Chemistry in Transition: Charting solutions for a low-emissions chemical industry

The chemical industry is a paradox - while it is a significant contributor to global greenhouse
gas (GHG) emissions, it is also critical to enabling emissions reduction solutions across
sectors and providing materials for modern life.

Chemicals and materials systems are integral to daily life, underpinning 96% of all manufactured
goods. They are also expected to play a pivotal role in climate action, chemicals will play a
role in driving 75% of global energy transition technologies
like solar PV cells and EV batteries and components. Despite this potential, the chemical
industry remains one of the largest industrial emitters of GHGs, accounting for 38% of all
energy-related US industrial emissions¹, with additional significant contributions from feedstock-related emissions like upstream methane leakage².

The industry's scale and complexity are staggering, with global revenues exceeding $5 trillion
annually. It encompasses more than 300 companies with revenues of over $1 billion and thousands
of smaller firms, collectively producing over 7,000 products. These products are vital to
virtually every end market and geography. However, the sector's reliance on fossil fuels as both
an energy source and a feedstock poses a dual challenge that must be addressed to achieve a
climate-aligned chemical industry.

To cut through the complexity of the chemical sector, we concentrated on six primary
chemicals—hydrogen, ammonia, methanol, ethylene, propylene, and benzene—that together account
for about 65% of the industry's emissions (RMI Model). Many of the solutions applied to these
chemicals will be relevant to the long tail of chemicals responsible for the remaining 35% of
emissions.

Without intervention, emissions from these six primary chemicals could more than double by 2050,
rising to over 70% of US industrial emissions and 7% of total US emissions³. Addressing these
emissions is crucial to achieving national and global climate goals.

This report provides a reality-forward, data-driven analysis of the levers available to reduce
emissions from the production of each of these chemicals and the barriers to their adoption. We
will explore both primary chemicals as a whole and dive deeper into each of the individual
chemicals so the reader can see the big picture for the sector and understand the nuances of
individual primary chemicals production and emissions reduction opportunities.

Specifically, this report focuses on well-to-gate emissions, encompassing GHGs released
throughout the production process—from raw material extraction and transportation to
manufacturing—until a chemical leaves the factory gate. RMI developed a comprehensive baseline
that includes Scope 1 emissions (direct emissions from owned or controlled sources), Scope 2
emissions (indirect emissions from purchased electricity), and Scope 3 end-of-life emissions (e.g.,
raw material production, transportation, and methane leakage from fuels and feedstocks). Scope 3
end of life emissions are outside the scope of this report and analysis.

By 2050, fossil-based feedstocks for chemicals could account for nearly half of the global demand for oil and
gas, continuing the cycle of fossil fuel extraction and refining. Recent studies have shown that
the official national emissions inventory grossly underestimates upstream methane leakage by up
to a factor of three. Therefore, it is important to include emissions associated with feedstocks
in any analysis of GHG emissions tied to the chemical sector.

We identified and rigorously assessed the emissions reduction potential of 20 emissions
reduction levers through in-depth interviews with over 30 experts—including policymakers,
industry leaders, environmental NGOs, academics, innovators, consultants, and financiers. Their
insights, combined with a comprehensive literature review and RMI-developed carbon intensity
model for primary chemicals adapted from the open-source GREET model provide the foundation of
this report. Our analysis establishes the emissions reduction potential and barriers to
deployment of these 20 emissions reduction levers across four categories: alternative production
methods, alternative heat sources, cleaner operations, and alternative feedstocks.

Of these emissions' reduction levers, only 10 are commercially viable today. These near-term
levers are mature technologies already backed by industry investments, with at-scale project
announcements, and on-the-ground initiatives. Yet, they face significant barriers to scaled
deployment, limiting their emissions reduction potential today to 34% of current sector
emissions (ES 1). Barriers include infrastructure availability, zero-emission power
availability, feedstock availability, storage capability and costs. These barriers can be
overcome by building necessary infrastructure, enabling policy and financial support, and a
unified standard for product-level emissions accounting to provide transparency and trust to
encourage the low-carbon materials market (ES 2). With targeted policy and infrastructure
support, we could unlock an additional 14% of emissions reductions, reducing overall sector
emissions by almost 50% in the near term.

For the remaining 10 emissions reduction levers, most are not yet commercially viable while some
are challenged by doubts about their potential to reduce emissions at reasonable cost.
Accelerating the technological readiness and adoption readiness of these levers and others with
supportive policy, financing, and RD&D funding will be critical to ensure they play a role in
emissions reduction towards 2050 sector targets.

