Between Hurricane Harvey in 2017 and the Rhine droughts of 2018 the implications of climate change have already taken a significant toll on the chemicals industry, dealing hundreds of millions of dollars in damage and lost earnings. What's more, climate-related hazards such as coastal storms, inland flooding, drought, and extreme temperatures will increase in occurrence over the next 50 years. While there is still uncertainty surrounding the severity and timing of future events, resilience planning is essential for companies to alleviate risk and ensure survival in the long run. In the report "In the Path of Destruction: Preparing for Global Climate Change in the Chemical Industry," we analyze innovations and strategies capable of addressing climate-related risk.
Finding the right technologies to support climate resilience
We evaluate technologies based on the timeline for adoption and the impact they will have on building resilience across capital assets, production, logistics & supply, and labor.
- Capital Assets: Most adaptation strategies to-date involve modifying buildings, storage, and equipment. Yet strategies such as elevating sites or building sea walls are expensive, can take years to implement, are only effective up to a point against storms and flooding. In the long term, small-scale decentralized manufacturing – such as fermentation or electrochemical production – could enable companies to operate across multiple smaller facilities. This approach could reduce the supply chain's exposure to climate risk, especially for companies along coasts forced to relocate when all other defenses fail.
- Production: Water is essential for many processes in the industry, from heat exchange to serving as a carrier fluid. With growing water scarcity driving up production costs, however, companies are looking to strengthen their reuse efforts with improved water treatment technologies and are adopting more water-efficient processes. In general, we believe that decoupling growth from natural resource consumption via novel production processes is the most effective way to establish resilience in the wake of resource scarcity.
- Logistics & Supply: Supply chain and logistics vulnerabilities span from increasing raw material costs to disruption in transport and changes in downstream demands. While chemical companies have little control over public infrastructure and utilities, they can control their own operations and what they choose to produce based on supply chain dynamics as well as influence their suppliers. Overall, the digitalization of the supply chain will lead to greater transparency and allow companies to minimize their own operational risk and effectively identify and remediate at-risk partners.
- Labor: Workers are critical to the day-to-day operations of plants but will increase liability due to climate change. Storm events and extreme temperatures will both put workers in harm's way and lower productivity. Climate change risk will accelerate existing employee monitoring and automation efforts.
Sidestepping the path of destruction
Based on our analysis, we recommend investing in the future rather than spending now on existing low-impact solutions. This strategy includes building analytics capabilities for collecting and incorporating climate data and modeling into risk management planning. In the mid-term, those building resilience will begin pulling ahead of competitors, especially as downstream players demand greater transparency across their supply chains and start evaluating their own supplier risk. Successful companies will increase risk management budgets for vulnerable operations as higher-impact technologies become available and more needed. In the long term, significant changes are needed across the industry as companies evaluate the cost of protecting existing assets versus relocation and new business models. For many, major changes in production, such as the shift to decentralized production, will make more economic sense than protecting existing assets. The slow nature of this shift, however, means that companies have time to react.