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Corporations are under increasing pressure to step up in the battle against climate change by drastically reducing their greenhouse gas emissions. In the chemical sector in particular, eliminating fossil fuel-based feedstocks through carbon capture and utilization (CCU) could go a long way toward meeting international goals to prevent irreversible impact on the planet.

Manufacturing CO2-based chemicals through CCU was once deemed too expensive or even economically risky to pursue given the high cost and immaturity of CCU technologies — now it's becoming an increasingly competitive and attractive business prospect. Here's why.

Growing demand for sustainability

Climate change is now a top if not the leading issue for consumers and governments around the world. Chemical companies have been pursuing more sustainable practices to meet their demands but are still facing growing calls for carbon taxes at high and increasing rates, as well as elevated carbon pricing. These costs are forcing the chemical sector to expand its quest for carbon reduction to preserve economic viability altogether.

Furthermore, brand owners and other downstream industries simply can't achieve ambitious sustainability goals by modifying their part of the value chain alone. Chemical companies are in unique position to work with their customers and other partners to help them reduce emissions as well.

Accelerating carbon capture and utilization technologies

While many different technical pathways for CCU are under exploration, three key issues remain.

Tremendous investment is needed to develop immature technologies for commercial scale. In order to implement these technologies, companies need to build new assets requiring significant costs for equipment and experienced personnel. CO2 also needs much higher activation energy to be converted than is required to transform high-energy carbon compounds coming from crude oil.

Despite these challenges, CCU solutions have started to develop more rapidly, and several companies are already demonstrating applications at a larger scale. The potential for using drop-in chemicals is growing more compelling, and a number of industries including chemicals are looking at the potential to leverage CO2 emissions to create brand-new business models.

Emerging economic opportunity

CCU production costs more than conventional production, making it difficult to compete in the market. However, increasing carbon pricing will make conventional chemical production less lucrative, while a CO2-neutral producer can avoid the carbon penalty and help cover higher CCU production costs.

Meanwhile, consumers want sustainable products and often are willing to pay higher prices, while demand for sustainably produced products is growing from downstream customers who need to meet their own company's environmental goals.

Finally, companies with sustainable practices and products have greater access to attractive financing options and capital from institutions looking for “green” investments. The cost of doing business then becomes more expensive on a relative basis for high CO2 emitters.

As carbon pricing increasingly impacts the profitability of conventional chemical production, and drop-in chemicals begin to gain the advantage in the marketplace, companies leveraging CCU will have the additional funds necessary to invest in innovation while remaining margin-neutral. Over the long term, costs associated with conventional manufacturing will continue to climb while CCU costs decline due to scale and learning.

CO2-based drop-in chemicals are on track to compete on profitability with conventional chemicals. With new CCU applications expected to reach maturity within a few years, companies need a strategy and partners in mind to act quickly when the economics fully tip toward CCU. To understand the actions to take now, read our article in Reaction Magazine.

Senior Manager Global Strategy Group at KPMG

KPMG in Germany

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