While supply-side interventions, that is cutting emissions from the manufacturing of chemicals,
are essential, they alone will not achieve the necessary emissions reductions to achieve a
net-zero chemicals sector. Demand-side measures—such as reducing single-use plastics, designing
for reuse and circularity, and implementing Extended Producer Responsibility (EPR) policies are
equally important, and often can be lower-cost alternatives to supply-side emissions reduction
levers.

Despite the complexity of this challenge, there is room for optimism. Leading companies are
taking meaningful action and government support via the Inflation Reduction Act has been
catalytic. Industry-wide transparency and accountability initiatives—similar to the Responsible
Care program—can further build trust and drive action.

It takes time to move such an asset-heavy industry, yet, at this moment there is momentum, and
the next decade is critical - achieving a climate-aligned chemical industry will require bold
action and collaboration among policymakers, corporations, and other stakeholders to lower the
barriers to adoption. It is possible to envision a future for the chemicals sector that
drastically cuts emissions, toxicity and other environmental and human health impacts while
continuing to provide the materials that underpin modern life.

We acknowledge the generous support from the ClimateWorks Foundation to fund this report.

Chemicals are used to make 96 percent of the goods we use every day — from fuel in ships that
transport goods around the world, to the materials used in buildings that house us, to the
fertilizers that help grow our food, and the molecules in paints, packaging, and personal care
products.

This report focuses on the US chemical industry which currently contributes 4 to 5 percent of
total US greenhouse gas emissions. The production of six primary chemicals — hydrogen, ammonia,
methanol, ethylene, propylene, and benzene — makes up about 65% of these emissions. These
chemicals are the focus of this report⁴. If the industry continues to grow as projected, production of these chemicals could nearly double by 2050 and with no changes to the status quo, their emissions will grow in lockstep.

With increasing consumer demand for sustainable products, and the passing of the Inflation
Reduction Act (IRA), Bipartisan Infrastructure Law (BIL) and CHIPS and Science Act, there is an
economic opportunity for the US chemical industry to transition to cleaner production methods
for these chemicals. However, these programs and incentives are proving to be insufficient —
action from industry remains slow chiefly due to high costs, inadequate infrastructure, and long
and uncertain permitting timelines.

Importantly, the chemical industry also supplies materials for 75% of emission reduction solutions across all
sectors of the economy, including critical components like ethylene vinyl acetate in solar
panels and refrigerants in heat pumps for buildings and industrial uses.

The current landscape of public announcements and commitments from chemical sector companies
suggest that the industry needs additional support to lead emissions reduction efforts
effectively. Setting more ambitious targets, developing comprehensive strategies, and ensuring
policy and market structures to enable significant investments will be essential to align the
sector with global climate objectives.

The chemical industry faces a significant challenge in reducing emissions because
emissions-intensive fossil fuels are used as both the inputs (feedstocks) for producing
chemicals and the energy source (fuel) required to process these materials into final products.
By 2050, these feedstocks could account for nearly half of the global demand for oil
and gas, thus continuing the cycle of unmitigated fossil fuel extraction and refining.

Given the complexity of the chemical industry, there is no single solution for reducing
emissions in the sector. Both reducing demand for chemical products and implementing supply-side
emissions reduction technologies will be essential to meet climate goals. Due to the industry's
long turnaround and capital planning cycles, typically 1 to 10+ years long, it is crucial to
speed up the commercialization of new technologies and economic viability of existing
technologies to deploy as soon as possible. Investing in these solutions also presents an
opportunity to minimize the cumulative environmental damage from emissions to water, air, and
land, which currently have a disproportionate impact on frontline communities.

To identify strategies to support the sector's transition, RMI evaluated the current emissions
baseline, investigated emissions reduction strategies, and modeled their potential impact. This
report offers a data-driven, “reality-forward” analysis for the US chemical industry. Our goal
is to enhance the emissions visibility of 6 primary chemicals, quantify the impacts of 20+
emissions reduction levers for the sector, and understand current deployability of near-term
levers, to drive rapid, meaningful action to reduce emissions, improve air quality, and drive
the sector towards a clean and prosperous future for all.

The six focus primary chemicals are building blocks for everyday products. Hydrogen is used in
oil refining and to produce ammonia and methanol. Ammonia itself is essential for fertilizers,
which help grow the food we eat. Methanol serves as a base for plastics and paints. Ethylene is
used to make polyethylene, a widely used plastic found in everything from plastic bags to
containers. Propylene is used to make polypropylene, a plastic found in packaging, textiles, and
auto parts. Finally, benzene is a core component in producing various chemicals that become
plastics, resins, and nylon fibers, commonly found in consumer goods, packaging, and even
clothing. Together, these chemicals form the foundation of numerous products that support modern
life.

