Clean Energy
Transition: Chemicals
A barometer of sustainability change
The chemicals industry presents an excellent barometerof how the demands of clean energy transition is affecting
the chemicals industry itself, as well as the wide web ofindustries it is inextricably linked to. Chemicals producers
consume significant amounts of fuel in energy intensive
processes and as part of feedstocks. The transition torenewable energy and the adoption of cleaner or sustainable
materials in feedstocks (such as finding alternatives
to single-use plastics) will directly affect the industry
and result in massive change to the way it operates.

What’s more, chemicals services many different industries and sectors downstream.
For example, the industry provides materials for electric vehicles (advancedplastics and silicon chips among others), agriculture (pesticides and fertilisers)
and pharmaceuticals. Any changes or directives that impact these sectors will
directly affect the chemicals industry too.
The next three years will be critical for the wider industry as it emerges from thehigh energy prices and economic downturn of the past year or so, while needing
to invest in sustainability. More than 60 countries are implementing bans andlevies on single-use plastics and many counties are including chemicals as partof their roadmaps for sustainability. For example, the EU’s Chemicals Strategy for
Sustainability is part of the bloc’s European Green Deal. The US’s Inflation Reduction
Act includes grants and incentives to build green alternatives. But not all markets
are equal and the requirements for compliance with sustainability legislation varies.

Can renewable energy solutions benefit the chemicals sector by raising incomes,
customer demand and jobs during the next three years?

Unlikely

Not much

Perhaps

A little

Very much

Austria
BelgiumBrazilHong Kong

South Korea

Czech RepublicHungary

Netherlands

Malaysia

PolandPhilippines

TaiwanSingapore
Spain

Australia
China
FranceTurkey

Japan

Ireland

New Zealand

Italy

United Kingdom
United States

SwedenSwitzerland
ThailandSource: Atradius sector specialist underwriters.

What do Atradius underwriters see as the primary issues
for the sector in the region?
We spoke to Atradius underwriters located throughout theworld and asked how the Chemicals industry was being
impacted by the clean energy transition in their markets overthe next three years. For example, governments are currently
strengthening their climate action plans including the EU’s
Corporate Sustainability Reporting Directive (CSRD) and theCHIPS, Science Act and Inflation Reduction Act in the US. For
many businesses, legislation such as these drive opportunities
for growth. This includes the growing need for chemicals forinsulation materials, solar panels and materials for EVs. But
what is the reality on the ground, can companies achievecompliance by 2026?
For our underwriters in Ireland, the answer was an emphatic
yes. But elsewhere, they were less positive. Our colleagues inAustria, China, France, Malaysia, Netherlands, Switzerland andTurkey felt only partial compliance was possible, with Thailand
and the Philippines suggesting their markets were not on

course at all. Interestingly, our underwriters in the Philippines
acknowledged that local companies were unlikely to see
consumer boycotts or blacklisting for non-compliance. They
were also the only market in our survey that could not see
collaboration for sustainable supply chains happening in thenext three years.
Consumer demand for sustainable products is increasing,but this will not necessarily translate into new business forthe industry in the short term. Our underwriters in Australia,
China, New Zealand and Turkey believe there is significant
opportunity for new prospects in their markets. However,
our colleagues in Hungary, South Korea, Malaysia, Sweden
and the USA were more pessimistic about growth prospects
for consumer products, with the Philippines considering
it unlikely. Our underwriters in Brazil, France, Ireland,
Singapore and Hungary pointed out the opportunities
presented by digital tools and AI, with our colleagues inHungary additionally emphasising the potential benefits ofgreen product labels or ratings.

Challenges: What are the most urgent challenges for thesector over the next three years?

Opportunities: What are the greatest opportunities for thesector over the next three years?

1. Cost of transition
Investing in new technologies and clean energy involves
high capital costs. This is currently even more challenging,
especially for smaller businesses, due to the high borrowing
costs and relative scarcity of finance amid the elevatedoperating costs caused by high fuel prices.

1. Growing demand for sustainability
Consumer demand for safer, more sustainable productspresents a huge opportunity. There is significant global
demand for green products, renewable energy solutions andcircular solutions for waste. As an energy-intensive industry,the chemical industry is highly susceptible to oil and gas pricevolatility and may benefit from cost-effective alternatives.

2. Regulation and compliance
As environmental regulations ramp up, many businesses
will not be asking whether they can afford to transition toclean energy, but whether they can afford not to. Stricter
environmental regulations mean chemicals businesses will
face increasing regulatory scrutiny, with potential financial
penalty or reputational damage for non-compliance.
3. Navigating global supply chains
The chemicals industry often trades with long supply chains,
making it especially vulnerable to geopolitical disruptions(including tariffs and trade restrictions), as well as disparityof government legislation across different markets.

2. Digital transformation in R&D
Digital technologies such as AI are transforming R&D
processes across the industry. This is helping in the discovery
and development of new sustainable processes and products,
the opening of new markets and improvements in areas suchas energy efficiency and supply chain management.
3. Investment in advanced materials
Clean energy investment in the chemicals industry is creating
growth opportunities, however this is not limited to thechemicals sector alone. Demand for advanced materials fordownstream applications such as electric vehicles and solar
photovoltaics also presents opportunities for the chemicals
industry.

Where next?
Indications suggest that the global
chemicals industry will enjoy arebound towards the end of 2024,
possibly in the region of 3.1%, driven
largely by demand from emerging
markets and Asia. Some growth will
be boosted by easing inflation andlowering energy prices. However,clean energy transition, digitalisation,
adopting circular processes andimplementing sustainable solutions
will require significant financial
investment. Some businesses may beleft behind as the industry transitions.

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