Bridging the innovation gap in the chemical industry
Jeff Erhardt, CEO, Mattiq
The climate crisis is at a critical juncture: the State of Climate Action 2023 reported that except for EV sales, “global efforts to limit warming to 1.5°C are failing across the board, with recent progress…lagging significantly behind the pace and scale that is necessary.” To successfully address climate change, we need an all-hands-on-deck approach, particularly in hard-to-abate and often-overlooked sectors like chemicals.
Industrial stakeholders have set ambitious targets to reduce emissions by 2030, though progress has lagged — primarily because of the perceived costs and risks of adopting new technology in a highly regulated environment. As a result, emissions from power generation, transportation, and buildings are set to see meaningful reductions by 2035, whereas those from chemicals and other industries risk a lost decade of progress. Clearly, there is an urgent need to rapidly deploy innovations that can tackle these emissions and chart a path toward complete industrial decarbonization.
Fortunately, the cleantech startup sector is booming, developing advanced technologies at an unprecedented pace. However, many startups with promising technology struggle to grow large enough for real-world impact; conversely, what the chemical sector lacks in rapid innovation, it makes up for in scale. Thus, chemical industry stakeholders and cleantech startups each hold a piece of the decarbonization puzzle. Productive collaboration between established chemical companies and agile climate startups is key to bridging this gap and accelerating the decarbonization we need to meet urgent climate goals.
To solve the lagging pace of emissions-reducing technology in the chemical industry, we need to understand why it persists. First, industrial corporations justifiably prioritize reliability and efficiency in their production processes. Any change represents a potential risk and demands high standards of validation. Moreover, chemical industry stakeholders may be slow to adopt emissions-reducing technology because of potential operational challenges and bias for incremental optimization. Industrial companies are expected to achieve consistent, steady results, leading many stakeholders to prioritize short-term products and processes at the expense of longer-term planning and investment — the kind conducive to decarbonization efforts.
Fortunately, after years of R&D, a number of cleantech companies have developed solutions for the chemical industry, most importantly green hydrogen and carbon capture. While the growth of industrial decarbonization solutions is undoubtedly positive, the chemical industry’s ability to absorb the technology — along with its operational difficulty on a compressed timeline — remains a challenge.
Another reason stakeholders are hesitating to embrace cleaner technologies in the chemical industry is their relatively high costs — both operating and capital expenditure. The former is primarily a byproduct of industry nascence, as new technologies often take years to achieve the economies of scale, process optimization, and product standardization that drive down costs.
Capital costs for emergent technologies, on the other hand, tend to be high because they often involve upgrading or improving existing processes as opposed to ‘starting from scratch.’ Companies then have to address ‘switching’ (i.e. transitional) costs, though they do benefit from the inherent advantages of working with depreciated assets.
Forward-looking incentives and regulations can alleviate these issues, though they’re no panacea. Incentives often come attached with stipulations, resulting in certain technologies being excluded and uneven market development. Incentives are also subject to shifting political climates, meaning chemical companies have to be careful about the solutions they invest in — lest they suddenly become unprofitable. At the same time, chemical companies cannot assume end-consumers will reliably pay for green premiums, another complication that must be taken into account.
Recently enacted policies like the Inflation Reduction Act and Bipartisan Infrastructure Law are providing significant financial stability, extending existing tax credits and creating favorable laws for renewable energy, carbon capture and storage, and other emissions-reducing industrial technologies. The Department of Energy is even funding the first large-scale demonstrations of low-carbon hydrogen, showcasing growing awareness of the need to tackle industrial emissions. As more clarity is offered about the IRA’s practical implications and applications from the Industrial Efficiency and Decarbonization Office (IEDO), the Office of Clean Energy Demonstrations (OCED), and the Loan Programs Office (LPO), these incentives will act to encourage legacy companies to invest in promising clean technology.
Ultimately, the main driver for a cleaner, greener chemical industry will be productive partnerships between chemical companies and cleantech startups. We’re already seeing a trend towards increased collaboration between companies to accomplish technical and climate goals: chemical companies are shifting away from an exclusively in-house R&D model to one that incorporates multiple disciplines and external players, including startups. For instance, Lawrence Livermore National Laboratory, TotalEnergies SE, a major energy company, and Twelve, a carbon transformation startup, teamed up to successfully develop a novel energy-saving process for producing ethylene.
Robust public sector and small- to large-scale private partnerships represent another opportunity for collaboration in legacy industries. It’s encouraging to see state, city, and business leaders join together to drive cleantech innovations in initiatives such as the Chicagoland Climate Investment Alliance.
Of course, finding the right partner is key for chemical companies to ensure mutually beneficial and productive partnerships with cleantech startups. Importantly, a startup should be advanced enough to maintain the integrity of its product roadmap, which should also include clear, measurable milestones and KPIs. Additionally, the company should have an internal sponsor that owns the partnership, establishing and maintaining clear communication, accountability, and continued goal alignment between the two organizations.
As chemical companies explore new collaborations with startups, they should look to other sectors, like pharmaceuticals, for inspiration. Boasting a successful record partnering with early technology firms — including the development of cutting-edge ‘innovation labs’ to spearhead medicine and drug discovery — pharmaceutical companies have shown that deep, cross-industry expertise can lead to enhanced solutions that reduce costs and time-to-market timelines.
Facing the urgent need to decarbonize, chemical companies should follow suit, leveraging startup companies to supercharge industrial emissions reduction. Proactivity not only offers the chance to comply with stakeholder demands, but also scale critical technologies that can deliver a competitive advantage, not to mention a cleaner, more livable future. The choice for chemical companies is clear — the time to act is now.
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