Why Primary Chemical Production Releases So Many Emissions

The physical mass of material produced by the chemical industry is enormous, which is one of the
main reasons that the sector has a large GHG footprint. In the United States alone approximately
90 million tons of these six primary chemicals were produced in 2019, and the reactions that
transform raw materials into these chemicals are very energy intensive, resulting in significant
greenhouse gas emissions from their production.

It takes energy to extract, purify, and transport the raw materials, or feedstocks, such as
natural gas (primarily methane), naphtha, and natural gas liquids (NGLs) used to make these
chemicals. Feedstock and fuel extraction, processing and transportation account for about 39%
of the emissions from these primary chemicals' production (RMI Analysis).

Energy is also used to transform and purify these chemicals, using processes like drying and
separation, and to move these materials from one part of the production facility to another
using equipment like pumps and compressors. Today, most of the energy used to fuel these
processes is derived by combusting fossil fuels — generating greenhouse gas emissions. A smaller
part of the energy used comes in the form of electricity, which itself is primarily generated by
combusting fossil fuels. Energy use accounts for about 26% of the emissions from these
primary chemicals' production (RMI Analysis).

In addition to emissions associated with energy consumption, sometimes chemical reactions
themselves produce carbon dioxide. The most significant example of this is the steam methane
reforming (SMR) reaction used to make hydrogen. Direct emissions from the production process
account for about 34% of emissions from the US chemical sector (RMI Analysis).

GHG emissions also come from a multitude of inefficiencies throughout the production process,
such as methane leaks during natural gas extraction and processing; and wasted energy at the
production facilities due to inefficient design and inadequate maintenance. Improving efficiency
can help reduce the emissions generated from feedstocks processing and energy use.

The Chemical Sector Emits More Than We Think

Establishing baseline emissions for the chemical sector presents significant challenges. While
the Environmental Protection Agency's Greenhouse Gas Reporting Program (GHGRP) provides detailed
accounting of Scope 1 and Scope 2 emissions, the emissions associated with the extraction,
processing, and transportation of fossil-based feedstocks are less certain. Existing
self-reported data has likely underestimated these upstream emissions.

As previously noted, fossil fuels serve both as feedstock and energy sources to produce primary
chemicals. Consequently, variability in upstream greenhouse gas emissions directly affects both
feedstock-related and energy-related emissions from chemical production. For example, using the
Department of Energy's GREET model default methane leakage rate of 0.94%, the emissions from the
six primary chemicals' production in 2019 were estimated at 158 million metric tons (MMT) of
CO₂-equivalent (CO₂e). However, under a worst-case methane leakage
scenario of 9.6%, these emissions nearly double to 291
MMT CO₂e.

Our model and analysis in this report assumes a US average methane leakage rate of 2.2% for
natural gas and natural gas liquid production, resulting in estimated baseline emissions of 178
MMT CO₂e—13% higher than the GREET default. This higher leakage rate more accurately
represents the average measured methane leakage from the upstream supply chain as found in
Stanford's million measurements study.

Who Makes Primary Chemicals?

Currently in the United States each of the primary chemicals is made using one dominant
production method, except for propylene which has two dominant production methods (Exhibit
7).

Primary chemical production in the United States is highly concentrated among a few large
companies, with a long tail of smaller producers. For example, the top five producers of
hydrogen, ammonia, and steam-cracker chemicals are responsible for approximately 72%, 75%, and
64% of the total emissions from producing these chemicals, respectively.

In hydrogen production, multinational industrial-gas and oil-and-gas companies are the dominant
players. Similarly, ammonia and methanol production in the United States is concentrated among
large, consolidated companies operating high-capacity facilities to serve industries like
agriculture, fuels, and chemicals. For ethylene and propylene, production is led by
multinational, diversified chemical companies that leverage their scale and integration across a
wide range of petrochemical products.

Benzene, along with a share of propylene, is produced primarily as a gasoline by-product
from the oil and gas refining process. Production of benzene and about 65% of propylene produced
in the United States is closely tied to refinery operations and output, rather than being
produced through dedicated chemical facilities.

Business as Usual Has Significant Impacts on the Environment

The chemical industry underpins our modern economy and it's not going away, especially given the
sector's ability to manufacture goods so cheaply and abundantly that they are often seen to be
single use, disposable, and wasteful. Major companies are recognizing the need to reduce
emissions and are taking early, actionable steps to do so. But from a global perspective,
commitments and actions fall short of a climate-aligned chemical sector by 2050. If we continue
this current trajectory, we will overshoot our emissions targets and see catastrophic
consequences for the climate and global population. We need to take urgent action to transform
our ways from the old, polluting production methods to new, thoughtful, efficient, and less
polluting production of the future.

