Over the past decade, the chemical industry experienced the start of a paradigm shift driven by growing environmental awareness and supportive policies promoting the development and scale-up of more sustainable chemicals and a circular economy. This included increased efforts for bio-based chemicals, low carbon chemicals via mass balance approach, chemical plastic recycling, and even CO2 to chemicals. However, the industry now faces numerous challenges that threaten this momentum, including shifts in corporate strategy, policy reversals, cancelled projects, and investment withdrawals. As a result, the chemical industry must adapt to the rapidly changing landscape.
Scale-Up Difficulties and Corporate Strategy Shifts
A series of recent events, including companies scaling back sustainability pledges, reducing or halting low-carbon investments, and facing other financial troubles, highlighted some of the struggles currently facing sustainable chemicals.
International oil majors BP, Shell, and Equinor have recently announced reductions in low-carbon investments to prioritize more immediate profitability goals. Although they are primarily energy companies, their actions reflect broader challenges felt throughout the value chain for all types of sustainable chemicals.
- After going public in 2020 and announcing plans for a USD 700 million expansion of manufacturing capabilities, Danimer Scientific filed for Chapter 11 bankruptcy, casting doubt on the future of degradable plastics PLA and PHA.
- The viability of scaling up chemical recycling has hit a roadblock, as Brightmark announced that its Indiana pyrolysis plant was only running at a fraction of its operating capacity and has also filed for bankruptcy. Brightmark plans to continue operating the plant while pursuing opportunities to sell it.
- Carbon recycling and ethanol technology firm, LanzaTech, recently received a 2 cents per share takeover offer from Carbon Direct Capital Management. At the time of writing, LanzaTech’s stock was trading at USD 0.24. This comes after announcing that the company would spin out its synthetic biology platform in 2025.
- In a shift of corporate sustainability strategy over the past twelve months, Coca-Cola and Unilever have announced they will scale back their goals for recycled material and virgin plastic usage, respectively, indicating potential economic difficulties and overly aggressive near-term targets.
These developments highlight poor demand, financial instability, and likely pressure from investors, which collectively threaten the momentum and viability of the sustainable chemicals sector but do not reflect the entirety of the current situation.
Policy Reversals
In the United States, the Trump administration’s proposed budget cuts and layoffs to agencies like the EPA, DOE, and NREL have created significant obstacles for the sustainable chemicals sector, which include proposed USD 2.5 billion cuts to DOE renewable energy programs and the cancellation of USD 15 billion in funding for renewable energy technology infrastructure. The EPA has also been ordered to cancel previously awarded research grants to U.S. universities and has frozen up to USD 20 billion in funding for clean energy and efficiency programs, including projects related to forever chemicals and compostable packaging.
Forced and voluntary layoffs have significantly reduced the workforce throughout the federal government but have been seen in ARPA-E and the Loan Office, with the administration signaling a desire to eliminate both. Furthermore, Congress is targeting clean vehicle rules, which could impede progress in electric vehicle development. These policy shifts predominantly impact energy-related projects and research, but the same sentiment and a likely ripple effect extend to sustainable chemicals.
In the European Union, the regulatory landscape is also becoming more challenging. The European Commission plans to reduce sustainability reporting requirements and curb its green agenda in response to pressure to align with the Trump administration’s policies. According to CEFIC, the EU’s environmental regulations are costing global chemical companies more than USD 20 billion per year, with up to 10% of chemical firms’ capital spending in Europe dedicated to regulatory compliance.
Eight countries are advocating for safeguarding 15 essential chemicals (derived through traditional pathways) to protect jobs, boost EU manufacturing, and reduce import reliance. Carbon taxes are also affecting investments, with INEOS pausing projects that would have made their operations more efficient and sustainable.
While the changing political winds in the U.S. primarily impact energy-related projects and research, the same challenges apply to the sustainable chemicals sector. The administration’s push for increased fossil fuel and petroleum use poses a significant obstacle for bio-based and other sustainable chemical sources. Similarly, in the EU, regulatory and financial pressures are creating substantial headwinds for the sustainable chemicals industry. These combined factors underscore the broader struggles facing the sector, from policy reversals to financial instability, undermining the progress and long-term success of sustainable chemicals.
Financial and Investment Hesitations
Despite growing investor pressure for sustainability initiatives over the last decade, companies faced challenges in aligning sustainability ambitions with actual investments. Banks and investors are also tightening lending for first-of-a-kind commercial facilities in the sustainable chemicals sector. Recent headwinds in the financial and investment sectors include:
- Royal Bank of Canada ended its sustainable finance goals and quit the Net-Zero Banking Alliance. The bank is putting pressure on new PM Mark Carney to improve sustainable financing goals in the financial sector.
- Several sustainability offers from large banks like Barclays and HSBC have stepped down or been relieved of duty, indicating that some lending institutions are shifting their priorities away from climate and sustainability commitments.
- Breakthrough Energy, a climate organization funded by Bill Gates, downsized its US Policy team and European operations and cut funding to various nonprofits. While not a banking institution, Breakthrough does provide private sector funding through its venture capital arm, which is unaffected for now by this shift.
Various other factors are at play that challenge the future viability of sustainable chemicals, including supply chain constraints, feedstock competition with biofuels and food, weak and uncertain consumer demand for “green premium” products, a high-inflation and recessionary environment, and high CAPEX costs.
How Kline Can Help
To navigate these multifaceted challenges, chemical companies must adopt a strategic approach that balances innovation with economic and regulatory realities. Emphasizing incremental advancements rather than direct competition with well-established petrochemical processes can ensure sustainable progress without overextending resources. Companies should focus on “drop-in” solutions that integrate seamlessly with existing infrastructure, minimizing CAPEX burdens while enabling smoother transitions to bio-based alternatives.
At Kline, we are dedicated to empowering our clients in navigating the dynamic landscape of the bio-based and sustainable chemicals economy. Our expert team offers comprehensive insights and strategic guidance, ensuring that your projects are not only innovative but also aligned with the latest industry trends and regulatory requirements. By leveraging Kline’s extensive market research and deep industry knowledge, we help you identify opportunities, optimize processes, and achieve sustainable growth.
We offer solutions that help you:
- Perform detailed market studies and competitive positioning analyses
- Evaluate manufacturing economics and financial modeling
- Understand the policy and regulatory landscape
- Develop successful strategies for technology and product commercialization pathways
By prioritizing resilience, adaptability, and a thorough, data-backed understanding of their markets, firms can position themselves as leaders in the sustainable chemicals sector despite the prevailing policy and economic and environmental headwinds.
