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COP26: Upstream changes accelerate for the chemicals industry

Anthony Schiavo, Research Director
January 20, 2022

The chemicals industry largely flew under the radar at COP26 — despite an expanded focus on industrial decarbonization. The biggest announcements were reserved for the steel, cement, and energy sectors. Despite not being one of the industries called out for "Glasgow Breakthroughs," the chemicals industry was indirectly called out in two important announcements.

First, the U.S., EU, and China all pledged to slash methane emissions. Methane emissions are a crucial driver for Scope 3 emissions for chemical companies that rely on natural gas feedstocks, and these emissions are often underreported due to hard-to-detect leaks. Even if the chemical industry were not responsible for its Scope 3 emissions (a questionable assumption going forward), the pressure upstream to close old wells and reduce leaks will likely increase the costs of natural gas feedstocks, which have already seen large fluctuations in prices in 2021. The second announcement was on the hydrogen economy — one of the Glasgow Breakthroughs has the goal of making low-carbon hydrogen affordable available globally by 2030. Much of this activity is targeted at other industries (notably steel), but this breakthrough will help drive the availability of green hydrogen for a wide range of chemical products — in the near term, ammonia production, and in the longer term, green electrochemistry. The international efforts should provide more funding and certainty for the chemicals industry, as it makes its own efforts in R&D and scale-up of electrochemical approaches.

What was missing from COP26 was a focus on the circular economy. While it's understandable that energy and major industrial emitters were the focus, recycling has the potential to slash emissions by 50% or more for many materials. In addition, the circular economy is in dire need of international cooperation on issues like waste trading and standards for tracking and certifying circular content. COP is the ideal venue for this kind of coordination; a focus on the circular economy at a future event could accelerate the adoption of technologies like waste tracking and herald a return to more international waste trading.

The Lux Take

Nothing in COP26 changed the direction or strategy of the chemicals industry. Rather, it should be taken as further confirmation — and acceleration — of the pressures facing the space. The official focus on a 1.5 °C target over 2 °C, further action on carbon credits, and funding for the energy transition globally will all accelerate the energy transition and, thus, its impacts on the chemicals industry. Companies can act with more certainty in the upstream changes and plan their innovation efforts accordingly.

This blog post is part of a series focusing on key decisions made at COP26 and their impacts on corporate innovation and sustainability. Read the previous post in the series here.

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