Climate Change and the

Role of the Chemical

Industry

Presentation for the PlasticsEurope/APPE joint General

Assembly Event
Brussels, May 28th, 2009

CONFIDENTIAL AND PROPRIETARY

Any use of this material without specific permission of McKinsey & Company is strictly prohibited

Contents

Context and objectives for the study

undertaken for ICCA

Methodology

Results

McKinsey & Company

Global temperatures are clearly rising

Business as
usual scenario

Temperature anomaly (C)

Recent past
11 of the 12 past years have been
the warmest since 1850, when
temperature chronicles begin
Last 5 years (2002-06) amongst
6 warmest on record
Late 20th century warmer than any
period during past 1,000 years and
is warming up by ~ 0.13C/decade
Future
Under "business as usual" scenario,
temperature will increase by ~ 6C
by end of century1
Climate models are converging
increasingly high level of scientific
consensus
Year

Pre-industrial

Industrialization
heavy usage of
fossil fuel

1 Further temperature increase due to the onset of self-reinforcing feedback loops at certain thresholds not included (e.g., methane emissions from
melting permafrost)
SOURCE: IPCC, 2007; Stern Review; McKinsey

McKinsey & Company

Containing global warming below 2C requires reduction

of GHG emissions by 35-50 GtCO2e vs. BAU by 2030

Peak at 550 ppm, 3.0C

Peak at 510 ppm, 2.0C
Peak at 480 ppm, 1.8C

Global GHG emissions

GtCO2e per year
70

70

Current pathway / Business-as-usual (BAU)

60
-38

Technical measures
< 60 per tCO2e
Focus of the study

30

32
-9

20

23

Additional
measures
Behavioural changes
& expensive
measures

50
40

10
0

2005

SOURCE: McKinsey

2010

2015

2020

2025

2030

McKinsey & Company

McKinseys global GHG abatement cost curve shows this is not impossible
Global GHG abatement cost curve beyond 2030 BAU
Cost of abatement1 below EUR 60 per tCO2e

1 This is an estimate of the maximum potential of all technical GHG abatement measures below EUR 60/tCO2e,
if each lever was pursued aggressively, not a forecast of what role different abatement measures and technologies will play
SOURCE: McKinsey

McKinsey & Company

McKinsey's experience in climate change related work

Climate change related McKinsey projects 1
Numbers, 2002 to March 2009

NOT EXHAUSTIVE

Share of projects Jan - Mar 2009 by service line 2

Percent
~510

Other
Environmental
Finance

Water

Biosystems
Energy Efficiency

Abatement &
Regulation
Sustainability
Transformation

Clean Energy
Technologies

Share of projects Jan - Mar 2009 by region

Percent
Asia

Other/tbd
Europe

South America
2004

05

06

07

08

2009

North America
Middle East
1 Not exhaustive
2 Energy Efficiency incl. Sustainable Cities; Clean Technologies incl. Renewables, EV, CCS; Biosystems incl. Biofuels
SOURCE: CCSI

McKinsey & Company

Objective of the ICCA study was to create the "climate change story"
for the chemical industry
Elements of the report

Messages

Positioning

"First industry to create full carbon transparency"

Methodology

"Representative sample, conservative approach,

external validation"

Current impact

"Abatement by a factor x higher than own emissions"

Outlook

"Potential to further improve the x:1 ratio, and the

absolute impact of its low carbon solutions"

Supporting factors

"Need for regulatory conditions that stimulate demand

for low carbon products and favor innovation"

SOURCE: McKinsey/ ICCA

McKinsey & Company

Contents

Context and objectives for the study

undertaken for ICCA

Methodology

Results

McKinsey & Company

Life cycle emissions of chemicals cover entire life cycle of products

Extraction
(feedstock
and fuels)

SOURCE: McKinsey/ ICCA

Production
(direct and
indirect
energy
emissions,
process
emissions)

Disposal
(incineration
w/ or w/o
heat
recovery,
recycling,
landfill)

Total life
cycle
emissions of
chemical
products

McKinsey & Company

More than 100 CO2e life cycle analyses (cLCAs) were made
Category

Transportation

Insulation

Building

Overall
abatement
potential

Agriculture

Packaging

Consumer goods

Power

Lighting

SOURCE: McKinsey/ ICCA

Subcategory

Autom. weight reduction

Lubricants
Lower friction
Engine efficiency
Aviation weight reduction
Marine fuel reduction
Building insulation
Fridge insulation
Construction material
Piping
Windows
Feed supplements
Fertilizer & crop protection
Preservation
Food production efficiency
Food packaging
Shopping bags
Electronic components
House ware
Service wear
Textile
Low temp detergents
District heating
Solar power
Wind power
CFL lighting
LED lighting

