A marathon at sprint speed: CO2-neutral chemical industry by 2050 – The challenge of an industry transformation, but a challenge worth taking
By Dr. Joachim von Heimburg, MD, JvH Innovation GmbH, and Hannes Utikal, Head, Center for Industry and Sustainability, Provadis School of International Management and Technology
The German chemical industry intends to be carbon neutral by 2050. Industry-level concepts have been published underlining the creation of a CO2-neutral chemical industry to be technically feasible within this time span. The public debate focuses now on how to design and implement this transformation, and doesn’t question the desirability of the goal itself any longer. Companies need to translate this vision into their specific context. But how should they frame the challenge? Should they only think about decarbonization of their current activities (“renovate the building”) or should they think as well about remodeling their relations to other stakeholder such as suppliers, customers, energy providers, policy makers and civil society (“rethink the inside and the outside of the building”)?
We believe that a broader, system-oriented mindset is necessary because too many technological, economic, regulatory and societal variables on the path to CO2 neutrality still remain unclear.
- Technological aspects: To achieve climate neutrality, incremental technical changes are not sufficient, but new technologies are required. It is difficult to estimate when which technology will actually be available for large-scale industrial use and at what price. The ecological transformation of the chemical industry also requires a cross-sector approach which must take into account building new national and international infrastructures.
- Economic aspects: Many alternative technologies will not be competitive with conventional technologies without a global CO2 price, due to their higher production costs. Against the backdrop of uncertain future conditions, companies must now assess whether and how they will change their business model and in which technologies they will invest. They must plan not only how to enter new technologies (entrepreneurial innovation), but also how to exit established technologies (entrepreneurial exnovation).
- Regulatory issues: The regulatory framework faces conflicting objectives: policy measures chosen should maintain industry competitiveness and prevent industry leakage (carbon leakage). The remedy often cited is the introduction of a global carbon (CO2 emission) price. This would reflect the social costs of CO2 emissions and provide an incentive to avoid them. Decisions on the right policy mix have not yet been made.
- Social aspects: The majority of the population expects business to actively contribute to climate protection. Decisions on new technologies need to take into account public acceptance, especially in the case of CCS (Carbon Capture and Storage), which is still in doubt. But even if the general public basically approves of a new technology, problems may occur during local implementation, as can be observed from time to time with the construction of new wind turbines (“not in my backyard”). Societal support must therefore be secured in time at different levels (regional, national, international) and among relevant, but different target groups.
This transformation is a complex endeavor with multiple influencing factors that are interrelated. Companies may have to take decisions under considerable uncertainty because some technological, economic, regulatory and societal aspects may still be unclear at time of decision. Therefore, companies need to plan their individual transformation pathway as a part of an encompassing industry sector transformation.
Industry transformation – A multi-stakeholder challenge
Chemical companies need to balance along their journey to 2050 their environmental ambition with their economic goals (profitability, competitiveness) and social objectives (jobs). Policy makers focus especially on social goals (jobs in Europe) and intend to design a regulatory framework that supports companies in investing in carbon neutral technologies in Europe. Here, a big challenge is to strike the right balance between preventing risks and accepting and managing those risks that are inherent to fundamental innovations. Science owns the responsibility to advance relevant technologies and to support decision making processes in business, policy and civil society. And civil society – a very diverse group – may want to make sure that the transformation process is transparent and not dominated by lobbyist groups of established industries.
Thus, multiple stakeholders with potentially conflicting goals need to coalesce on the best transformation pathway. It is obvious that conflicts will arise between stakeholders at critical junctures which necessitates multi-stakeholder collaboration to align all required choices and actions (cf. picture 1).
Companies need to engage in cross-industry and cross-disciplinary collaboration and be active participants in the societal discourse to make sure that their perspective is sufficiently taken into account by other stakeholders. Creating value that benefits all stakeholders requires all actors playing their role within this ecosystem constructively in a spirit of cooperation and co-ownership. Each party has to identify and assume its role and responsibility so that the whole ecosystem can mobilize and capture the necessary resources to deliver against the common objective of achieving CO2 neutrality. (For managing roles and responsibilities of the four groups of stakeholders, we suggest following the approach of Marc Dreyer et al. to Responsible Innovation – the so called 4-Gears Model.
A marathon but at sprint speed
Implementing these transformations requires major investments in the chemical industry. Their execution commands long lead times and requires consistent and persistent follow-through – just imagine the related permits, stakeholder management, construction, logistics issue. Net, the journey to CO2 neutrality resembles a marathon. But getting to the finish line by 2050 needs sprint speed.
A vision put into action
Looking for instructive examples, the development of a completely new family of vaccines against Corona with the highest speed possible comes to mind. Considering its success, what learnings may be applied to the transformation to CO2 neutrality? Here a couple of suggestions:
- Start with crystal clear objectives shared by all key players involved. For developing a vaccine against a raging pandemic, these goals are obvious. For the less pressing and perceptible need for CO2 neutrality, the final objectives and broadly accepted milestones need to be precisely stated.
- Embrace uncertainty: Accept that success of your activities will depend upon developments of other actors in the ecosystem as well. Start nevertheless.
- Send many horses into the race by forming many and diverse teams utilizing different strategies2. Betting on many options will increase chances of success.
- Manage risk proactively. Build resilience into resource planning and critical schedules against unexpected outcomes and provide reserves for contingencies.
- Clearly differentiate between the development and the deployment and scale-up phases. These phases pose different challenges, require different resources, and have distinct dynamics.
- Manage expectations of key stakeholders and decision makers, in particular of those who may underestimate size of the challenges and their inherent complexity and risks.
The more downstream the projects move, the more difficult and demanding it becomes to adhere to the principles above. With success in sight, many teams are either tempted to break away and race to the finish line alone or to blame others for not meeting expectations.
A challenge worth taking
Going after the ambitious goal of CO2-neutrality in the year 2050 will create new growth areas for European and German industry. Exports will receive new stimuli. Indeed, a recent survey3 of European industrial companies estimates the value potential of decarbonization to be € 200 billion per year, € 40 billion for the chemical industry alone.
Of course, carbon tax and its projected increases play a critical here. But all in all, European industrial companies underestimate the perceived value of decarbonization among their customers and affected consumers. Decarbonisation, thus, can be seen as a significant business opportunity for Europe which will generate significant economical and societal benefits.
An abbreviated version of this article was published in CHEManager International in January 2021.
About the author
Joachim von Heimburg is the Managing Director of JvH Innovation GmbH in Riehen, Switzerland. Previously he served as the Acting Chairman of the Association for Chemistry and Economics in the German Chemical Society in Frankfurt, Germany.
Hannes Utikal is the Head of the Center for Industry and Sustainability, Provadis School of International Management and Technology AG. He also serves as Board Member of the Association for Chemistry and Economics in the German Chemical Society in Frankfurt, Germany.
- Journal of Sustainability Research 2020;2(4):e200033. Link
- A good overview can be found in Nachrichten aus der Chemie, Feb 2021, pa 50-53
- Accenture (2021): Energizing industry, available at https://www.accenture.com/_acnmedia/PDF-143/Accenture-Energizing-Industry-Through-European-Industrial-Decarbonization-Report.pdf#zoom=40, accessed 9 February 2021.