In an ideal world, we could implement all of these emissions reduction levers fully across the
chemical sector and drive emissions down to a net zero scenario. Although this would lead to
transformative change, given the current state of technological readiness, adoption readiness,
and availability of enabling policy and infrastructure this is unrealistic today. To understand
what is actually possible today, we undertook a site-specific analysis that considered:

• How can these solutions align with community concerns, priorities, and desires to ensure
  harm reduction for historically burdened communities?
• What are each site's geographic opportunities and constraints?
• Which emissions reduction levers are most advantageous for a given production method?
• What is the technology readiness level and anticipated cost for the emissions reduction
  levers?

The map below shows emissions from the US chemical production facilities analyzed - Refineries,
Hydrogen, Methanol, Ammonia, and Steam Crackers with their total site emissions represented by
bubble size. A few high-level observations for chemical production:

• Clear clustering of sites along the US Gulf Coast, California, and Midwest
• Solutions that work are going to vary from site to site based on feedstock availability,
  renewable energy potential, infrastructure proximity (pipelines, storage wells, and
  transmission), CO₂ storage potential, and other factors.

Ten Emissions Reduction Levers Deployable at Scale Today

Here's the bottom line: ten emissions-cutting solutions are technically ready to deploy at scale
today, with the potential to slash emissions by 34%. These are mature technologies already
backed by industry investments, project announcements, and on-the-ground initiatives. But
"deployable today" doesn't mean they're instant fixes—bringing them online in industry takes
time. For many facilities, installation can only happen during planned downtime, which might
come every 1 to 10+ years. Add to that extensive review and approval processes, permitting,
social license to operate - all delaying a solution that's technically ready today for three
years or potentially more to make an impact.

To identify the barriers to adoption, each lever was rigorously assessed through in-depth
interviews with thematic experts from thirteen RMI programs, as well as over twenty external
thought leaders and changemakers. These included leaders from four of the most influential
chemical companies in the United States. Exhibit 11 below shows the top ten near-term solutions,
along with the key challenges hindering their implementation. Addressing these obstacles
directly will enable the chemical industry to accelerate adoption at scale.

This analysis also dives into what's possible across US facilities: it looks at how many sites
could adopt these solutions right now, what it would take to enable wider adoption, and the
production growth limitation needed to hit climate targets.

What Makes an Emissions Reduction Lever Deployable Today?

To determine the likelihood of each emissions reduction lever's implementation today, geographic
and economic factors were considered. These were used to assign a likely adoption rate of each
lever for every site. Details on the criteria and adoption rates can be found in Appendix
C.

This analysis determined deployability on a geographic basis for each emission reduction lever.
Each also requires permitting and infrastructure which can face community acceptance risks. For
all projects suggested as potential solutions for a particular site, it is essential to engage
the local community, ensuring their voices are a meaningful part of any decision-making process.
No project will be successful without community support, and tangible benefits flowing to those
impacted. Additionally, solutions should not be implemented if they increase harm to communities
in their immediate location. Resources such as the Justice 40 initiative should be used to
evaluate impacts, mitigate risk, develop benefits, and ensure all voices are heard.

This analysis determined that approximately 34% of emissions could be reduced in the near term
if the sites deploy all 10 of these emission reduction levers at their facilities to the extent
that infrastructure, policy and the market allows today. This is an optimistic forecast as it
does not account for individual company financial and risk tolerance, political climate and
other factors that will impact their likelihood of implementation. This level of emissions
reduction is insufficient as a path to net-zero, however there are significant opportunities to
increase the deployability of each of these levers across the sites in the United States.

Additionally, this analysis focuses on emissions reductions from a 2024 baseline. If industry
growth follows anticipated projections, total emissions could increase by 2050 even with 34%
reduction from these emissions reduction levers today. Industry research states that chemical
growth needs to be tempered to keep the path to net zero by 2050 attainable. To achieve this, strategies such as extended producer responsibility,
substitution, waste management, reuse models, and more need to be prioritized.

