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 deployability purely on a technical 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.