China’s economic and social development is entering a new stage of comprehensive green transformation, and the top-level design documents for this transformation have been released with great weight. The Opinions on Accelerating the Comprehensive Green Transformation of Economic and Social Development, issued by the Central Committee of the Communist Party of China and the State Council, were released on August 11, 2024. This is the first systematic deployment at the central level aimed at accelerating the comprehensive green transformation of economic and social development. The opinion clearly proposes a series of goals, such as achieving a scale of energy conservation and environmental protection industry of about 15 trillion yuan by 2030, increasing the proportion of non fossil energy consumption to about 25%, reducing the carbon emission intensity of operating transportation units by about 9.5% compared to 2020, and achieving an annual utilization of about 4.5 billion tons of bulk solid waste. At the same time, the opinions focus on building a green, low-carbon, and high-quality development spatial pattern, industrial structure transformation, energy transformation, transportation, and urban-rural construction transformation in five major areas, as well as implementing a comprehensive conservation strategy, promoting consumption mode transformation, and leveraging technological innovation support in three major areas, comprehensively layout and accelerate the formation of a spatial pattern, industrial structure, production mode, and lifestyle that saves resources and protects the environment.

On this basis, the “Action Plan for Energy Conservation and Carbon Reduction in 2024-2025” (referred to as the “Action Plan”) issued by the State Council has pointed out the direction for the green development of the petrochemical industry. The Action Plan has made various deployments for the petrochemical industry, such as “strict policy requirements for the petrochemical and chemical industry”, “accelerating energy-saving and carbon reduction transformation in the petrochemical and chemical industry”, and “promoting the reengineering of petrochemical and chemical process flows”. These policy measures will undoubtedly have a profound impact on various sectors of the petrochemical industry, and also prompt us to deeply consider the development path and response strategies of the petrochemical industry in this round of green transformation.

1. Petrochemical Market: Positive Signals and Changes Driven by Policies

(1) Reshaping the Market Landscape: The Dual Impact of New Capacity and Energy Efficiency Regulations

The Action Plan has brought significant changes to the petrochemical market. On the one hand, it is explicitly stipulated that new and expanded petrochemical and chemical projects must meet the energy efficiency benchmark level and environmental performance A-level level, completely eliminate atmospheric and vacuum distillation units with a capacity of 2 million tons per year or less, accelerate the promotion of advanced processes such as the new generation ion membrane electrolysis cell, and put forward higher requirements for the transformation, upgrading or elimination of inefficient production capacity in the refining, ethylene, and synthetic ammonia industries. Wu Zhiqiao, the leader of the Chemical Group at Green Dahua Futures, pointed out that this series of measures has set a lower limit for the proportion of non fossil energy consumption and raised the threshold for capacity expansion. The result is to promote the concentration of new production capacity in regions with better conditions for renewable energy resources, while increasing project production requirements, making supply expansion more orderly. In addition, the policy has unified the approval criteria for local government projects and clarified new requirements for benchmark energy consumption, which is conducive to accelerating the clearance of old production capacity. Due to the low depreciation cost of old production capacity, it is difficult to clear it through market forces. Under the promotion of this policy, the economic feasibility of small capacity technological transformation is low, and most small capacity can only choose to exit, which in turn leads to a tightening of supply and a rebound in profits in related sectors.

(2) Green development orientation: simultaneous progress of industrial upgrading and carbon market construction

Bohai Futures analyst Yu Xue believes that the ‘Action Plan’ sends two key signals to the market. Firstly, increase efforts towards green development. The plan clarifies the goals and routes of energy conservation and carbon reduction, emphasizing the importance of green and low-carbon development. This will inevitably promote the further adjustment of the industrial structure of the petrochemical industry, encourage enterprises to increase investment in green technology and clean production, and accelerate the transformation and upgrading of the industry towards green and low-carbon direction. Secondly, promote the construction of carbon markets. The Action Plan mentions promoting the construction of carbon market mechanisms and incorporating carbon trading into the overall plan of national ecological civilization system reform, which means that a sound carbon trading market will be established in the future, and corporate carbon emissions will be subject to stricter control. This will motivate enterprises to increase their efforts in energy conservation and emission reduction, and pay more attention to environmental protection and green development. Xie Wen, the leader of the Chemical and Oil Products Group at Zhongda Futures, also mentioned that in recent years, the country’s guidance on energy conservation and carbon reduction in the petrochemical industry has the characteristic of connecting the past and the future. Relevant documents are interrelated and constantly upgrading requirements, reflecting the country’s emphasis on energy conservation and carbon reduction in key areas. The petrochemical industry has achieved certain results in energy conservation and carbon reduction, such as breakthroughs in energy consumption, technological reform, waste recycling, digital intelligence, etc. It is moving towards benchmarking international first-class standards and improving “new quality productivity”.

