China’s zero-carbon ambition weighs on chemical sector

In early October, Xiao Aiguo, a small agribusiness dealer in suburban Suzhou, China, stood outside his shop and lamented the lack of certain pesticides. Because of nationwide power outages throughout September, thousands of Chinese chemical companies, including pesticide makers, were forced to temporarily halt production.

In their announcements, chemical makers such as Hefei Fengle Seed said production was paused because of national mandates to cut energy consumption that are intended to help China meet its energy and carbon dioxide reduction goals.

China’s chemical industry is helping—sometimes by force of law—the country meet its carbon reduction goals. But the effort is just beginning. The industry’s carbon-intensive nature and China’s heavy reliance on coal as an energy source and chemical raw material mean that tremendous challenges lie ahead.

Although Chinese chemical companies have long worked to improve energy efficiency, the sector was unprepared when President Xi Jinping announced at the United Nations General Assembly in September 2020 that China had set a goal of carbon neutrality by 2060. Xi later declared that the country’s emissions would peak by 2030 and then start to decline.

“I can’t say our chemical companies had been ready for the goal,” says a senior expert involved in carbon planning at China National Offshore Oil Corporation (CNOOC). “Despite sporadic actions, the industry had adopted no systematic plan before the government announced the carbon goals.” CNOOC is the country’s third-largest petrochemical firm, after China National Petroleum Corporation (CNPC) and Sinopec. The expert, who is not authorized to speak to the media, asked not to be identified.

Still, the industry acted quickly to show support for the target. On Jan. 15, 2021, 17 major petrochemical firms—including CNOOC, CNPC, Sinopec, and Wanhua Chemical— and industrial parks signed a document vowing to meet the timeline set by the government. The document, written by the China Petroleum and Chemical Industry Federation, calls for increasing the generation of low-carbon energy, improving energy efficiency, making more low-carbon products, developing CO₂-based chemical production, and implementing carbon capture and storage (CCS).

On July 16, China formally launched a carbon trading market. A total of 2,225 major power plants with combined CO₂ emissions last year of about 4 billion metric tons (t)—about 40% of China’s total—are participating. Five days later, Sinopec closed the market’s first bulk transaction, purchasing the right to emit 100,000 t of CO₂ for its in-house power plants. The company says its trading supports national carbon reduction goals.

But despite such proclamations, the road to carbon reduction in China’s chemical sector will not be smooth. It will mean a dramatic reshuffle and enormous pain, says Zhao Zhen, an independent chemical consultant based in Shanghai.

According to government statistics, the chemical sector had the third-highest carbon emissions of China’s heavy industries in 2020, after power generation and steelmaking. They also grew the fastest.

“The nature of the chemical sector determines the difficulty” of reducing carbon emissions, says Ye Yingmin, president of the Beijing-based consulting firm Chem1. “Chemical production means breaking big molecules with more carbon atoms into smaller ones. A large amount of energy has to be used to break the bond, and carbon dioxide is released.”

China’s heavy reliance on fossil fuels, particularly coal, further complicates the chemical sector’s carbon reduction efforts. Coal’s share of the national energy supply was 56% in 2020, down from previous years but still the biggest percentage among major industrial countries. The chemical industry accounted for 13.8% of China’s total coal consumption of about 5 billion t.

Coal-based power emits 2.2 times the carbon of natural gas–based power. And China is unique among industrialized nations in its heavy use of coal rather than oil or gas as a raw material for chemicals. Despite the government’s carbon reduction goals, Ye says, “the basic feature of our heavy reliance on coal won’t be changed anytime soon.”

Local governments seem to be targeting coal-derived chemicals as part of a national campaign to cut energy use. In July, construction was stopped on a gigantic coal-to-chemical project in Yulin, a coal-rich city in the northwestern province of Shaanxi. The project, by the state-owned Shaanxi Coal and Chemical, was expected to cost close to $20 billion and result in the world’s largest coal-to-chemical plant. According to China Energy News, the project didn’t pass the government’s energy-saving audit.

Similarly, in recent months, coal-rich Ningxia Province and Inner Mongolia stopped reviewing and approving all coal-to-chemical projects, even though these inland areas want more economic development.

