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1、How chemical companies can reduce scope 3 emissions nowPhoto by Amaya De La Hoz Kearney,MadridWith 75 percent of their green-house gas emissions coming from external sources,chemical companies should reform their approach to purchased goods and services.Corporate boards around the world are taking a

2、ction on sustainability and decarbonization.But they rarely focus on scope 3 greenhouse gas emissions.They grasp the need to address scope 1(emissions caused by the company itself)and scope 2(indirect emissions from purchased electricity,heating and cooling,and so on).But they incorrectly view scope

3、 3(indirect emissions upstream and downstream of companys operations)as a more distant,less urgent problem.In fact,scope 3 requires immediate analysis and action.In the chemicals industry,at least 75 percent of emissions come from scope 3.Thus,to reduce carbon emissions,chemical companies need to ad

4、dress purchased materials that account for almost half of scope 3 emissions.And make no mistake,the demand to reduce carbon will comefrom customers,regulators,and investorssooner than most people expect.If you are in the chemicals industry,you will face challenges in this new area.You will need to f

5、ind and measure good data,increase visibility,and engage a wide array of stakeholders in deeper relationships.The good news:there is a clear,logical path to overcome these challenges.As in many other business initiatives,you gather data,set priorities,identify feasible options,and implement your pla

6、n.This paper discusses how.In the chemicals industry,at least 75 percent of emissions come from scope 3.1How chemical companies can reduce scope 3 emissions now1 Due to data availability,for two companies,we used the 2019 reporting year,and for one company,2021.Notes:CO2e is carbon dioxide equivalen

7、t.EMEA is Europe,Middle East,and Africa.Sources:Bloomberg and company corporate sustainability reports;Kearney analysisFigure 1Scope 3 emissions represent most chemicals industry emissionsScope 1,2,and 3 emissions proportions for sample companies(2020 reporting year1)(Total emissions,metric tons of

8、CO2e,thousands)EMEA commodityEMEA diversifiedUS diversifiedEMEA specialtyEMEA specialtyUSspecialtyEMEAspecialty69%84%67%77%77%63%42%21%13%27%21%16%29%23%10%3%6%3%8%8%35%174,000118,974104,01723,20014,56517,0335,03375%(peer average)Scope 3Scope 2Scope 1Scope 3does notincludedown-streamemissionsWhy sta

9、rt reducing carbon emissions now?Emissions disclosure rules are becoming more strict.They now focus on emissions that the companys operations are directly causing(scope 1 and 2).But they will soon shift to examine total emissions(including scope 3).For example,the Science Based Targets initiative is

10、 slated to finalize its scope 3 target-setting methods and criteria by the end of 2022.It will offer specifics for decarbonization in the chemicals industry and various subsectors by early 2023.The US Securities and Exchange Commission(SEC)has also proposed that companies publish their scope 3 emiss

11、ions as part of their financial reporting process.Management teams success will be measured by their ability to set and meet emissions reduction targets.And total emissions means that chemical companies will have to look for targets up and down the value chain.Individual situations can vary.But acro

12、ss specialty and diversified chemical producers,in both Europe and the United States,a sizable majority of chemical company emissions are scope 3(see figure 1).Chemical companies have not yet faced much pressure to decarbonize.Thats because theyre positioned higher up the value chain from end consum

13、ers.For example,if you make a tiny plastic endpiece for an iPhone cord,you dont face the same pressure that Apple does to be sustainable.Yet.But this is why regulators are focusing on scope 3 emissions.Companies need to pass that pressure up the value chain.Your customers,shareholders,and board will

14、 soon demand plans for emissions reduction.2How chemical companies can reduce scope 3 emissions nowSources:Company sustainability reports;Kearney analysisFigure 2Scope 3 emissions come primarily from upstream purchased goods and servicesScope 3 category emissions of major chemical companies(%of scop