Number
of cLCAs
1
9

1
9
1
0
1
7
1
3
1
8

All cLCAs
externally
validated by
the ko
Institut

4
2

McKinsey & Company

... Comparing the CO2e emissions from using a chemical industry product
with the total avoided CO2e emissions from not using a non-chemical
industry product

Chemical
products
emissions
over life
cycle of
chemical
product

SOURCE: McKinsey/ ICCA

Non-chemical product
emissions
over life
cycle of nonchemical
alternative

Difference
Gross
in in-use
emissions
emissions
savings
due to performance
difference
between
chemical and
non-chemical
product

McKinsey & Company

Results presented in two ways Gross savings ratio or X : 1,

and net emission abatement
Gross savings (or X : 1) ratio
"Chemical industry saves X kgCO2e
for every 1 kg emitted"

Net emission abatement

"Global CO2e emissions would be Y Gt
higher without chemical industry"
Emissions, GtCO2e (2005 example)
46+Y
Y

X
Chemical Gross
industry
savings
emissions

SOURCE: McKinsey/ ICCA

World
as-is

World w/o
extensive
use of
chemicals

McKinsey & Company

The impact of the chemical industry was evaluated under three

scenarios current and two forward looking

Today

CO2 emissions for the

industry calculated
over the entire life
cycle of its products
based on current data
from IEA, EIA, SRI,
etc.
More than 100 and
representative sample
of life cycle analyses
(cLCAs) done and
externally validated to
assess GHG impact of
chemical products vs.
non-chemical products
Conservative
assumptions taken for
products/ applications
not covered by cLCAs

SOURCE: McKinsey/ ICCA

2030 BAU scenario

Projection into 2030

under the assumption
of a business-as-usual
scenario (BAU)
No major changes
in regulation
Volume growth
assuming no major
disruptions
No technological
breakthroughs
(frozen technology
assumption) just
standard efficiency
improvements in
production

2030 abatement scenario

Projection into 2030

under the assumption
of an aggressive
trajectory towards a
low carbon society
Regulation to
increase the use
of products/
applications with a
positive
abatement effect
Globally
consistent
regulation and
initiatives to
reduce the
industrys own
emissions

McKinsey & Company

Contents

Context and objectives for the study

undertaken for ICCA

Methodology

Results

McKinsey & Company

Total life cycle CO2e emissions linked to the chemical industry

amounts to 3.3 Gt
GHG life cycle emissions of chemical products, 2005
GtCO2e

Extraction

Production

Disposal

High GWP
gases1

Total

1 HFC-23, HFC-32, HFC-125, HFC-134a, HFC-143a, HAFC-1521, HFC-227ea, HFC-236fa, HFC-4310mee, CF4, C2F6, C4F10, C6F14, SF6; GWP
factors according to IPCC 1996
SOURCE: IEA; EPA; IPCC; WEF; McKinsey/ ICCA

McKinsey & Company

Production emissions are composed of energy and

process emissions
Production emissions

Production emission methodology

Type of
emission
Direct
energy
emissions

Rationale

Sources used

Fuel consumption
required for process to
run (excluding fuels for
feedstock purposes)

IEA

Chemical industry production

emissions
GtCO2e, 2005
2.1
0.6

Overall
production
emissions

Indirect
energy
emissions*

Process
emissions

IEA

0.8

SOURCE: McKinsey/ ICCA

Electricity generated
off-site

N2O (adipic acid/nitric acid,

caprolactam)
CO2 (ammonia, calcium
carbide, titanium dioxide,
soda ash, methanol, ethylene, EDC/VCM, ethylene
oxide, acrylonitrile, carbon
black)
HCFC-22

IPCC emission
factors
SRI/Tecnon
production
values

0.7

Production

US EPA

McKinsey & Company

Extrapolations were made for products/applications not covered by cLCAs

Chemical
industry
emissions

Assumption on savings

Products1 with alternatives

available today and for
which cLCAs were calculated

Savings (positive or negative) calculated

from detailed comparative cLCAs

Products1 with
alternatives available
today, but no cLCAs
made
Products1 with no
realistic alternative
available today

Gross savings equal to life cycle emissions

conservative compared to using average
CO2e savings from case studies
Zero savings (only emissions) very
conservative

