Basic Chemicals Background Paper
The Basic Chemicals Eligibility
Criteria of the Climate Bonds
Standard & Certification Scheme
Final for IssuanceClimate Bonds Initiative - Basic Chemicals Background Paper
Final for IssuanceAcknowledgements
Climate Bonds gratefully acknowledges the Technical and Industry Working Group members who supported the development of these
Criteria. Members are listed in Appendix A. Special thanks are given to Elias Martinez, the lead specialist and Marian Rodriguez for
coordinating the development of the Criteria through the Technical Working Group.
The Industry Working Group provided critical and useability focused consultation and feedback on the Criteria, but this does not
automatically reflect endorsement of the criteria by all members.

Revision

Date

Rev. 1.0

11 October 2022

Final for Issuance

Rev. 0.1

06 April 2022

Issued as draft for Consultation

Basic Chemicals Background Paper- Climate Bonds Initiative

Summary of Changes

Page | 2

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

List of Acronyms
A&R

Adaptation and Resilience

IEA

International Energy Agency

CBS

Climate Bonds Standard

IPCC

Intergovernmental Panel on Climate Change

CBSB

Climate Bonds Standard Board

IRENAInternational Renewable Energy Agency

CCS

Carbon Capture and Storage

IWG

Industrial Working Group

CCU

Carbon Capture and UtilisationNGO

Non-governmental organisations

SBTi

Science-Based Targets initiative

Climate Bonds

Climate Bonds Initiative

CO2e

CO2 equivalents

TWG

Technical Working Group

EGS

Environmental, Social, and Governance

WBSCD

GHG

Greenhouse Gas Emissions

World Business Council for Sustainable
Development

GWP

Global Warming Potential

Definitions
Absolute emissions contraction targets: It is an overall reduction in emissions by the target year, relative to the base year. (e.g.,
reduce annual CO2 emissions 35% by 2025, from 2018 levels)1.
A&R Group: A group of key experts from academia, international agencies, industry and NGOs convened by Climate Bonds. The
group supports the development of the Adaptation and Resilience requirements of the Sector Criteria
Activity or asset level: this refers to a specific facility carrying out the production of a basic chemical, e.g. the activity of producing
ammonia, a plant or project producing ethylene. At this level emission intensity criteria will be adopted.
Allocation approach: Carbon budget allocation among companies with the same level of disaggregation (regional, sectoral, global)
Basic chemicals production assets and projects: Assets and projects relating to the acquisition, installation, management and/or
operation of infrastructure for basic chemicals production, which include the production of the chemicals in scope for thepresent criteria.
Bioenergy: Energy generated from the conversion of solid, liquid and gaseous products derived from biomass.
Biomass cascading: Cascading refers to a resource-efficient and circular use of any biomass, according to European guidance on
cascading use of biomass. The general idea of cascading is that resources should be re-used sequentially in the order ofthe specific resource quality at each stage while maximising the value of the products, for example biomass forpharmaceuticals and other chemicals are of higher value than basic chemicals or energy.
Biomass: Any organic matter, i.e. biological material, available on a renewable basis. It includes feedstock derived from animals orplants, such as wood and agricultural crops, and organic waste from municipal and industrial sources.
Carbon budget: a finite amount of carbon emitted to the atmosphere before warming will exceed specific temperature thresholds 2.
Certified Climate Bond: A climate bond that is certified by the Climate Bonds Standard Board as meeting the requirements of the
Climate Bonds Standard (see below), as attested through independent verification.

1 SBTi (2020). SBTi manual. https://sciencebasedtargets.org/resources/legacy/2017/04/SBTi-manual.pdf
2 IPCC (2021). 6th Assessment Report

Basic Chemicals Background Paper- Climate Bonds Initiative

Page | 3

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Climate Bonds Initiative (Climate Bonds): An investor focused not-for-profit organisation, promoting large-scale investments thatwill deliver a global low carbon and climate resilient economy. Climate Bonds seeks to develop mechanisms to better alignthe interests of investors, industry and government to catalyse investments at a speed and scale sufficient to avoid
dangerous climate change.
Climate Bonds Standard (CBS): A screening tool for investors and governments that allows them to identify green bonds theproceeds of which are being used to deliver climate change solutions. This may be through climate mitigation impact
and/or climate adaptation or resilience. The CBS is made up of two parts: the parent standard (CBS v4.0) and a suite of
sector specific eligibility Criteria. The parent standard covers the certification process and pre- and post-issuancerequirements for all certified bonds, regardless of the nature of the capital projects. The Sector Criteria detail specificrequirements for assets identified as falling under that specific sector. The latest version of the CBS is published on the
Climate Bonds website.
Climate Bonds Standard Board (CBSB): A board of independent members that collectively represents $34 trillion of assets undermanagement. The CBSB is responsible for approving (i) Revisions to the CBS, including the adoption of additional sector
Criteria, (ii) Approved verifiers, and (iii) Applications for Certification of a bond under the CBS. The CBSB is constituted,
appointed, and supported in line with the governance arrangements and processes as published on the Climate Bonds
website.
Climate Bond Certification: allows the issuer to use the Climate Bond Certification Mark in relation to that bond. Climate Bond
Certification is provided once the independent CBSB is satisfied the bond conforms with the CBS.
Critical interdependencies: The asset or activity’s boundaries and interdependencies with surrounding infrastructure systems.
Interdependencies are specific to local context but are often connected to wider systems through complex relationshipsthat depend on factors ‘outside the asset fence’ that could cause cascading failures or contribute to collateral systembenefits.
Contraction: All companies reduce their absolute emissions at the same rate irrespective of initial emission performance 1.
Convergence: Companies reduce their emission intensity at a standard value by a given year 1.
Emission scenario: Represent a way of distributing the available carbon budget over time 1.
Entity or company level: this refers to the specific company or organisation that is involved in the production of a basic chemicaland owns certain activities or assets, or any subsidiary. At this level, absolute contraction criteria will be adopted.
Green Bond: A green bond is a bond of which the proceeds are allocated to environmental projects or expenditures. The term
generally refers to bonds that have been marketed as green. In theory, green bonds proceeds could be used for a wide
variety of environmental projects or expenditures, but in practice they have mostly been earmarked for climate change
projects.
Industry Working Group: A group of key organisations that are potential issuers, verifiers and investors convened by Climate Bonds
The IWG provides feedback on the draft sector Criteria developed by the TWG before they are released for public
consultation.
Investment Period: The interval between the bond’s issuance and its maturity date. Otherwise known as the bond tenor.
Technical Working Group: A group of key experts from academia, international agencies, industry and NGOs convened by Climate
Bonds. The TWG develops the Sector Criteria - detailed technical criteria for the eligibility of projects and assets as well as
guidance on the tracking of eligibility status during the term of the bond. Their draft recommendations are refined throughengagement with finance industry experts in convened Industry Working Groups (see below) and through public
consultation. Final approval of Sector Criteria is given by the CBSB.

Basic Chemicals Background Paper- Climate Bonds Initiative

Page | 4

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Table of Contents
List of Acronyms

3

Definitions

3

1

7

2

3

Introduction
1.1

Overview

7

1.2

Funding the goals of the Paris Agreement

7

1.3

The role of bonds

8

1.4

Introduction to the CBS8

1.5

Process for Sector Criteria Development

9

1.6

Structure of this document

9

Sector Overview
2.1

What are Basic Chemicals?

9

2.2

Future of Basic Chemicals

12

2.3

Climate change and main decarbonisation challenges

13

2.4

Investment need

15

2.5

Deals already seen in the sector

16

Principles and Boundaries of the Criteria

17

3.1

Guiding principles

17

3.1.1 Guiding Principles- assets and activity certification

17

3.1.2 Guiding principles – entity and SLB certification

18

3.2

Overarching considerations

19

3.2.1

Emissions criteria

19

3.2.2

GHG emissions that are covered

20

3.2.3

Scope 1, 2 and 3 emissions

20

3.2.4

Considering regional differences

20

3.2.5

Considering coal and other fossil resources

21

3.2.6

Other environmental impacts

22

3.3
3.3.1
3.4
4

9

Eligible assets and projects
Scope of entities – what about companies?
Criteria overview

Mitigation Criteria

22
23
23
24

4.1

Criteria for decarbonisation measures within facilities producing basic chemicals

24

4.2

Criteria for facilities producing basic chemicals

28

4.2.1

Basic chemical-specific criteria

28

4.2.2

Pathway followed for projection of the thresholds

31

4.2.3 Cross cutting criteria for decarbonisation measures, production facilities and parts of chemical companies producing
basic chemicals in scope
35
5

Criteria for adaptation & resilience5.1

An overview of the criteria for adaptation & resilience

Basic Chemicals Background Paper- Climate Bonds Initiative

37
37
Page | 5

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

5.2

Key aspects to be assessed

37

5.3

Practical requirements for this Component

39

5.4

Existing tools and guidelines considered40

List of Figures
Figure 1: Criteria Development Process
Figure 2: Chemical Industry Value Chain
Figure 3: Chemical production volumes for high value chemicals and main feedstocks by region
Figure 4: Energy consumption and B) GHG emissions of chemicals.
Figure 5: Extract from the CO2 emissions estimated for high value chemicals production by Ren et al. (2008) 56
Figure 6: Average GHG emissions and potential for reduction
Figure 7: Comparison of decarbonisation pathways for the chemical sector and SBTI cross-sectoral pathway
Figure 8: Results of a global assessment of carbon lock-in risks
Figure 9: The Climate Bonds’ principles for Resilience

9
10
12
13
29
30
34
35
37

List of Tables
Table 1: Eligible Basic Chemical
Table 2: Basic chemical products and their main applications
Table 3: Main technical challenges for decarbonisation of the basic chemical production processes
Table 4: Green bonds issued in the chemical industry (Climate Bonds, 2021)
Table 5: Key principles for the design of Climate Bond Standard Sector Criteria
Table 6: Assets covered by Basic Chemicals Criteria
Table 7: Summary of mitigation measures considered in various reports and literature for basic chemicals
Table 8: Summary of estimated reductions from pathways for chemical sector

10
11
14
16
18
23
25
33

List of Appendices
Appendix A: TWG and IWG members

Basic Chemicals Background Paper- Climate Bonds Initiative

41

Page | 6

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

1 Introduction
1.1 Overview
This document serves as a reference document to the Criteria Document for Basic Chemicals. The purpose of this document is toprovide an overview of the key considerations and issues that were raised during the development of the Basic Chemicals Criteria
and provide the rationale for why requirements were chosen and set.
The Criteria were developed through a consultative process with TWG and IWG, and through public consultation. The TWGs
comprised academic and research institutions, civil society organisations, multilateral banks and specialist consultancies whereas
IWGs are represented by industry experts including potential bond issuers and investors. A 60-day period of public consultation
offers the opportunity to any member of the public to comment on the Criteria. This document aims to capture these various
dialogues and inputs and substantiate the reasoning behind the Basic Chemicals Criteria.
Supplementary information will be made available in addition to this document, including:
1.
2.
3.
4.

Basic Chemicals Criteria document: the complete Criteria requirements.
Basic chemicals public consultation feedback and responses summary
Climate Bonds Standard: the umbrella document laying out the common requirements that all Certified Climate Bonds
need to meet, in addition to the sector-specific Criteria (Climate Bonds Standard V3.0 | Climate Bonds Initiative).
Basic Chemicals Frequently Asked Questions

For more information on the Climate Bonds Initiative and the Climate Bond Standard & Certification Scheme, seewww.climatebonds.net/standards. For the documents listed above, see www.climatebonds.net/standard/Basic Chemicals

1.2 Funding the goals of the Paris Agreement
The current trajectory of climate change, expected to lead to a global warming of 2.7-3.1°C by 21003, poses an enormous threat tothe future of the world’s nations and economies. The aim of the Paris Agreement is to limit warming to a global average of no morethan 2°C higher than pre-industrial levels by the end of the century, and ideally no more than 1.5°C. The effects of climate change
and the risks associated even with a 2°C rise are significant: rising sea levels, increased frequency and severity of hurricanes,
droughts, wildfires and typhoons, and changes in agricultural patterns and yields. Meeting the 2°C goal requires a dramatic
reduction in global greenhouse gas (GHG) emissions.
At the same time, the world is entering an age of unprecedented urbanisation and related infrastructure development. Global
infrastructure investment is expected to amount to USD 90 trillion by 2030, more than the entire current infrastructure stock4.
To ensure sustainable development and avoid dangerous climate change, this infrastructure needs to be low-carbon and resilient
to physical climate impacts, without compromising the economic growth needed to improve the livelihoods and wellbeing of theworld’s poorer citizens. Ensuring that the infrastructure built is low-carbon raises the annual investment needs by 3-4%5. Climate
adaptation needs to add another significant amount of investment, estimated at USD 280-500 billion per annum by 2050 for a 2°C
scenario6.

3 According to Climate Tracker, under current policies we could expect 2.7 - 3.1°C: http://climateactiontracker.org/global.html
4 The Global Commission on the Economy and Climate (2018), ‘Unlocking the Inclusive Growth Story of the 21 st Century: Accelerating Climate Action in Urgent

Times’: https://newclimateeconomy.report/2018
5 The Global Commission on the Economy and Climate (2016), ‘Better Growth, Better Climate’: http://newclimateeconomy.report/2016/wp-

content/uploads/sites/2/2014/08/BetterGrowth-BetterClimate_NCE_Synthesis-Report_web.pdf
6 UNEP (2018), ‘Adaptation Gap Report 2018’: Adaptation Gap report 2018 (unep.org)

Basic Chemicals Background Paper- Climate Bonds Initiative

Page | 7

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

1.3 The role of bonds
Traditional sources of capital for infrastructure investment (governments and commercial banks) are insufficient to meet thesecapital needs; institutional investors, particularly pension and sovereign wealth funds, are increasingly looked to as viable actors tofill these financing gaps.
Capital markets enable issuers to tap into large pools of private capital from institutional investors. Bonds are appropriate
investment vehicles for these investors as they are low-risk investments with long-term maturities, making them a good fit withinstitutional investors’ liabilities (e.g., pensions to be paid out in several decades).
Bond financing works well for low-carbon and climate-resilient infrastructure projects post-construction, as bonds are often used
as refinancing instruments. Labelled Green Bonds are bonds with proceeds used for green projects, mostly climate change
mitigation and/or adaptation projects, and labelled accordingly. The rapid growth of the labelled green bond market has shown inpractice that the bond markets can provide a promising channel to finance climate investments.
The Green Bond market can reward bond issuers and investors for sustainable investments that accelerate progress toward a lowcarbon and climate-resilient economy. Commonly used as long-term debt instruments, Green Bonds are issued by governments,
companies, municipalities, and commercial and development banks to finance or re-finance assets or activities with environmental
benefits. Green Bonds are regular bonds with one distinguishing feature: proceeds are earmarked for projects with environmental
benefits. Green Bonds are in high demand and can help issuers attract new types of investors.
A green label is a discovery mechanism for investors. It enables the identification of climate-aligned investments even with limited
resources for due diligence. By doing so, a green bond label reduces friction in the markets and facilitates growth in climate-aligned
investments.
Currently Green Bonds only account for less than 0.2% of a global bond market of USD 128 trillion7. The potential for scaling up istremendous. The market now needs to grow much bigger, and quickly.

