The chemical sector in transition: from care to circularity

Co-authors: Elze van Hamelen, Richard Blame and Edwin Janssen

Introduction

They are everywhere. They are in almost every product: soap, detergents, plastics, paint, fertilizer and pesticides, oils, aspirin, vitamins, clothing dye, baking powder. The list is endless. Our everyday lives, our economies, our societies and our environment have been shaped by them. It is hard to imagine a life without them. We are talking, of course, about chemicals. Due to the importance of chemicals in so many products, the chemical industry plays a key role in society. The growth and economic importance of this industry are shown by an enormous quantity and variety of goods and the corresponding production capacity. Through its various sub-sectors, it produces everything from versatile plastics, lifesaving medicines to modern agrochemicals such as fertilizers. Without the incredible range of products that the chemical industry produces for other sectors, these “downstream” industries would be unable to manufacture all the other goods we rely on every day.

In the 1970s and 80s, a series of chemical disasters shook the industry to the core. The gas leak at the Union Carbide plant in Bhopal is remembered today as one of the worst industrial disasters in history, leading to tens of thousands of deaths and causing untold harm. Similar incidents on a smaller scale also occurred also in Europe and the United States. As a result, the chemical industry came under intense scrutiny. Measures to improve environment, health and safety performance were taken proactively, first in the form of industry initiatives and later as binding government regulations as well. The Responsible Care industry initiative was adopted by industry leaders globally. This voluntary program has so far been implemented by 62 chemical associations, and 90 of the top 100 manufacturers in the petrochemical and chemical industry have signed the revised Responsible Care Global Charter.43 The industry today can be seen as a leader in safety performance.

While environment, health and safety management systems can now deal effectively with on-site impacts, chemical impacts throughout product or chemical lifecycles are not yet adequately addressed. Even though the sector is a major enabler of our quality of life, it is also linked to many pervasive sustainability challenges involving impacts on both human and environmental health. These impacts result from intense resource use and emissions during sourcing and production, unsafe use of toxic chemicals and ineffective management of chemicals, products and waste by society. Consequently, the biggest issues faced by the chemical industry have shifted from the safety of the chemical factories to the inputs for and impacts of the products it creates.

The accumulation of chemicals in the environment and in animal and human bodies is called the “body burden” of chemicals. And this is becoming a major — and growing — source of concern today for both the environment as well as the health of humans and animals. A prominent example of chemical build-up in our bodies is that over the past two years, more than 8,000 people in the United States have filed lawsuits against agrochemical company Monsanto44 in what has become known as “Roundup lawsuits”. The company has been accused of failing to properly inform the users that its herbicide and weed killer Roundup could cause cancer. Hundreds of millions if not billions of dollars have already been paid out to the victims, and the end is not nearly in sight: currently, thousands of other victims are awaiting the initiation of similar lawsuits against Monsanto.4’ These Roundup lawsuits show how some current practices in the chemical sector are not only harmful to the environment “around us”, but directly affect human health, too.

Another example of a chemical build up is the growth of large floating patches of plastic in our oceans, with the most famous example being the Great Pacific Garbage Patch, which has been estimated to be the size of France.46 Many of the individual plastic particles are extremely small, as the plastics break down into ever-smaller parts which are then ingested by animals that mistake it for food — and may end up in shellfish or fish that is destined for human consumption. After consumption, the constituent chemicals may continue to “leak” out of the plastics into our bodies.

This chapter will explore the enormous economic importance of the chemical sector as well as the environmental — and health-related — issues. We will explain the deeper system drivers behind these sustainability challenges using the four loops of market transformation. We will also be looking at potential solutions, then we present the numerous initiatives and interventions that already aim to deal with these challenges in the chemical sector and show how they closely follow the four phases of market transformation. Finally, we point out the roles different stakeholders can take up to help move the chemical sector towards becoming a more sustainable industry.

Economic importance of the sector

The chemical industry is a very diverse sector that recognizes five broad types of chemical products: basic or commodity chemicals, specialty chemicals, life sciences chemicals, agrochemicals and consumer chemicals. Table 4.1 gives an overview of these different types.

Driven by global megatrends such as population growth, economic growth and urbanization, the chemical industry has achieved impressive growth in recent decades. Since 1990, global chemical production has increased by 71%47 and this exponential growth is not coming to a halt soon. The global chemical market is expected to more than double in size by 2035,48 chiefly driven by increases in China’s production output.

The importance of the chemical industry is also reflected in its revenue. The industry is one of the world’s largest, with global sales of €3.4 trillion in 2016.44 This number is expected to rise to €6.3 trillion by

Table 4.1 The main branches of the chemical industry

Branch

Products

Basic or Commodity Chemicals

common polymers, bulk petrochemicals, basic industrial chemicals, inorganic chemicals, fertilizers, plastics

Specialty Chemicals

electronic chemicals, industrial gases, resins, adhesives, sealants, coatings, cleaning chemicals and catalysts

Life Sciences

including pharmaceuticals, animal health products, vitamins

Agrochemicals

pesticides, herbicides, fertilizers

Consumer chemicals

including soaps, detergents, cosmetics, cooking and cleaning products

2030 . The bulk of global sales and production is generated by China, the EU and the USA. Together, the global top 50 chemical companies generate more than one-third of total industry revenue.51 Key players in 2017 included BASF, DowDuPont, Sinopec, Sabic and INEOS.’2 The industry is also an important source of industrial employment in many countries. In Europe, the chemical industry contributes 1.1% of the EU’s GDP and employs 1.14 million workers in 2016.53

Originally Europe was the birthplace of modern chemistry, with the first large-scale chemical production taking place there from the mid-18th century onwards and laying the foundations for future growth. Although the output of the European chemical industry has doubled over the last 20 years, its overall comparative market share has declined. One major factor in this decline has been the rise of China as an industrial powerhouse. Production has shifted to Asia, and specifically to China. This shift began gradually, but has accelerated in recent years, and China is now the world’s largest chemical producer.'’4 The period between 2001 and 2014 was a great growth period, China increased its market share from 8.1% to 30.4%.',5 Other players are also moving into the market. In the last decade for example, countries in the Middle East such as Saudi Arabia and Qatar started producing oil derivatives such as ethylene. These countries intend to further expand downstream in the chemical supply chain and are well positioned to do so because of relatively cheap access to gas and oil. ’6,5 Finally, the shale gas boom in the USA has stimulated growth in the American chemical industry, to the detriment of the European chemical sector.