2. Industry segmentation: Different sectors have varying green development trends

(1) Coal chemical industry: potential improvement in pattern and exploration of transformation path

The modern coal chemical industry has become a key and difficult point in carbon control due to high carbon emissions. However, the current trend of “reducing oil and increasing production” is in line with the “dual carbon” policy. Zhang Zinan, Senior Researcher at the Chemical Group of CITIC Futures Research Institute, stated that the utilization rate of China’s refining capacity is less than 80%. Reducing the proportion of petrochemical products and increasing the production of coal chemical products can not only alleviate the shortage of petroleum resources, but also reduce carbon emissions in the petrochemical production process. By developing products such as coal to ethylene glycol and coal to olefin, efficient utilization and clean conversion of coal resources can be achieved. Although the production of chemical products by refining enterprises may increase their own carbon emissions, they can contribute to reducing carbon emissions for the whole society. In the long run, the transformation of petroleum refining from producing finished oil to producing basic organic chemicals can reduce carbon emissions.

In terms of the impact of the Action Plan on various sectors of the coal chemical industry, its impact on the synthetic ammonia and urea sectors is relatively limited. In 2021, the National Development and Reform Commission issued relevant notices to ensure the electricity demand of fertilizer production enterprises, and considering the special nature of fertilizer production, it was not classified as a high energy consuming enterprise. At the same time, fixed bed process units with high energy consumption in urea production are accelerating their exit from the market. The impact on the methanol sector is also not significant. The outdated production capacity of coal to methanol has been gradually cleared, and the newly added production capacity meets the energy consumption standards. In addition, the control measures for coal consumption in the Action Plan are expected to improve the pattern of the coal chemical industry, especially in provinces with high energy consumption indicators.

(2) Chlor alkali enterprises: parallel energy-saving transformation and market expansion

The Action Plan also puts forward strict requirements for chlor alkali enterprises, such as strict control of new production capacity in industries such as refining, calcium carbide, ammonium phosphate, and yellow phosphorus, prohibition of new production capacity of mercury using polyvinyl chloride and vinyl chloride, and strict control of new delayed coking production scale. Galaxy Futures analyst Zhou Qin introduced that the relevant requirements have been mentioned in previous documents. In response to environmental requirements and international conventions, chlor alkali enterprises actively carry out research and development of mercury free technology, and have achieved many mercury free production process applications. At the same time, enterprises actively promote energy-saving and carbon reduction technologies, such as membrane electrode distance ion membrane electrolysis technology, four effect evaporation process technology, etc., and carry out energy efficiency improvement and transformation of public engineering systems.

Chlor alkali enterprises are facing pain points such as product homogenization and lack of innovation. Therefore, upstream enterprises actively explore international markets. From 2021 to 2023, the compound growth rates of PVC and caustic soda exports, the main products of chlor alkali, are 13.9% and 29.4% respectively, with products flowing to multiple regions; On the other hand, we focus on diversified product development, developing high value-added and differentiated fine chlorine consuming products. With the advancement of energy conservation and carbon reduction work, chlor alkali enterprises will adjust their product structure accordingly, develop more low-carbon and environmentally friendly products, and continue to seek international market opportunities to alleviate domestic supply and demand contradictions.

3. Industry Challenge: Shortcomings and Transformation Challenges to be Solved

(1) The gap between supply and demand and energy efficiency: constraining the green development of the industry

The industry itself has many shortcomings in energy conservation and carbon reduction. Li Shousheng pointed out that there is a structural contradiction of low-end surplus and high-end shortage in the current industry, facing the challenge of accelerating adjustment and increasing transformation costs. In 2021, there is a significant gap in the production and consumption of new chemical materials in China, with prominent shortcomings in the key materials sector. To ensure the security of the domestic industrial chain, it is necessary to enhance the supply capacity of bulk products and expand production scale, but this may increase energy consumption and carbon emissions. Jin Guogang, Deputy Secretary General of China Chemical Energy Conservation Technology Association, used ethylene as an example to illustrate that although the comprehensive energy consumption of ethylene in China has decreased, there is still a significant gap with the international advanced level, mainly due to different raw material routes. With the deepening of energy-saving work, the difficulty has increased, the return on investment has decreased, and energy-saving work has not yet reached its optimal level.