1.4 Introduction to the CBS
Activating the mainstream debt capital markets to finance and refinance climate friendly projects and assets is critical to achieving
international climate goals, and robust labelling of green bonds is a key requirement for that mainstream participation. Confidence
in the climate objectives and the use of funds intended to address climate change is fundamental to the credibility of the role thatgreen bonds play in a low carbon and climate resilient economy. Trust in the green label and transparency to the underlying assets
are essential for this market to reach scale but investor capacity to assess green credentials is limited. Therefore, Climate Bonds
created the Climate Bonds Standard & Certification Scheme, which aims to provide the green bond market with the trust andassurance to achieve the required scale.
The Climate Bonds Standard & Certification Scheme is an easy-to-use tool for investors and issuers to assist them in prioritising
investments that truly contribute to addressing climate change, both from a resilience and a mitigation point of view. It is made upof the overarching CBS detailing management and reporting processes, and a set of Sector Criteria detailing the requirements assets
must meet to be eligible for certification. The Sector Criteria covers a range of sectors including solar energy, wind energy, marine
renewable energy, geothermal power, low carbon buildings, low carbon transport, and water. The Certification Scheme requires
issuers to obtain independent verification, pre- and post-issuance, to ensure the bond meets the requirements of the CBS.
Existing Sector Criteria cover solar energy, wind energy, marine renewable energy, geothermal power, buildings, transport (landand sea), bioenergy, forestry, agriculture, waste management and water infrastructure, hydropower, electricity grids and storage.
In addition to Basic Chemicals, additional Sector Criteria currently under development include Cement, Steel, and Hydrogen.

7 www.icmagroup.org/regulatory-policy-and-market-practice/secondary-markets/bond-market-size

Basic Chemicals Background Paper- Climate Bonds Initiative

Page | 8

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

1.5 Process for Sector Criteria Development
The CBS has been developed based on public consultation, road testing, and review by the Assurance Roundtable (a group of
verifiers) and expert support from experienced green bond market participants.

Figure 1: Criteria Development Process

The Standard is revisited and amended on an annual basis in response to the growing climate aligned finance market. Sector specific
Criteria are developed by TWG made up of scientists, engineers, and technical specialists. Draft Criteria are presented to IWG before
being released for public comment. Finally, Criteria are presented to the CBSB for approval (see diagram below).
Sector Criteria for many sectors are available and include wind, solar, geothermal, marine renewables, hydropower, road transport,
marine transport, electrical grids, water management and buildings. Criteria are available at Sector Criteria | Climate Bonds
Initiative.

1.6 Structure of this document
This document supports the Basic Chemicals Criteria. It captures the issues raised and discussed by the TWG, as well as thearguments and evidence in support of the Criteria. It is structured as follows:••••

Section 2 provides a brief overview of the sector: its current status, trends and role in mitigating and adapting to climatechange.
Section 3 outlines the objectives, principles and overarching considerations for setting the criteria and provides an
overview of the criteria.
Section 4 describes the rationale behind the mitigation requirements
Section 5 describes the adaptation and resilience requirements

2 Sector Overview
2.1 What are Basic Chemicals?
The chemical industry can be as diverse as the number of processes and products involved in their productive activities. Yet, only a
few molecules (including ammonia, ethylene, propylene, methanol and benzene, toluene and xylene, among others) dominate theproduction volume and, consequently, the investments and carbon emissions. Their production enables the majority of chemicalvalue chains that provide the inputs for products we use and consume in our daily life from water, food and pharmaceuticals tocomputers, cars and buildings. For example, ammonia is necessary for production of fertilisers used to grow our food. They are soessential to modern society that these chemical products are commonly known as basic chemicals. The basic chemicals category
accounts for around 60% of the chemical industry ś energy consumption8 and 75% of scope 1 and 2 GHG emissions from the
8 IEA (2020). IEA Energy Technology Perspectives 2020. www.iea.org/reports/energy-technology-perspectives-2020

Basic Chemicals Background Paper- Climate Bonds Initiative

Page | 9

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuancechemical industry9. The main reason for this is that their production relies on the use of fossil resources such as coal, crude oil andnatural gas not only as a fuel but also as a feedstock.
Because of the variety and number of chemical products, setting standards for all of them is not feasible; thus, it requires acategorisation that allows addressing the highest emitters and most energy-intensive production processes. Various approaches
exist to classify chemical assets and processes, depending on the intended goal. Some approaches are related to products,
processes, activities, or the market. The EU taxonomy10 criteria for chemicals focus on basic chemicals but are divided into four
categories: Organic chemicals, ammonia, some inorganic chemicals, and plastics. The IEA focuses on two categories, basic chemicals
and "the rest," in its recent Energy technology perspectives11. A study published by the Joint Research Centre (JRC) and the European
Commission assesses 26 essential chemical compounds, covering 75 % of the total energy use and above 90 % GHG emissions of
the chemical sector in 201312. A report from the Inter-American Development Bank (IDB) includes chemicals such as ammonia,
olefins, and methanol, and some intermediates such as styrene and plastics (polyethylene and polypropylene) as basic chemicals.
Although categorisation and the products included in the basic chemicals sector varies with jurisdiction, geographies, organisations
or entities, a preselection of basic chemicals are included in scope for the criteria based on a value chain categorisation to tackle
the initial building blocks in the sector first.

Figure 2: Chemical Industry Value Chain
As such, in this document the term basic chemicals refers to the following list of chemical products:

Table 1: Eligible Basic Chemical
ChemicalGroupsInorganic basic
chemicalsEligible Assets••••

Ammonia
Chlorine
Disodium carbonate/Soda ash
Nitric acid

9 SBTi (2020). Barriers, Challenges, and Opportunities for Chemical Companies to Set Science-Based Targets. Retrieved fromhttps://sciencebasedtargets.org/resources/files/SBTi-Chemicals-Scoping-Document-12.2020.pdf
10 The EU taxonomy is a classification system, establishing a list a criteria for low carbon and sustainable economic activities, aimed as a support tool to guide

financial investment in different sectors. https://ec.europa.eu/info/business-economy-euro/banking-and-finance/sustainable-finance/eu-taxonomy-sustainableactivities_en
11 IEA (2020). IEA Energy Technology Perspectives 2020. www.iea.org/reports/energy-technology-perspectives-2020
12 Boulamanti, A. & Moya J.A. (2017). Energy efficiency and GHG emissions: Prospective scenarios for the chemical and petrochemical industry, EUR 28471 EN,

doi:10.2760/20486
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 10

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

ChemicalGroupsOrganic basic
chemicalsEligible Assets•

Carbon black•••

High value chemicals (acetylene, ethylene, propylene, butadiene)
Aromatics (Benzene, Toluene and Xylene (BTX))
Methanol

Table 2: Basic chemical products and their main applications
ASIC chemical
product

Description

Main applications

Ammonia

Ammonia (NH3) is one of the main compounds used
to produce fertilisers. The main technology requires
steam reforming of fossil feedstocks to generate thehydrogen required.

About 90 percent of ammonia is used in
fertiliser, however it is a building block to
produce many other products, such as
pesticides, plastics, and explosives. It is also
used in the water and waste- water
treatment, and as a refrigerant.

Chlorine

It is produced in the Chlor-alkali process wherein
chlorine (Cl2) and caustic soda (NaOH) are produced
simultaneously by electrolytic decomposition of salt,
generating hydrogen as a byproduct.

Pulp, paper, textiles, bleach, water treatment,soaps, and detergents, pharmaceutical,
aluminium.

Disodiumcarbonate/Soda
ash

Soda ash is the common name for disodium
carbonate (Na2CO3). The main production
technology is the Solvay process from brine andlimestone.

Cleansing products, water softening and glass
manufacturing.

Nitric acid

Nitric acid is a strong oxidant and is mainly produced
from catalytic oxidation of ammonia.

Used to synthesise fertilisers, as a strongoxidant and precursor to nitrogencompounds, and in the manufacturing of
explosives.

Carbon black

Partial combustion of natural gas or crude oil heavy
fractions.

Mainly used as a pigment, coatings and inautomobile tires.

Acetylene
Ethylene

These are grouped here as high value chemicals(HVC). These chemicals are also known as olefins(hydrocarbons with double carbon-carbon bonds,
except for acetylene which contains a triple carboncarbon double bond). These products are usually
produced together from the steam cracking of fossil
feedstocks (natural gas and naphtha mainly), and also
from coal. Ethylene and propylene are the major HVC
products, and specific processes from ethane andpropane exist.

Polymers such as polyethylene andpolypropylene (Plastics for packaging, pipes,
automobile parts, toys, clothing and textile,
outdoor furniture, food containers, among
others)

These products are aromatics extracted frompetroleum derivatives from refining and also
produced from the processing of several refinerystreams.

They are used as starting materials to produce
several industrial products, solvents, andchemical intermediates. Additives in gasoline,
paints, solvents, among others.

Methanol is an important commercial chemical. It is
the simplest alcohol and the starting material for
hundreds of consumer products. The maintechnology requires steam reforming of fossil

Methanol can be used as a solvent, fueladditive, antifreeze, in home heating oil andto make many different chemicals. It can beused as an alternative fuel source.

Propylene
Butadiene

BenzeneTolueneXyleneMethanolBasic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 11

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

ASIC chemical
product

Description

Main applications

feedstocks to generate the hydrogen and CO
required.

Ammonia and the organic basic chemicals included in the list can be produced using different feedstocks and types of energy, which
implies various processes and technologies with diverse levels of GHG emissions intensity. Chemicals derived from oil & gas arepetrochemicals, which represent around 90% of all feedstocks. The other 10% comes from coal and biomass. Around 50% of theenergy consumption from the petrochemical industry is related to feedstocks .
The diversity of feedstocks is related to geographic availability and, thus, energy prices. Figure 3 contains a map showing thedifferent feedstocks (ethane, naphtha, natural gas, and coal) used and the primary chemicals produced in different geographicalregions and their respective market size.

Note:(CEFIC, 2021) 13 Mtoe: million tonnes of oil equivalent.
HVC in this map includes both olefins and aromatics.

Figure 3: Chemical production volumes for high value chemicals and main feedstocks by region

2.2 Future of Basic Chemicals
The chemical sector is a global market dominated by large multinational chemical corporations, such as BASF, The Dow chemicalcompany, Sinopec, Sabic, and LyondellBasell. Chemical industry sales were valued at around €3,669 billion in 2019, with China
ranking in the top with 40.6%, followed by EU27 with 14.8% and the USA with 13.8%. The size of the global chemical industry is
expected to double by 2030 from that of 2017, driven by global megatrends of increasing world population and urbanisation, andthe growth of industries like agriculture, transport, construction, and electronics14. The chemical sector has been affected by the
COVID-19, in general by slowing down the growth rate. However, the growth of basic chemicals such as ethylene was stable, since
basic chemical participate in the manufacturing of plastics and detergents which are used to manufacture health care and cleansing

13 CEFIC (2021). The European Chemical Industry. A vital part of Europe´s future. Facts & Figures 2021. Retrieved from Profile (www.cefic.org)
14 United Nations Environmental Program (2019). Global Chemicals Outlook II – From Legacies to Innovative Solutions: Implementing the 2030 Agenda for

Sustainable Development - Synthesis Report (unep.org)
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 12

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuanceproducts15. The actual growth in the basic chemicals sector will go hand in hand with the after COVID-19 recovery of the global
economies.
The global competition in the chemical industry will increase, determined by feedstock supply dynamics. Middle East countries are
the lowest-cost regions to produce petrochemicals and have many future investment projects. Because of the shale gas revolution,
the US is again a low-cost region for ethane-based chemical production. China and Europe have, each one, a quarter of the capacityof the naphtha-based chemical, but their availability of lighter feedstocks is very limited. China is constantly developing technologies
for its growing coal-based chemical industry. India's production capacity will grow forcefully to satisfy its local demand. Due to thegrowth perspectives and the relatively higher margins of the chemical industry, and the slower growth in gasoline demand, oilcompanies seek to integrate along the chemical value chain. Oil companies are increasing their links with petrochemical markets,
developing projects to produce chemicals directly from crude oil as an alternative to refining operations. Furthermore, industrial
parks/clusters around the world were built around products and by-products from chemicals and petrochemical industry. Thisimplies the existing parks for the energy intensive industry are centred around the basic chemical/ petrochemical industry, again
highlighting the importance of this sector.
Another key challenge lying ahead for the basic chemicals industry is the urgent call for decarbonisation in all sectors to meet theParis Agreement and the recent COP26 goals. This is discussed in the following section.

2.3 Climate change and main decarbonisation challenges
Decarbonisation is an increasingly important issue for the chemicals industry, especially for basic chemicals which rely on fossil
energy and feedstock and contribute to climate change. Figure 4 shows ammonia and the organic basic chemicals included in scope
for these criteria are the chemicals with the largest production volume and the largest contribution to the carbon emissions fromthe chemical industry16 17. Thus, decarbonisation pathways and policies of the chemical industry have focused on these chemicals
since their production has the highest potential for climate change mitigation, both within their own production processes and theirdownstream value chains. As an example, the EU taxonomy has already included the production of these chemicals and presented
emissions benchmarks or qualitative criteria (except for methanol) to be eligible as environmentally sustainable activities.