Cleaner Operations: Significant Potential for Emissions Reduction

Cleaner operations, including High-Purity Carbon Capture, Methane Leak Mitigation, and Upstream
CO₂ Emissions Mitigation, present the largest near-term potential for emissions
reduction. Based on this analysis:

• 41% of sites (Hydrogen and Refineries) can implement high-purity carbon capture projects
  due to their proximity to announced CO₂ storage or pipeline
• 51% of sites can implement methane leak mitigation at no net cost
• 13% of sites can implement upstream CO₂ emissions mitigation with zero-emission
  power
• This deployment level could reduce sector emissions by 16% near-term

Methane leak mitigation projects, which typically have lower capital expenditures and high
returns, offer an attractive alternative to costlier carbon capture and electrification
initiatives. The 51% deployment of methane leak mitigation is all achievable with no net cost
according to the IEA methane Tracker. Although 51% deployment is theoretically achievable, based
on corporate commitments to OGDC and OGCI, only 15% of US producers are publicly committed to
reducing methane leakage to 0.2% - highlighting the need for policy and differentiated markets
to develop.

High-purity carbon capture is particularly promising for hydrogen production and Fluid Catalytic
Cracking (FCC) offgas; however, deployment depends on proximity to CO₂ pipelines or
storage sites.

Process Heat Decarbonization: Overcoming Temperature Constraints

Decarbonizing process heat remains a significant challenge for the chemical industry, but with
huge potential for reduction of emissions. Based on this analysis:

• 26% of sites could deploy low temperature process heat-related projects based on production
  routes and their temperature requirements
• This deployment level could reduce sector emissions by 2% near-term

The adoption rate is limited by:

• Temperatures required for the process. Methanol, ammonia and steam cracking have limited
  low temperature applications that comprise 13%, 9% and 1% of heating requirements,
  respectively.
• Higher temperature processes such as steam cracking, hydrogen production and refineries
  require lower technology readiness level (TRL) solutions such as e-crackers or green
  hydrogen fuel which are not yet ready to scale cost competitively.

Efficiency measures, including advanced catalysts and alternative reaction pathways, offer the
potential to lower reaction temperatures and reduce energy demands, allowing for solutions like
heat pumps, thermal batteries, and electric boilers to operate effectively. Efficiency
improvements are particularly appealing due to the high return on investment associated with
energy savings.

Blue Hydrogen Fuel Switching: A Limited Opportunity

Blue hydrogen is an attractive solution to replace natural gas in fired heaters in the interim
as zero-emissions power and electrolysis for hydrogen production are scaled. Based on this
analysis:

• 19% of sites could deploy blue hydrogen as a fuel based on proximity to announced blue
  hydrogen projects
• This deployment level could reduce sector emissions by 3% near term

The adoption rate is limited by:

• Proximity to announced blue hydrogen projects
• Cost of purchasing blue hydrogen compared to natural gas to use as fuel. Assumptions in
  Appendix C.
• Remaining on-site fuel gas balances for internal methane gas production (i.e., in steam
  cracking).
• Significant capital investments to adapt on-site and offsite infrastructure, including
  hydrogen supply systems, burner modifications, and control systems to safely handle hydrogen
  fuel.
• Reliability issues including availability of backup fuel supply.

Investment in blue hydrogen infrastructure today is a future-proofing solution as electrolytic
hydrogen with zero-emissions power gains momentum as the controls, pipelines, and burners will
function regardless of the source of the hydrogen.

Zero-Emissions Energy Procurement: A Near-Term Solution for Power Needs

Procuring zero-emissions power to meet current electrical load offers a near-term emissions
reduction pathway that sees direct benefit. Based on this analysis:

• 34% of sites can implement renewable energy purchasing projects based on behind-the-meter
  deployment in their state
• This deployment level could reduce sector emissions by 0.3% near term

Although the adoption rate is high for renewables, the impact today is low due to low
electricity demand at chemical facilities as most process heat is provided by combustion,
leaving pumps, compressors, controls, and facility lighting as the main electrical users

As more sites electrify operations for process heat and new production pathways, the impact of
zero-emissions power will increase for production sites. Starting conversations now with
utilities and developers to procure zero-emissions power is a stepping stone to future
electrical needs for the sites. Utilities will need to not only produce the energy but find ways
to transmit and store it to provide the constant electricity supply large industrial facilities
require.

Alternative Feedstocks: Limited Volumes and a Battle for Feedstocks

Alternative feedstocks are gaining traction as an emissions reduction strategy. In the near
term, blue hydrogen feedstock switching and use of bio-based feedstocks, like used cooking oil,
are expected to grow. Based on this analysis:

• 38% of sites can implement blue hydrogen feedstock switching projects based on their
  proximity to announced blue hydrogen projects
• 8% of sites can implement used cooking oil feedstock switching projects
• This deployment level could reduce sector emissions by 3% near term

The adoption rate is limited by:

• Blue hydrogen availability; based on the number of announced projects, there will be
  competition for the lower emissions feedstock amongst sites and geographies.
• Used cooking oil availability; competition with the biofuel market to be directed to
  chemicals

Unlike fuel switching, blue hydrogen feedstock switching is feasible without extensive site
modifications if hydrogen is already delivered through pipelines to the site.

