Influence of 2060 Goal of Carbon Neutrality on Petrochem Companies
Click:0    DateTime:Dec.14,2021

By Weng Hui, China Petroleum and Chemical Industry Federation

As well as aiming to halt the rise of its carbon emissions by 2030, China strives for carbon neutrality by 2060. Hence the issuance of related policies – like Opinions on Reaching Peak Carbon Emissions by 2030 and Achieving Carbon Neutrality by 2060 released on October 24, Action Plan to Make Carbon Emissions Peak by 2030 released two days later, etc. – and the targets of decreasing energy consumption and carbon emissions per unit of GDP by 13.5% and 18%, respectively, both from 2020 to 2025. Such situations exerted great pressure on the domestic petroleum and chemical industry, which, in the past decade, was required to keep carbon emissions to reasonable levels, as detailed in policies such as Action Plan of Industrial Sector to Tackle Climate Change (2012-2020), and Plan to Restrict Greenhouse Gas Emissions (2016-2020). But everything has two sides. On the positive side, the transition to green, low-carbon development will bring new opportunities.

Effects of capping carbon emissions and realizing carbon neutrality

1. Great pressure to conserve energy and reduce carbon emissions

Energy is both fuel and raw material for the petroleum and chemical industry, a potent energy consumer and a major source of carbon emissions in the domestic industrial sector. Energy consumed by the domestic petroleum and chemical industry totaled 685 million tons of standard coal in 2020, soaring 59.7% from 418 million tons in 2010, with the highest annual growth reaching 9.3%.

Since the beginning of 2021, a series of policies related to carbon emissions peak, carbon neutrality, energy consumption per unit of GDP and total energy consumption were rolled out, significantly impacting the petroleum and chemical industry. In detail:

* On May 31, the Ministry of Ecology and Environment issued Guiding Opinions on Spending More Effort Keeping Ecological Environment from Being Polluted by Energy-intensive and High-emission Projects – making EIA examination and approval of related projects more stringent, and requiring enterprises to construct new/expansion projects (regarding petrochemicals, chemicals, coking, plate glass, etc.) at qualified industrial parks.

* On August 12, the National Development and Reform Commission issued Progress on Restricting Energy Consumption per Unit of GDP and Total Energy Consumption in Different Regions in First Half of 2021 – giving level 1 warning to nine provinces (autonomous regions) and level 2 warning to 10 provinces, and requiring local governments to take effective measures to achieve annual targets.

* On September 11, the National Development and Reform Commission issued Notice on Improving Energy Consumption Intensity and Total Energy Consumption Control Plan.

* Shaanxi Yulin municipal government issued Notice on Reaching Targets Related to Energy Consumption per Unit of GDP and Total Energy Consumption. According to the document, energy-intensive and high-emission projects (EH projects), completed during September-December, would not be allowed to start production; EH projects – completed and put into production this year – would reduce output by 60% from last month.

* Inner Mongolia Development and Reform Commission issued Measures to Achieve Goals to Restrict Energy Consumption per Unit of GDP and Total Energy Consumption, since 2021 stop examining and approving new capacity expansion projects involving coke, calcium carbide, PVC, synthesis ammonia, methanol, sodium carbonate, yellow phosphorus, etc.

Many chemical enterprises in places like Jiangsu, Yunnan and Shaanxi reduced production as related policies required, leading to surging prices of many raw materials, e.g. sodium carbonate, yellow phosphorus, epoxy propane and epoxy resin. In addition, more stringent policies are forecast to be issued to restrict energy-intensive industries, decreasing output of chemicals with higher energy consumption per ton of products. Therefore, prices of some chemical raw materials may grow continually.

2. Higher emissions reduction costs arising from carbon emissions trading market

On July 16, China opened a national carbon emissions trading market, the world's largest by volume of emissions of around 4.5 billion tons. The first group of companies brought into the market included 2 225 power firms, including many power plants of petroleum and chemical enterprises. On August 16, over 7.01 million tons of CEAs (carbon emissions allowances) were traded, with volume of transaction exceeding RMB355 million.

The number of domestic petroleum and chemical firms with carbon emissions exceeding 26 000 tons of standard coal per year was around 2 300. Their combined emissions accounted for 65% of the industry’s total. If petroleum and chemical firms join the carbon emissions trading market, they will make less profit. For example, carbon emissions cost of producing one ton of calcium carbide is around RMB175, calculated based on a CEA price of RMB50/t. Enterprises superior in technologies are capable of reducing energy consumption, selling CEAs for profit and accelerating phasing-out of outdated capacities at the market.

