When in 1997 a United Nations’ conference at Kyoto, Japan, called into being the Framework Convention on Climate Change (UNFCCC), it seemed that greenhouse-gas emissions regulations were just around the corner. Not so fast, was the world’s answer. The United States — after originally supporting the so-called Kyoto Protocol — turned around and rejected the treaty, which denied the majority it needed to enter into force. Nearly a decade passed without much action, except for ongoing bouts of serious politicking punctuated by arguments as to whether or not global warming is genuine.
But then, after being considered nearly dead earlier this decade, in 2005 the Kyoto Protocol finally was ratified. Although scientists took some years to reach consensus about global warming and lawmakers also took some years to decide what to do about it, suddenly the action phase is now underway. Not all decisions are yet final, but in Europe, regulation of greenhouse-gas emissions has already started.
To date the rules apply rather indirectly to chemical processes, but this is about to change. Probably in 2008 the European Union will regulate emissions of several greenhouse-gas chemicals, and controls most likely will be widened again in 2013. It took longer than expected, but at least in Europe, greenhouse gas regulations are coming to chemicals.
The Terminator takes aim…
at global warming
Most likely, regulations also are coming to chemicals in the United States. Across a broad range of industry, senior managers are concluding that emissions rules are inevitable. Their common refrain: “That greenhouse gas regulations will be enacted in the U.S. is not a matter of if, but of when.”
When, for the U.S. State of California, turned out to be September 2006. Governor Arnold Schwarzenegger signed into law Assembly Bill 32, the Global Warming Solutions Act, which will cap Golden State global warming emissions at 1990 levels by 2020 — the equivalent of a 20-25% reduction. Broadly speaking, California’s legislation is similar to that of the European Union’s, and it sets a precedent for the rest of the U.S. According to Van Ness Feldman, a law firm specializing in the field, “A.B. 32 is likely to have a significant influence on the national debate on establishment of a federal mandatory GHG emissions reduction program.”
Clearly, regulations on emissions of CO2 (plus, to a lesser extent, on the other greenhouse gases such as CH4, N2O and various fluorocarbons) are coming to the chemical industry — in Europe by the end of this decade and in the U.S. probably sometime thereafter. Should managers and owners of chemical companies be happy, worried or indifferent? Probably all of the above, depending on three main factors.
•‘Greenhouse intensity’ of a company’s products, i.e. the amount of CO2 emitted in production. For some products, GHG caps could significantly harm cost competitiveness, while for others, it could significantly help. Moreover, this help or harm can be strongly influenced by a manufacturer’s technical and commercial choices.
• Likelihood of GHG caps being applied. Caps will not be applied to all products or processes. For instance, the EU explicitly rejected caps for HFCs, because their emission sources are so numerous and diverse. Caps are unlikely to be placed on chemicals deemed to be either relatively insignificant or difficult to administer.
• Specifics of GHG caps. The value of carbon allowances is highly susceptible to manipulation by national governments that define GHG caps. No, this is not about cheating as such, but rather about completely legal options that can dramatically shift the costs of compliance.
These factors will combine differently for each chemical process. For some they will constitute a significant cost penalty, for others a major benefit and for many a minor impact. One angle of regulation, however, will affect almost all chemicals: benchmarking (see box, Why Benchmark GHGs?, p. 17).
Winners and losers
Given the current state of these three factors, the major subgroup of chemical producers likely to suffer from GHG caps would be chloralkali producers. Others who may suffer include makers of products via oxidation such as carbon black or acetylene. A beneficiary would be urea producers.
For instance, take the case of acrylonitrile. The manufacture of acrylonitrile has a carbon intensity of 1.4 tons of CO2 per ton of acrylonitrile. Let’s assume that emissions credits will cost $30/ton (approximately €25/ton, the price around which the market fluctuated for much of the early part of 2006. Note: At the time of this writing, October 2006, the price is €13/ton). The table (above) shows the size of the carbon credit cost “hit” to the margin over variable cost (MOVC) of this process.
Using an SRIC estimate of cash cost and prices from Platt’s Petrochemical Report we calculate the MOVC for acrylonitrile over the period in question at about $126/ton. But at $30/ton CO2 the cost of credits is $42/ton — one-third of MOVC.
This example assumes that the manufacturer will have to purchase carbon credits on the open market to account for its carbon emissions. There are, however, many ways for carbon regulations to be applied that might mitigate the impact (e.g., grandfathering of existing capacity). Here, again, the likelihood and specifics of GHG caps are key.
Technology impacts
Greenhouse gas regulations also will give momentum to five other trends in chemical processing.
Catalyst and reactor design: Introduction of carbon regulation will put further pressure on the drive to maximize selectivity. This is likely to move the economic design optimum in the direction of modified catalysts, lower space-time yields, and larger reactors in order to obtain better selectivity. Let’s look at the straightforward example of ethylene oxide. For every mol of ethylene that is fully combusted, two moles of carbon dioxide are created. As the molecular weight of carbon dioxide is 44, this means that one ton of ethylene lost creates 88 ÷ 28 = 3.1 tons of carbon dioxide. At a nominal $30/ton CO2 credit cost, this adds an extra $93/ton to the value of the ethylene lost in this fashion. While this cost is somewhat offset by the fact that some of the energy given off by the “burned” ethylene can be recovered as steam, the overall impact is still going to be strongly in favor of improving selectivity.
Improvements in feedstock utilization: Processes will see a move toward greater efficiency and feedstock utilization away from the reactor, too. One area may be the recovery of streams that are now rejected from the process. As carbon values go up that which is currently seen as uneconomic to recover will become more valuable.
Greater energy efficiency: The current effort, motivated by increased energy prices, to improve process energy efficiency will be accelerated by carbon regulation. Over time, as the effect of the regulatory regime rolls through the system, its effect will be that of a permanent price increase in energy. We expect to see even more of the plant energy conservation efforts that have been going on recently.
A shift away from electrochemical processes: Carbon regulation hits electricity prices harder than it hits fuel prices. This occurs for two reasons. One is that at most locations a significant fraction of the electrical mix is coal-fired and, thus, more carbon intensive than most chemical plants that run on gas or oil. The other has to do with the thermodynamic losses associated with power generation. We expect that carbon regulation will raise the price of electricity over the long term. This will accelerate the exit of some electrochemically driven processes from the scene.
A shift towards biorefineries: Enzyme and other process technologies are improving for some of the bio-based routes to commercially desirable products. While the biorefinery concept is still a ways off, the well-to-product lifecycle carbon cost incurred by the usual conventional process chain can really add up. This should provide another motivation, along with the current high price of crude oil, to move from our traditional synthetically-derived chemical value chain to a bio-based one. Over time, perhaps within 10 years, we may see significant inroads into some end uses by biobased products.
Movement of high electrical intensity processes to locations with low carbon electrical mix: As CO2 regulation is phased in and electrical utilities are forced to buy carbon credits to offset their emissions they will pass those costs on to their customers in the form of higher prices for electricity. The price increases will be higher in locations where coal dominates the generation mix and smaller where there is more nuclear, hydroelectric, and alternative generation. This is likely to result in migration of electrically intensive processes, e.g. chloralkali, to these lower carbon (and thus lower electrical cost) locations.