Note:

Ammonia, ethylene, propylene, methanol and BTX(benzene, toluene and xylene) are the major contributors
to the sector. Source: Schiffer & Manthiram (2017) 18

Figure 4: Energy consumption and B) GHG emissions of chemicals.

15 Bettenhausen (2021). C&EN’s World Chemical Outlook 2021. C&EN magazine. https://cen.acs.org/business/CENs-World-Chemical-Outlook-2021/99/i2
16 IEA(2020). IEA Energy Technology Perspectives 2020. www.iea.org/reports/energy-technology-perspectives-2020
17 Saygin,D., Gielen,D.(2021). Zero-Emission Pathway for the Global Chemical and Petrochemical Sector. Energies,14(13):3772. www.mdpi.com/1996-

1073/14/13/3772
18 Schiffer, Z. J., & Manthiram, K. (2017). Electrification and decarbonization of the chemical industry. Joule, 1(1), 10-14.

https://doi.org/10.1016/j.joule.2017.07.008
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 13

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

As a response to the demands for a lower carbon future in the sector, several chemical companies have announced their targets
for reducing GHG emissions, with wide ranging ambitions (from maintaining certain reference levels up to carbon neutrality by2050) and decarbonisation options. Decarbonisation measures include carbon capture and utilisation (CCU), for which pending
government proposals could allocate additional funding and focus. However, the measures being prioritised include improving
resource and energy efficiency. Other prominent measures include the adoption of new low-carbon process technologies, increased
use of renewable energy and carbon capture and storage (CCS). Due to the nature of the basic chemicals production processes, thesector requires both incremental and disruptive innovations.
The chemical industry is difficult to decarbonise mainly due to technical requirements for the production processes related to thehigh temperatures needed or direct process emissions produced by the chemical reactions. Table 3 presents the conventional or
business as usual technologies, along with the main technical challenges for decarbonisation of the basic chemical production
processes, and examples of decarbonisation options.
Table 3: Main technical challenges for decarbonisation of the basic chemical production processes
Basic chemical
product

Conventional or business as
usual (BAU) production process

Main technical challenges for
decarbonisation

Examples of decarbonisation
alternatives

Ammonia

Haber-Bosch process reactinghydrogen and nitrogen.

The need for hydrogen,produced mainly from steam
reforming of fossil feedstocks(natural gas, crude oil streams)
which generates most of theCO2 process emissions.

Hydrogen production fromalternative process technology
such as methane pyrolysis,biomass gasification or fromelectrolysis of water using
renewable energy

Chlorine

Produced by electrolysis of salt

The electricity needed forelectrolysis is the major driverfor CO2 emissions

Switch from energy intensive
mercury cell process tomembrane processes
Use of renewable power.

Disodiumcarbonate/Sodaash

The Solvay process from brine
and limestone.

High temperature for
calcination of limestone andsteam required to concentrate
the product are the drivers forCO2 emission, mainly due tofuel combustion and electricity.

Fuel switching, bioenergy, useof renewable power.

Nitric acid

Nitric acid is mainly produced
from catalytic oxidation ofammonia.

The direct emissions of N2O are
the main challenge.

N2O abatement technologies
exist

Carbon black

Partial combustion of fossil
feedstock such as natural gas or
crude oil heavy fractions.

High temperatures needed anddirect process CO2 emissions.

Fuel switching, bioenergy, useof renewable power.
Carbon capture and storage

High value
chemicals:
Ethylene
Propylene

Steam cracking of fossil
feedstocks (natural gas andnaphtha mainly), propane or
ethane dehydrogenations, andalso from coal-based methanol
via methanol-to-olefinsprocess.

The need for a carbon sourcesuch as natural gas or naphtha.
High temperatures needed anddirect process CO2 emissions.

Fuel switching, bioenergy
Electrification using renewable
power
Feedstock substitution (e.g.
bioethanol for ethylene,
recycled olefins)

Produced from catalytic
reforming of naphtha and theprocessing of other oil refinerystreams. It can also be a byproduct from the steam
cracking process which
produces olefins.

High temperatures needed anddirect process CO2 emissions.

Fuel switching, bioenergy
Electrification using renewable
power

Acetylene
Butadiene
Aromatics:
BenzeneTolueneXyleneBasic Chemicals Background Paper- Climate Bonds Initiative

Feedstock substitution (e.g.,biomethanol, recycled olefins)P a g e | 14

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Basic chemical
product

Conventional or business as
usual (BAU) production process

Main technical challenges for
decarbonisation

Examples of decarbonisation
alternatives

Methanol

Methanol is produced mainly
from carbon monoxide andhydrogen by catalytic synthesis.

The need of hydrogen and CO,
produced mainly from steam
reforming of fossil feedstocks(natural gas, crude oil streams,coal) which generates most of
the CO2 process emissions.

Hydrogen production fromalternative process technology
such as methane pyrolysis,biomass gasification or fromelectrolysis of water using
renewable energy.

Companies such as BASF recently presented its roadmap to net zero CO2 emissions by 205019. The key technologies target the
replacement of fossil fuels such as natural gas with renewable sources and using electrical heat pumps to produce steam fromwaste heat. One of the most important new technologies is electrically heated steam crackers to produce basic chemicals such as
ethylene, propylene and butadiene. For hydrogen, it is developing technologies such as water electrolysis and methane pyrolysis.
CCS is also another common decarbonisation technology considered in the roadmaps.
All decarbonisation efforts and activities to decarbonise the sector will require investment. Prior to releasing funds, the financial
sector needs to be able to see that scientifically grounded approaches and effective strategies for decarbonisation are in place toeffectively manage the risk of new investments. Analytical frameworks and certification tools are needed to identify decarbonisation
pathways to enable the financial sector to prioritise projects according to their alignment to the goals of the Paris Agreement andto minimise the risk of assets being stranded. In addition, investors need to see that both transition and physical risks of the assets
being financed have been considered. Transition risks include depressed asset values, stranded assets and changing market
demand, as well as an eventual phase out of fossil fuels; while physical risks include direct and indirect impacts of severe weather
on infrastructure, worker safety and losses of productivity20.

2.4 Investment need
Large investments in industrial equipment for retrofitting existing facilities or building new low-carbon infrastructure will be
required to decarbonise industrial sectors. Climate aligned finance will be a key driver for actual implementation of decarbonisation
measures in the sector. Most of the chemical industry investment comes from the private sector, investment portfolios are managed
mainly by the International Finance Corporation (IFC) and other Multilateral Financing Institutions (MFIs)21. The chemical sector
projects are part of MFIs GHG accounting and reporting. MFIs encourage their clients to include resource and energy efficiency
performance; nevertheless, there is still a lack of criteria or standards related to GHG emissions for chemical plants. That would becritical to determine whether a project can be financed or not. China dominates world chemicals investment, while Europe is thesecond-largest R&I investor in the world22.
Globally, it is estimated that decarbonisation of the chemical and petrochemical industry will require 63 billion euros 17 from today
up to 2050. In the EU, a stimulus package will provide more than 750 billion euros to invest in sustainable technologies, some ofthem will be for the chemical sector, including green hydrogen production and storage, biorefining and plastics recycling. At entity
level, companies such as BASF plans to invest up to 1 billion euros by 2025 to reach its climate target presented in 2021 and afurther 2- 3 billion euros by 203023.

19 Nonnast T. (2021). BASF presents roadmap to climate neutrality. BASF Business & Financial News. www.basf.com/global/en/media/news-releases/2021/03/p-

21-166.html
20 Deloitte (2020). The 2030 decarbonization challenge. Chemicals. www2.deloitte.com/content/dam/Deloitte/uk/Documents/energy-resources/deloitte-uk-

chemicals-decarbonization.pdf
21 Suding, P.H. (2013). Chemical plant GHG emissions: reconciling the financing of chemical plants with climate change objectives. (Inter-American Development

Bank Technical Note ; 618)
22 CEFIC (2021). The European Chemical Industry. A vital part of Europe´s future. Facts & Figures 2021
23 Nonnast T. (2021). BASF presents roadmap to climate neutrality. BASF Business & Financial News. www.basf.com/global/en/media/news-releases/2021/03/p-

21-166.html
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 15

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

2.5 Deals already seen in the sector
Recently, some chemical companies started to establish green finance frameworks to issue green finance instruments forsustainable projects that benefit the environment and society. Kaneka corporation, a Japanese chemical manufacturer issued agreen bond in 2019 to finance the construction and research and development investment costs of new biodegradable polymer
production facilities. BASF, the largest chemical corporation from Germany, issued in 2020 a green bond with a volume of €1.0
billion and a term of seven years. In France, Arkema issued its first green bond to finance a new production facility to produce biobased polyamide. Table 4 summarises the green bonds issued in the chemical industry so far.

Table 4: Green bonds issued in the chemical industry (Climate Bonds, 2021)
Date

Issuer Name

Amount(USD)

MaturityCountry

Second Party
Opinion (SPO)
Vigeo Eiris

Use of Proceeds Description
Construction (CAPEX) of a plant that
produces bioplastics made from castor
beans.

2021

Arkema333 MM

2026

France2020

LG Chem

592 MM

2025

South Korea

2019

LG Chem

565 MM

2029

South Korea

Sustainalytics

EV batteries, green buildings, and water
treatment, with the objective of producing
energy storage solutions for transport.
Includes R&D

2019

LG Chem

500 MM

2024

South Korea

Sustainalytics

EV batteries, green buildings, and water
treatment, with the objective of producing
energy storage solutions for transport.
Includes R&D

2019

LG Chem

500 MM

2029

South Korea

Sustainalytics

EV batteries, green buildings, and water
treatment, with the objective of producing
energy storage solutions for transport.
Includes R&D

2020

Shaanxi Coal andChemical Industry
Group

432 MM

2025

China

2021

BASF

1,111 MM

2027

Germany

ISS ESGNew production facility to produce biobasedpolyamide.

2020

Kaneka Corporation

46 MM

2024

Japan

The green loan will help LG Chem finance theexpansion of its electric vehicle battery plantin Poland.

New biodegradable polymer production
facilities.

According to Bloomberg, the chemicals industry has issued almost $14 billion in loans (2018-2020), linked mainly to carbon
reduction targets. However, less than 2% of the $555 billion in sustainable debt was issued to chemical companies in 2020 (examples
include Air Liquide and Solvay)24.

24 Kane, E. (2021). Many global chemicals companies trail on carbon-transition goals. Sustainable Finance. Bloomberg Intelligence.

www.bloomberg.com/professional/blog/many-global-chemicals-companies-trail-on-carbon-transition-goals/
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 16

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

3 Principles and Boundaries of the Criteria
3.1 Guiding principles
The objective of CBI has been to develop Basic Chemicals sector criteria that can maximize viable bond issuances with verifiable
environmental and social outcomes. This means the Criteria need to balance the following objectives:••

They form a set of scientifically robust, ambitious and verifiable targets and metrics; andThey are usable by the market, which means they must be understandable for non-scientific audiences, implementable atscale, and affordable in terms of assessment burden.

The Criteria should:•••

Enable the identification of eligible assets and projects (or use of proceeds) or entities or companies (general corporate
purposes) related to cement investments that can potentially be included in a Certified Climate Bond.
Deploy appropriate eligibility Criteria under which the assets and projects or entity can be assessed for their suitability forinclusion in a Certified Climate Bond.
Identify associated metrics, methodologies and tools to enable the effective measurement and monitoring of compliancewith the eligibility Criteria.

Subject to meeting the eligibility criteria in the following sectors, the following can be certified under these criteria:••

Use-of-Proceed (UoP)25 bonds financing decarbonisation measures (e.g., retrofits).
Use-of-Proceed (UoP) bonds financing cement production facilities (i.e., assets and activities).

The following can be certified following the update of the Overarching Climate Bonds Standard to v4.026:••

Assets not linked to any specific financing instrument (basic chemicals production facilities).
Entities (cement production companies) and Sustainability Linked Bonds (SLBs) issued by those entities.

Each subset of criteria may share common requirements, pathways or metrics but require different demonstrations of compliance.
The following sections will make distinction between the guiding principles for certifying assets and activities (section 3.1.1), andthe hallmarks for transition for entities and companies (described in section 3.1.2).

3.1.1 Guiding Principles- assets and activity certification
The Basic Chemicals Criteria are made up of two components, both of which need to be satisfied for assets to be eligible for inclusion
in a Certified Climate Bond. These are as follows:1.

Climate Change Mitigation Component – addressing whether the asset or project is sufficiently ‘low GHG’ to be compliant
with rapid decarbonisation needs across the sector.

2.

Climate Change Adaptation and Resilience Component – addressing whether the facility is itself resilient to climate change
and furthermore not adversely impacting the resilience of the surrounding system. This encompasses a broad set ofenvironmental and social topics.

25 Use-of-Proceed (UoP) is used as shorthand throughout this document for a variety of targeted finance instruments, including green loans, repos, and asset-

backed securities. Annex 1 of the Standard v3.0 details the full list of instruments that can be certified.
26 Expected in Q1 2023.

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 17

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Table 5: Key principles for the design of Climate Bond Standard Sector Criteria
Principle

Requirement for the Criteria

Ambitious

Compatible with meeting the objective of limiting global average warming to 1.5°C
temperature rise above pre-industrial levels set by the Paris Agreement.

Material

Criteria should address all material sources of emissions over the lifecycle. Scope 1 & 2
emissions should be addressed directly and scope 3 considered.

No offsets

Offsets should not be counted towards emissions reduction performance.

ResilientTo ensure that the activities being financed are adapted to physical climate change and do
not harm the resilience of the system them are in

Scientifically Robust

Based on science not industry objectives

Granular

Criteria should be sufficiently granular for the assessment of a specific project, asset or
activity. Every asset or project to be financed must comply.

Globally consistent

Criteria should be globally applicable. National legislation or NDC’s are not sufficient.