As a result of these developments, the European chemical sector is under the highest pressure relative to other players. Unlike most of its competitors in the USA, China and the Middle East, it depends other regions for imported energy and feedstock. Costs are driven higher by environmental laws and regulations as well as high labor costs. Many assets in Europe are still cost-effective to operate only because they have been fully depreciated.The region may be at risk of “compressive disruption” which means the gradual erosion of profits over time. Competitors from emerging markets, such as China, India and the Middle East, have additional competitive advantage in the chemical sector because they are investing in state-of-the-art technologies and are willing to accept a long payback time of 10 to 15 years.39

Production and value chain

The chemical sector is connected to and responsible for a highly diverse and complex range of products that are used in 96% of manufactured goods — including cars, electronics, textiles, batteries, personal care and construction materials.60

We will be focusing mainly on the commodity chemical sector throughout this chapter. See Figure 4.4 for an overview of the commodity chemical value chain.

The primary feedstocks (raw input) for the chemical sector are oil, natural gas, metals, minerals and water. Looking at the beginning of the value-chain, the commodity chemical sector creates many of the basic building blocks for other sectors and deals in high-volume and undifferentiated products. It is responsible for the vast majority of chemical sector output while accounting for around 35 to 37% of the dollar output.61 Specifically, the bulk of production is centered around polymers and plastics, which make up 80% of the industry’s output.62 These products are in turn used for a large variety of products, such as food packaging, window frames, hospital equipment and cars.

Various branches of the chemical sector also play vital roles in other industries. For example, the agrichemicals branch creates many of the products that drive modern agriculture, such as fertilizers and pesticides. The life sciences branch provides pharmaceuticals, vitamins and antibiotics for ensuring the health of humans and livestock. The consumer chemicals branch is responsible for a multitude of products that we use every day for cleaning, washing and repairing things in our households.

The commodity chemical value chain with examples in its application

Figure 4.4 The commodity chemical value chain with examples in its application.

This illustrates the close interlinking of the chemical industry with all these other crucial human needs. Because chemicals are central to almost all product supply chains, sustainability innovations in this sector will have substantial spill over effects into other sectors. It will enable innovations in all other sectors and therefore have the potential to drive downstream sustainability,63 while their absence can be a major obstacle.

Sustainability issues

The enormous diversity of products made by the chemical sector enable it to support a wide range of basic human needs (as well as modern consumer desires). This means that the chemical sector can be part of the solution to the many sustainability issues we currently face. However, the sector is also still part of the problem, contributing to a wide range of sustainability issues itself.

Let’s look at some of the sustainability challenges that plague the chemical sector, focusing especially on the commodity chemicals branch.

Environmental issues

Disruption of ecosystems due to high intensity of resource use

One of the major sustainability issues facing both the chemical sector and the connected value chains is the intensity of resources used. The sector is a major consumer of petroleum, coal and natural gas, both for energy and feedstocks. The energy consumption of the chemical industry accounts for 10% of global energy demand and 7% of GHG emissions.64 It is also estimated that between 5% to 8% of global petroleum is used as chemical feedstock: the petroleum is used as raw material for a variety of other goods, thus “feeding” the manufacturing of other products such as plastics. Moreover, if these products are incinerated after use, additional C02 emissions are emitted. In short, the outlook is not positive. As the demand for chemical products rises, the industry will account for one- third of demand for oil by 2030, and it will consume and additional 56 billion cubic meters (bcm) of natural gas annually by the same year.61 This means that the chemical sector is directly responsible for the physical disruption of ecosystems through resource extraction. More effort is needed to extract resources from increasingly marginal sources, such as extracting oil from tar sands, land-clearing for open-pit mines, drilling in the sensitive Arctic region and fracking to extract natural gas with its impact on ground water quality. Due to its dependence on fossil resources, the sector has also become entangled in the geopolitics and economics of global energy markets and could therefore play an important role in the push toward a less fossil-fuel dependent world.

In addition to its dependence on fossil fuels, the industry also relies heavily on mined materials such as metals and minerals that are used in chemical products. After being used, these metals and minerals are often emitted into natural systems as waste, thus creating a severe source of pollution. Examples include the overuse of phosphate and nitrogen fertilizers in agriculture, resulting in dead zones in coastal waters and loss of biodiversity on land, like loss of insects and microorganisms.66 The UN Global Chemical Outlook II (2019) identifies a range of other impacts as a result of this build-up.67

The industry is also extremely water-intensive, as water is a key component in its production processes. This not only impacts local water quality but can also result in falling water tables and reduced water availability. In most European countries, “manufacture of refined petroleum products, chemicals and chemical products” ranks among the dominant industrial uses of water, and is the highest consumer in many cases. For instance, the typical water use per inhabitant in this industry is 10.9m3, compared to 4.9m3 and 0.3m3 in the food and textile manufacture industry, respectively.6K This intense use of water makes the industry vulnerable to the risks posed by climate change, such as increased water scarcity.69

Plastic waste through linear production methods

The commodity chemicals branch is known for its linear production methods. This means that far more resources are used in manufacturing than are returned to the system, resulting in a linear (non-circular) use of resources. In 2015, for example, 407 Mt of plastic was manufactured and entered the use phase, whereas 302 Mt became waste and left the system. This means an addition of 105 Mt to the amount of plastic in active use. According to estimates, in 2015 only 9% of all plastic waste generated since the beginning of production has been recycled, with 12% being incinerated and 79% accumulating in landfills or elsewhere in the environment.70