Yet in Ye’s view, the cessation is not specifically tied to the projects’ heavy carbon impact. “Rather, there were always energy auditing and investment reviews for major projects, not just for coal chemicals,” he says. “Their pause is more likely to be a result of regular policy checks.”

Such checks were put in place as part of a “two controls” policy in China’s 13th Five-Year Plan, for 2016–20, requiring each province to control the growth of its energy consumption and cut per capita energy use. The policy continued into the 2021–25 plan, which was established before China set its 2060 carbon neutral goal.

Kelly Cui, a China-based senior analyst at the consulting firm Wood Mackenzie, says the local government’s pauses on coal-derived chemical projects reflect a wait-and-see attitude. As the central government has not clarified specific measures for achieving the policy’s goals, she says, provincial authorities are adopting caution on major projects to conserve their energy use quotas.

Although coal creates more carbon emissions than other sources of energy and chemicals, some energy scholars and scientists contend that China still must use a large amount of it on the way to realizing its carbon emission goals.

In fact, Zhao claims that the carbon emission goals are good news for coal-derived chemicals: they will shift high-quality coal from electricity generation to chemical production, potentially reducing costs and improving quality. High-priced coal, with more thermal value, is now used for electricity while low-priced coal, generally with more impurities, is left to local chemical projects.

Jin Yong, a chemical scientist at Tsinghua University, said at a recent seminar in Beijing that to get to carbon neutrality, China must shift the main use of coal and petroleum from energy production to industrial use. He advocated using low-carbon chemical production technologies such as multiphase reactors, in which coal is pyrolytically decomposed. CO₂ can be captured or reduced to carbon monoxide, which can then be used to make more chemical products. But Jin acknowledged that significant advances and breakthroughs will be needed to deploy the technology at an industrial scale.

Early signs are that the Chinese government sees coal-derived chemicals remaining part of the country’s industrial mix. On Oct. 24, just ahead of the UN climate summit in Glasgow, Scotland, the government released further details on its plan for capping carbon emission increases by 2030. For the chemical sector, the document calls for strictly restricting new refinery and conventional coal chemical projects. It also encourages enterprises to shift from coal to electricity and natural gas for energy. But it supports the development of more modern coal chemical projects.

Coal chemicals are not the only part of the chemical industry that must change if China is to meet its carbon neutrality deadline. A report drafted by Zhao lists the production of calcium carbide, sodium hydroxide, yellow phosphorus, methanol-derived olefins, and many other products as potentially suffering in an era of carbon control. Industrial experts agree that upgrading production methods for these basic chemicals to increase energy efficiency is the only choice to meet the 2060 goal.

Foreign investors in Chinese chemical production also face challenges. Since 2018, when the government further opened the market to allow foreign and private firms to invest in China’s refining and chemical industries, BASF, Exxon­Mobil, Hengli, and Sabic, among others, have launched billion-dollar refinery and chemical projects in China. Some of them will go on line in the next 2 years, when power outages and stricter carbon controls could affect their operation.

Wood Mackenzie’s Cui isn’t concerned, though. “Most of these new investments have adopted up-to-date energy efficiency technologies,” she says. In addition, Cui says, the plants have the potential to shift to the production of environmentally friendly products like biodegradable polymers.

Among the opportunities that China’s carbon neutrality goal offers the chemical industry is the development of new CCS technology, though efforts so far have been slow. Late in the first decade of the 2000s, CNOOC partnered with Chinese academic institutions on a pilot project to store CO₂ in old wells in the South China Sea. Yet, according to the CNOOC expert, the project lacked financial support. “It only stopped at the basic research level,” the expert says.

Other opportunities include developing materials for solar and wind power, energy storage, and green hydrogen. Zhao’s report also recommends that chemical companies produce materials needed to make batteries for large-scale energy storage, such as silicon carbon–based electrodes, graphene, carbon nanotubes, ceramic alumina, electrolytes, and aqueous binders.

But all these initiatives—new materials, CCS, improved energy efficiency—will require money; much of the pressure will fall on small and midsize manufacturers which cannot afford the technological upgrades.

The economic gaps between Chinese regions present problems too. Inland areas like Ningxia and Inner Mongolia that want to develop their economies and create jobs welcome the chemical industry, yet they must meet carbon reduction goals imposed by the central government. “It is a hard choice,” Ye says.

Hepeng Jia is a freelance writer who reports on China.