This is an extract from a recent paper “Decarbonize and Defossilize: Transformative Policies to Reduce Chemical Industry Carbon Emissions” by The American Council for an Energy-Efficient Economy. This paper examines whether existing domestic federal policies are sufficient to make meaningful progress toward shifting chemical feedstocks to non-fossil-fuel alternatives; decarbonizing the chemical manufacturing processes; and shifting market demand toward sustainable chemical products.
The majority of federal support explicitly targeted at chemical industry decarbonization focuses on defossilizing feedstocks and decarbonizing the manufacturing processes themselves. While decarbonization of industrial processing in other industrial sectors is primarily about decarbonizing process heating, in the chemical industry there is also substantial room to decarbonize by implementing innovative new chemical production pathways that are inherently low carbon. Currently, very few ways exist for federal programs to directly support deployment of new low-carbon process technologies that are not related to carbon capture, hydrogen production, or SAF. Most industrial electrification technologies that would apply to chemical manufacturing are not directly incentivized at the federal level.
Some chemical decarbonization policy support is available through tax credits. The 10-year 45V Hydrogen Production Tax Credit provides greater value depending on the carbon intensity of the hydrogen production pathway, with the goal of incentivizing industry to shift toward clean hydrogen production. The SAF tax credit is available for fuels produced with a minimum reduction of 50% lifecycle GHG emissions. Tax credits also support critical clean energy supply chains, including the Advanced Energy Project Credit (48C), which provides a 30% investment tax credit to support projects producing hydrogen infrastructure. The Carbon Capture and Sequestration Tax Credit (45Q) also supports chemical manufacturing decarbonization by incentivizing carbon sequestration or utilisation projects.
Grants are another large part of the federal toolkit, with key examples for the chemicals industry including hydrogen hub development and deployment funds and the Industrial Demonstrations Program, for which 153 of the yet-to-be-awarded concept papers received were in the chemicals and refining sector, totaling more than one-third of the 411 concept papers reviewed (U.S. Department of Energy 2023).
Programs aimed at defossilizing carbon feedstocks—the manufacturing stage with the broadest investment portfolio—target a few different strategies. The bulk of the existing programs to address defossilizing carbon feedstocks supported research and development of either algal, biofuel, or biomass feedstocks. The remaining research and development-phase defossilized carbon feedstock programs are focused on capturing and recycling waste CO2. The only defossilize carbon feedstock programs identified that have reached the deployment and commercialization phase are targeted toward the SAF value chain; these include a SAF Tax Credit and a range of grant programs meant to support the infrastructure required to produce, transport, and store SAF.
Process heat decarbonization is also of particular importance for the chemical industry, cutting across all value chains. Initiatives such as the U.S. Department of Energy (DOE) Industrial Heat Shot effort support research and development of alternatives to fossil fuel combustion for industrial process heat. One such alternative is electrification. A little over 30% of the chemical industry’s heating demand is for under 300°C, the temperature range that can be directly electrified today with commercially available technologies. Electrification can also address major sources of manufacturing process emissions, such as steam methane reforming and the Haber–Bosch process for ammonia (55 million tons of CO2 combined) and steam cracking to create olefins and aromatics (41 million tons of CO2).
While the United States is supporting implementation of electrified ammonia production via hydrogen hubs, all electrified cracker demonstrations to date are occurring in other countries. Emerging drop-in technologies, such as heat batteries, have the potential to electrify assorted other high-temperature process heating needs in the industry. A range of emerging innovative technologies also are being piloted, with the potential to electrify the production of a variety of chemical products by fully supplanting current production pathways with new approaches (e.g., electrolysis and catalysis strategies).
Broader organising guidance around defossilizing chemical feedstocks also comes from The Clean Fuels & Products Shot, a DOE initiative announced in spring 2023 as an expansion of the SAF Grand Challenge. This new initiative will support a variety of cross-cutting needs around development and scaling of sustainable carbon feedstock sources and technologies to efficiently convert these resources into fuels or chemicals. The initiative’s goal is to meet 50% of hydrocarbon chemicals demand from sustainable carbon sources by 2050, including through forestry or agricultural waste, municipal solid waste, recycled materials, captured carbon, energy crops, or algae.
Few federal programs seek to change demand for chemical products:
Direct demand reduction for carbon-intensive chemical products is an underutilised strategy in existing federal efforts. Only a handful of federal programs pursue this approach in the chemicals sector, despite a wide range of potential demand-side policy strategies, including improving material circularity, building markets for more sustainable products, and directly reducing demand for unsustainable products. Well-developed federal demand-side strategies are active in other sectors, however, such as the Buy Clean initiative for concrete, steel, and other construction materials.