As a result of this accumulation in the environment, we are now witnessing the increasing growth of “plastic islands” in oceans,71 and microplastic contamination of table salt and plastic-related chemical contaminants in honey and drinking water.'2 Plastic production is now over 200 times what it was in 1950,73 most of which has accumulated in the environment, and almost all of which is non-biodegradable. Various types of plastic can take decades, even centuries, to decompose in the growing landfills across the globe. A plastic bottle, for example, can take up to 450 years to decompose, while a plastic bag that has an approximate “usage lifetime” of only 15 minutes can take anywhere between 10 and 1,000 years to decompose. Moreover, when non-biodegradable plastics ultimately decompose, they often form chemical constituents that end up in the environment where they can wreak havoc on animals and humans through bioaccumulation in the food chain.

This plastic waste highlights an additional dimension of complexity in the chemical sector: many of its products are used as ingredients or components in downstream manufacturing rather than as final products. Although the chemical sector is not directly responsible for this plastic waste, which has more to do with consumption and waste disposal patterns, the sector does influence the design of products, using finite resources and manufacturing raw materials that enable this consumption.

Health issues

Impacts during the lifecycle of chemical products

It is not only waste from chemical products that needs to be considered. Negative impacts can also occur throughout the lifecycle of chemical products. For example, the United Nations Environment Program has identified chemicals in products as an emerging issue,74 and has called for increasing efforts to understand and provide information on substances that are carcinogenic (causing cancer), mutagenic (causing cell mutations) and toxic to humans. These substances have the potential to leach out of products during their use and waste phases, exemplified by recent concerns about the chemical BPA (Bisphenol-A) in food packaging. Industrial emissions and worker exposure to chemicals during manufacture — and recycling — of chemicals also needs to be acknowledged and studied. With production increasingly taking place in Asia, where standards in the chemical industry are lower, the impact of chemical production and pollution is certainly increasing faster than the rate of growth. Via oral, respiratory and dermal pathways, individuals and entire populations are exposed persistently to low doses of potentially harmful substances from products and contaminated environments at work, at home and elsewhere. It is estimated that globally, 8.3% of all deaths and 5.7% of total disease burden (the number of years lost due to illness, disability or early death) are related to chemical exposure.7’’ This is a serious, but under-acknowledged and poorly studied concern.

The full scale of chemical pollution is alarming but is increasingly being recognized as a societal and economic issue. In 2017, the Lancet Commission on Pollution and Health reported that pollution was causing an estimated 9 million premature deaths annually. Not only is this human toll far too high, it also entails a financial burden of trillions of dollars. These “modern pollution deaths”, which result from diseases caused by contaminated air, water, soils and workplaces, are increasing at an alarming rate.76

The accumulation of chemical pollution in the environment not only endangers the health of the current population, but also imposes a heavy burden on the health of future generations. Acknowledging this problem is only the first step. In this rest of this section we analyze the steps the sector has been taking to address this problem, and identify which stakeholders need to act in order to drive the sustainable transformation into the next phase.

The rules of the chemicals game

As shown above, on the one hand, the chemical industry is an important contributor to global wealth and wellbeing. Without it, we would not have been able to progress as society the way we have. On the other hand, we have to acknowledge that the chemical sector is a major contributor to global sustainability challenges mentioned in Part I of this book. If we want to have any chance in tackling these sustainability challenges, then the chemical sector must transform. Not just to lower its own sustainability footprint, but also to enable the transformation in other sectors who depend on the chemical sector.

Before we can think about how to transform the chemical sector, we have to first understand its current system dynamics. This section will look at the four system loops, identifying which factors are hindering a more rapid market transformation towards a more sustainable chemical sector. Clearly, the chemical industry is very diverse, both in terms of production output and geographic location. To understand the dynamics of this cluster of interlinked branches, it is therefore important to zoom in on a specific branch of the sector. We therefore continue to focus on the challenges and opportunities within the commodity chemicals branch, as the products manufactured by this branch end up in many downstream consumer applications.

Let’s take a look at the four system loops.

Loop I: market dynamics

The majority of revenue in the chemical industry, such as the precursors for polymers, fertilizers and plastics, are created through manufacturing, processing and refinement of harvested and mined raw materials. Within the commodity chemicals, the chemical value chain and flows between facilities are complex. These are homogenous, high-volume products that are incorporated in downstream products and used in processing. Margins are low, and profits are closely related to capacity utilization and raw material cost. Processes are very energy intensive, and prone to environmental liability claims. Moreover, basic chemical production (the large factories) is highly capital intensive.77 This means it is not easy for new comers to enter the market as they need to make large investments upfront and it will take a long time before the investments are earned back. Because many chemical factories were built decades ago there is a legacy of old technologies, which produce a certain product and are dependent on certain types of standardized inputs. Changing and optimizing the chemical process is a costly and also risky thing. The chemicals industry is therefore slow in responding to requests for change from further down the supply chain (the clients). This is simply because the old investments need to be paid back, and new products can only be economically viable if they are produced at large scale for a long time and if there are small production risks. There are therefore few incentives for innovation in this part of the supply chain (which could raise prices and hamper high volume production). The production of “virgin” material (using new mined inputs, rather than recycled inputs) continues to be more profitable, resulting in unaddressed post-consumption waste and resource externalities.