15、e 3 reported)Scope 3 categoriesUSspecialtyEUspecialtyAPACdiversifiedUSdiversifiedEUdiversifiedEUspecialtyUSdiversifiedEUspecialtyUpstreamDownstream1.Purchased goods and services2.Capital goods3.Fuel and energy-related activities4.Upstream transportation and distribution5.Waste from operations6.Busin

16、ess travel7.Employee commuting8.Upstream leased assets9.Downstream transportation and distribution10.Processing of sold products11.Use of sold products12.End of life treatment of sold products13.Downstream leased assets14.Franchises15.InvestmentsLowerGHGemissionsHigherGHGemissionsNotreported45%Upstr

17、eam emission reductionand risksIn some industries,downstream emissions dominate scope 3.In the classic example,gasoline doesnt emit much carbon until after an oil company has sold it to a consumer.In the chemical industry,only 20 to 50 percent of emissions are downstream,resulting from consumer use

18、or disposal.Rather,the majority of emissions50 to 80 percentare upstream(see figure 2).Indeed,about half of all chemical industry scope 3 emissions come from purchased goods and services.For example,if you make plastics,a suppliers emissions to produce your propylene count as scope 3 emissions.About

19、 half of all chemical industry scope 3 emissions come from purchased goods and services.3How chemical companies can reduce scope 3 emissions nowYou could wait for that supplier to decarbonize.(After all,to that company,these are scope 1 emissions.)But this assumes that your supplier shares your ambi

20、tion level for emissions reduction.This assump-tion is all but certain to be incorrect,and can result in supply risks:The existing supply could be phased out.Carbon pricing or other environmental policies may shut down manufacturing of emissions-intensive materials.This risk increases for materials

21、that can be made from different feedstocks(for example,olefins can be made from coal,naphtha,or natural gas).The highest-emitting source will be eliminated first.At that point,will you have sufficient qualified sources?The market could be undersupplied.An emissions reduction program will happen,rega

22、rdless of companies timeline choices.When it does,will there be sufficient supply of low-emission alternatives?If not,will that put your finished goods portfolio at risk?For example,in the methanol market at the end of 2023,about 1 percent of supply is expected to come from a low-carbon alternative(

23、with another 2.1 percent of capacity additions planned further in the future).If you are a major consumer of methanol,do you need to secure some of this supply now?As you respond to these supply risks,you face a non-negligible first-mover risk.The faster you move to decarbonize supply,the less time

24、you give suppliers to achieve economies of scale in production.Decarbonizing is the correct course of action,but it involves a delicate balancing act.To best achieve that balance,you need to learn a lot about decarboniza-tion pathways.This knowledge will help you see opportunities to achieve ambitio

25、us emissions reduc-tions efficiently.In short,supply bases for any given material will shift.You may not need to be a first mover,but you must be ready to act as a fast follower.Opportunities and challenges for procurement in the chemical industryThe concentration of scope 3 emissions in purchased m

26、aterials creates an opportunity.A chemical company can drive emissions reduction efforts using procurement teams in collaboration with business and technical teams.Depending on your organiza-tional dynamics,the procurement function may not take the lead in this effort.The leaders may instead be prof

27、it-and-loss owners,supply chain managers,operational executives,and sustainability teams.But if you demand action,proven procurement tools should be able to help fulfill your goals.Chemical companies will face many challenges in reducing scope 3 emissions.Some of these chal-lenges resemble those fac

28、ed in other types of procurement.For example:Visibility along decarbonization pathways plays a vital role in addressing scope 3.Some materials have well-defined options,but other materials reduction pathways are opaque.Some pathways are mature enough to be ready immediately,while others are still at

29、 lab scale(see figure 3 on page 5).For example,to decarbonize ammonia production,you could switch feedstocks or pursue carbon capture,utilization,and sequestration(CCUS).But zero-emission ammonia feedstocks are still at lab scale,while CCUS is a more mature technology.For each priority category,you

