody biomass. Each of these can be converted via various means into useful chemicals.
- Sugar is the easiest starting point for conversion into biofuels and other valuable chemicals. It also often has the lowest cost of production. Most technologies focus on fermenting sugar to create organic acids (such as lactic acid, which can be turned into polylactic acid polymer) or ethanol to produce ethylene derivatives. These derivatives amount to approximately one-quarter of the industry’s primary petrochemical output by volume.
- Plant-derived oils cover all target molecules, and the relevant conversion technology is well established because the oil can largely substitute fossil oil inputs directly, reusing the established petrochemical production assets. However, plant-derived oils are costlier than sugar. Waste oils (such as used cooking oils) are in short supply and face competition from fuel production. Also, dedicated production of oil crops for chemicals, such as palm oil, may raise concerns about agricultural competition with food supply, land-use change, and biodiversity. For these reasons, plant-derived oils should be considered an interim solution.
- Wood biomass, offering options like gasification, though costlier and more complex, is gaining traction, especially sustainable varieties like pulping by-products. The movement towards second-generation biomass, such as non-food sources, is making wood biomass increasingly viable, especially in regions with strict sustainability standards. This trend indicates a shift towards varied, sustainable feedstocks, aiming for a balance between economic viability and environmental sustainability.
Long-term sustainability and scalability: CO2-to-X
- CO₂ captured from sources like bioethanol emissions can be converted into chemicals using synthetic processes powered by renewable energy, known as CO₂-to-chemicals conversion. This method, with higher land efficiency than biomass, could eventually surpass biomass use. However, it is energy-intensive and currently viable mainly in areas with substantial subsidies, abundant renewable energy, and high-purity CO₂, like certain U.S. regions. Bio-based feedstocks are ideal CO₂ sources due to their purity and sustainability. Despite its potential, CO₂-to-chemicals conversion technologies are currently limited in their output, so chemical players may want to pursue R&D over the long term to make CO2-to-chemicals efficient for target molecules.
To create competitive advantage, players can invest in novel technologies and feedstocks for which the economics are likely to become attractive — despite many uncertainties — and integrate themselves into the supply and customer sides through investments and long-term agreements. For chemical players, this approach has potential benefits for the environment and society. Making the right decisions today could mean the difference between staying competitive in the years to come or falling behind.
Tom Brennan is a Partner at McKinsey & Company
Wen Chyan is an Associate Partner at McKinsey & Company
Maximilian Göbel is an Engagement Manager at McKinsey & Company
Per Klevnäs is a Partner at McKinsey & Company
Tapio Melgin is a Partner at McKinsey & Company
Clara Pakari is an Engagement Manager at McKinsey & Company
Markus Pley is an Associate Partner at McKinsey & Company
Axel Spamann is a Partner at McKinsey & Company
Christof Witte is a Partner at McKinsey & Company