The chemical industry in the era of circularity and net-zero
By Sana Ben Kebaier, Senior Economic Research Specialist, GPCA
The chemical industry plays a vital role in modern life. In the GCC, it is considered the cornerstone of economic diversification. It is the region’s largest and most important non-oil industry, with its production capacity growing at 3.5% between 2010 and 2021. Chemical products are significantly interconnected to 96% of all manufactured goods and value chains that contribute to improving our modern life in a range of sectors, including transportation, construction, healthcare, and nutrition.
The chemical industry in the GCC produces an important variety of products that significantly impact the three sustainability pillars: economy, environment, and society.
Basic chemicals have the biggest share of the region’s chemical production capacity. These products include petrochemicals, such as polymers, contributing to roughly 80% of the industry’s global output. Over the past century, petrochemicals have been highly dependent on fossil fuels, making the chemical industry the third largest source (amongst manufacturing industries) of CO2 emissions and a contributor to global GHG emissions (Scope 1 and Scope 2). This is particularly important in the context of today, as GHG emissions are considered major drivers of climate change globally.
 GPCA statistics, Facts and Figures report, 2022.
 International Council for Chemical Associations, Sustainable Development Goals, Decent work and economic growth,
The chemical industry in the context of the net-zero challenge in the GCC
The GCC countries are subjected to one of the harshest climatic conditions, with restricted water resources and very limited rainfall. At the same time, the region has experienced a high population growth rate of 25% during the last decade. This has led to higher energy demand and consumption and, as a result, higher GHG emissions.
Temperatures are rising faster than expected, driving substantial harmful impacts in the GCC region and globally. Consequently, physical hazards such as floods, heat waves, and sandstorms rise in frequency and intensity. These severe risks from climate change are expected to cause chronic socioeconomic, environmental, and economic risks. If it goes unchecked, the situation can become quite alarming.
 Word population review, https://worldpopulationreview.com/country-rankings/gcc-countries
Therefore, GCC countries have concentrated their efforts on addressing the climate change issues threatening the region and developing strategies that encourage economic growth while protecting sustainability. Here the chemical industry will have a vital role to play as a key enabler and a solution provider to many environmental challenges. As global leaders became signatories to the Paris Agreement (2015), agreeing to limit global warming to below 2°C is an urgent task, but it will require significant efforts to ensure GHG emissions reach net-zero levels by mid-century.
Chemical demand is expected to quadruple by 2050 compared to 2010. The chemical industry is the third largest industry subsector in terms of CO2 emissions from primary chemical production. In 2021, the GCC chemical industry generated average GHG emissions of 2.62 million tons (CO2e), an increase of 5.7% over the previous year. CO2 intensity increased by 3.27%, whereas NOx and SOx emissions continued their recent downward trend by falling 11% and 54%, respectively.
The industry is becoming more engaged in research and innovation that contribute towards net-zero emissions. Now more than ever, there is an urgent and fundamental need to address this concern at all levels.
 Cayuela (2013): Market outlook: Speedy growth for chemicals by 2050
Figure 1: GCC chemical industry average GHG emissions 2013-2021 (Million tons of CO2)
Source: GPCA analysis 2022
For the chemical industry, net-zero ambitions present significant challenges, such as high investment costs, structural changes, and business model disruptions. Indeed, it will necessitate a reinvention of the whole industry that has evolved over centuries with new processes, some of which are still under development.
Making net-zero a reality will require a favorable policy environment in terms of:
- Financial and monetary incentives
- Demand side policies
- Innovation and collaboration among industry players in both public and private sectors
- Enabling market and regulatory frameworks
- Adopting science-based targets for GHG emissions abatement
- Scaling up the deployment of renewable electricity for industrial use as well as renewable feedstocks
- Linking public procurement policies to net-zero goals
- Transitioning quickly to a circular economy for the industry’s products
That is why it is crucial to break down decarbonization and climate targets on the global, national, and industry levels. In fact, the three levels need to be aligned in their targets and contribute to common success. At individual company levels, net-zero targets need to be set, and progress must be monitored on a regular basis. Industry groups, such as GPCA, can support regional producers by creating a platform for benchmarking as well as sharing success stories and lessons learned.
A significant part of the chemical production processes and technologies are under development and need to be integrated to reach decarbonization goals. That is why, an additional effort needs to be addressed to prove the effectiveness of new pathways and technologies such as circular economy, carbon capture and utilization, clean hydrogen, and carbon credits, to name a few. However, rebuilding and modifying the chemical industry is a massive technical undertaking, full of complexities. Companies will have to identify a detailed, strategic pathway, including technologies, targets, and growth programs with clear, cost-efficient roadmaps, all while not losing sight of value creation and growth.
These pathways are essential and critical, but more is needed. Achieving decarbonization goals will require a common effort from many stakeholders, including customers, suppliers, supply chain partners, and regulators, both on national and global levels to raise capacities and capabilities.
The chemical industry is in a unique situation to be a leader in the journey towards net-zero by 2050. This is an era of growth, where the chemical industry in GCC can achieve a powerful impact through sustainable investment in innovative strategies, technologies, and pathways.
Adopting a decarbonization pathway will grow demand for new goods and services that helps customers, brand owners, and manufacturers in other industries around the world to achieve sustainable commitment and meet evolving preferences for environmentally friendly goods and services. This will create growth opportunities and competitive differentiation for the chemical industry. It will enable producers to play a key role in addressing decarbonization and net-zero ambitions globally.
Leading companies are taking decarbonization initiatives and embracing them as an opportunity to explore new technologies and increase competitiveness to drive sustainable growth. Other companies need to act fast to not be left behind.
Figure 2: The impact of Carbon emissions and circular economy on Environment, Society, and Economy
Source: GPCA research
One of the highest potential solutions that can be adopted is the circular economy: where the creation of closed-loop cycles enables us to reduce waste generation and improves its management, curtails landfilling and GHG emissions, and prolongs the life of products. This solution is gathering momentum amongst chemical industry players globally and in the GCC. The industry is undergoing a major transformation with circularity at its core.
The circular economy has a powerful potential in the GCC, as it offers many benefits for companies and for the region, including, but not limited to:
- Better efficiency through lower costs, as well as greater value creation and retention within the economy
- Alignment with and supporting the region’s economic diversification drive
- Enhancing the sustainability of products throughout their lifecycle
- Creation of local jobs through recycling and reusing products which will reduce the reliance on imports
- Encourage positive behavioral change amongst local communities toward a sustainable mindset
Lenders are ranking firms and countries according to their sustainability maturity and engagement. To attract investments, industry leaders must make significant changes urgently, and circularity offers an important opportunity in this context. Transforming into a circular economy can solve vital issues related to the environmental, economic, and social framework, as presented in the figure below:
GCC nations are making efforts to align with the global sustainability agenda, particularly in the chemical sector, and current and commissioned projects do include aspects of circularity. However, making the ultimate move toward circularity will require much more engagement and change in long-term strategies.
Transitioning to a circular economy to achieve decarbonization and net-zero emissions will require high-level of collaboration amongst different stakeholders, governments, and regulators, given the complexity of value chains and the high costs of technologies.
At a company level, it is mandatory to understand the circular opportunities and to specify a clear strategy and vision to plan a circular transformation journey. This will require important investments in new technologies and infrastructure. It will also require adopting new business models, including value chain partnerships. In this context, the GCC has a distinct advantage compared to other regions, as it has the needed financing capacity to support critical investments. However, the region needs relevant policies and regulations to support its sustainability efforts, both in scale and pace of development. Businesses that will lead the circular transformation will develop a competitive edge over the rest.