US$759 billion to reach net zero

High-value chemicals (HVCs) are responsible for up to 2% of global emissions – as much as aviation and double the contribution of the aluminium industry. Petrochemicals with almost no carbon emissions could be produced by 2050, however, with the investment of an extra US$759 billion. This is according to a new report from research firm BloombergNEF (BNEF).

Governments and corporate net-zero commitments are pushing the petrochemicals industry to cut its emissions by 2050. Despite facing a more complex decarbonisation path than any other sector, petrochemicals players’ net-zero targets cover more of the global manufacturing capacity than other heavy emitters like steel and cement.

The report Decarbonising Petrochemicals: A Net Zero Pathway outlines a route to low-emissions chemicals and describes how a combination of falling carbon capture, utilisation, and storage (CCUS) and electrification costs could reduce emissions to net zero, even while total production grows significantly.

BNEF estimates that new clean capacity and retrofits for lower emissions will cost the petrochemicals industry an additional US$759 billion compared to business-as-usual capacity growth. This is roughly 1% of the US$172 trillion estimated by BNEF to be needed to decarbonise the global energy sector by 2050. Decarbonising chemicals will be capital expenditure (capex) intensive, but it is crucial for all new capacity and retrofits beyond 2030 to be net-zero, in order to avoid the risk of stranding assets over their long lifetimes.

By 2050, CCUS could be the cheapest option for net-zero petrochemicals and abate 40% of HVC production emissions. Another 35% would rely on new electrified cracker designs, which could provide the only net-zero production route that is cost-competitive with conventional steam crackers. Bioplastics, which are the only commercially available net-zero route today, would capture only 2,5% of the market by 2050, due to high costs and a lack of sustainable biomass.

The important role that CCUS is likely to play is a unique opportunity for integrated oil majors, which already have expertise in the technology and could accelerate cost declines. Oil companies have been exploring a greater footprint in the petrochemicals space as a hedge against declining fuel demand. If these companies shift the focus of their CCUS investments into downstream assets, they could lead the transition by expanding net-zero petrochemicals production and driving down costs for the entire sector.

The petrochemicals supply chain cannot decarbonise without the help of refiners. Currently, most of the world’s supply of aromatics, a key chemical ingredient in products like polyethylene terephthalate bottles, is sourced from refineries as a by-product of fuel production. In a net-zero scenario, refinery retirements start in 2030 as demand for transport fuels peaks and then begins to fall due to passenger car electrification.

This leaves a gap in aromatics supply that can currently only be addressed by using green methanol feedstock – an expensive route that would triple the price of many chemicals. This process would account for 20% of chemicals production, up from 0% today, unless refiners make a dramatic pivot to focus on chemicals production while simultaneously decarbonising their operations.

BNEF’s research shows that in 2050, low-carbon routes will remain more expensive than today’s production despite some steep cost declines. This could lead to persistent green premiums and create strong incentives to replace or reduce plastic and chemical use in markets with net-zero mandates. Chemicals are crucial inputs to many industrial supply chains, however, so decarbonising them could increase costs across several sectors. Unless cost declines are significantly accelerated, taxpayers will likely pay for long-term abatement either through higher prices or subsidies.

“Large-scale capex spending must start before the end of the decade if the petrochemical industry has any hope of reaching net-zero,” says Ilhan Savut, sustainable materials analyst at BNEF and lead author of the report. “Deploying these technologies will be expensive in the short term, but it could set the sector on a lower-cost decarbonisation path. Given their long asset lifetimes, chemicals players must move quickly and fund net-zero projects as soon as possible, or risk getting locked out of key technologies. Investments today will be key to managing longer-term costs and pay dividends post-2035.”

If green plastics are burned at the end of their life, they are no longer net-zero. “While many net-zero targets do not cover Scope 3 emissions, customers and investors will link incinerated plastic to oil and chemicals companies, as they did with plastic waste. The whole supply chain is a plastic producer’s problem,” says Julia Attwood, head of sustainable materials at BNEF. “A low-carbon petrochemical sector will require circular economy action. Producers are already working with refiners and waste managers to source circular and low-carbon feedstocks.”

While most net-zero capacity today is being driven by customer demand for sustainable plastics, policymakers can also kick-start decarbonisation in petrochemicals. Carbon pricing is often touted as a decarbonisation lever, but very high prices would be needed to incentivise change. At US$250 per tonne of carbon dioxide (tCO₂), 80% of all net-zero HVCs production would be competitive with unabated production. Current prices in Europe sit at about US$90/tCO₂, and the prices seen by industrial emitters are actually much lower, thanks to generous free allowances.

To incentivise quicker action, governments can provide longer-term subsidies to early adopters to justify higher production costs and invest in enabling infrastructure such as CO₂ transport and storage networks and grids providing 24/7 clean power.