Loop II: enabling environment

Globally, there is no “level playing field”: when it comes to regulations and demands on the chemical industry, there are still wildly diverging rules and standards across and within different regions. The European market for example is strictly regulated, and companies face many regulatory hurdles before they can bring new materials to the market or import from outside the EU. While other markets such as China or the Middle East have much less strict safety and environmental rules. Although this protects the EU public, it also creates significant hurdles for the circular use of materials. For example, it is administratively cumbersome and costly to reclassify a waste stream as a raw material. In many cases, it is more cost-efficient to discard the waste. In addition, compliance with existing laws is often costly in itself, which makes the implementation of potentially costly innovations in the standardized processes less attractive to the industry. As a result, the European Chemical Industry Council (Cefic for short) called on the European Parliament, Council and the Commission to “Remove regulatory, administrative and financial barriers” and “remove the barriers (e.g. custom duties and technical barriers) preventing European companies from having fair access to renewables on the international market”.78

Another hurdle in the enabling environment concerns the global subsidies on fossil fuels. These amounted to $260 billion in 2016, according to the International Energy Agency (IEA).79 IMF economists use a broader definition for subsidies and arrived at a much higher estimate: $5.3 trillion in 2015.80 Governments send ambiguous signals when they demand a sustainability transition, but at the same time they incentivize business as usual through significant direct and indirect subsidies for fossil fuels. The main hurdle is therefore the lack of clarity about pathways away from classical production while incentives keep this production cheaper than moving into alternatives.

Loop III: mismatch benefits and effects

We have seen the negative consequences that may result from activities in the chemical sector: entire ecosystems can become disrupted as a result of chemical build up, plastic is omnipresent across oceans, animals and even in the Arctic regions, and many people suffer from chemical- related health-issues. Nonetheless, the chemical-producing and -processing companies which cause these problems suffer very little from these consequences themselves.

Unfortunately, the Roundup lawsuits that we mentioned earlier, forms just one of few examples in which the actual consequence of cancer is directly related to the actions of the company. Otherwise, there is still too much distance between the companies that produce chemical products, the users of these products and the victims of the externalities that they produce. The evidence is circumstantial at best while the profits are large. The industry and the policy makers have much to hide behind and avoid tougher actions.

Loop IV: lack of alternatives

In an ideal commodity chemical sector, production is not linear but circular, meaning that no waste is generated, and products are fed back into the production lifecycle and are designed with recyclability in mind. However, alternatives that would contribute to this ideal sector are rendered less market-friendly due to existing subsidies and regulatory hurdles. The conditions for changing these aspects would include, first, clear guidance and standardization on recycling materials, going hand-in-hand with incentivization to do so, based on increased taxes on resource use and pollution. As these conditions are not met yet, and as there are no clear standards for competition, circular and sustainable innovation is impeded.

The success of any business is still defined solely by how it performs on its financial bottom line. Through the direct and indirect subsidies on fossil fuels, and the lack of pricing of externalities, the business case for circular innovations can be challenging. Reclaiming waste is costly: it has to be collected, sorted, cleaned and processed, which often requires manual labor and taxes to incentivize this process. The cost of virgin raw materials is often lower than reclaimed materials, and when products have not been designed for reuse, the cost of reclaiming those products increases.

Furthermore, ever-stricter legislation and greater knowledge of the health and environmental impacts of chemicals means that today’s waste streams contain substances that are no longer permitted in the production of new products. This dilemma of whether to classify materials as “hazardous waste” or “secondary resources” is costly, cumbersome and unless a balance is achieved, it ultimately risks perpetuating the linear economy indefinitely. There will be no investment in recycling infrastructure if markets perceive secondary materials as hazardous, even if those materials have previously been used, and may still exist, in products that are still in use.

There is also a gap between consumer needs, consumer demands for sustainable products, the brands that produce them and the chemists that synthesize materials. This process of synthetization often takes place further upstream in the value chain. The chemists often lack education in sustainability and toxicity. As a result, they are unable to synthesize based on these new design criteria.81'S2,83,84 In addition, designers do not always understand the implications and impacts of their performance criteria, whereas slight changes in requirements could result in similar performance with much less negative impact.

A circular economy requires a high recyclability potential of materials. Materials such as metals, glass and paper are relatively easy to recycle. However, as patent applications require reporting on the “composition of matter”, they thereby incentivize the development of more complex materials to ensure competitive advantage. This has resulted in a high diversity of chemicals in circulation, most of which have complex chemical structures. Both the diversity and complexity make many materials challenging and costly to recycle.83

When we put all of the four loops that are at play in this branch of the chemical sector together, we get a picture of the types of sustainability challenges the overall chemical industry is faced with and why it is so hard to change it. Figure 4.5 visualizes the four system loops applied to a branch in the chemical sector.

Given the above, you may ask yourself if a circular chemicals industry is even possible. The answer is: yes, it is possible, but it comes with challenges. In the above paragraphs, we have touched upon different dimensions of circularity: from re-using entire products without modifying their chemical bonds, to breaking up and re-structuring molecular bonds and to create entirely new chemical materials. In the end, this all

The dynamics of unsustainability in the commodity chemical industry

Figure 4.5 The dynamics of unsustainability in the commodity chemical industry.

comes down to re-circulating molecules. In their landmark paper Taking the European Chemical Industry into the Circular Economy, the European Chemical Industry Council (CEFIC) and Accenture estimate that even if some of the conditions listed above are met, and even if we are fully efficient at re-circulating, only 60% of all molecules created by the European chemical industry could be re-circulated. In Europe alone, it would cost at least €160 to €280 billion and take between 35 to 60 years to build the required infrastructure for a circular chemical industry.86

Due to the above factors, innovation towards circular materials is impeded in the chemical sector overall. However, this does not mean that no progress is being made. In the following section we will discuss which initiatives are currently in place to move the chemical industry to circularity, and how stakeholders need to take action to further accelerate this movement.

The sector takes action

After numerous chemical scandals in the 70s and 80s, there was a huge amount of pressure on, especially European and American, chemical companies as they now found themselves under a high degree of public scrutiny regarding factory and workplace safety. Since then, other environmental issues have also increasingly created pressure on the sector. These include the impacts of the production and use of chemicals, the consumption of products during their lifecycle, and their treatment at the end of their lifecycle.