AlignedTechnology neutral
Avoid lock in

Leverage existing robust tools, methodologies, standards
Criteria should describe the result to be achieved.
Avoid supporting development that may result in long term commitments to highemission activities

3.1.2 Guiding principles – entity and SLB certification
The nature of certifying whole entities, companies and Sustainability Linked Bonds requires a thorough ruleset and set of principles
that go beyond those for assets and activities. This is to ensure that the entity truly merits certification having taken a view of its
KPIs, transition plan, and planned action.
To this end, the Climate Bonds Initiative proposed 5 Hallmarks for Transition. These are discussed in greater detail in the paper‘Transition Finance for Transforming Companies27 and illustrated in Figure 4. They build on and incorporate the transition principles
proposed in the paper ‘Financing Credible Transitions28. Those transition principles are as follows:
•
•
•
•
•

In line with 1.5-degree trajectory
In line with establish science
Offsets don’t countTechnological viability trumps economic competitivenessAction, not pledges

27 www.climatebonds.net/transition-finance-transforming-companies
28 www.climatebonds.net/transition-finance/fin-credible-transitions

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 18

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Figure 5: The hallmarks of a credibly transitioning company

3.2 Overarching considerations
In setting the criteria, the emissions to be included were discussed, along with the scope of emissions and what criteria would test
that the sector is decarbonising and give assurance to investors that financial instruments issued by companies are of satisfactory
quality. The key considerations are summarised in this section.

3.2.1 Emissions criteria
The type of criteria for the mitigation component was discussed and the two options explored were emissions intensity andemissions contraction.
••

Emissions intensity for assets: The emissions intensity is a measure of the amount of GHG emitted per tonne of product, while
the emissions contraction is a measure of the reduction of emissions in respect to a base line. Emissions intensity allows for amore practical metric as it is relatively easy to calculate by just dividing the amount of GHG emitted by the amount of productdelivered by an asset or facility in a given period of time (e.g., annually). Furthermore, it allows an objective comparison
between different assets, or against a given threshold without the need to look at the type of feedstock, process technology,
and country or company size. For these reasons, emissions intensity has been selected as the key criteria for screening potential
assets in respect to mitigation.
Emissions contraction (absolute emissions): It is recognised that because of the normalisation with the product output, anemissions intensity may lead to cases where an asset increases production capacity and emissions intensity decreases but
because of the increase of energy and raw material input to support higher capacity, the absolute emissions have increased.
Emission contraction provides a clearer sense on how well entities are reducing total emissions and it can be a more direct way
to track progress in overall mitigation. The absolute contraction approach is therefore more applicable at entity or company
level. In setting the criteria, an emissions contraction was not considered on the basis of a lack of a clear method applicable forthe chemicals sector and that the scope of the criteria was set at the lower level of facility or project. However, it is highly
recommended to consider this type of criteria in subsequent updates.

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 19

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for IssuanceThus, emissions intensity is adopted at the asset or project level as the main indicator of the criteria for low carbon basic chemicals
production. However, the values of emissions intensity were projected with different time horizons (2030, 2040 and 2050) using adecarbonisation pathway for the chemical industry. This is explained in more detail in section 4.

3.2.2 GHG emissions that are covered
Although the major GHG emitted from chemical processes is CO2, there are other GHG such as methane (CH4), fluorinated gases(SF6, HFC), and nitrous oxide (N2O) which can be important. These gases are emitted in lower quantities but have a higher global
warming potential. Most of the current decarbonisation initiatives do not include these gases as they are frequently considered tobe addressed by other emission reduction initiatives, for example N2O and F-gases being covered by the Montreal Protocol andClean Development Mechanisms (CDM). Discussions concluded that all relevant greenhouse gases and not just CO2 should be
included in the assessment of emissions and that the most up-to-date IPCC 100-year global warming potential factors should be
adopted.

3.2.3 Scope 1, 2 and 3 emissions
The scope of emissions was another important aspect to address. It influences the focus of the analysis and sets the boundaries forthe calculation of emissions intensity. Scope 1 emissions are direct emissions, scope 2 are indirect emissions from purchased
electricity, heat and power; and scope 3 emissions are indirect emissions from extraction and manufacture of raw materials andfuels that are not included in scope 2 (all these also known as scope 3 upstream emission) and include waste disposal and productend use (these also known as scope 3 downstream emissions) and many others.
Scope 1 and scope 2 are the emissions that are within direct control for all types of companies. Furthermore, the references foremissions intensity thresholds for the products in scope generally cover Scope 1 and in some cases Scope 2. In the case where thescope 2 emissions are not included in the thresholds, it was considered that issuers should demonstrate the procurement for low
carbon electricity to prevent carbon leakage and moving emissions from one part of the value chain to another. Thus, the criteria
included the requirement for renewable-based captive power generation, renewable-abed power purchase agreement or demandside management flexibility measures. Renewable energy includes energy produced from renewable sources such as wind, solar,
and small hydropower generation.
Given that the Scope 3 emissions can be significant in an industry based on fossil feedstocks and fuels; these cannot be left out.
However, at this time quantitative metrics are not considered appropriate and instead the requirement is for issuers to demonstrate
a strategy to address and reduce scope 3 upstream emissions. Upstream emissions are not directly controlled by the assets orcompanies producing the basic chemicals but there are actions that can be adopted to reduce scope 3 upstream emissions.

3.2.4 Considering regional differences
As discussed in Section 2, the chemical industry varies also with regions mainly due to the availability of certain types of feedstocks.
For example, chemical production from coal is more common in China and South Africa, while natural gas is becoming morecommon in the US due to increased availability of shale gas. In addition, there are huge differences in technological advancementof facilities across different regions. Regulations and requirements for the installation and operation of chemical production plants
have different degrees of stringency across countries, and government policies may favour certain feedstocks or types ofinvestments in some countries more than others. However, the financial sector is global in reach and requires standardised
requirements to be applied. For this reason, Climate Bonds criteria are developed with the principle that requirements should be
globally applicable wherever possible. Given that many companies operate at several locations worldwide this ensures consistency
across assets. Although there are concerns around the challenges that developing countries could face meeting low-carbon targets,setting ambitious and stringent criteria could help raise the bar in these geographies regarding efficiencies and low-carbon
technologies.

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 20

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

The criteria document includes regional differences for recycled content to promote recycling processes even in regions without
regulations or policies for recycling. See more details in Box 1 below.

3.2.5 Considering coal and other fossil resources•••

Coal for power: Coal-based production systems are among the highest emitters of GHG emissions. Although progress has been
made in reducing coal use globally, it still produced around 37% of the world's electricity in 2019 29. According, to the IPCC
special report on global warming of 1.5°C, global coal use in electricity generation must fall by 80% below 2010 levels by 2030
and phase-out before 204030. In addition, one of the main outcomes of the latest COP26 at Glasgow was the pledge of several
countries to phase out coal use in power generation by ending investments in new facilities; and a separate commitment wasmade to end public financing of unabated fossil fuel projects by the end of 202231. This provided a strong basis to reject theuse of coal and coal-based fuels for the power demands of the basic chemicals sector.
Coal as a feedstock: Coal is also used as a raw material for producing the basic chemicals in scope such as methanol and HVC(through the methanol-to-olefins process). Similar to its use as a fuel in power generation, coal use for chemical production
generates higher direct emissions than production with other fossil feedstocks32. This is mainly due to the more complex
process to go from coal to chemicals, which requires gasification and water-gas-shift reaction steps. Both steps generate CO2
emissions from the reactions to generate the right composition of hydrogen and CO for further chemical synthesis.
Furthermore, these are energy intensive operations due to the high reaction temperatures required, so the energy is usually
supplied by coal or other fossil fuels. For example, it is estimated that the production of methanol from coal emits up to threetimes more emissions than methanol produced from natural gas33 34 35. Thus, it is expected that in a future where coal has beenphased out from power generation, coal-based chemicals production will be the new hot spot in industrial emissions if coal isstill accepted as a feedstock. Alternative feedstocks and technologies can be used to produce methanol including processes
based on biomass feedstock and CO2. For these reasons assets or projects using coal and coal-derived feedstock as a raw
material for basic chemicals are not eligible for certification. However, coal is still a key raw material for other chemicals (acetic
acid, formaldehyde, dimethyl ether, not included in the scope of this criteria) especially in China and South Africa. These
products are out of the scope of this criteria and will be addressed in future work that will address criteria for intermediatechemicals.
Fossil resources: At this stage the criteria allow for fossil resources in existing facilities which are or will be in transition only ifemissions are abated, this means in combination with CCS or CCU. It has also been highlighted that emissions from fossil gas
extraction, processing and transportation may mean that gas-based systems (both energy and chemical generation) have ahigher life cycle impact than coal-based systems. This is mainly due to fugitive losses and leakage of the product which is largely
made up of the greenhouse gas methane which has a more potent impact on global warming 36. Because the majority of theseemissions happen upstream (i.e., they are scope 3 emissions), they are not within control of the chemical production facilities.
According to studies done by CEFIC for the European Industry, it has been estimated that the GHG emissions from methane (inCO2 equivalents) from oil refining units, boilers, furnaces and steam crackers is only about 0.2 %37. As such, fossil gas can beconsidered a suitable transition feedstock for existing facilities if CCS or CCU measure are implemented. In addition, the criteria

29 IEA (2020) World Energy Balances: Overview. www.iea.org/reports/world-energy-balances-overview/world
30 IPCC (2018) Global Warming of 1.5°C.An IPCC Special Report on the impacts of global warming of 1.5°C above pre-industrial levels and related global

greenhouse gas emission pathways, in the context of strengthening the global response to the threat of climate change, sustainable development, and eff orts toeradicate poverty [Masson-Delmotte, V., P. Zhai, H.-O. Pörtner, D. Roberts, J. Skea, P.R. Shukla, A. Pirani, W. Moufouma-Okia, C. Péan, R. Pidcock, S. Connors,
J.B.R. Matthews, Y. Chen, X. Zhou, M.I. Gomis, E. Lonnoy, T. Maycock, M. Tignor, and T. Waterfield (eds.)].
www.ipcc.ch/site/assets/uploads/sites/2/2019/06/SR15_Full_Report_High_Res.pdf
31 End of Coal in Sight at COP26. https://ukcop26.org/end-of-coal-in-sight-at-cop26/
32 Lee, R. P. (2019). Alternative carbon feedstock for the chemical industry. Assessing the challenges posed by the human dimension in the carbon transition.

Journal of Cleaner Production, 219, 786-796.
33 Carbon Recycling International (2019). Curbing Carbon Emissions with Green Methanol. The Chemical Engineer 942/943.

www.thechemicalengineer.com/features/curbing-carbon-emissions-with-green-methanol/
34

Qin, Z., Zhai, G., Wu, X., Yu, Y., & Zhang, Z. (2016). Carbon footprint evaluation of coal-to-methanol chain with the hierarchical attribution management andlife cycle assessment. Energy Conversion and Management, 124, 168-179. https://doi.org/10.1016/j.enconman.2016.07.005
35 Gao, D., Qiu, X., Zhang, Y., & Liu, P. (2018). Life cycle analysis of coal based methanol-to-olefins processes in China. Computers & Chemical Engineering, 109,112-118. https://doi.org/10.1016/j.compchemeng.2017.11.001
36 ShareAction (2020) Slow Reactions. https://shareaction.org/reports/slow-reactions-chemical-companies-must-transform-in-a-low-carbon-world
37 CEFIC (2021). Methane emissions in the chemical industry. www.petrochemistry.eu/wp-content/uploads/2021/03/Cefic_Paper_Methane-.pdf

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 21

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

document specifies the need for methane leakage prevention, monitoring and mitigation measures to be implemented. Issuers
are referred to existing guidance on these matter38.

3.2.6 Other environmental impacts
Other environmental impacts that may be necessary to be considered in tandem with climate change mitigation in order to prevent
undesirable side effects on other environmental objectives were discussed. The “do not significant harm” (DNSH) principle from theEU taxonomy was presented and discussed in detail. The DNSH principle states that the activities in scope should not make asignificant harm to any of the following six environmental objectives: climate change mitigation, climate change adaptation,
sustainable use and protection of water and marine resources, transition to a circular economy, protections and restoration of
biodiversity and ecosystems; and pollution prevention and control. The group questioned the practical application of theseprinciples and the implications for issuers to comply with several requirements for the various environmental objectives. Given thatways to address this overarching aspect of the criteria was not achievable in a way that it complies with simple, low time and cost
demand for issuers, it was agreed to focus on climate change criteria. However, it was also emphasised the need to include athorough environmental impact assessment as a component for issuers, to identify and report any potential risks, and relevantplans or measures to address them. This suggestion was thus adopted as it is a reasonable requirement, and many facilities will
already have to comply with similar local regulations which enables straightforward reporting.

3.3 Eligible assets and projects
The Basic Chemicals criteria have set out criteria for specific decarbonisation measures, entire production facilities, as well as partsof a company producing basic chemicals in scope.
The starting point for eligibility is to consider assets and projects where the production rate of the basic chemicals in scope are atleast 50% of the total amount of products produced in a year by the relevant asset or project. This is a minimum set as it isunderstood that a facility producing more than 50% of other coproducts is not viewed as a facility dedicated to chemicals in scope,and the investment may be going into the production of uncertified products with high carbon intensities. This also mitigates therisk of greenwashing due to artificially making basic chemicals products low carbon by allocating more carbon emissions to otherproducts not in scope of this Criteria.
Table 6 shows the type of production assets in the Basic Chemicals sector eligible for inclusion in a Certified Climate Bond, subject
to meeting the eligibility Criteria discussed in this document and summarised in the associated Basic Chemicals Criteria document.

38 UNECE (2019) Best practice guidance for effective methane management in the oil and gas sectors. Monitoring, Reporting and Verification (MRV) and

Mitigation. United Nations 2019.
https://unece.org/fileadmin/DAM/energy/images/CMM/CMM_CE/Best_Practice_Guidance_for_Effective_Methane_Management_in_the_Oil_and_Gas_Sector__Monitoring__Reporting_and_Verification__MRV__and_Mitigation-_FINAL__with_covers_.pdf
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 22

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Table 6: Assets covered by Basic Chemicals Criteria
Assets Covered
Facilities producing Ammonia
Facilities producing Chlorine
Facilities producing Disodium carbonate/Soda ash
Facilities producing Nitric Acid
Facilities producing Carbon black
Facilities producing high value chemicals (ethylene, propylene, acetylene and butadiene)
Facilities producing aromatics (benzene, xylene and toluene)
Facilities producing methanol

3.3.1 Scope of entities – what about companies?
The chemical sector's complexity makes it difficult to set a unique set of criteria for such diverse companies with different businessand product mixes and levels of integration. A single chemical entity can produce basic, intermediates, and specialty chemicals, andeven has oil and gas operations. Because these criteria only cover a group of basic chemicals, currently, certifying an entire chemicalcompany is not possible.
Companies with parts or business segments producing basic chemicals can apply for certification for the specific part or subsidiary
producing the chemicals under the scope of these criteria.
Once criteria are available for other chemical products, such as intermediates and specialties, certification of chemical companies
will be expanded.