30、can look at the emission reduction potential and execution time frame of the decarbonization pathways.If you have limited visibility into viable decarbonization pathways,you may want to model the impacts of different scenarios.That will help you navigate the risks of moving either too fast or too sl

31、ow.4How chemical companies can reduce scope 3 emissions nowNotes:FS is feedstock.CCUS is carbon capture,utilization,sequestration.PTx is power to“X”(in other words,power to olefins).MT CO2e is mega-tonnes of carbon dioxide equivalent.C1 chain is chemistry of one-carbon molecules.C2 chain is chemistr

32、y of two-carbon molecules(for example,ethylene and its derivatives).C3 chain is chemistry of three-carbon molecules(for example,propylene and its derivatives).Source:Kearney analysis Non-exhaustiveSeefigure 4Figure 3Diferent materials present diferent decarbonization pathways,with diferent time fram

33、esLab scalePilot plantSmall-scale commercialFull-scale commercialMaterialEstimatedglobalemisssions(MT CO2e)Decarbonization pathwaysTechno-logical maturityAmmonia700FS switchingCCUSMethanol600FS switchingCCUSEthylene180FS switchingE-crackingCCUSPropylene320FS switchingE-crackingCCUSPTXBenzene210FS sw

34、itchingE-crackingCCUSChloralkali275Power supply switchingCCUSC1C2C3AromaticOther Good data is the key to setting and achieving emissions reduction goals.Unfortunately,good data can be hard to find.Thus,some companies rely on materially inaccurate global average emission factors.But the materials mat

35、ter.For example,when propylene is made from coal as the feedstock,Kearney estimates that average global emissions are 12 kilograms of carbon dioxide equivalent(CO2e)per kilogram.Thats 2.5 times higher than when the propylene is made from naphtha,and 6.5 times higher than when its made from methanol(

36、see figure 4 on page 6).With data like that in figure 4,you can make smart decisions to balance cost and emissions.But you need the proper granularity in emissions data.Suppliers may not want to provide this data,because they fear losing sales to same-cost,lower-emission competitors.To overcome the

37、data gap,your buying teams can turn to specialty data services.Their emissions databases give you the granularity you need to build your baseline.You can even customize these databases to show plant-specific emissions rates by manufacturer.Engaging stakeholders is a particular challenge for scope 3

38、reductions.A wider universe of stakeholders includes academic researchers and nongovernmental organizations(NGOs).They create new opportunities to use external knowledge that may lead to new ways of lowering emissions.But these opportunities require new ways of partnering.They may also involve a foc

39、us on collaboration ahead of coercive techniques.Adapting to fast-changing conditions is never easy when you lack control.Famously,scope 3 gives you responsibility for supplier activities that are outside your control.But theres another unpredictable variable as well:the rate of technological change

40、.If you commit to being a first mover,youre willing to invest in production technology while it is still relatively high on the cost curve.But if your company has a slower-moving culture,overcoming cost concerns will be a significant undertaking.5How chemical companies can reduce scope 3 emissions n

41、owNotes:FS is feedstock;NGL is natural gas liquids;Mtpa is metric tons per annum.Production costs are global averages and are the current estimates as of May 2022,according to Kearneys India Research Center.Source:Kearney analysisNon-exhaustivePropylene FS switching opportunityFigure 4Propylene pres

42、ents opportunities to cut emissions and costs by switching feedstocksCO2 emission(kgCO2/kg propylene)Production cost(USD/T)Production cost(USD/T)CO2e emissions (kg CO2/KG propylene)$350$600$250$850$2,350CoalNaphthaNGLMethanolBiomass9.9Installedcapacity(Mtpa)91.634.6NA0.4$300$400$500$600$800$900$2,40

43、0$0$700$2,300$100$2001.00.010.013.09.02.03.08.04.05.07.06.011.012.0In markets with fast-changing technologies,you cant let innovation paralyze you into inaction.Instead,you can pragmatically evaluate the state of the market now and in the near future.Then reach commercial agreements to lock in emiss