This increasing pressure shows the need of the linear chemical sector to move towards a circular economy (CE) approach, in which production focuses on closing resource loops and reducing energy and material waste. The CE topic is all the more relevant, as the chemical sector is very resource intensive, not just for fossil fuels and other chemical feedstocks, but also for water, bio-based substances, minerals and metals. In addition, because chemicals are a critical input for over 97% of product supply chains, the sector is a key enabler of the CE approach economywide. It is hard to imagine a successful circular economy without engaging the chemical sector, especially when looking at major output products such as plastics, which can be fed back into production after use at much higher rates instead of being discarded as waste. The following section therefore explores the various initiatives aimed at moving the chemical sector towards a circular economy approach.

Phase r. inception - increasing urgency and move towards actionable alternatives through projects and pioneering

In Phase 1, we can find isolated pilot-projects that focus on different levels of the chemicals value chain These levels range from downstream initiatives such as recycling, to more upstream levels such as product design, or the use of bio-based feedstock that serves as input for plastics and other chemicals products.

Two decades ago, a company called Interface, the world leader in modular carpet tiles, became one of the very early pioneers in launching a comprehensive sustainability strategy for a prototypical company of the 21st century. Before its transformation, Interface had been a chemical company like any others, operating with a linear approach. But then, in the mid-1990s, the company started a new, more circular approach: eliminating waste, closing the loop and developing business models to recover resources were all part of this approach. Since then, Interface has reduced the manufacturing waste that is sent to the landfill by 84%; almost half of all raw materials is now either recycled or bio-based. The advantages are not only good for the environment: Interface has saved up to $450 million from avoided waste costs. Because of these successes, Interface was seen as revolutionary at the time and continues to provide inspiration even today.8'

Another, more recent, example of circular initiatives in the “consumption” level of the value chain is Unilever’s Sustainable Living Plan on plastic packaging. Signed in 2017, the plan aims to increase the company’s recycled plastic content in packaging to at least 25% by 2025. It also aims to ensure that 100% of its production is recyclable or compostable.

Increasingly, there are frontrunner companies that aim to produce their products based on circular principles. Take IKEA, which in 2018 announced that it will design its products with the goal to only use renewable and recyclable materials. A lot of these products contain plastics. The “YDBY” doormat for example is made entirely from recycled PE-LD. As IKEA only represents the “output” and “consumer” link in the chemicals value chain (see Figure 4.4 again for this value chain), it cannot accomplish this on its own. It also needs companies that are situated more upstream in the chemicals value chain. Therefore, IKEA has allied with oil company Neste to obtain plastics that are made from biobased renewable resources (such as cooking oil or vegetable oils). This sector-wide collaboration is one of the first of its kind and a promising sign of more alliances across the value chain in the near future, as it is likely that more companies will want to surf this wave.88

Phase 2: competitive advantage - creating new business models through innovation and competition

If the chemical sector is to accelerate its transition towards more circularity, there needs to be a common understanding on what that actually means. Currently, a common understanding is absent. There are not yet any standards, principles or certifications that clearly set the norm for circularity, or sustainability in general, in the chemical sector.

The lack of established standards and definitions show that we are now seeing the beginnings of Phase 2. To drive the market transformation, this phase needs strengthening.

One initiative in the right direction is the British Standards Institution (BSI). In 2017, the BSI launched the first circular economy standard for companies as guidance: the “Framework for implementing the principles of the circular economy in organizations”. However, few other circular economy-specific standards are currently available. Although there are around 22,000 ISO standards in total, and several key points of the CE are touched on in these standards (in ISO 14001 for instance), there is no specific ISO standard to measure progress towards a circular economy. For individual material streams, such as plastics, many different certifications are available, but these do not take the holistic and systems-approach needed to push towards closing the material loop more comprehensively. This means that there is still a lack of competition on circularity-specific criteria, and industry has yet to create a push for competition on these standards.

There is however one aspect of the chemical industry which is more clearly defined: and that is the use of “chemicals” classified as of (very) Substances of Very High Concern (SVHCs). These are substances that have serious potential negative effects on health and environment, and include at least one of the following characteristics: they are carcinogenic, mutagenic, or toxic to reproduction; persistent, bio-accumulative and toxic; very persistent and bio-accumulative; seriously and/or irreversibly damaging the environment or human health, as substances damaging the hormone system. In line with EU REACH and Circular Economy directives, the EC commissioned the European Chemical Agency (ECHA) to develop a new platform to inform consumers and recyclers regarding SVHCs present in products. The ECHA SCIP platform is planned to be released by end of 2020 and will require all EU importers and manufacturers of products to report relevant information related to any product part that may contain SVHCs.

As a response to these trends the Dutch chemical company DSM made a public statement in which they announced their strategy to eradicate all chemicals of high concern from their coating resins by 2030.84 DSM is the first “traditional” chemical company to develop an actual strategy to phase out these chemicals, in order to move towards a more circular economy.1,0 This example shows at least two things: first, chemicals companies upstream in the value chain are gradually starting to compete on sustainability, integrating certain measures into their business models. Second, it shows that once an industry is provided with clear definitions, such as the “chemicals of high concern” in this case, and clear objectives are being set, it enables comparison and competition.

Another example of one chemical company that is taking the lead is Corbion. In the last ten years, Corbion has accelerated its production of so-called bio-based chemicals. These biochemicals, such as “polylactic acid”, are manufactured from renewable resources such as biomass, and can then be used in any product you can think of.91

Phase 3: pre-competitive collaboration - enabling scaling through collaboration between multistakeholder coalitions and platforms

There are several pre-competitive initiatives that mark Phase 3 in the chemical sector on issues like circularity and hazardous chemicals. The momentum is growing in the sector for more pre-competitive collaboration and scaling of more sustainable alternatives.