3.4 Criteria overview
Taking as basis the overarching considerations explained in the previous sections, the mitigation criteria include:
•
•

•
•

Criteria for decarbonisation measures or retrofitting activities in facilities producing basic chemicals.
Criteria for facilities producing basic chemicals. These criteria apply to the certification of the whole facility for production ofchemicals in scope and includes carbon or energy intensity thresholds and additional criteria depending on age of facilities,
feedstock and energy usage and upstream scope 3 emissions
Cross-cutting criteria for climate adaptation and resilience. These include A&R checklist, requirements for addressing otherenvironmental impacts and a disclosure component.
Criteria for entities producing basic chemicals and Sustainability Linked Bonds (SLBs) for a company sustainability projects
relating to the basic chemicals in scope.

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 23

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

4 Mitigation Criteria
4.1 Criteria for decarbonisation measures within facilities producing basic
chemicals
The use of proceeds may be specifically dedicated to specific decarbonisation measures within facilities producing basic chemicals.
Specific constraints to provide consistency and coherence with the decarbonisation goals have been set out. The requirements for
specific mitigation measures are provided in section 3 of the Criteria document.
Several mitigation measures relevant to the basic chemical sectors have been identified in the literature 19 and reports from relevantorganisations (IEA11, IRENA39, DECHEMA40, ShareAction34, BASF 19). Various measures were discussed and are summarised in Table
6. It was considered pertinent to set specific criteria for the most promising mitigations measures. The guiding principles in settingthese specific criteria were:
i.
ii.
iii.

Consistency with the level of ambitions required for a low carbon future, including the need for transitioning from fossil toalternative sources of energy and feedstock,
Identifying measures that need to be used in combination
Consistency with existing CLIMATE BONDS criteria for directly related sectors. This means that when implementing any ofthese measures, care should be taken to not jeopardise the main goal of reducing emissions and the mitigation objectivesof other sectors. For example, the generation of low carbon hydrogen feedstock cannot be at the expense of using highcarbon electricity for its production via an electrolytic process. Similarly, the CO2 captured as a way to mitigate climate
impact of burning fossil fuels cannot be then used to propagate further the extraction of more fossil fuels throughenhanced oil recovery.

The most common measures, with the higher estimated potential for reductions, and under control within the battery limits of a
production process facility were selected. In addition, these measures have been proposed by chemical companies in their own
decarbonisation plans, international organisations and the scientific community 19-22,25. The most frequent measures were identified
and reviewed to select the following representative but not limitative list of eligible measures. The measures were classified in the
Criteria document into “Relating to feedstock used”, “Relating to energy used”, and “Various”. Box 1 provides further definitions
and explanation of these measures as considered in these criteria.

39 IRENA (2020). Reaching zero with renewables: Eliminating CO2 emissions from industry and transport in line with the 1.5 o C climate goal. International

Renewable Energy Agency, Abu Dhabi
40 DECHEMA (2017). Low carbon energy and feedstock for the European Chemical Industry. Technology Study.

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 24

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

✔

✔

✔

BASF 2021

DECHEMA2017✔

ShareAction 2021

IEA
2020

Energy efficiency

Saygin &Gielen,2021

Technology/Activity

IRENA
2020

Table 7: Summary of mitigation measures considered in various reports and literature for basic chemicals✔

✔

Energy recovery with CCS
Clean electricity, low carbon power✔

✔

Solar process heat, renewable heat✔

✔

Bioenergy✔

✔

✔

Renewable power, other thanbioenergy

✔

✔

✔

✔

✔

✔

Fuel shifting✔

Biomass as feedstock✔

Fuels and feedstocks from hydrogen

✔

✔

✔

CO2 capture and storage (CCS)

✔

✔

✔

CO2 as feedstock (CCU)✔

Electrification of processes✔
✔

Recycled feedstock

✔
✔

✔

✔

✔

✔
✔

Green hydrogen and green methanol
Methane pyrolysis✔

Electrical heat pumps✔

Demand reduction✔

Industry relocation✔
✔

Box 1: Eligible capital investments for mitigation measures
Several decarbonisation or mitigation measures have been proposed by IEA, IRENA and the scientific
literature, with some common technologies and activities but with a rather varying terminology. Without
being a harmonisation exercise, the aim of this box is to describe and define each of the mitigation measuresthat are provided as examples for eligibility within the Climate Bonds Basic Chemicals criteria.
••

Using hydrogen as an energy source. This measure mainly applies to existing facilities and refers to usinghydrogen for on-site energy generation and supply to the basic chemical production processes.
Hydrogen can provide the high temperatures required in the production processes of basic chemicals
especially ammonia, HVC and aromatics. This measure may require investment for the adaptation ofexisting equipment such as furnaces and boilers, or even the full replacement of equipment by more
efficient ones with technology enhancement or new designs.
Using fossil gas combined with CO2 capture technologies. The switching to fossil gas is considered inconjunction within the carbon capture and storage measure. However, the “lower footprint” aspect offossil gas has recently been questioned mainly due to the likely occurrence of leakages along its supply
chain which may then lead to a detrimental climate change impact (as it has higher potential for global

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 25

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

•

•

•

•

warming than CO241) rather than a mitigation benefit42. Note that this measure may be revised andpotentially ruled out in the next version of the criteria, due to the need to decrease the use of fossil fuels
or the advancement of alternative technologies such as electrification of process heating.
Using biomass or biomass derived feedstocks. This measure includes the direct use of biomass or its
derivatives in the production of basic chemicals in scope. For example, biomass can be converted intoethanol and ethanol then converted into ethylene by dehydration. Another indirect way of using biomass
is through biomass gasification processes which generate synthesis gas (a mixture of CO and H2 known
as syngas) which can then be converted into methanol and then methanol converted into olefins. Recent
research is also focused on directly converting syngas into mixed olefins and aromatics43 44. The use of
biomass as a feedstock for chemical production rather than for energy purposes is advocated thoughbiomass cascading use and biorefineries45.
Using biomass as an energy source. Eligibility for biomass as an energy source is restricted to secondaryorganic streams, (i.e., materials usually discarded or classified as wastes from another primary use, e.g.
residues from agriculture, organic matter from agro-industrial processing). Primary biomass such as
wood and dedicated crops can be more valuable as a feedstock rather than an energy source.
Furthermore, the use of biomass as a measure for low carbon heat and power supply may lead toincreased demand for wood and dedicated energy crops. This can lead to unintended consequencessuch as an increase in emissions due to increased deforestation, direct and indirect land use change 46.
This is also needed to promote a cascading use approach and processing in integrated biorefineries.
Using CO2 as a feedstock. This measure is also known as carbon capture and utilisation (CCU) andincludes the use of captured CO2 as a raw material. The major sources of CO2 considered in this measureinclude flue gases, industrial off-gases, which requires concentration and purification of CO2 using
carbon capture processes. CO2 can then be converted into basic chemicals through electrochemical or
catalytic synthesis. The electrochemical and thermocatalytic routes rely on the generation of a syngas,
similar to biomass gasification, and this requires a hydrogen source. Alternatively, CO2 can also be
converted biochemically using bacteria or yeast, as well as algae to generate a biomass source. In any
case, using CO2 as a feedstock needs to be accompanied by other measures such as carbon capture, lowcarbon energy and hydrogen to be consistently aligned to a low carbon pathway especially when theCO2 comes from fossil carbon. The technologies required for this measure are somehow in early stagesof development, but it is expected to make progress towards commercialisation. In addition, care should
be taken in regard to the end use of the product generated from CO2. This is mainly because if the CO2
is immediately released into the atmosphere during end product use, the mitigation is ephemeral. Thismeans, additional restrictions are included for the end product, which should be a long-lasting or
recyclable product so as to keep CO2 in a loop.
Use of recycled material as a feedstock. This measure is as a response to the need to decrease theenvironmental impact of plastics in the water and land ecosystems and circular economy approaches.
This measure mainly applies to olefin and BTX production from chemical recycling of plastic feedstocks.
For example, pyrolysis of plastics recovers an oily liquid which can then be processed in existing naphthasteam cracker infrastructure. As part of the feedback from public consultation it was decided to include
different recycled content percentages depending on local regulations and available infrastructure forrecycling. The 30% requirement is aligned to several initiatives and mandates in different geographies 47.
The 20% requirement aims to promote recycling projects in regions without local regulations forrecycling or with lower recycled content requirements.

41 29.8 CO2-eq for methane from fossil sources as per AR6. Latest IPCC report version available from www.ipcc.ch/report/ar6/wg1/#TS
42 Hmiel, B., Petrenko, V.V., Dyonisius, M.N. et al. (2020) Preindustrial 14CH4 indicates greater anthropogenic fossil CH4 emissions. Nature 578, 409–412.

https://doi.org/10.1038/s41586-020-1991-8
43 Jiao, F., Li, J., Pan, X., Xiao, J., Li, H., Ma, H., ... & Bao, X. (2016). Selective conversion of syngas to light olefins. Science, 351(6277), 1065-1068.
44 Yang, J., Pan, X., Jiao, F., Li, J., & Bao, X. (2017). Direct conversion of syngas to aromatics. C hemical communications, 53(81), 11146-11149.
45 A biorefinery is a highly integrated facility for the conversion of biomass feedstock into value added products, including materials, chemicals, food ingredients,

fuels and energy by combining various chemical, thermochemical and biochemical processes. See: Sadhukhan, J., Ng, K. S., & Hernandez, E. M. (2014).
Biorefineries and chemical processes: design, integration and sustainability analysis. John Wiley & Sons.
46 Jan P.M. Ros, Jelle G. van Minnen, Eric J.M.M. Arets (2013). Climate effects of wood used for bioenergy. PBL Netherlands Environmental Assessment Agency.

PBL publication number: 1182 www.pbl.nl/sites/default/files/downloads/PBL-2013-climate-effects-of-wood-used-for-bioenergy-1182_0.pdf
47 https://resource-recycling.com/plastics/2021/07/14/acc-calls-for-30-recycled-content-mandate-in-packaging/;

https://www.bloomberg.com/netzeropathfinders/best-practices/recycled-content-mandates/#example-2
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 26

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

•

•

•

•

Electrification of processes. This measure implies a shift from providing process heat by fossil fuelcombustion and using electrified equipment instead. Examples include innovations in steam crackers
where the conventional thermally driven pyrolytic furnaces, are replaced with reactors powered by lowcarbon electricity20 48. Companies such as BASF are already developing electrical steam crackers with apotential for 90% reduction in CO2 emissions if green electricity is used 19. A rather more advanced andaccessible technology applicable in low to medium temperature processes is the use of electric heatpumps to recover and provide process heat. With this measure, up to 67% reduction in process emissions
can be achieved and the use of fossil fuels is avoided49. This reduction can be increased when renewable
power is used to run the heat pump. This measure in the future is expected to converge with othermeasures such as the use of renewable power, using CO2 and hydrogen as feedstocks via
electrochemistry for the production of ammonia, ethylene and methanol, while also supporting higher
efficiencies and reducing transport and other scope 3 emissions due to the increased feasibility formodularisation and relocation of chemical production processes 19.
Carbon capture and storage. This is the process of capturing (concentrating from diluted sources),transporting and storing CO2 in order to prevent its release into the atmosphere. Carbon storage can bein open, closed or cycling systems50. Open systems include natural systems such as in biomass growthand soil. Closed systems include the geological storage in lithosphere or deep oceans and mineralformations. Cyclic systems include the conversion of CO2 into fuels or chemicals, this form is also known
as carbon capture and utilisation (CCU). For the purposes of this criteria document, CCS refers specificallyto closed systems as in geological storage since this is the one with the largest storage life span 51. Biomass
and CCU are defined and addressed separately under the measures of using biomass or biomass derived
feedstock and using CO2 as feedstock, respectively. Projects using fossil gas combined with CCS should
demonstrate MRV (monitoring, reporting and verification), and mitigation measures for methane leaks 52.
Methane emissions must be of maximum 0.2%. In regions where storage is not technically feasible or
there is no available infrastructure, CCU can be implemented instead. Fuel and feedstock substitution
are also an option for fossil-based processes where CCS is not feasible.
Energy efficiency. Energy efficiency measures include process integration and reconfiguration ofprocesses for heat recovery from streams, replacement of equipment for higher efficiency technology
or design, and process intensification of the equipment. Examples of these measures are thereplacement or revamping of boilers, furnaces, compressors or pumps for more efficient ones,
reconfiguration of distillation columns to incorporate mechanical vapour recompression, or
intensification of heat exchange equipment, reactors, and separation systems. A minimum 30%
improvement in energy efficiency considers the global potential reductions in the chemical andpetrochemical processes estimated by IEA53.
Switching to low carbon technologies. The switching to alternative low carbon technologies implies the
adoption of technologies that reduce the emissions from the process such as membrane electrolysis
technology to produce chlorine, methane pyrolysis for production of hydrogen used as feedstock, orswitching from producing aromatics from thermal cracking to catalytic cracking.

48 Delikonstantis, E., Igos, E., Augustinus, M., Benetto, E., & Stefanidis, G. D. (2020). Life cycle assessment of plasma-assisted ethylene production from rich-in-methane gas streams. Sustainable Energy & Fuels, 4(3), 1351-1362.
49 De Boer, R., Marina, A., B. (2020) Zühlsdorf Strengthening Industrial Heat Pump Innovation. Decarbonizing Industrial Heat. www.sintef.no/globalassets/sintef-

energi/industrial-heat-pump-whitepaper/2020-07-10-whitepaper-ihp-a4.pdf
50 Hepburn, C, Adlen, E, Beddington, J et al. (2019) The technological and economic prospects for CO2 utilisation and removal. Nature, 575 (7781). pp. 87-97.