1 Or applications
SOURCE: McKinsey/ ICCA

McKinsey & Company

The chemical industry saves 2.6 tons of CO2e per ton emitted.
The net abatement of 5.2 Gt equals ~11% of 2005 global emissions
Emission abatement of chemical industry
GtCO2e
Chemical industry
emissions

Gross savings
(savings factor)

Net emission
abatement

3.30
Products1 with alternatives
available today and for
which cLCAs were calculated
Products with
alternatives available
today, but no cLCAs
made
Products1 with no
realistic alternative
available today

1.45
1.45

6.01
7.46 (5.1)

Total

1
1.00

0.85

0
1 (1.0)

0.85

0 (0.0)

3.30

-0.85

5.16

8.46 (2.6)
1 Or applications
SOURCE: McKinsey/ ICCA

McKinsey & Company

The main contributors are insulation, fertilizer & crop protection, and
lighting
Net abatement 2005
MtCO2e

Net abatement
volume per
chemical
application

Not explicitly calculated

No realistic alternative available

Insulation
Lighting
Packaging
Marine antifouling
Synthetic textile
Automotive weight
Low-temp. detergents
Engine efficiency
Piping
Wind power
District heating
Green tires
Solar power
Other
Sub-total
Fertilizer & crop protection
Total
1:1
0:1
Net

2,400
700
220
190
130
120
80
70
70
60
60
40
230
4,410
1,600
6,010
3,560

850
5,160

w/o fertilizer &

crop protection
SOURCE: McKinsey/ ICCA

McKinsey & Company

Gross savings ratio could reach 4.7 : 1 and net emission abatement could
reach 18.5 GtCO2e if the appropriate abatement measures are taken

2005
Gross savings
ratio

Own
emissions and
gross savings

2030 BAU

2030 Abatement

2.6 : 1

3.1 : 1

4.7 : 1

3.3

6.5

5.0

8.5
20.3

5.2

13.8

23.5
18.5

Net abatement
GtCO2e

SOURCE: McKinsey/ ICCA

McKinsey & Company

While more than doubling output, the emissions linked to the chemical
industry would only be 50% higher by 2030 than in 2005 (largely due to
geographic shift)
Calculated evolution of chemical industry emissions
2005

2030 BAU

2030 Abatement

50%
Chemical industry is
expected to double
its output by 2030

0.5

Emissions,
2005

SOURCE: McKinsey/ ICCA

BAU
volume
growth
effect

Improve- Geogra- BAU

ment of
phic shift emissions,
2030
efficiency effect

Beyond
BAU
improvement
measures

Effect of
volume
growth
beyond
BAU

Emissions
after
abatement
measures
implement
-ed 2030

McKinsey & Company

GHG abatement cost curve for the chemical industry

Society view1
Business view2

Process intensification level 3

EUR per tCO2e

140

Process
intensification
level 1
Catalyst
optimization
level 1

120
100
80
60

Fuel shift
coal to
biomass

CCS Direct
energy

Process
intensification
level 2

Motor systems

40
20
0
-20

100

200

300

400

500

600

700

800

900 1,000 1,100 1,200 1,300 1,400 1,500 1,600 1,700 1,800 1,900 2,000 2,100

-40
-60

CCS
Ammonia

-80

Catalyst
optimization
level 2

-100
Fuel shift
oil to gas

CHP

Decomposition
of N2O from adipic
and nitric acid

Catalyst
optimization
level 3
Ethylene
cracking

1 The curve presents an estimate of the maximum potential of all technical GHG abatement measures below EUR 60 per tCO2e (society view) if each
lever was pursued aggressively. It is not a forecast of what role different abatement measures and technologies will play
2 4% interest rate, depreciation over life time of equipment
3 10% interest rate, depreciation over 10 years
SOURCE: McKinsey

McKinsey & Company

In the abatement scenario, the net abatement is 3.5

times higher than in 2005
Net abatement
MtCO2e

Net abatement
volume per
chemical
application

Not explicitly calculated

No realistic alternative available

Insulation
Lighting
Solar power
LC-ethanol
Wind power
CCS
Marine antifouling
Synthetic textile
Packaging
Automotive weight
Green tires
Low-temp. detergents
Engine efficiency
Piping
District heating
Other
Sub-total
Fertilizer & crop protection
Total
1:1
0:1
Net

6,800
4,100

17,150
19,650
15,950

18,450

w/o fertilizer &

crop protection
SOURCE: McKinsey/ ICCA

McKinsey & Company