In 2016, the first Green & Sustainable Chemistry Conference was held. The conference was a multi-stakeholder forum in which industry, science, governments and others come together to talk about ways in which way the chemical industry can contribute to achieving the SDGs. There is appetite for these type of discussions within the sector, as this year the fifth version will be held. Although these forums contribute to a more sustainable agenda and pre-competitive exchange of ideas and good practices, it has not led to any concrete implementation yet.

A similar multi-stakeholder initiative that operates in a more structural manner is the International Sustainable Chemistry Collaboration Centre (ISC3). Launched in 2017, this thinktank aims to promote sustainable chemistry at a global scale, seeking ways to create a chemical sector that contributes to the SDGs. The network of international bodies, research institutions and private sector organizations is engaged in research and trainings, but also in innovation scouting activities discovering new technologies and (circular) business models.92 Furthermore, ISC3 has understood that in order to advance the chemical sector to a more sustainable level, the sector First needs to have a common understanding of what this actually means. Therefore, ISC3 has announced it will publish a concept of sustainable chemistry in 2020, to prevent greenwashing and trigger competition. The concept will focus on three main aspects: 1) assessing the entire lifecycle of products; 2) closing the loop and removing future problems with legacy substances; and 3) creating sustainable business models with circular processes.93

Toward the end of 2018 the New Plastics Economy commitment was launched. This multi-stakeholder platform was initiated by the Ellen MacArthur foundation and consists of industry-leading companies, municipalities, philanthropists, governments, academics, students, NGOs, and citizens. Its aims to drive innovation and dialogue on reducing and reusing plastic94 and to redesign the plastic system and work towards a circular one.

Finally, a comprehensive Phase 3 initiative is the Dutch circular economy 2050 program.95 This government-backed multi-stakeholder program aims to create a circular economy by 2050 and is intended to have profound impact on the chemical sector. The program aims to work with stakeholders along value chains and across different value chains. Since the Netherlands is home to Rotterdam, one of Europe’s most important industrial areas for petrochemicals and commodity chemicals, success in this program may inspire other countries to follow suit. The program is both critical and ambitious: it recognizes there is not yet any real policy for the chemical sector and perceives that the chemical companies lack sufficient market incentive to use renewable materials in their production of chemicals and plastics.96 Therefore, it aims to trigger these incentives to use and produce biofuels, bioplastics and bio-based chemicals by improving the taxation environment and innovation towards a circular model for use of (raw) materials.

THE TRANSFORMATION OF PVC - A SUCCESS STORY FOR THE EUROPEAN PVC INDUSTRY

Another example of a successful intervention in the chemicals sector is the transformation process of the PVC industry. This collaboration between sector stakeholders has led to: VinylPlus®, and its journey has followed the phases of market transformation very nicely.

You have probably heard of PVC before, or “polyvinyl chloride”. PVC is made from salt, oil and natural gas. PVC is one of the most widely used plastics in the world. It can be found in buildings, cars and electronics, but also in piping, blood bags and windshield systems. As such, PVC is an important output of the chemicals sector. However, the production and consumption of the material has also been the cause of many of the sustainability issues mentioned earlier. That said, it now also marks one of the most successful examples of industry-wide, voluntary commitment to sustainable development in the chemicals sector.

By the 1990s, the detrimental effects of PVC had gained so much attention that Greenpeace started to successfully initiate campaigns calling for a ban on PVC in Europe (Phase l started). Triggered by this crisis, some first mover companies took action to integrate sustainability efforts of PVC into their business models. Eventually, these actions culminated in VinylPlus®, the industry-wide voluntary commitment to sustainable development of PVC (Phase 3).

Under VinylPlus®, the PVC sector has pre-cornpetitively taken a range of sustainability actions: it has phased out lead-based stabilizers, developed infrastructure for recycling PVC, educated companies involved in systemic sustainability and taken an active role in promoting sustainability across the global PVC industry. A key achievement of VinylPlus® has been in uniting the European PVC industry across the entire value chain, enabling pre-competitive decision-making around common targets and initiatives related to the circular economy and sustainability. As a result of this program, in 2017 VinylPlus® members recycled 639,648 metric tons of PVC, an increase of almost 100,000 tons compared to 2016. VinylPlus® has now expanded its collaborative efforts with the wider plastics industry, committing to recycle and reuse 50% of all plastics waste by 2040, as well as of 70% of plastic packaging. In short, VinylPlus® is a good example of industry self-regulation, in which relatively small, individual first mover actions have eventually grown out into sector-wide collaborations. It is a matter of time before these practices will become mandatory and institutionalized within the sector (Phase 4)

Phase 4: institutionalization - ensuring a level playing field through legislation and coercive self-regulation

The chemical sector has already been subject to heavy regulation for a long time. Mostly on matters of HSE (Health, Safety and Environment) and concern mostly focuses on the vicinity of chemical plants, such as staff and the local community. This type of regulation is mostly concerned with “banning out the bad” rather than “enforcing the good”.

An important recent legal development is the REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) regulation that entered into force in the EU in 2007 and has since seen implementation of various international equivalents, such as the China REACH97, the K(orea)-REACH',x and the reformed US TSCA"This regulation aims to limit the production and use of chemicals that are hazardous to human health and the environment. Companies across the entire chemicals value chain are required to register all chemical substances that they use. Notably, the use of the earlier mentioned Substances of Very High Concern (SVHC) are subject to strict authorization and actively avoided.100,101

Although REACH is currently the toughest law regulating the chemical industry, and thus a very important step, it is still focused on curbing the dangerous elements, rather than stimulating the positive influence the chemical industry can have on sustainability.