ISSN 0028-0836
51 According to the IPCC, well-selected, well-designed and well-managed geological storage sites can maintain CO2 trapped for millions of years, retaining over

99 per cent of the injected CO2 over 1000 years. IPCC Special Report on Carbon Dioxide Capture and Storage,
www.ipcc.ch/site/assets/uploads/2018/03/srccs_wholereport-1.pdf
52 Additional guidance can be found in the report Best Practice Guidance for Effective Methane Management in the Oil and Gas Sector. Monitoring, Reportingand Verification (MRV) and Mitigation. United Nations Economic Commission for Europe. 2019https://unece.org/fileadmin/DAM/energy/images/CMM/CMM_CE/Best_Practice_Guidance_for_Effective_Methane_Management_in_the_Oil_and_Gas_Sector__Monitoring__Reporting_and_Verification__MRV__and_Mitigation-_FINAL__with_covers_.pdf
53 Saygin,D., Gielen,D.(2021). Zero-Emission Pathway for the Global Chemical and Petrochemical Sector. Energies,14(13):3772. https://www.mdpi.com/1996-

1073/14/13/3772
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 27

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

4.2 Criteria for facilities producing basic chemicals
These criteria are set at the facility level, this means for certifying whole facilities producing basic chemicals which may also include
the implementation of mitigation measures. The criteria are made up of: mitigation criteria specific to each of the chemicals in
scope and cross-cutting criteria for all facilities producing any of the chemicals in scope. The first one involves carbon and energy
thresholds mainly and the second one involves more general aspects of a facility.

4.2.1 Basic chemical-specific criteria
For facilities producing basic chemicals in scope, products need to meet specific carbon or energy intensity thresholds provided in
the main Basic Chemicals Criteria document. The approach followed in setting criteria for this requirement is to have one thresholdper product without distinguishing technology, feedstock, location or asset size. Information specific to each chemical product inscope is scarce for setting thresholds. The two main sources of reference for benchmarks or threshold data were those developedby the Interamerican Development Bank (IDB)54 and the EU taxonomy Technical Expert Group on Sustainable Finance55. IDB reports
benchmarks for emission intensity for ten basic chemicals, which include mainly scope 1 emissions and electricity emissions, with adistinction among feedstock or technologies. However, IDB data makes a distinction among several technologies and is a rather
outdated source of benchmarks and no updates have been found to be used. This made its adoption difficult as one threshold per
product was required from a source of validated and most-up-to date data with subsequent regular updates. The EU taxonomy
developed specific thresholds for chemical products which are included in the scope of this criteria. The EU taxonomy approach insetting such thresholds is based on the 10% best performing facilities in Europe during a given period. This approach is taken as abasis for the development of similar taxonomies in other countries such as Australia and New Zealand 56. In this sense, it is expectedthat criteria based on the existing EU thresholds would be recognised in other geographies as a high degree of alignment among
the various taxonomies is anticipated. Furthermore, the EU taxonomy values were developed by a group of experts, and they arerevised regularly to consider improvements in technologies. This is in line with Climate Bonds’ guiding principle of building on
existing material to leverage existing robust, credible and widely accepted tools, methodologies and data. Thus, these criteria adopt
the EU taxonomy threshold values. However, after consultation it was recognised that these thresholds vary in scope of emissions
and may include scope 1 and scope 2 emissions. The specific scope that applies to each of the chemicals in scope are indicated in
the main Basic Criteria document. In addition to the thresholds adopted from the EU Taxonomy there are additional aspects thatmust be addressed. The rationale for the revision to the high value chemicals threshold, and the criteria for methanol are discussed
as follows.
••

Criteria for Production of methanol: this product is not included within the scope of the EU taxonomy 57. The primary raw
material is hydrogen (which is mostly derived from the gasification of fossil feedstocks, though it can also be derived frombiomass and water electrolysis) and in this, it has similarities to the way ammonia is produced. Taking as reference therequirements for ammonia, a similar requirement for production of methanol was adopted to require the use of low-carbonhydrogen. While a threshold value could be adopted or derived from reports such as the one from IDB, there was insufficientevidence that the values mirrored the scope of emissions and whether the manner in which they were developed was as robust
as the ones referenced for the rest of the chemicals in scope.
Setting ambitions threshold for high value chemicals (HVC): High value chemicals account for around 25% of emissions fromthe chemical industry. It is important to mitigate GHG emissions from the production of these basic chemicals in order todecarbonise all the products downstream in their value chains and a more ambitious threshold should be sought. Upon
reviewing the differences in values in the EU taxonomy from 2019 and the updated values for 2021 for HVC it was clear that54 Suding, P.H. (2013). Chemical plant GHG emissions: reconciling the financing of chemical plants with climate change objectives. (Inter-American Development

Bank Technical Note ; 618). https://publications.iadb.org/publications/english/document/Chemical-Plants-GHG-Emissions-Reconciling-the-Financing-ofChemical-Plants-with-Climate-Change-Objectives.pdf
55 European Union (2020). Taxonomy: Final report of the Technical Expert Group on Sustainable Finance.

https://ec.europa.eu/info/sites/default/files/business_economy_euro/banking_and_finance/documents/200309-sustainable-finance-teg-final-reporttaxonomy_en.pdf
56 World Bank (2017). A Guide to Greenhouse Gas Benchmarking for Climate Policy Instruments. Washington, DC.

https://openknowledge.worldbank.org/handle/10986/26848
57 Not to be confused with monoethylene glycol. Methanol is an alcohol with one carbon and one oxygen atom in its formula CH3OH, while monoehylene gly colis a dialcohol with two carbon and two oxygen atoms in its formula C2H6O2.
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 28

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuancethey do not show a significant progress in decarbonisation, as the difference was only 1.3 %. In order to update the thresholdvalue, available data for average GHG emissions from scope 1 and 2 was reviewed.

The paper from Ren et al. (2008) analysed energy use and CO2 emissions from steam cracking for olefins production58. Scope 1 and2 emissions were lumped into emissions from petrochemicals production and separated from the emissions from feedstock
production.
Figure 5 shows their results for ethane and naphtha-based production, indicated by the grey section of the bars. The values range
from about 0.6 tonne CO2e/ tonne HVC corresponding to naphtha-based state-of- the-art plants, up to about 0.8 tonne CO2e/
tonne HVC corresponding to the world average for naphtha-based plants.
Another study by the IEA, ICCA and DECHEMA59 reported average specific energy consumption and GHG emissions from various
production process technologies and feedstocks for ethylene and propylene production, using industry reports and the Stanford
Research Institute databases. Figure 6 shows that the average of the GHG emissions across all alternatives was 0.6974 tonne CO2e/
tonne HVC. This result is close to the threshold in the EU taxonomy showing that the value may have scope for higher ambition. The
same study estimates the reduction on the specific energy consumption which has been taken as a proxy for GHG emissions, andthe resulting average potential reduction was estimated at 27%. A new threshold has been calculated by applying such a percentage
to the average GHG emission value, resulting in a threshold value of 0.51 tonne CO2e/ tonne HVC. This value is selected as being
appropriate considering that this study was from 2013 and that significant improvements through energy and catalytic efficienciesof the processes are achievable today. However, it is recognised that there are major differences in the type of process andfeedstocks, but the main principle applied throughout the criteria development is to have one threshold per product. The main
objective is to set a level playing field for all alternative systems and promote decarbonisation. It was also important to note thatthe average includes processes using propane and ethane as feedstock, however selectivity is not 100% towards the corresponding
olefins and these processes also produce a mix of olefins and thus the common unit of tonne HVC is appropriate. Furthermore, theproposed threshold would promote the use of lighter refinery streams as feedstock which also promote lower process emissions.

Figure 5: Extract from the CO2 emissions estimated for high value chemicals production by Ren et al. (2008) 56

58 Ren, T., Patel, M. K., & Blok, K. (2008). Steam cracking and methane to olefins: Energy use, CO2 emissions and production costs. Energy, 33(5), 817-833.

59 DECHEMA/IEA/ICCA 2013. Technology Roadmap - Energy and GHG Reductions in the Chemical Industry via Catalytic Processes. See also Annexes.

https://dechema.de/en/industrialcatalysis.html

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 29

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Note:using best available techniques as estimated by DECHEMA/IEA/ICCA (2013) 57.
The shaded lines in part a) are emissions from feedstock production which arescope 3 emissions not considered in the thresholds.

Figure 6: Average GHG emissions and potential for reduction

To demonstrate they meet the GHG thresholds, issuers are required to carry out a GHG emissions assessment. Additional concepts
and explanations, supporting the methodological note provided in the main Criteria document are given in Box 2.

Box 2: GHG Assessment
Scope 1 and 2 definitions:•

Scope 1 emissions: all direct emissions from the production processes including emissions generated
during the reactions, emissions from fuel combustion for on-site energy generation• Scope 2 emissions: indirect emissions from the energy sources: emissions embedded in the electricity orheat imported from off-site. Note that not all thresholds include scope 2, and thus a requirement for
renewable electricity is set as an additional criterion for chemicals with energy thresholds or carbon
thresholds that do not cover scope 2 emissions.
The figure below illustrates the scope of emissions. Note that Scope 1 emissions are those under control of the facility,
i.e. on site. Scope 2 emissions are from imported energy, and they are considered indirect as they are releases off-site.
There are cases where the hydrogen is produced inside the basic chemical facility, thus under its control and the emissions
from hydrogen production should be accounted for. In the case of hydrogen being purchased from off-site, then they are
considered as Scope 2, as in the case of purchased electricity. Also, note that the case of CCS the emissions from thecapture, transportation and storage activities should be accounted for, while the amount of CO2 captured are subtracted
to calculate the final carbon intensity of a product. Similarly, if the venting and off-gases released into the atmosphere
contain any GHG they should be accounted for in the GHG accounting.

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 30

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Scope 2Emissions from purchased energy
off-site•Examples•Emissions from thegeneration of the electricity
purchased form the grid
•Emissions From thegeneration of the heat
supplied externally

Scope 1
Direct emissions under control ofthe basic chemical production
facility on-site•Examples•Emissions generated fromreactions (e.g. steam
reforming, gasification)•Emissions from natural gas
combustion in furnace andboilers•Emissions from the migration
technologies that are released
to the atmosphere•Other gas venting and offgasses released to theatmosphere

When multiple products are generated from the same facilities, issuers must follow the ISO standards for allocation60.
Further guidance and examples of allocation approaches specific for the chemical sector can be found in the guidelines
developed by the WBCSD with the European Chemical Industry Council61. Only the basic chemicals in scope of thesecriteria need to meet the GHG emissions thresholds. However, users of these Criteria are reminded that if the amount ofbasic chemical production accounts for less than 50% of total annual production rate then the facility is not certifiable
under these Criteria.
The issuer may use design specification for assessment of the GHG in the following cases:
i. The new equipment is part of the project and is to be integrated into existing facilities;
ii. The asset in question is a brand-new facility. For operating equipment in existing facilities, actual emissions data
should be used.

4.2.2 Pathway followed for projection of the thresholds
Climate transition action plans are essential to guide investors to define whether plans are credible and ambitious enough. A key
component in selecting a pathway is that it must show the way to the 1.5°C target over time. Mitigation pathways are a guide toestimate the rate of emissions reductions, and carbon intensity reductions, that are needed for achieving a certain target global
average temperature rise by a certain year. Thus, the projection of decreasing threshold values was performed to ensure that
assets and activities included in the use of proceeds at entity are aligned to a transition pathway that contributes to the 1.5°C target.
Due to the lack of data on a pathway for each of the chemicals in scope and the fact that not even a sector level pathway has been
available at the time of development of this criteria, alternative pathways were reviewed. When available, as in the case ofhydrogen, the pathway specific for the feedstock or product in question was followed, otherwise the sector level pathway was
adopted as a basis to estimate the threshold values in 2030, 2040 and 2050. This is further explained as follows.

•

HydrogenThe basic chemicals criteria include carbon intensity benchmarks, criteria for low-carbon hydrogen production, and adecarbonisation pathway to reduce emissions over time. Hydrogen that meets these criteria can be used for basic chemicals

60 When production systems have more than one product, the ISO standards on LCA recommends avoiding allocation by instead “expanding the product system

to include the additional functions related to the co-products” (ISO 14044, clause 4.3.4.2). In the expansion the impact from the alternative system is subtracted
from the impact of the system under study. But this is not always practical in the multiple product plants in basic chemicals production, such as high value
chemicals and aromatics.
61 WBCSD Chemicals (2014). Life Cycle Metrics for Chemical Products. Available at: www.wbcsd.org/Projects/Chemicals/Resources/Life-Cycle-Metrics-for-Chemical-Products
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 31

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance(mainly ammonia and methanol) production projects to be certified. For the 2030 threshold, the projection using a reference
pathway was used, as explained below for other chemicals. Afterwards, the life cycle GHG emission values for hydrogenproduced from renewable energy and feedstock alternatives (biomass) projected by the Hydrogen Council 62 were taken as
reference to set out the thresholds for 2040 and 2050. This projection reveals that achieving the thresholds adopted in thesecriteria is feasible.
The Climate Bonds Initiative is currently developing criteria for hydrogen. Once the hydrogen criteria are published, it shallsupersede the requirements set in section 4.1., table 3 of the criteria document.
•

Chlorine
In this case, there is an energy threshold whose reduction is limited by the minimum theoretical electrical energy required toperform the electrochemical process that produces chlorine. For the 2030 threshold an updated value proposed in a European
Union study was used63. For the 2040- and 2050-time horizons, a rather qualitative requirement was set out to ensure theprocess delivers low carbon chlorine by using renewable power. This is because the main source of emissions in the Chlorine
process come from indirect emissions due to the electricity usage.

•

All other chemical products
Existing pathways proposed by different authors and organisations specific for the chemicals sector were evaluated. The
mitigation pathways consist of a combination of measures or activities with potential to decrease emissions which are assumed
to be adopted in each time horizon. This provides a reference to determine the quantity of emissions that need to be mitigated
and translates into a reduction rate over the time horizon established. This means, pathways then serve as a guideline toestablish whether a decarbonisation plan or roadmap and their resulting reduction target is aligned with the rate of emissions
reduction required.
The feasibility of the thresholds for other products was indirectly checked against references in the literature. For nitric acid,the US EPA reported measures leading to a 98% reduction for average facilities64, resulting in emissions as low as 0.0033 t CO2e/t. The threshold for carbon black is also feasible as the idea is to replace fossil feedstocks by biomass or other low carbon
feedstocks. The value of HVC and aromatics are feasible, for example it has been shown that combining biomass and CCS or
CCUS the carbon intensity of these chemicals can be drastically reduced65.