44、ions reductions now while still being able to realize cost savings as technology improves.In scope 3 reduction,obtaining results will take longer than a quarter,or even a budget cycle.Your supplier relationships will need to evolve.As you work with partners to invest in new technologies or processes

45、,you may ultimately develop whole new ways of operating.Given the complexity of these undertakings,you need to plan for sufficient time to see the outcomes flow through the operations.Such benefits may not arrive immediately,but they will last longer.You can use the transformation to build supply re

46、silience.Finally,scope 3 emissions reductions pose joint questions of what to measure,and what to report.At most companies,measurement and reporting procedures are less robust for scope 3 than for scopes 1 and 2.Furthermore,universal standards do not yet exist.Different organizations have created di

47、fferent ways of reporting emissions,and different emissions measurements for product substitutes.Nevertheless,some reporting is always good.You should select a method of measurement and reporting,and then remain consistent to that method over time.6How chemical companies can reduce scope 3 emissions

48、 nowThe decarbonization journey requires consistent progress,not grand stepsThe first step in reducing emissions is to know your baseline scope 3 emissions and sources.Thats why its valuable to recognize that chemical companies scope 3 emissions come mostly from raw materialsyou can narrow down this

49、 process.Compiling information from various data sources and mapping it across the companys spend,you can compare the carbon intensity of each material.This baselining exercise should show materials emissions by category and supplier.This information helps your buyers make decisions.They can choose

50、how best to support near-term scope 3 reductions while also prioritizing the largest long-term reduction opportunities.Thats why its important to apply a standardized approach to emissions measurement.That way your leaders can be confident that they are setting realistic goals.Furthermore,when those

51、 goals can be clearly measured,teams will understand the mechanisms by which reductions will be achieved.Once the baseline has been established,you can set priorities.You should focus your efforts on areas where you can influence your supplierswhether that influence is collaborative or coercive.To c

52、hoose who and how to engage,first consider the size and type of relationship.If you are a major purchaser of a material,or if you have established collaborative relationships with a supplier,you can use specific levers to create mutual benefits.By contrast,if youre a minor purchaser,or have a newly

53、established relationship,your options will likely skew toward material substitutions.Then you determine technical and commercial feasibility.You compile lists of alternative supply methods for priority direct materials categories,similar to that in figure 3.Some categories have more viable emissions

54、 reduction options than others.For example,current investments in bio-methanol could soon create carbon-negative methanol supply options.By contrast,propylene requires vast amounts of energy for cracking;commercial-scale alternative methods such as electric crackers are still at least a few years ou

55、t.The interplay between the priority and the availability of alternatives will guide your goal setting.Reducing scope 3 carbon emissions can have far-reaching benefitsAddressing scope 3 emissions is a complex problem.It will require involving a cross-section of internal and external stakeholders and

56、 finding new ways of collaborating to move toward a purposeful set of decarbonization initiatives.In taking on the challenge,individual chemical companies can lower their own emissions and help set the overall industry on an improved path to sustainability.Its important to apply a rigorous approach

57、to emissions estimation and measurement.7How chemical companies can reduce scope 3 emissions nowKish KhemaniPartner,Chicago Sachidanand SahooConsultant,San Francisco Andrew WalbererPartner,Chicago Colin EtienneConsultant,Toronto Authors8How chemical companies can reduce scope 3 emissions nowFor more

58、 information,permission to reprint or translate this work,and all other correspondence,please email .A.T.Kearney Korea LLC is a separate and independent legal entity operating under the Kearney name in Korea.A.T.Kearney operates in India as A.T.Kearney Limited(Branch Office),a branch office of A.T.K

59、earney Limited,a company organized under the laws of England and Wales.2022,A.T.Kearney,Inc.All rights reserved.As a global consulting partnership in more than 40 countries,our people make us who we are.Were individuals who take as much joy from those we work with as the work itself.Driven to be the difference between a big idea and making it happen,we help our clients break