(2) The formulation of the “dual carbon” plan: there are common problems among enterprises

When formulating “dual carbon” plans and schemes, many enterprises are proactive but face many problems. Some enterprises have not comprehensively reviewed and accounted for their own carbon emissions, resulting in a lack of data foundation for carbon peak plans; Insufficient consideration of its own industrial layout and development stage, and lack of scientific basis for setting goals; The proposed peak carbon emissions are too high, and the efforts to promote industrial transformation are not significant; Lack of in-depth research on carbon reduction pathways, and the plan lacks practical and feasible measures.

4. Response strategy: Action guide for “living on carbon”

(1) Energy saving and carbon reduction transformation: comprehensive promotion and refined management

Li Shousheng emphasized that under the “dual carbon” goal, the entire industry should adhere to systematic thinking and strive to “live on carbon”. On the one hand, we should actively carry out energy-saving and carbon reduction upgrades, focusing on traditional high energy consuming industries, using advanced and applicable energy-saving technology and equipment as means to promote the transformation of key green manufacturing processes and strengthen technological energy conservation. Carry out energy audits and energy-saving diagnostics, implement dynamic monitoring, control, and optimized management of various energy links, and achieve systematic energy conservation and consumption reduction. Promote water-saving processes, technologies, and equipment around high water consuming industries, advance water resource recycling and industrial wastewater treatment and reuse, and reduce wastewater discharge. The entire industry should consider energy consumption and carbon emissions from a full lifecycle perspective, seek feasible paths to reduce pollution and carbon emissions, and achieve efficiency growth.

(2) Carbon Market Participation: Strengthening Asset Management and Compliance Operations

On the other hand, the industry should actively participate in the construction of the carbon market and strengthen its awareness of carbon asset management. The national carbon emissions trading market has been launched, and the petrochemical industry will also be included. The amendment to the Carbon Boundary Adjustment Mechanism (CBAM) passed by the European Parliament also puts forward requirements for corporate carbon emissions. Enterprises should actively carry out carbon inventory checks, enhance their awareness of carbon emission data management and carbon asset management, accelerate the establishment of a unified, comprehensive, and long-term carbon asset management system, ensure compliant operation in the carbon market, and achieve their own development.

(3) Energy Transition and Innovation: Balancing Security and Leading Development

To achieve the “dual carbon” goal, energy transformation is crucial. The industry needs to accelerate the adjustment of energy structure, while ensuring the security of traditional energy supply, accelerate the technological innovation of emerging energy, and create a modern energy system that is clean, low-carbon, safe, efficient, and diversified in supply. Meanwhile, improving the standard system construction is the key to promoting the industry’s green and low-carbon transformation. Accelerate the formulation of relevant standards in energy consumption, water conservation, carbon emissions, etc., and form a standard support system that meets the needs of the industry’s green and low-carbon transformation. In addition, the industry needs to strengthen innovation drive, empower high-quality development of the industry with innovation in key core technologies, achieve transformation in growth mode, innovation mode, and management mode, and enhance original innovation capabilities.

(4) Enterprise’s own actions: understanding the family background and digital transformation

Petrochemical companies themselves should actively develop a “dual carbon” strategy, understand their carbon emissions, find effective ways to reduce emissions, clarify the gap with advanced levels, and make up for it. Implement green and low-carbon technology transformation, continuously try and demonstrate green hydrogen production, carbon capture, electrification, and low-carbon technologies. At the same time, we will comprehensively strengthen digital transformation, use digital technology for simulation and real-time monitoring, effectively calculate greenhouse gas emissions and energy losses in the chemical production process, and provide accurate and effective data basis for energy conservation and emission reduction.

In summary, the petrochemical industry is facing both opportunities and challenges brought by policy driven initiatives on the path of energy conservation and carbon reduction, while also overcoming many of its own problems. Through the joint efforts of the entire industry and the adoption of the above-mentioned series of response measures, it is expected to achieve green and low-carbon development, while meeting the requirements of national green transformation, and achieving high-quality development of itself.

Article source: www.xianjichina.com

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