Table 8 summarises the main pathways and their estimated reductions resulting from scenarios for adoption of a combination oftechnologies and measures. It should be clarified however that the aim of considering these pathways is to set a level of ambitionand have a reference for the level of emissions according to a trajectory and alignment to the 1.5°C target. This in no way aims toprescribe any specific technologies. As such, there is plenty of room to support any novel technology that may emerge in the coming
years.

62 Hydrogen Council (2021). Hydrogen decarbonisation pathways. A life cycle assessment. Available at: https://hydrogencouncil.com/wp-

content/uploads/2021/01/Hydrogen-Council-Report_Decarbonization-Pathways_Part-1-Lifecycle-Assessment.pdf
63 EU (2021). Support study for the preparation of energy efficiency benchmarks in the context of the Revised ETS State Aid Guidelines.

https://ec.europa.eu/competition-policy/system/files/2021-11/kd0121322enn_ETS_efficiency_benchmarks.pdf
64 US EPA (2010). Available and emerging technologies for reducing greenhouse gas emissions from the nitric acid production industry.

www.epa.gov/sites/default/files/2015-12/documents/nitricacid.pdf
65 Zhao et al. (2018). Low-carbon roadmap of chemical production: A case study of ethylene in China. Renewable and Sustainable Energy Reviews 97, 580-591.

www.sciencedirect.com/science/article/pii/S1364032118305732#bib8
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 32

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Table 8: Summary of estimated reductions from pathways for chemical sector
Reference

Estimated reduction

Comments

IRENA (2020)

2.5 Gt CO2/year

Focus on using CCS and low carbon and renewable energy,
net zero target.

Saygin and
Gielen (2021)

4.79 Gt CO2/year

For net zero by 2050, 1.5°C pathway
Adds options to IRENA report 2020
2050 PES as reference
Accounts for end use emissions

IEA (2020)

0.2 Gt CO2/year by 2070
Overall sector intensity(approx.):SDS 2019-2070 Horizon
1.4 Gt CO2/year, 2019 baseline
Net zero by 2070

1.7 t CO2/t by 2020
0.7 t CO2/t by 2050
0.2 t CO2/t by 2070
DECHEMA(2017)

Maximum technical potential:
210 Mt/year

Focused on Europe

Ambitious scenario: 101
Mt/yearBiomass for aromatics may increase emissions

Intermediate scenario: 70
Mt/year

2050 horizon
Does not consider CCS, only CCU for the CO2 needed as
feedstock

The IRENA report focuses on the use of renewable energy and energy related measures to achieve net zero emissions by 2050 with
an important reliance on CCS. The study by Saygin and Gielen (2021) included most of the chemicals within scope of this Climate
Bonds criteria (ethylene, propylene, butadiene, aromatics, ammonia, methanol, chlorine and carbon black); with an ambition fornet zero emissions from global chemical and petrochemical sector by 2050. Interestingly, this pathway considers the whole life cycle
emissions and this, together with a net zero ambition, may be the reason for the higher estimated reductions among the pathways
included. The IEA Energy Technology Perspectives 2020 presents pathways for the chemical sector in a time horizon from 2020 and
up to 2070, relying mainly on fossil-based chemical production with CCS and CCU as key mitigation measures. The study by
DECHEMA also explored scenarios focused on the European chemical industry, and advocates for CO2 use as a feedstock, renewableenergy and biomass (this has restrictions for certain chemical products, such as aromatics).
There is a wide range of estimated reductions across these studies mainly due to differences in mitigation measures considered,time horizons and ambitions levels (IEA’s planned energy scenario, sustainable development scenario, net zero for a 1.5 oC target
by 2050, etc.). There are also differences in the chemical products and technologies included in their analyses. For these reasons, it
was considered that there is not a sufficiently robust basic chemicals sector pathway to adopt as reference that provides thenecessary confidence regarding common levels of ambition, timelines and scope. However, robust and science-based pathways
have been developed for several sectors by the Science Based Targets initiative (SBTi), including a cross-sectoral pathway that wasdeveloped through a robust process. Leading chemical companies have begun to set science-based targets (SBTs) that meet broad(SBTi) criteria. However, some barriers of this sector exist, such as the lack of scope 3 data availability, the low technologicalreadiness of most of the carbon mitigation technologies, lack of specific sector method, and value chain cooperation initiatives,among others, making it challenging to develop target setting guidance and pathways for chemical companies.
Climate Bonds’s view is to have Paris aligned pathways at the sector level and thus a common sectoral decarbonisation pathway
should be identified in order to show how that sector will align with the collective goal of keeping global average temperature rise
below 2 degrees and ideally 1.5 degrees66. The determination of the carbon emission thresholds in these criteria was done based

66 Creed, A., Horsfield M. (2021). Transition finance for transforming companies. Avoiding greenwashing when financing company decarbonisation. Climate

Bonds Initiative. www.climatebonds.net/files/files/Transition%20Finance/Transition%20Finance%20for%20Transforming%20Companies%20ENG%20%2010%20Sept%202021%20.pdf
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 33

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuanceon the alignment to a 1.5 oC decarbonisation pathway for the entire chemical sector recently published by Teske et al. (2022)67.
The pathway is compared and benchmarked with those from IEA Sustainable Development Scenario and the SBTi’s cross-sectoral
pathway in Figure 7. Teske’s pathway practically follows the same shape and similar slope as that by SBTi’s cross-sectoral pathway.
The IEA only includes the direct CO2 emissions, while Teske’s consider all energy related and non-energy related emissions of thechemical sector but it can be observed that they practically converge by 2050, which indicated that only unavoidable direct CO2
emissions would remain (as they are mainly forming from the reactions carried out to produce the chemical products). Thus, theselection of Teske’s pathway was considered appropriate to derive the thresholds presented in the Criteria document.

Figure 7: Comparison of decarbonisation pathways for the chemical sector and SBTI cross-sectoral pathway

In the SBTi’s pathway the reduction by 2030 is estimated at 42% from the 2020 levels, resulting in a linear annual reduction of 4.2%. After that, the total reduction should be 90% by 2050, resulting in an average linear annual reduction of 2.4 % (based on thesame 2020 level). Teske’s pathway is more specific to the chemical sector and estimates a lower total reduction of 85% by 2050
from 2019 level. However, the decarbonisation rates are higher. For example, from 2019 to 2030 the annual reduction rate is 4.7%,
and 3.5% until 2040 and then 2.7% until 2050 based on the same levels of 2019. In order to benchmark these reduction rates withthe pathways discussed above, the linear percentage reduction was estimated for the pathway from Saygin and Gielen (2021) whichis the most ambitious, and the pathway from IEA which is the least ambitious. An average between 2 and 3.33% annual reduction
from 2020 levels was estimated from the Saygin and Gielen (2021). These authors do not present values for intermediate timeframes. The reduction rate from 2019 to 2050 from IEA report is estimated at 1.9 %, while the reduction from 2050 to 2070 is
estimated at 2.14%, taking the base year of 2019. In conclusion the reduction rates being adopted from Teske et al. have a higher
level of ambition. If we consider the average reductions of the Teske et al.’s pathway throughout the whole-time frame of 2019 to2050, a similar average level of reduction rate (about 3%) estimated for the net zero case of Saygin and Gielen (2021) is achieved.
With the reduction rates from Teske et al.’s pathway and taking as basis the thresholds for 2022, the thresholds were extrapolated
to 2019 first using the 4.7% annual reduction to have the 2019 base value, afterwards, the aforementioned reduction rates wereapplied to calculate the 2030, 2040 and 2050 threshold. This was performed for all carbon intensity thresholds (except for hydrogenand chlorine, as explained above).
Other specific pathways for the chemical sector are currently under research and development. These criteria may be aligned
accordingly in future revisions.

67 Teske, S., Niklas, S., Talwar, S. et al. 1.5°C pathways for the Global Industry Classification (GICS) sectors chemicals, aluminium, and steel. SN Appl. Sci. 4, 125(2022). https://doi.org/10.1007/s42452-022-05004-0
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 34

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

4.2.3 Cross cutting criteria for decarbonisation measures, production facilities and parts of chemicalcompanies producing basic chemicals in scope
4.2.3.1

Additional criteria depending on the age of the facility

In setting the criteria, it was important to differentiate between existing operating assets which are transitioning towards lowcarbon production processes, and those financed as brand-new assets. Brand-new assets may be standalone facilities and outsideboundary limits of existing facilities, or they can be new production trains integrated into existing facilities (thus, not necessarily
green field developments). Although criteria apply to both types of facilities, there are additional requirements set depending on
the age of the facility, as shown in the criteria document. There are two main reasons for this: to prevent carbon lock in and ensure
emissions reduction over time and prevent stranded assets.
Preventing carbon lock-in and ensuring emissions reduction over time: Chemical plants typically have an average operating life of
30 years, so if a new plant uses traditional technology, it will keep releasing the same level of emissions as today rather than the
declining emissions trajectory that is required. Therefore, new facilities require the use of low carbon approaches to prevent thepotential carbon lock-in that could arise from the use of traditional high emissions technologies, feedstocks and energy sources (seeTable 2 for the main traditional technologies for chemicals in scope, also called conventional or business-as-usual technologies).
The term ‘carbon lock-in’ refers to the tendency for certain carbon-intensive technological systems to persist over time because
they are known and trusted, but which perpetuate the high carbon emitting processes for many decades and create the inertia thatprevents the adoption of lower-carbon alternatives. Figure 8, reproduced from a study by the Stockholm Institute, shows that thepotential carbon lock-in of chemical plants could be up to 5 Gt CO268 if new plants are designed using the same technologies andconfigurations of the existing ones. This is near five times the estimated emissions of the whole chemical sector in 2019 69.

Note:

Erickson et al. (2015), which include estimated GHG
emissions due to carbon lock-in of chemical plants62.

Figure 8: Results of a global assessment of carbon lock-in risks

Preventing stranded assets: many current chemical plants use fossil carbon as the feedstock. As efforts to address climate change
develop and fossil assets are kept in the ground, any chemical assets reliant on such a feedstock may find it increasingly hard toaccess reliable source material and ultimately become a stranded asset. Therefore, in order to align new facilities with a low carbon
future and prevent assets becoming stranded, constraints for technology and feedstocks form part of the mitigation criteria andare applicable to all assets and projects in scope.

68 Erickson, P., Kartha, S., Lazarus, M., & Tempest, K. (2015). Assessing carbon lock-in. Environmental Research Letters, 10(8), 084023.
69 SBTi (2021). Pathway-to-Net-Zero.pdf (sciencebasedtargets.org)

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 35

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for IssuanceSpecific requirements are detailed in the criteria document. The criteria allow for promoting the use of recycled feedstocks and theadoption of alternative low carbon technologies and alternative feedstocks. The combination of low carbon technologies with fossil
feedstock is not eligible for new plants; however, it is recognised that alternative feedstocks exist. For example, new plants withmethane pyrolysis (which generates solid carbon as a by-product instead of CO2) using fossil gas for hydrogen production may not
be eligible for new plants but could become eligible if it uses methane derived from biomass.

4.2.3.2

Additional criteria depending on the feedstock used

These additional criteria refer to criteria set for the capital investments used for implementing mitigation measures including theuse of hydrogen, biomass and CO2 as feedstocks.

4.2.3.3

Additional criteria depending on the energy used

These additional criteria refer to criteria set for the capital investments used for implementing mitigation measures including theuse of fossil gas, hydrogen, biomass and energy from alternative sources.

4.2.3.4

Additional criteria to address scope 3 upstream emissions

The scope 3 emissions can be a significant part of the total emissions of a chemical product value chain. It has been reported thatup to 77% of the emissions from chemical industry value chains fall within Scope 3 emissions70. This is mainly due to the extraction,
production, transportation and storage of fossil feedstocks and fuels, as well as other raw materials. Thus, it was necessary to set
out a requirement for addressing this type of scope 3 emissions at least on the upstream side as producers can have a certain degreeof control on purchasing low carbon feedstocks and energy sources. Given that most in the case of organic compounds the carbon
in the feedstock remains in the products, it was also necessary to set out a life cycle GHG assessment to ensure that the use ofalternative feedstock leads to true decarbonisation. The eligible elements for the strategy to address scope 3 upstream emissions
are listed in the main Criteria document.

4.2.3.5

Other additional criteria

This additional criterion was set to promote the use of those technologies that do not generate direct emissions due to reactions
which are then released into the atmosphere. The main examples of these include methane pyrolysis, catalytic partial oxidation of
methane to methanol. These processes intrinsically do not release CO2 emissions as the current conventional technologies (e.g.,methane reforming) do.

70 Avieco (2022). Translating Scope 3 Emissions for the Chemical Sector. https://avieco.com/news-insights/translating-scope-3-emissions-for-the-chemical-

sector/Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 36

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

5 Criteria for adaptation & resilience
5.1 An overview of the criteria for adaptation & resilience
According to Lux Research, storms, floods, droughts, and extreme temperatures threaten the supply of chemicals as climate change
impacts become more evident and frequent, leading to hundreds of millions of dollars in damage on a global scale. Potential r isks
associated with climate change include negative impacts on capital assets, transport and raw materials availability difficulties,
productivity, and safety problems71 . Because of the type of hazardous substances manufactured, managed, and stored, in chemical
facilities, climate change risks could lead to severe consequences. Potential risks include negative impacts to capital assets, transportand raw materials availability difficulties, productivity and safety problems. This section describes the Adaptation & Resilience (A&R)
Component of the eligibility Criteria for assets and projects under the Climate Bonds Standard. This component of the Criteria views
the potential climate adaptation and resilience impacts/benefits of the Basic Chemicals sector as inextricably linked to a broad range
of environmental and social issues and proposes to assess these in the round.
Section 5.2 below describes the scope of this component in terms of the key factors that need to be assessed to ensure that Certified
Climate Bonds are delivering on key climate outcomes in line with the overall objectives of the Standard. Section 5.3 describes
practical aspects of this component, to ensure that any transaction burden for issuers is minimised, while maintaining rigour androbustness in assessment. Section 5.4 describes existing tools. The Adaptation and Resilience Component of the Basic Chemicals
Criteria balances the needs for assessments while leveraging existing tools where appropriate.

