The drive for sustainability is revolutionising the chemical industry. Our research shows that, as of early 2023, 66% of the largest chemical end users in Europe – including players in the automotive, food and personal-care industries – had committed to reducing greenhouse gas (GHG) emissions by 2030, and 37% have pledged net zero targets by 2050.

Manufacturing chemicals is highly energy-intensive, often resulting in substantial CO₂ emissions. The carbon-based nature of many chemicals means they can emit CO₂ or methane when incinerated or decomposed during waste management, complicating the chemical industry’s efforts to achieve net zero.

Although there are steps to create greener solutions – such as achieving energy efficiency, carbon capture and storage (CCS), switching to green energy and advanced recycling – these measures alone will not get the industry to net zero.

One solution to close the gap is the use of sustainable feedstocks, such as biomass and CO₂. However, this approach is not without challenges, particularly when it comes to matching the right feedstocks and conversion technologies with the right products in the right regions of the world.

McKinsey findings show that players can navigate uncertainty by pursuing long-term supply and offtake agreements, focusing investments where economics are likely to be supportive, and helping ensure their suppliers use efficient and sustainable (regenerative) farming practices.

Recarbonisation through feedstock evolution  
The chemical industry is crucial, due to its role in supplying products to other industries such as automotive and construction industries – two of the highest emitters of global GHG emissions.

Our research shows that two broad moves can help address approximately one-third of the chemical industry’s total GHG emissions by 2030 – see Fig 1. What’s more, both moves involve low CO₂-equivalent (CO₂e) abatement costs, have no substantial downsides, and are widely accepted by the public and regulators.

Fig 1: Even under ambitious but realistic assumptions, the chemical industry will not be able to reach net zero without additional action – graph shows indicative 2030 emission estimates for the chemical industry under such ambitious but realistic assumptions, in mn tCO₂e 
Source: McKinsey

Increasing energy efficiency and use of green energy: Adopting green energy and enhancing energy efficiency in the chemical industry, including heat integration and green electricity procurement, could reduce emissions by up to one-third by 2030. Costing under €100/t of CO₂ saved, these measures should be a priority for all chemical companies.

Recycling: Proven recycling technologies, including mechanical and chemical methods for plastics and textiles, and gasification for non-recyclable organic waste, can be deployed at a large scale. By avoiding waste incineration and enabling circularity, the industry could reduce emissions by up to 5% by 2030, with greater reductions possible in the future.

Moreover, chemical companies can further reduce emissions by adopting new feedstock routes, such as plant biomass or mechanical-chemical CO₂ capture and conversion, known as ‘recarbonisation’ practices. These methods use atmospheric CO₂ instead of fossil-based carbon, offering early adopters a competitive edge due to increasing demand and supply build-up times.

Nevertheless, as attractive and important as these measures are, they are not sufficient to reach net zero emissions in chemicals or to offset emissions from currently practiced end-of-life activities, such as waste incineration.

Furthermore, our research shows that those that adopt only these options will often still depend on others to reduce their own emissions, particularly upstream players. This consideration is relevant because many upstream players aim for large-scale reductions only by 2040 or 2050.

For chemical companies that serve markets in which customers have committed to aggressive decarbonisation targets (such as automotive and consumer goods), additional action is required to meet customers’ near-term demand for low or zero CO₂e options.

Two paths to reduce emissions include capturing and sequestering CO₂ emissions at the source via CCS, and switching to non-fossil fuel feedstocks, such as biomass or CO₂, which can be converted into chemical feedstocks and intermediates.

For major sources of CO₂ emissions, such as large crackers, CCS is often one of the clearest and most economical ways to substantially cut emissions (for crackers, the only alternative is electrification). According to our analysis, however, CCS alone addresses only 30–50% of total emissions.

That said, CCS cannot address end-of-life emissions in chemicals, which could affect players that want or need to offer net zero products. In addition, CCS is unsuitable for smaller sources of emissions and depends on access to CO₂ transportation and storage infrastructure, which is frequently lacking. This means that although CCS could be an important technology to bend the overall industry emissions curve, players that want to quickly move to net zero will need additional technologies.

For major sources of CO₂ emissions, such as large crackers, CCS is often one of the clearest and most economical ways to substantially cut emissions – for crackers, the only alternative is electrification.

Sustainable feedstocks  
Two processes can be used to extract CO₂ from the atmosphere and turn it into chemical feedstocks: biomass and CO₂-to-X. The latter is a term that refers to CO₂ conversion into products, such as methanol and ethanol, which can be used to synthesise a large number of chemical products.