Mechanical Recycling: Deployable at Scale Today but Limited in Potential Impact

Mechanical recycling is currently the most scalable alternative production route, while other
pathways require further development to lower their carbon intensity or reach commercial
readiness. Based on this analysis:

• 6% of sites can implement mechanical recycling projects to reduce virgin demand based on
  state-specific recycled content availability
• This deployment level could reduce sector emissions by 0.2% near-term

Today's impact is limited to a 0.2% reduction due to varying recycling rates by region impacting
the availability of recycled material. Increasing sorting and recycling incentives for plastics,
such as rigid PP, HDPE, and LDPE, as well as a stable offtake could bridge the gap toward this
emissions reduction potential, especially in regions with lower recycling effectiveness.

Depending on the specific chemical, and where the sites producing that chemical are located in
the United States, the deployability changes significantly as shown in Exhibit 13. Cleaner
operations are the most deployable levers at 16% emissions reduction potential today, primarily
driven by methane leak mitigation and carbon capture on high-purity streams associated with
hydrogen production. Energy and process heat is close behind due to the deployability of
efficiency projects in virtually all facilities with high returns on investment and emerging
technologies for low temperature heat.

How do we unlock the remaining 66% of emissions? There are two parallel paths that are critical
to reach a climate-aligned chemicals sector. First, increase policy and infrastructure support
to scale up deployment of these near-term, viable levers. Second, fund innovation to support the
scale up of new technologies to address the remaining emissions and identify new groundbreaking
technologies that could have an even greater impact.

Policy and Infrastructure Improvement Opportunities

We evaluated select cases to understand how much additional emissions reductions could be
achieved with additional policy and infrastructure support.

• Increasing the 45Q tax credit for carbon storage from $85/metric ton to $95/metric ton
• Increasing methane leak mitigation by implementing abatement measures at or below a
  $3/mmbtu cost
• Increasing mechanical recycling rates across the United States through bottle bills and
  extended producer responsibility to bring rates up to the levels we see in the top
  performing states today
• Additional incentives to get blue hydrogen to cost parity with grey hydrogen for feedstock
  use

If these four changes were implemented, we could see an additional 14% decrease in emissions
from the chemical sector in the near term. With an additional $10/metric ton 45Q credit the
emissions reductions from high-purity carbon capture could increase by 6% as sites that are
currently too far from storage or pipelines could justify the cost of the additional transport
distance. An increase in methane leak mitigation deployment reduces emissions by an additional
3.5% as sites invest in quarterly leak detection and repair, flaring improvements and pump
electrification along their natural gas supply chains. Mechanical recycling rates could reduce
emissions an additional 1.2% if we implement bottle bills and extended producer responsibility
measures that are proving to be successful in the states with the highest rates today. And
finally, if incentives can bring the price of blue hydrogen to parity with grey hydrogen today,
many more sites could purchase a lower emissions feedstock to lower their scope 3 emissions at
no additional cost, resulting in a potential 2%-8% reduction in emissions (depending on specific
site adoption).

With infrastructure and policy improvements, we could reduce an additional 14% of emissions from
the chemicals sector reaching almost half (48%) of emissions mitigated. The remaining half of
sector emissions could be addressed by a combination of near-term levers and innovative
technologies. More aggressive policies will help support additional deployment of existing
solutions, but a large dose of innovation will be required to disrupt the current norms and make
sizeable emissions reductions.

Building Infrastructure: The Backbone of Decarbonization

Infrastructure is essential to support efforts for emissions reduction across the sector. Given
the diversity of sites and their geographical spread, developing robust infrastructure for
energy and material transport is crucial. Key infrastructure priorities include:

• Zero-Emissions Power Generation, Storage and Transmission: Vital for supporting
  direct electrification and green hydrogen expansion.
• CO₂ Transport and Storage: Enables efficient carbon capture and blue
  hydrogen production, particularly in high-potential areas like the US Gulf Coast and
  California.
• Hydrogen Transport and Storage: Enables alternative fuels and feedstocks for
  production facilities throughout the United States. Storage of hydrogen is one of the
  solutions to zero-emissions power intermittency if hydrogen is produced and stored when
  zero-emissions power is abundant.
• Recycling Infrastructure: Essential for expanding the supply of recycled feedstocks.
• Biofeedstock Collection and Transport: Supports the shift to bio-based inputs.