5.2 Key aspects to be assessed
Climate adaptation and resilience mitigation criteria are designed to ensure that a project itself is resilient to climate change andthat it does not affect the resilience of other sectors. The development of the requirements for the A&R component was based on
Climate Bonds’ “Climate resilience principles” document72. Figure 9 gives an overview of the six principles for resilience.

Figure 9: The Climate Bonds’ principles for Resilience
Although the principles provide a framework and serve as guidance for general aspects to consider, it is also recognised thechallenges and limitations to assess the adaptation and resilience aspects in general. Such limitations include the lack of awarenessof climate resilience benefits and a common language, robust data on climate risks and common methodologies for climate risk
assessment, lack of capacity and interdependencies with other assets or actors in the supply chains. It is also acknowledged that
A&R has inherent complexities which makes it harder to quantify and it can be very context specific, depending not only on location

71 Lux Research (2020). In the Path of Destruction: Preparing for Global Climate Change in the Chemical Industry.

https://members.luxresearchinc.com/research/report/36147
72 Climate Bonds (2019). Climate Resilience Principles. A framework for assessing climate resilience investments. www.climatebonds.net/climate-resilience-principles
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 37

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuancebut also on the type of asset, the type of risk looked at, the level of severity and frequency of the risk, and so on. The frequency andmagnitude of the impacts are commonly underestimated by companies.
•

Location: Appropriate geographic or other spatial boundaries for climate risk and benefits assessments for assets and activities
in the sector was discussed as well as consideration of the broader system affected by those assets and activities. There are
expected internal and external interdependencies between assets or activities in a given sector and between sectors (whichbecome evident when a climate event results in a potential failure of value chains) but there can also be opportunities tomaximise resilience benefit.
When developing criteria for setting the boundaries for assessment, it was proposed to separate the analysis as follows:• Capital assets• Production• Logistics and supply (including raw materials, utilities and their distribution),• Labour.
Key infrastructure dependencies were identified with special relevance for the chemicals sectors including water (which is as
process raw material, cooling agent and in cleaning), gas, energy and other key utilities necessary to run the processes andkeep the adaptation and resilience equipment and infrastructure operating during any outage arising from climate change
events. All these infrastructure dependencies are to be included in the production element. Nevertheless, because the logistics
and labour are out of the scope of the Climate Bonds Resilience Principles, the A&R criteria will focus on production and capital
assets.

•••Timeframes: Appropriate time horizons for climate resilience assessments need to be set for the assets and activities in scope.
The criteria to base the time horizon for the assessments are set based on the typical lifetimes of assets in the chemicals sectors
which is 30 years on average (though it is recognised that some may last for 50 years or more).
Hazardous substances: For the special case of chemical production, it becomes critical to identify and assess the risk associatedwith the release of hazardous substances. It is important to understand what the facilities are doing in terms of resilience withthese substances which imply a higher risk. To address this, criteria include a classification of geographies according to the levelof risk. This can be determinant to certify a project or not. Risk assessments are routinely conducted by insurance companies.
They include type of risk, the probability and the magnitude of the impact. In addition, a timeline of when risks could occu r isrequired (identify zones prone to floods, storms, etc). The assessment should be preferably based on local models and data,
but it can also be more regional or global. Again, the level of detail may depend on the types of risks.
Disclosure: As part of the monitoring and evaluation principle, there are requirements for reporting and disclosing risks
assessments. Currently there are a number of issued seen:• a lack of alignment or harmonisation as reporting is often undertaken on a voluntary basis• the level of completeness can be low which leads to accusations of greenwashing• the frequency for reporting and updating the assessment varies (recognising that the time horizons for revisiting theassessments will likely depend on the level of risk of a facility: low risk facilities can have long time horizons, and high-risk
facilities short time horizons). Depending on the severity of the risk the time horizon can be set.
Other aspects to consider when setting the A&R requirements are listed as follows:•••

Identification of the key climate risks - including hazards, exposures and vulnerabilities - likely to be experienced by assets andactivities in that sector The U.S. Chemical Safety and Hazard Investigation Board document is an example of guidance toreference when assessing risks. Some insurance companies, such as FM global, can also be a useful source of data for risk
assessments.
Models, methodologies and data sets that would be most appropriate for determining likely physical climate risks to be faced
in context for activities and assets in that sector.
Climate change risk measures and metrics for assets and activities in that sector - e.g., how should assets and activities deal
with these risks? How this could be evaluated?.
Based on the discussions presented above, the assessment methodology includes a verification list that the verifier should
complete when assessing an asset or project. It is recognised that this may not be complete, but is presented as the most robust
available, given the complexities and several angles of the topic, and the lack of robust and more quantitative methodologies

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 38

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance•and tools. In setting such verification lists, documentation from Lux Research and guidelines from the UK Chemical Industry
Association73, and Dale (2021)74 were taken as key references. More information on this is given in Section 5.4 below.
Wider environmental and social risks. These risks are complex and interconnected and should be assessed under these Criteria,
however the following points are noted:• The Climate Bonds Standard is focused on climate impacts - including low GHG-compatibility (mitigation) and also climate
adaptation and resilience. Defining resilience can be challenging. However, it is clear that many topics which have been apart of environmental and social assessments for a number of years overlap significantly with the resilience of affected
populations and ecosystems and their ability to adapt to climate change.
• The most obvious example is the potential impact of climate change on hydrological conditions, and consequently watersupply and local livelihoods. Another is climate change exacerbating ecological problems such as impaired species
migration and algal blooms. Environmental and social impacts such as these, already complex and interconnected, become
more so when climate change impacts and risks are taken into account, and there is a logic to addressing all key
environmental factors, rather than trying to separate them out• The Climate Bonds Standard does not usually address primarily social impact issues, these were discussed but notconsidered within scope.

5.3 Practical requirements for this Component•

Leverage existing tools
The knowledge and literature on adaptation and resilience impacts of the basic chemicals facilities, and the chemicals sector ingeneral, is limited as this area is in its infancy. The A&R Component will require consideration of a highly complex and varied
set of issues across the environmental and social spectrum for which data, methodologies and metrics may not be available.
Qualitative methods based on verification lists or questionnaires have been proposed which can however be leveraged. It is
not appropriate for Climate Bonds to commit resources to address these issues, and the guiding principle of simplicity shall beapplied at this time. More robust criteria can be developed over time as more information is generated and integrated in thesubsequent revisions of the Criteria.
However, it should be noted that existing methods do not always fully or explicitly cover the additional, often interrelated
impacts connected to climate adaptation and resilience. Many of the risk assessments and management processes specified
by existing ES guidelines will be a prerequisite for identifying A&R risks, but more may be needed to fully address them give nthat this is an emerging topic.

•

Minimise the assessment burden
In addition, there needs to be a balance between rigour and practicality. Any Criteria with a prohibitively expensive assessment
burden will discourage certification. Any methodology adopted therefore need to avoid this.

•A binary ‘pass’/’fail’ outcome rather than scores or grades
Certification decisions under the Climate Bonds Standard are binary - applicants are either certified or not. Therefore, the A&R
Component needs to be framed in terms of pass/fail thresholds. Where an assessment tool provides scores or grades for a
facility, consideration has been given to what threshold ‘score’ or result should represent a pass for the purposes of Climate
Bonds Certification.

•

Retrospective application

73 Chemical Industries Association (2015). Safeguarding chemical businesses in a changing climate. How to prepare a. Climate Change Adaptation Plan.

www.cia.org.uk/LinkClick.aspx?fileticket=KW8WF8CBZG0%3D&portalid=074 Dale, S.(2021). Disaster Planning: Improve Your Plant’s Resilience. Become more proactive in dealing with acute and chronic natural di sasters.

www.chemicalprocessing.com. https://www.chemicalprocessing.com/articles/2021/disaster-planning-improve-your-plants-resilience/
Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 39

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Finance raised in this sector may be for new, greenfield facilities, for retrofits or upgrades to existing facilities, or they may be
a straight refinancing of an existing facility. Therefore, any proposal and associated approved assessment tool under thisComponent needs to be usable for both new and existing facilities.
This is not a straightforward issue; as in the case of refinancing, the facility may have been operating for a number of years. It
may have been compliant with best practices in place at the time of its implementation, but may not meet current best practicerequirements. The selected methodology and tool will therefore need to be able to address and resolve any ‘legacy issues’ that
may be identified.

5.4 Existing tools and guidelines considered
A range of existing tools and guidelines with the most potential to be leveraged for the Basic Chemicals Criteria are listed below,
with a brief indication of whether they were taken forward for further consideration or not.
Risk Assessment and Climate Scenarios
•
•
•
•

•
•
•

The ISO 14091:2021 Adaptation to climate change - Guidelines on vulnerability, impacts and risk assessment standard
offers guidelines for assessing the risks related to the potential impacts of climate change. 75
Risks can be characterised by the associated annual probability of failure or annual costs of loss or damage
For risk assessment, the TCFD The Use of Scenario Analysis in Disclosure of Climate Related Risks and Opportunities isrecommended.
A broad range of models can be used to generate climate scenarios. Users should apply climate scenarios based on
representative concentration pathway (RCP) 4.5 and 8.5 or similar / equivalent to ensure consideration for the worst-casescenario. (The IPCC ‘Shared Socioeconomic Pathways’ to develop potential temperature scenarios. SSP5-8.5 is the highest
warming pathway, SSP3-7.0 the second highest and so on).
The IPCC Sixth Assessment report also provides an indication as to how different temperatures impact the likelihood andseverity of different climate impacts
A framework for risk management for climate security. https://www.c2es.org/document/degrees-of-risk-defining-a-riskmanagement-framework-for-climate-security/
Climate Change Risk Assessment Guidelines.
www.ctc-n.org/system/files/dossier/3b/D4.2%20Climate%20change%20risk%20assessment%20guidelines.pd

Chemicals Hazard Assessment
UCLID (International Uniform Chemical Information Database) software is a recommended source of data on intrinsic and hazard
properties of chemical substances. https://iuclid6.echa.europa.eu/project-iuclid-6
The following link contains a list of regulated substances that require a Risk management plan (RMP).
www.epa.gov/rmp/list-regulated-substances-under-risk-management-plan-rmp-program

75 www.iso.org/standard/68508.html

Basic Chemicals Background Paper- Climate Bonds Initiative

P a g e | 40

Climate Bonds Initiative - Basic Chemicals Background Paper
Final for IssuanceAppendix A: TWG and IWG members
Climate Bonds Coordinator
Marian Rodriguez

Climate Bonds Initiative

Senior Research Analyst

CBI Technical Lead Advisor:
Elias Martinez
Senior Research Scientist

Biomass Conversion Division, Mexican Institute of Petroleum.
Independent consultant.

TWG Members
Camilla Oliveira

Agora-Energiewende. Latin America. Decarbonisation of industry.

Industry Project Manager

Carina Oliveira
Chemical Engineering
Specialist

Denny KS Ng
Professor

Fredric Bauer.
Associate senior lecturer inTechnology and society.

Gbemi Oluleye
Research Associate

Heriberto Cabezas.
Professor

Jonathan Moncada.

Energy Transition Studies, The Netherlands organisation of appliedscientific research (TNO))
Heriot-Watt University. Malaysia Campus. Head, School ofEngineering and Physical Sciences
Researcher at the division on Environmental and Energy Systems
Studies. Contributing author to the IPCC Working Group III AR6chapter on industry. Lund University. Sweden.
Department of Chemical Engineering and the Centre forEnvironmental Policy in the Faculty of Natural Sciences- Imperial
College London. UK
Research Institute of Applied Earth Science, University of Miskolc,
Miskolc, Hungary, Hungary.

Researcher

Energy Transition Studies, The Netherlands organisation of appliedscientific research (TNO))

Kok Siew Ng

Industrial Innovation (Rutherford).

Research Fellow

Principal Investigator of the project SYNERGORS. Oxford University.
UK.

Peter Levi

IEA (International Energy Agency)
Industry Lead, Energy Technology Policy Division. France

Robert Adamczyk

EBRD. European Bank of Research and Development. UK

Associate Director, Senior
Environmental Adviser

Thomas Rehm
Inaugural Chair

The Climate Solutions Community- American Institute of Chemical
Engineers- Institute for Sustainability. USA.

Adaptation & Resilience (A&R) Group
Dale Sands
Manging Director

Sands Consulting Solutions. Expert and advisor- Sustainability,
adaptation and resilience in the industry. USA.

Appendices - Climate Bonds InitiativeClimate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

Dr Fahim Tonmoy,

BMT

Associate Principal
Engineer

Adjunct Research Fellow Griffith University. Australia.

Kristin Marshall,Lux Research Analyst

Associate Research Director at Lux Research. Expertise assessing
climate risk, adaptation and resilience in the chemical industry. USA

Rita Ferreira

S&P Global

Sustainable finance
Associate

Research analyst with experience in extreme weather impacts in thechemical industry. Portugal

Appendices - Climate Bonds InitiativeClimate Bonds Initiative - Basic Chemicals Background Paper
Final for Issuance

IWG Members
Andrew Mak,
Board Member

Katy House,
Sustainability Analyst

Carbon Care Asia

Giulia Rado,
Sustainability Analyst
Affirmative Investment

Armand Satchian
Associate, Sustainable
Finance ESG Consultant

Kristian Atkinson
Portfolio Manager
Fidelity International

ISS-ESG
Isobel Edwards,
Green Bonds Analyst
NN Investment Partners

Mayur MukatiManager Sustainable Finance
Solutions,Sustainalytics

Jana Hock,Research Manager

Sothi Selvam
Director General

Shareaction

Rakesh Kumar
Officer-Sustainability,
Environment & Regulatory
IssuesFrans Stockman,
Executive Director of
Petrochemicals
Jelena Macura,
Head of Sustainable Finance
CEFIC (European Chemical
Industry Council)

Appendices - Climate Bonds Initiative

Harsharaj Karangle
Advisor
S Jaikumar
Secretary General
ICC (Indian Chemical Council)