Harnessing the power of plants – biomass. Plants take in atmospheric CO₂ as they photosynthesise, enabling them to grow and yield sugar, oil and woody biomass. Each of these can be converted via various means into useful chemicals.

Sugar is the easiest starting point for conversion into biofuels and other valuable chemicals. It also often has the lowest cost of production. Most technologies focus on fermenting sugar to create organic acids (such as lactic acid, which can be turned into polylactic acid polymer) or ethanol to produce ethylene derivatives. These derivatives amount to approximately one-quarter of the industry’s primary petrochemical output by volume.

Plant-derived oils cover all target molecules, and the relevant conversion technology is well established because the oil can largely substitute fossil oil inputs directly, reusing the established petrochemical production assets. However, plant-derived oils are costlier than sugar. Waste oils (such as used cooking oils) are in short supply and face competition from fuel production.

Also, dedicated production of oil crops for chemicals, such as palm oil, may raise concerns about agricultural competition with food supply, land-use change, and biodiversity. For these reasons, plant-derived oils should be considered an interim solution.

Wood biomass, offering options such as gasification, though costlier and more complex, is gaining traction, especially sustainable varieties like pulping by-products. The movement towards second-generation biomass, such as non-food sources, is making wood biomass increasingly viable, especially in regions with strict sustainability standards. This trend indicates a shift towards varied, sustainable feedstocks, aiming for a balance between economic viability and environmental sustainability.

Long-term sustainability and scalability – CO₂-to-X. CO₂ captured from sources such as bioethanol emissions can be converted into chemicals using synthetic processes powered by renewable energy, known as CO₂-to-chemicals conversion.

This method, with higher land efficiency than biomass, could eventually surpass biomass use. However, it is energy-intensive and currently viable mainly in areas with substantial subsidies, abundant renewable energy and high-purity CO₂, such as certain US regions. Bio-based feedstocks are ideal CO₂ sources due to their purity and sustainability. Despite its potential, CO₂-to-chemicals conversion technologies are currently limited in their output, so chemical players may want to pursue R&D over the long term to make CO₂-to-chemicals efficient for target molecules.

Mitigating uncertainty with improved farming practices   
The suitability of sustainable feedstocks and their conversion technologies depends on the player’s legacy production setup, position in the value chain and potential economics. Hence, each sustainable feedstock option needs case-by-case consideration.

Using biomass that would have otherwise been wasted (second-generation biomass) is more sustainable than using first-generation biomass and so it may become more important in the years to come.

However, the economics of second-generation feedstock are often difficult, the required technologies and logistics are still emerging, and the use of first-generation biomass continues to be permitted in multiple countries, including the US. No matter which type of biomass is chosen, the following two practices can help companies ensure it is sustainable and avoid paying elevated spot prices:

Engage suppliers to ensure good farming practices. This is particularly relevant for first-generation biomass. Well-managed crop agriculture can sequester carbon in the soil, whereas poorly managed agriculture can be a net emitter.

Because of land-use considerations, the productivity of crop production is also critical; farmers who use superior plant genetics, apply inputs in the most sustainable manner and take advantage of ‘second seasons’ (growing cover crops during winter) will generally have feedstocks with better sustainability profiles. This potential for further biomass production per hectare through intensification is not well appreciated outside the agriculture sector.

Enter into long-term supply agreements. Sustainable biomass is in short supply. Our estimates show that future supply will fall well below potential demand from chemicals and other sectors, such as fuels or energy, which are competing for supply. In fact, 2050 global biomass demand from these sectors could outgrow sustainable supply two times over. As demand continues to grow, so does the risk of price increases and supply shortages. One way to safely avoid these risks is to enter into long-term supply and offtake agreements, which can help mitigate market outpricing.

To create competitive advantage, players can invest in novel technologies and feedstocks for which the economics are likely to become attractive – despite many uncertainties – and integrate themselves into the supply and customer sides through investments and long-term agreements. For chemical players, this approach has potential benefits for the environment and society. Making the right decisions today could mean the difference between staying competitive in the years to come or falling behind.

*This article is a collaborative effort by Tom Brennan, Wen Chyan, Maximilian Göbel, Per Klevnäs, Tapio Melgin, Clara Pakari, Markus Pley, Axel Spamann, and Christof Witte, representing views from McKinsey’s Chemicals Practice.