COLORADO SPRINGS (ICIS)–US policy must quickly
catch up with the transition to sustainability
and a net zero carbon emissions future amid a
fast-changing global energy landscape to enable
critical investment and innovation in the
chemicals industry.

“We expect the growth in circular and
sustainable solutions is going to drive an
increase in the total addressable market (TAM)
for [the chemicals industry] from $650bn to
$800bn by 2025,” said Dow CEO Jim Fitterling,
who noted that more than a third of the
company’s capital expenditures (capex) is
dedicated towards these areas.

“And that’s going to require that we have a lot
of good policy support to make that happen,” he
added.

“We really need stable, cost effective policies
in order to deliver our plans. We need to be
able to incentivise the development and scale
of the technologies that will help society move
towards its net zero ambitions,” said Karen
McKee, president of ExxonMobil Chemical.

Fitterling, McKee and other industry executives
spoke at a press briefing at the American
Chemistry Council (ACC) Annual Meeting in
Colorado Springs, Colorado, US.

The Dow CEO pointed to the company’s zero carbo
cracker project in Fort Saskatchewan, Canada,
which is being enabled by a price on carbon,
and hydrogen carbon capture and storage (CCS)
infrastructure.

“We did some work with the ACC and with the
infrastructure bill; there are earmarks for up
to eight hydrogen carbon capture hubs in the
US. Our estimate is that these hubs in the
right locations could help decarbonise up to
85% of our industry,” Fitterling pointed out.

The industry is also investing in renewable
energy sources, along with looking at small
modular nuclear reactors (SMRs), he noted.

“If the policies are right, I think we’ll
decarbonise by 2050 and more than double
production,” said Fitterling, who added that
new capacity would be built in cost advantaged
regions such as the US.

“Once we prove we can do it [sustainably], and
it’s a good return on investment, the pressure
is going to be on the market to keep doing it
faster, and that’s really what investors want
to see. There’s a lot of money out there
waiting to flow into ESG funds, and it’s
already started,” he added.

INCENTIVES AND PRICE ON
CARBON
From a policy standpoint,
incentives are needed to promote new
technologies, along with a price on carbon,
said the Dow CEO.

As the industry moves away from cracker
furnaces fuelled by direct-fired natural gas to
ones fuelled by hydrogen to reduce CO2
emissions, operating costs will be higher as
hydrogen is a less dense fuel. Plus redesign
will be needed, adding capex, he explained.

“Typically governments have been supportive of
capital going into low carbon technologies, so
they give you some sort of a tax incentive or
in some cases a subsidy to make that
transition,” said Fitterling.

The second key policy tool would be a price on
carbon versus a tax.

“We’re trying to solve a climate problem, and
if you raise tax, the money doesn’t go back to
the climate problem – it’s just inflationary
and we still have the climate problem,” said
Fitterling, who also noted that if the US put a
tax on carbon and other countries do not, that
would simply erode competitiveness and deter
investment.

“If you put a market-related price on carbon
like through an emissions trading system (ETS),
then that becomes an incentive… to make that
investment because we recoup part of that
investment out of the price of carbon. At that
point, these ESG investors come in, and that
money flowing into the industry helps the
transition much faster than government can by
deploying tax funds. And that’s where I think
we have to use the capital markets in the US to
our advantage,” he added.

The price of carbon would have to be around
$65-100/tonne – about where the prices are in
the EU and Canada. And if many countries had a
price on carbon, the price would harmonise,
eliminating the need for schemes such as carbon
border adjustment mechanisms (CBAMs), he noted.

“That’s the winning formula if you do it right.
You also need to take the foot off of [energy
production] and let production increase,” said
Fitterling.

“There’s a fallacy out there that low emissions
means no fossil fuels. Natural gas is a path to
hydrogen carbon capture and low emissions, and
it’s been proven,” he added.

In the production of blue hydrogen, hydrogen is
produced from natural gas through steam methane
reforming while the CO2 is captured and stored.

INVESTOR PATIENCE A KEY
FACTOR
Investor patience is also
a key variable as the chemicals industry seeks
to put capital towards innovative projects that
enable sustainability, such as chemical
recycling of plastics facilities and crackers
with low or zero carbon footprints.

Investors certainly won’t have patience for
companies investing in projects using
traditional non-carbon mitigating technologies
that tie up billions of dollars for as long as
7-10 years, said Peter Huntsman, CEO of
Huntsman Corp.

But investors will also have to be patient for
projects that enable sustainability, given how
long these can take to be approved.

Permitting even for smaller projects such as
Huntsman’s $30m ultra-pure ethylene carbonate
expansion for electrolyte material for electric
vehicle (EV) batteries in Conroe, Texas, can
take over two years, he noted.

“I question how patient investors are going to
be,” said Huntsman, pointing to the energy
sector where investors are favouring return of
capital in the form of dividends and share
buybacks versus new projects.

“Some of these ESG funds investing in these
technologies are going to have to be very
patient because the investment to build a
large-scale facility today can stretch out to
upwards of a decade,” he added.

Fast tracking on the regulatory side of
projects that enable sustainability is sorely
needed. By the time a project gets approved, a
new and improved technology could well make
that project obsolete.

FIXING TSCA NEW PRODUCT APPROVAL
DELAYS
The ACC’s top policy
priority is to get the US Environmental
Protection Agency (EPA) to fix the severe
delays in approvals of new
chemicals under the reformed Toxic Substances
Control Act (TSCA).

“If you look at the list of the first 33
chemicals that are in the queue, it supports
every sector of the economy from auto, ag
products, healthcare, textile production and
transportation… The administration talks a lot
about semiconductors, EVs, alternative sources
of energy and as we all know, you can’t do
these things without [the chemicals industry],”
said Chris Jahn, CEO of the ACC.

“Under TSCA, new chemicals are supposed to be
reviewed in 90 days, but it’s been more like
two years now… If we’re going to tackle some of
the biggest challenges facing the world going
forward and we want to do that here in the US,
we’re going to need policy that enables that,”
he added.

REMOVING ROADBLOCKS TO ENERGY
PRODUCTION
The ACC’s other top
priority is climate and energy policy. Policies
that promote oil and gas production are needed
for the chemicals industry to produce products
that enable sustainability.

“We really need to have a climate smart energy
policy. We can do both those things – produce
more energy and reduce emissions, while also
supporting our allies. But we have to be really
smart about how we do that,” said Jahn.

The Russia/Ukraine war has changed the calculus
in the global energy markets, requiring more US
production of oil and natural gas to supply
energy the world, along with feedstock for the
chemicals industry.

“Regulatory-wise, we have been putting
roadblocks in front of energy production – some
are related to pipelines and some related to
the ability for producers to get financing. The
demand for energy is going up, and we’re not
letting the supply increase,” said Fitterling.

“This industry will be the solution to a more
sustainable, more innovative and a more
sustainable future. The engines behind that
have to be affordable energy and reliable
energy, and it makes zero sense for us to be
encouraging more exports without encouraging
more production,” said Huntsman.

“In spite of everything, I see nothing but
opportunity for us – light-weighting,
semiconductors, batteries, solar and wind all
go through this industry. We are the innovators
and ones that are going to get it done,” he
added.

Insight article by Joseph
Chang