INDUSTRY INSIGHTThought Leadership

Green supply chains in the chemical industry

By Marcos Mayo, Partner, Sachin Halbe, Partner, and Mehul Shinde, Manager, with special thanks to Jose Alberich, Partner, Alejandro Velez, Principal, and Ellen Buskens, Manager at Kearney

Imperative for change

The chemical industry is a cornerstone of the global economy, with outputs that are used in nearly every aspect of modern life. In fact, around 95%1 of all manufactured products rely on this industry for inputs. In the GCC, this industry is even more important to local economies, contributing an average of 29% to the manufacturing value added (World Bank data, 2021). National industrial strategies are being redrawn to boost the non-oil sector’s industrial growth, and the chemical industry is a priority. As a result, many new projects are expected to come online over the next few years (see Figure 1).

In addition to being a major driver of economic growth, the chemical industry is also the world’s largest energy consumer and third-largest industry sector in terms of direct CO2 emissions. Around 6%2 of global greenhouse gas (GHG) emissions originate from this industry. Today’s linear value chain follows the “take, make, and waste” principle, which puts immense pressure on the environment. Our analyses show that chemical companies around the world will fall 5 to 15% short of their targets based on current commitments from suppliers. High GHG emissions and energy consumption are the bulk of this problem. Chemical companies know they have an important role to play in emissions control and energy transition; however, they are struggling to implement the necessary changes while remaining cost-competitive.

An opportunity to design green supply chains

It’s time for the industry to focus on developing green supply chains based on circular economy principles, where the value of products, materials, and resources is maintained in the economy as long as possible, and waste generation is minimized.

Considering the Middle East’s robust growth trajectory, the industry has a unique opportunity to be green and future-proof by designing supply chains with sustainability at the core. Below, we discuss eight key levers (see Figure 2).

1. Start with regenerative product design

The chemical industry would need to prioritize sustainability gains and rethink product design with a sustainability lens. For example, products can have fewer polymers to prevent contamination and mixed waste streams, which will help recycle large amounts of potentially recyclable end products. The selection of base polymers can be driven by the GHG emissions during extraction and production. Design teams can prioritize parameters that facilitate maximum recovery and recycling of the materials. For instance, if a product has parts that need to be mounted together, it is advisable to choose a physical design that doesn’t require glue to avoid the need for additional chemicals and make the product easier to reuse or recycle3.

2. Use renewable energy

Fossil fuel is the primary source of energy for chemical production. Implementing electrically heated chemical processes or reusing process heat, where applicable, can significantly reduce GHG emissions, especially when electricity is produced from renewable sources. Green supply chains can deploy long-term electricity procurement models or power purchase agreements with renewable electricity producers (hydropower, wind, solar, etc.). Countries in the Middle East have already taken decisive steps to transition to clean energy that will change the energy mix of the chemical industry; e.g., Saudi Arabia aims to supply 50% of electricity from renewables by 20304.

3. Collaborate and develop skills in the supplier network

The chemical value chain is intertwined with several chemical companies being each other’s customers. More than half of all chemical industry’s Scope 3 emissions come from purchased goods and services5. Suppliers need to understand the company’s sustainability goals. All key suppliers will need training and support to develop the mindset required to implement circularity principles. Suppliers can commit to well-aligned science-based sustainability targets and be onboarded to implement circularity principles (reduce, reuse, and recycle). More importantly, selected tier 2 and tier 3 suppliers can commit to implementing sustainability standards in their own supply chains. The industry is already experimenting with sourcing of feedstock alternatives, which helps decouple growth from resource consumption.

Recycling plastics and using a share of that to feed the chemical industry’s material demand could save up to 3006 million tonnes of fossil-embedded GHG emissions per year. Developing shorter supply chains from sources can be a more resilient and sustainable choice. Industry-wide collaborations, driven by local industry associations, can support the development of local sustainability standards, tailored assessment tools, and supplier training. Below, we discuss key sub-levers (see Figure 3).

4. Implement supply chain traceability

Traceability in material inputs is vital for tracking products during and after their useful life. Information about the chemical composition of the final products in the value chain can be made available to waste management services and material recyclers. Traceability data can be recorded at each stage. Technological innovations such as product passports, blockchains, watermarks, QR codes, AI, and IoT can help gather data as the material moves through the value chain and serve circular business models by facilitating repair and reuse.

5. Optimize logistics and transportation

Companies can apply GHG emissions as one of the optimization parameters, along with cost and service levels, while designing logistics and distribution networks. Road transportation fleets can be transitioned to green fuels. The chemical industry can influence the transition of marine transportation fleets to dual-fuel fleets and, in the long term, move towards low-carbon fuels with a significant share of green methanol or ammonia, making marine shipping strategies more future-proof.

6. Develop circular business models

Circular business models address inefficiencies or waste streams and convert them into business opportunities. For example, innovative ‘Chemical-as-a-Service’7 revenue models can be offered that are based on the benefits of chemical usage rather than the volume of the chemicals. A car producer that needs chemicals for surface protection for its parts pays per car body protected and not according to the amount of chemicals used. Supply chain assets and capabilities can be designed to implement these circular strategies.

7. Process waste

A green supply chain enhances the opportunities to reuse, refurbish, remanufacture, and—at least—recycle at the end of the product’s life. Chemical companies can reduce the waste generated on-site and, where possible, reuse it by mixing it with virgin feedstock. Non-hazardous waste that cannot be recycled can be used to generate steam for electricity production. Green chemical supply chains can invest in improving waste segregation, recycling, and waste collection and management systems.

Various companies are moving ahead with green supply chain implementations (see Figure 4).

Going forward

Green supply chain practices will minimize the impact on the environment and help mitigate the risks of climate change. In the long term, they can help lower a company’s operating costs and create a distinct competitive advantage. The industry needs to prioritize investments in mechanical and closed-loop recycling technologies. For tangible reduction in Scope 3 emissions, a mindset shift is required to swiftly move from reporting and compliance to identification and implementation of opportunities across the value chain. In the region, chemical companies have the opportunity to fast-track the adoption of the ongoing transition to renewable energy and green fuels (hydrogen, green ammonia, etc.). In conclusion, companies in the Middle East are in a unique position, with their new projects, to design for sustainability from the start and leapfrog their green supply chain implementation journeys.

References:

  1. Science Based Targets. (n.d.). Chemicals. Available at: https://sciencebasedtargets.org/sectors/chemicals
  2. World Economic Forum. (2023). How the chemical industry can usher in a circular economy.
  3. OECD (2021), A Chemicals Perspective on Designing with Sustainable Plastics: Goals, Considerations and Trade-offs, OECD Publishing, Paris,
  4. Saudi & Middle East Green Initiatives. (n.d.). Saudi & Middle East Green Initiatives. [online] Available at: https://www.greeninitiatives.gov.sa/sgi-initiatives/.
  5. CDP Technical Note: Relevance of Scope 3 Categories by Sector CDP Climate Change Questionnaire. (n.d.). Available at: https://cdn.cdp.net/cdp-production/cms/guidance_docs/pdfs/000/003/504/original/CDP-technical-note-scope-3-relevance-by-sector.pdf
  6. Tan, C. and Holger Vegelan (2022). The chemical industry can wean itself off fossil feedstocks. Here’s how. [online] World Economic Forum.
  7. Chemical Leasing in Practice – Available at: https://chemicalleasing.com/chemical-leasing-in-practice/#1595648577874-6ef71dd9-d4e1 [Accessed 25 Apr. 2024].