Policy & Financial Support: Fueling the Transition

Financial and policy support is vital to overcome high capital expenditures (CAPEX) and allow
businesses to invest in these ambitious projects while maintaining profitability. Without
regulatory incentives, many companies struggle to justify these investments. Key policy-driven
solutions include:

• Differentiated Markets: Creating premium markets for low-emissions products based on
  carbon intensity (e.g. methane, sustainable aviation fuel, low-emissions steel) can boost
  returns for lower-emissions alternatives.
• Expanded Incentives and Credits: Increasing credits, like the 45Q carbon capture
  credit, credits aimed at low emissions hydrogen, and introducing loan programs specific to
  chemicals would help offset CAPEX requirements and bring down cost.
• Increase Methane Leakage Regulations: Stricter methane leakage operational
  requirements for upstream operators, at the state or federal level, would help chemical
  producers significantly reduce their scope 3 upstream emissions.
• Alternative Feedstock Incentives: Ensuring bio-feedstocks and low-emission
  CO₂ (such as from Direct Air Capture) are equally incentivized for chemical
  production, not just fuels.
• Growth Limiting Initiatives: Policies aimed at limiting growth for chemicals—such as
  limits on single-use plastics, incentives for reuse models, stricter emissions standards for
  new builds and regulations for Extended Producer Responsibility—can drive significant,
  cost-effective emissions reductions.

Standards & Accounting: A Foundation for Transparent Progress

To implement these solutions effectively, clear standards for emissions transparency and product
carbon footprinting are essential. Understanding and comparing carbon intensities will enable
product differentiation, credits, and targeted improvements. With various standards under
development, the industry needs harmonized accounting guidance to ensure accurate and comparable
data across products.

Innovation will play a transformative role in enhancing current technological deployment and
introducing novel alternatives to allow the sector to decouple from fossil fuel extraction. We
need to accelerate these innovation areas in tandem with cleaning up current operations to
reduce emissions for the sector. To accelerate innovation, we must increase funding support
(through loans and grants) and build supportive ecosystems through programs like Third Derivative's Industrial Innovation Cohorts. Focus
areas for innovation include:

• Electrification: Transitioning from natural gas-based processes to
  zero-emissions-powered, direct electrification solutions, such as e-crackers and electrified
  Haber-Bosch processes to address high temperature heat.
• Catalysis Improvements: Developing catalysts that reduce the heat and energy required
  for chemical reactions.
• Alternative Pathways: Exploring new production methods, like using CO₂
  feedstocks or low emissions intensity advanced recycling, to reduce reliance on fossil
  fuels.
• Modularity: Exploring the relevance and benefits of deploying modular solutions (e.g., gasification, H2 production) close to feedstock sources of biomass and zero-emissions power rather than transporting the feedstocks to a centralized location.
• Material Efficiency in Design: Creating products with lower material demands to
  achieve the same functionality, reducing overall chemical demand and emissions.

Using the RMI model, we evaluated the maximum potential reduction that could be achieved by both
near-term levers and new technologies if all barriers were removed, and all sites were able to
implement them to their fullest extent. This analysis does not account for the overlapping
impact of some levers or assume scenarios of which levers will be deployed in the future, but
shows all levers relative to each other, and can be used to help prioritize projects and
decision making for future investments.

Maximum emissions reduction potential is the share (%) of emissions from the six focus primary
chemical production in the United States that can be reduced by implementing the emissions
reduction lever at all relevant production facilities.

Table 3 below summarizes the maximum emissions reduction potential for well-to-gate emissions
from the six primary chemicals. This table highlights the substantial role Cleaner Operations
(69%) and low emissions Energy/Process Heat (50%) can play across primary
chemical production. For chemicals like ammonia and benzene, Alternative Feedstocks (36%)
can also have a notable impact.

In the case of Alternative Production Methods (95%), the maximum potential is achieved by
switching 100% of production from conventional methods to the alternative production method.
Alternative production methods show significant promise in reducing emissions, particularly for
hydrogen, methanol, and steam cracker products. Switching to alternative production methods
implies a shift from conventional assets to new assets. It's important to note that any
emissions reduction levers applied to conventional production methods, from cleaner operations
to decarbonized energy/heat, and alternative feedstocks may have the effect of locking in
conventional assets, creating a more difficult path to commercialization and scaling for
alternative production methods. This lock-in risk must be balanced against the need for
near-term emissions reduction.