3. Stricter requirements on carbon emissions monitoring, calculation, report and assessment

In this September, Greenhouse Gas Emissions Report Supplementary Data Sheet 2020 was issued on the national sewage permit management information platform, involving six industries, 18 sub-industries, and having some changes compared with previous versions. More specifically, fossil fuels of thermal stations would be considered when refineries calculate carbon emissions. Synthesis ammonia and methanol firms would provide information related to applications of recycled CO2, types of raw materials, and information of production technologies. Nitric acid and HCFC-22 producers would fill in the supplementary data sheet.

For projects related to key industries like power, steel, building materials, petroleum and chemicals, calculation methods of carbon emissions and specifications on environmental impact reports would be issued in pilot areas (e.g. Hebei, Jilin, Zhejiang, Shandong, Guangdong, Chongqing and Shaanxi) by the end of December, according to Notice on Conducting Pilot Work Regarding Environmental Impact Assessment of Carbon Emissions from Key Industry Projects, the Ministry of Ecology and Environment released in July. Local governments of Shandong, Inner Mongolia, Liaoning, Zhejiang and Hainan have issued guidelines for making carbon emissions evaluation. Carbon emissions levels and reduction potential of key industries would be investigated, and petrochemical firms were required to strengthen their capabilities to manage carbon emissions data and evaluate carbon emissions.

4. Urgent need of energy transition

The nation’s targets of reaching carbon emissions peak and carbon neutrality accelerated energy transition, and exerted great pressure on the petroleum and chemical industry. Domestic consumption of oil is forecast to peak in around 2026, and that of natural gas may reach 620 billion cubic meters in 2040, helping natural gas become the most important fossil fuel in China in 2050.

Measures to help petroleum and chemical firms achieve low-carbon development

1. Save energy and reduce consumption intensity

Energy, especially fossil energy, is the biggest source of carbon emissions in China. Enterprises should speed up R&D of advanced energy-saving technologies and products. On September 24, the Ministry of Industry and Information Technology issued Recommended Catalogue of National Industrial Energy-saving Technologies (2021), and List of Equipment and Products with High Energy Efficiency.

2. Set reasonable carbon emissions reduction targets

Like petrochemical giants of Sinopec, CNPC, CNOOC, etc., other enterprises should set reasonable carbon emissions reduction targets as early as possible, in an attempt to respond more quickly to new changes, better adapt to related policies and strengthen competitiveness during transition to low-carbon economy.

3. Strengthen carbon asset management

With a green, low-carbon era coming, enterprises should establish carbon asset management systems. Large enterprises should keep balance of own carbon emissions quotas, and utilize carbon emissions trading platforms. Some voluntary greenhouse gas emissions reduction projects will be brought into the national carbon emissions trading market. Therefore, enterprises could actively develop carbon sink projects (e.g. forest, grassland and ocean carbon sink). Other projects recommended mainly include CDM projects, CCER projects, and carbon derivatives projects.

4. Develop high-end products

Domestic demand for high-end products is forecast to grow over 8% from 2021 to 2025, given carbon emissions related targets, emerging industry projects, new infrastructure projects, energy structure adjustment, etc. Enterprises are encouraged to develop high-value-added products, especially those used in the fields of automobiles, electronics, building materials, etc. At the beginning of 2021, Luxi Chemical invested RMB14.03 billion in constructing caprolactam nylon 6, BPA, ethylene downstream integration projects. In May, CNPC established hydrogen energy, biochemistry and new materials research institutions – developing high-performance synthetic materials, special engineering plastics, degradable materials, high-end carbon materials, etc. Sinopec is actively making plans to propel new chemical materials business.

5. Establish green supply chains

On February 22, the State Council issued Guiding Opinions on Improving Green, Low-carbon Circular Economic Development System, calling for selecting around 100 active and influential firms as pilot enterprises to research green supply chains. In detail, Southwest Oil and Gas Company made Implementation Rules for Green Procurement and Negative List of Green Procurement, both taking environment protection related issues into account.

6. Actively participate in standard formulation and pilot projects

To halt the rise of carbon emissions by 2030, and achieve carbon neutrality by 2060, the nation rolled out a series of documents and will issue more in the future. Enterprises are encouraged to actively participate in the formulation of standards – regarding emissions calculation, analysis of product carbon footprints, emissions monitoring, energy consumption limit, etc. – and in pilot projects pertaining to environmental impact assessment of carbon emissions, carbon emissions monitoring, etc.