Another Phase 4 initiative, which increasingly is being enacted worldwide, is the ban on plastic bags. In 2016, the distribution of free plastic bags was declared illegal in the Netherlands. This was necessary: the

Dutch population used 3 billion plastic bags per year, or 170 per person on average. A few years after its introduction, the law seems to be working. It is now estimated that 83% of Dutch consumers brings their own bag to the store. Similar measures are not only happening in Western countries, but also by governments worldwide. In 2017, Kenya introduced a nation-wide ban on producing, selling or carrying a plastic bag. Its effects are already visible, with cleaner streets and less pollution, especially in the shantytowns.112 In addition, Rwanda was an early adaptor of this measure and in doing so became an unlikely leader.103 Both examples show that there is a wide range of relatively simple measures that can be taken by any country in any context. An overview of the indicated initiatives is presented in Figure 4.6.

How to move the sector forward

In the previous paragraphs, we analyzed the chemical sector from various angles. We have looked at its economic importance, the sustainability challenges it faces and the drivers behind these sustainability challenges in the form of the four loops. We have also looked at the various initiatives and interventions in the chemical sector that aim to deal with these issues. These interventions can be plotted against the four phases of market transformation.

We have seen that the sector, after several wake-up calls caused by major chemical accidents, was able to create improved safety measures embedded in the regulatory framework and supported by voluntary initiatives in a relatively short time. Now the challenge is to move quickly on the market transformation cycle for resource use and push the momentum of the circular economy forward. What does this mean for different stakeholders?

Government

Currently, governing bodies are sending mixed signals. The circular economy is actively endorsed and pursued, but these changes are not yet supported by the introduction of definitions, regulations, incentives and taxes, or by a removal of obstacles. There is a role for government in creating the context that will enable the circular economy. This government role is articulated by the European Chemical Industry Council (CEFIC), which

Interventions to shift the chemical sector toward circularity, plotted against the four phases of market transformation

Figure 4.6 Interventions to shift the chemical sector toward circularity, plotted against the four phases of market transformation.

has issued a set of key recommendations to enable the industry to make better use of “waste as value”. It recommends that policymakers clarify the concept of “waste” and that of by-products under the Waste Framework Directive. As we have seen in Loop II: enabling environment, the European chemicals market is heavily regulated, rendering it difficult for companies to introduce new (bio-based) materials to the market. Striking a better balance between health and safety on the one hand, and circular innovation on the other hand, would benefit the transition towards a circular economy.

At the same time, governments could further stimulate the transparency on product contents, i.e. the chemicals used to produce plastics, pharmaceuticals or agrichemicals. Within the EU, both the removal of regulatory hurdles and improvement of product transparency could be accelerated through a revamp of the existing REACH agreement.

Furthermore, governments should remove incentives that are counterproductive to circularity, such as the existing subsidies on fossil fuels that, in turn, serve as input for linear-based chemicals, and reallocate these funds to innovative chemical-inputs and applications, such as bio-based feedstock.

In summary:

  • • Remove regulatory barriers to the circular economy;
  • • Improve transparency on product contents to diminish linear usage and enhance recyclability;
  • • Reallocate counterproductive subsidies on e.g. fossil fuels to circular applications.

Industry

For the chemical industry, it is now important to develop shared standards for, and definitions of, circularity that can be subsequently competed and that drive innovation. If governments fail to provide an enabling environment that creates adequate market incentives for sustainable innovation, and if the business case remains insufficient, then this should not be an excuse for failing to take action. In the absence of the right market incentives, it could be helpful to re-evaluate and re-design current business models. Proactive companies may have a first-mover advantage, already having the innovations in place when in the future externalities will be taxed more heavily. Think for instance of Unilever developing a Sustainable Living Plan, thereby obtaining competitive advantages compared to companies who do not actively reduce plastic content in their packaging.

Companies can also more actively seek cross-sectoral cooperation opportunities. Keeping in mind the IKEA/Neste alliance on bio-based plastic products, these alliances can open doors for innovative business models.

The development of an international standard would greatly aid further maturation and institutionalization on the circular economy. This standard should define what is not circular, what it looks like when a circular economy is achieved, and call for the development of indicators to measure and implement circularity. In the example of the PVC sector, having a science-based definition of sustainability was key to getting members on the same page, and guided direction for goals and a common roadmap, circularity was one of the strategies applied.

In summary:

  • • Identify and develop a business case for circularity throughout sector;
  • • Cooperate with sector/supply chain partners, e.g. between chemi- cals-processing and end-product companies;
  • • Develop an international standard on circular chemical economy.

Civil society

The role of NGOs has shifted over the decades, and various NGOs have employed differing theories of change. Not all NGOs have maintained a traditional watchdog function, and a number of them are providing guidance and support to industry through Business-NGO partnerships, while others serve as platform conveners, creating the context in which companies can work together to transcend organizational boundaries. Businesses wishing to be seen as leaders often benefit from association with NGO-led consortiums that can focus on common issues and facilitate pre-competitive collaboration. NGOs are also important drivers in the push for public awareness on the issue of resource waste and can aid in setting new standards.

As we have seen, the market transition in the chemical sector is inhibited by a lack of established standards and definitions. If companies, governments and other stakeholders aim to drive towards a more sustainable sector, it needs to be clear what exactly this “sustainability” entails. If companies are to compete upon circularity and sustainability, they need to know what exactly they can differentiate themselves with. NGOs therefore have a significant role to play in creating these standards, adding to the existing BSI framework on circular economy, and ISO standards that were mentioned in Phase 2.

Furthermore, NGOs can make unsustainable practices in the chemical sector more visible to the larger public. Although cases such as the Monsanto lawsuits have become globally recognized, companies in the chemical sector, whether it includes producers of agrochemicals, pharmaceuticals or plastics, are still safely hidden from public scrutiny. The complex molecular structure of chemical outputs further adds to this invisibility. NGOs, think tanks and media should therefore place greater focus on making the chemical sector more visible, and easier to understand.

With respect to inter-sectoral innovation, platforms such as the New Plastics Economy should be further expanded, driving dialogue and knowledge exchange on themes such as plastic reuse, or bio-based feedstock applications.