Hydrogen production from electrolysis (49%), decarbonization of process heat (32%), and
carbon capture on high-purity stream (32%) are the highest impact individual levers
currently available to reduce emissions from primary chemical production (Exhibit 15).

With a vision towards what is deployable today, and what could be possible for emissions
reduction levers in the chemical sector, the next steps must focus on accelerating adoption of
deployable levers and unlocking new innovative levers to achieve climate alignment.

We narrow down to three key focus areas for the future of the chemical sector:

1. Developing regulations and markets to ensure emissions reduction actions have the
   incentives needed and prevent the sector from stalling on progress while it continues to
   grow.
2. Cleaning up fossil fuels. We will continue to see fossil feedstocks and fuels used in
   the short term so deploying near-term levers that clean up fossil fuel extraction,
   processing and use will reap long-term benefits.
3. Innovating to transition away from fossil fuel heat and towards cleaner feedstock.
   Addressing high temperature heat through efficiency and green hydrogen while developing
   alternative production methods will unlock a future, low emissions, chemical sector.

Individual stakeholders connected to the chemical industry will have different roles to play to
make progress toward a climate-aligned sector. Policy makers, producers, retailers, investors,
financial institutions, and climate NGOs, all play an important part in guiding the sector
towards a clean and prosperous future for all.

• State and Federal Policymakers
  • Expand policies at national and sub-national levels that enable the near-term
    deployment of cleaner technologies (45Q, methane leak mitigation, mechanical
    recycling, infrastructure development, etc.). Prioritizing those with the highest
    impact based on the findings in the deployability section of this report.
  • Develop regulations that further incentivize innovation and deeper emissions
    reductions that can only be achieved with new, currently costly technologies that
    need support to scale up and come down the cost curve.
  • Incentivize the adoption of low-emissions industrial heating technologies by
    implementing a clean heat produce-and-use tax credit.
• Chemical Producers
  • Invest in and accelerate the deployment of near-term solutions that are economically
    viable to reduce emissions impacts today (efficiency, renewable energy, methane leak
    mitigation, etc.)
  • Collaborate and partner with innovators to pilot novel technology, and validate
    product characteristics, while increasing own investment in internal R&D
  • Participate in coalitions and convenings to engage with other stakeholders on
    challenges and opportunities for the sector.
• Manufacturers, Retailers, and Consumers of Chemical Products
  • Provide demand signals for a low-emissions product. Ask suppliers of primary
    chemicals for reductions in their product carbon footprint and enter into offtake
    agreements that build trust and enable large investments.
  • Participate in coalitions and convenings to ensure the demand signal is sent and
    received throughout the value chain of the product.
• Investors and Financial Institutions
  • Invest in early-stage start-ups with the potential to drive significant emissions
    reductions through new and innovative technologies.
  • Review existing holdings to identify opportunities to create value from
    climate-aligned operational efficiencies and upgrades.
  • Signal to incumbents that ambitious operational emissions reduction plans and
    alignment with sector transition plans are necessary to access financing for
    projects.
  • Create or participate in more climate-aligned investment vehicles with clearly
    articulated sustainability objectives.
  • Collaborate with insurance companies, philanthropies, engineering firms, and other
    market participants to develop risk-mitigating solutions for first-of-a-kind
    projects.
• NGOs
  • Promote a message of ambitious emissions reductions. The analysis in this report can
    provide the data to show that there is hope for a climate-aligned chemical industry
    and that there are solutions that can be deployed today.
  • Raise ambition for near-term action in the sector to stop unnecessary emissions that
    could be mitigated today.

While these findings showcase impactful reduction levers and opportunities available today,
additional work remains. The RMI Chemicals Initiative aims to build on this foundation, with
future efforts focused on:

• Expanding emissions visibility work to cover additional chemical pathways and key
  global regions, including the EU, China, and Southeast Asia.
• Developing approaches to advance technical and commercial viability of earlier-stage
  innovations to ensure emerging emissions reduction levers can reach their full potential.
• Creating tailored net-zero strategies that consider the unique financial capacities,
  investment approaches, and risk profiles of different company archetypes in the sector.
• Activating demand and markets for climate-differentiated chemical products by
  supporting the structures necessary for initial transactions.
• Assessing capital requirements, levelized costs, and the resulting green premiums of
  the emissions reduction levers in this report including implications for industry leaders
  and policymakers.

We look forward to collaborating to build a future for the chemicals sector that continues to
deliver essential products for modern life while minimizing impacts on climate and communities,
securing a clean and prosperous future for all.