In the heavily reliant downstream plastics sector, DOE published a Strategy for Plastics Innovation, which provides policy guidance to improve the deconstruction and upcycling of plastics. In line with these goals, three federal research programs that we identified focus on redesigning materials and products to improve material circularity and material efficiency. These programs address recycling systems to increase the recyclability of plastic waste to be repurposed as feedstocks, including bio-based plastics. However, there is no federal effort to eliminate single-use plastics or reduce overall plastics demand.
The U.S. Environmental Protection Agency (EPA) EcoLabels and standards programs is one of the only federal efforts to support a market for more sustainable chemical products. This program provides sustainability information to consumers around some classes of consumer chemical-based products— for example, paints, copy paper, and packaging. Currently, most sustainability criteria are focused on chemical toxicity, but the EPA has proposed expanding the certifications to also cover lower-embodied carbon chemical products (primarily achieved via recycled content), albeit only as a voluntary step in certification (United States Environmental Protection Agency 2023b).
Another U.S. Department of Agriculture (USDA) effort is the BioPreferred program, which supports the domestic biofuel and product industry. While these programs provide some information on product sustainability to support consumer choices, they do not themselves guarantee a premium market for the more sustainably produced goods, nor do they provide support for a more rigorous, transparent, and consistent accounting of embodied carbon emissions across chemical value chains.
Instead of reducing demand, most large chemical and food and beverage companies that rely on plastic packaging are planning to eliminate plastic waste through enhanced recycling systems and renewable feedstocks (U.S. Plastics Pact 2022). So far, policy leadership to address the downstream challenges of materials circularity has progressed only at the local and state levels.
International efforts to negotiate a global plastics treaty will likely focus on improved recycling systems, but they are also working toward strategies to reduce virgin fossil-fuel-based plastic production and to place restrictions on certain chemical materials seen as especially problematic from a health and waste management perspective. U.S.-based standards and EcoLabels programs could potentially complement these efforts domestically, especially via expanded certification standards that also encompass the carbon footprint of chemical products.
The federal government is also supporting the infrastructure build-out required to enable more sustainable chemical product alternatives in the fuels sector. One such effort is the USDA’s Higher Blend Infrastructure Incentive Program, which expands the infrastructure needed to support broader use of biofuels and increases market demand for more sustainable fuel products (United States Department of Agriculture 2023).
Sustainable aviation fuels: Learning from integrated supply and demand policies
Few programs comprehensively address challenges that integrate across chemicals’ supply and demand, such as pairing new standards or certifications for products with incentivized use of best available process decarbonization technologies by manufacturers. One noticeable exception to this is the rapidly growing federal strategy for addressing SAF, which accounts for less than 1% of airline fuel used today. However, shifting from diesel-based aviation fuel to bio or recycled feedstocks is seen as the best decarbonization lever available for this industry, which is responsible for 2% of global carbon emissions today.
As part of the SAF Grand Challenge program, collaborative efforts across several federal agencies seek to reduce the cost and dramatically expand the production and use of SAF. The majority of this program’s initiatives focus on increasing the supply of defossilized feedstocks and improving production processes. However, demand-side efforts are also included to build greater support for SAF use by aviation end users and improve efficiencies in fuel use by airlines while simultaneously increasing SAF supply. These federal efforts are also being matched by private investments (Gelles 2023) and international commitments. For example, airlines, fuel suppliers, and air transport operators have formed alliances to commit to purchasing SAF, and the EU recently set binding targets on SAF use by European airports. While significant investments are still required to meet the U.S. domestic production target of 3 billion gallons per year by 2030, the integrated federal strategy in place to get there is unique in the chemicals sector.
The chemical industry needs a comprehensive decarbonization plan. The chemical industry is responsible for more than a quarter of U.S. gross domestic product and almost 10% of U.S. exports (American Chemistry Council 2023). Decarbonization of this sector will require policy developments on multiple fronts given the volume of products and the intersecting waste, toxicity, and climate threats that business-as-usual strategies pose. The Inflation Reduction Act of 2022, the Bipartisan Infrastructure Law of 2021, and other recent federal investments are important steps toward national and international climate goals. However, continued progress on industrial decarbonization— particularly for chemicals—will require new targeted policies beyond what currently exists, on both the supply and demand sides of the chemicals market.
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