In summary:

  • • Convene stakeholders for cooperation, knowledge sharing and innovation;
  • • Develop a working definitions and standards for sustainable chemical sector;
  • • Subject the chemical sector to public scrutiny.

The circular economy cannot be achieved by individual action. It requires large-scale cooperation. Therefore, it is helpful for stakeholders to also start focusing on the activities that will create a critical mass and move beyond competition. All stakeholders involved are looking for, and organizing platforms for, cooperation. They may learn from examples successes and failures of other initiatives. The real advantage of circularity is the need for better collaboration across chains and sectors to close loops and increase the value of resources throughput.

Executive summary

In this chapter we have highlighted the importance of chemicals in the creation of almost all products used to meet the needs of modern society. We’ve noted that because of this broad spectrum of value chains and end functions being served, the chemical industry is a very diverse sector with distinct branches. We’ve presented the historical development of the sector and its global distribution and economic significance up to the present day. Because we do not usually or directly see chemicals it is easy to underestimate the essential role they play in society and our wellbeing. Similarly, the importance of the chemical sector to the pursuit of a sustainable society is also under-recognized.

Much of the previous paragraphs have explored the sustainability issues the sector faces today, considering the full production and value chains where chemicals are used. These include reliance on fossil fuels and feedstocks, high resource intensity, virgin extraction of materials used in linear production chains. Other issues relate to the effects of chemicals on human health and the environment as industrial emissions including effects on the climate, chemicals in products or waste disposal or reprocessing. The true social, ecological and economic significance of chemical pollution is only beginning to be appreciated. With the predicted growth of the industry in the next decade the demand on resources and impacts from chemical pollution will dramatically increase unless there is transformation in the sector.

In order to understand how the transformation might occur we’ve also looked at the rules of the game and the system dynamics at play. Looking specifically at the commodity chemicals branch we can identify the four system loops and thereby gain some insight into the overall sector.

Loop I: market dynamics

Within the commodity chemicals, the chemical value chain and flows between facilities are complex. They are homogenous, high-volume products that are incorporated in downstream products and used in processing. Margins are low, and profits are closely related to capacity utilization and raw material cost. Because many chemical factories were built decades ago there is a legacy of old technologies. The chemical industry is therefore slow in responding to requests for change from further down the supply chain and there is little appetite for innovation (which could raise prices and would hamper high volume production).

Loop II: enabling environment

When it comes to regulations and demands on the chemical industry, the regulatory framework creates significant hurdles for the circular use of materials. For example, it is administratively cumbersome and costly to reclassify a waste stream as a raw material. In many cases, it is more cost-efficient to discard the waste. Another hurdle in the enabling environment is the global subsidies on fossil fuels. These amounted to $260 billion in 2016, according to the International Energy Agency. IMF economists use a broader definition for subsidies and arrived at a much higher estimate: $5.3 trillion in 2015.

Loop III: mismatch benefits and effects

Entire ecosystems can become disrupted as a result of chemical build up, plastic is omnipresent across oceans, animals and even on the artic, and many people suffer from chemical-related health-issues. Nonetheless, the chemical-producing and -processing companies that cause these problems suffer very little from these consequences themselves. Even lawsuits are difficult to prove as the evidence most of the time is circumstantial at best.

Loop IV: lack of alternatives

Through the direct and indirect subsidies on fossil fuels, and the lack of pricing of externalities, the business case for circular innovations can be challenging. Most products are not designed for recycling and circularity, making it even harder to start with that.

Despite these hurdles a circular chemical sector is possible. According to studies, at best 60% of all molecules created by the European chemical industry could be re-circulated. In Europe alone it would cost at least €160 to €280 billion and take between 35 to 60 years to build the required infrastructure for a circular chemical industry. This provides some context on how the circular economy is an essential component in an overall transition to a sustainable society.

Despite the dynamics and barriers, there are several interventions that have been occurring in the sector representing different phases of transformation.

Phase 1: there are numerous pilots and projects to stimulate the recycling of materials. Some companies have also introduced recycled end products like carpets, packaging materials and consumer products.

We believe the sector is in the beginning of Phase 2 when it comes to circular production. Competition on circularity is currently hampered by a lack of clarity and understanding on what circularity actually means. There are no standards, principles or certifications yet that clearly set the norm for circularity, and sustainability in general, in the chemical sector.

There is one aspect of the chemical industry which is more clearly defined, and that is the use of Substances of Very High Concern. These are substances that have serious potential negative effects on health and environment. This list can be used to instigate competition, as we already see the first companies have done.

There are currently few promising Phase 3 examples. One worth mentioning, though, is the Dutch circular economy 2050 program. This is an initiative that is intended to have profound impact on the chemical sector. Since the Netherlands is home to Rotterdam, one of Europe’s most important industrial areas for petrochemicals and commodity chemicals, success in this program may inspire other countries to follow suit.

Phase 4: An important recent legal development is the REACH (Registration, Evaluation, Authorization and Restriction of Chemicals) regulation that entered into force in the EU in 2007 and has since seen implementation of various international equivalents. This regulation aims to limit the production and use of chemicals that are hazardous to human health and the environment. Companies across the entire chemicals value chain are required to register the chemical substances that they use.

Considering that circularity is currently in its early stages of Phase 2 of the transformation curve, in our conclusion we call on governments to stop sending mixed signals. The circular economy is actively endorsed and pursued, but these changes are not yet supported by the introduction of definitions, regulations, incentives and taxes, or by a removal of obstacles. There is a role for government in creating the context that will enable the circular economy. For the chemical industry, it is now important to come up with shared standards for, and definitions of, circularity that can be subsequently competed on and that drive innovation. The development of an international standard would greatly aid further maturation and institutionalization on the circular economy. Furthermore, NGOs can help develop acceptable and meaningful standards and encourage first movers to adopt them. In addition, they make unsustainable practices in the chemical sector more visible to the larger public.

 
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