Carbon emission reduction path of coal chemical industry

In the opening article of our series "China Accelerating towards Carbon Neutrality", we imagined a carbon-neutral world in 2050 dominated by new energy elements such as electric vehicles, hydrogen steelmaking, photovoltaic power generation, and green energy storage. Achieving this vision also means that the world needs to reduce net man-made carbon dioxide emissions by about 45% by 2030 compared with 2010. To achieve "net zero emissions" by 2050. In the face of the dual challenges of target and time, the road to carbon neutral transition needs to be started.

In the opening article of our series "China Accelerating towards Carbon Neutrality", we imagined a carbon-neutral world in 2050 dominated by new energy elements such as electric vehicles, hydrogen steelmaking, photovoltaic power generation, and green energy storage. Achieving this vision also means that the world needs to reduce net man-made carbon dioxide emissions by about 45% by 2030 compared with 2010. To achieve "net zero emissions" by 2050. In the face of the dual challenges of target and time, the road to carbon neutral transition needs to be started. While countries are competing to carry out specific research and implementation work, China also took the lead in proposing the goal of "carbon peak and carbon neutrality" in the general debate of the seventy-fifth session of the United Nations General Assembly. The United Nations Sustainable Development Goal 13 "Climate action" is also one of McKinsey's social responsibility priorities in China. At this key juncture, McKinsey officially launched China's large-scale carbon neutral transition research project in China. With the help of McKinsey's rich experience in global sustainable development research, combined with comprehensive understanding and profound insight into Chinese society, industries and enterprises, Mobilize the knowledge of more than 100 people around the world to carry out research on carbon neutral transition trends, countermeasures and technologies across major industrial sectors, hoping to make a small contribution to China's early achievement of carbon neutrality goals.

As the fourth article in this series, this paper will continue to study carbon neutral transition with coal chemical industry as a sample. Following this, we will publish a series of articles covering high-carbon emission industries such as oil and gas and power, covering many topics such as carbon emission reduction path analysis, emerging technology discussion, investment cost forecast, international practice sharing, and explore the latest trends in traditional carbon emission reduction process innovation, carbon capture, utilization and storage (CCUS), and new carbon emission reduction technologies such as hydrogen energy. In the process of continuing to promote this research, we are very welcome experts from all walks of life colleagues, you can put forward valuable comments in the message area, you can also directly contact the team. We look forward to working with all sectors of society to advance the path of carbon neutral transition in a green China.

Necessity of carbon emission reduction in coal chemical industry in China

The coal chemical industry has long been a major carbon emitter in the coal industry chain, contributing about 10% of China's total carbon emissions in 2015. Due to its resource endowment, China's chemical industry uses more high-carbon coal as feedstock than any other country. Taking synthetic ammonia and methanol as an example, natural gas is the main raw material for synthetic ammonia and methanol in most countries, while about 80% of synthetic ammonia and methanol in China is made from coal (Figure 1), which leads to the carbon intensity of China's coal chemical industry is higher than that of other countries. Coal to hydrogen 1 kg (synthetic ammonia and methanol feedstock gas) will emit about 11 kg of carbon dioxide, if natural gas to hydrogen, carbon emissions will be reduced by half. According to McKinsey's internal analysis, to meet the 1.5C target, the chemical industry needs to reduce carbon emissions by more than 90 per cent by 2050.

Synthetic ammonia carbon reduction path

Because the production process is similar and the emission reduction grips overlap, we will take synthetic ammonia as an example to further clarify each carbon reduction grips in this article.

Demand-side management: The main downstream use of synthetic ammonia is nitrogen fertilizer production, and about 90% of synthetic ammonia is processed into nitrogen fertilizer. Nitrogen fertilizer use in China is projected to have the potential to decline by 40 percent by 2050, driven by a combination of reduced arable land and more efficient fertilizer use.

a. Reduction of cultivated land: China's total cultivated land area is expected to continue the downward trend in the future, from 2 billion mu to nearly 1.8 billion mu, an estimated decline of 10%. Long-term over-cultivation has led to the decline of cultivated land quality, currently China's 2 billion mu of cultivated land has 4% of polluted land, 17.8% of low arable land and more than 80 million mu of unstable farmland, recuperation, return to forest and grass, rotation and fallow is imperative. At the same time, along with the process of urbanization, the rural population is expected to move out further in the future, resulting in some arable land wastage.

b. Improved fertilizer efficiency: Without affecting yields, we project that annual nitrogen fertilizer use per hectare in China has the potential to decline by 30% by 2050 (see Figure V). The per capita arable area of Chinese farms is much lower than that of Western countries, and small farmers lack the knowledge of scientific use of chemical fertilizers, leading to the problem of excessive and blind use of chemical fertilizers in China. The average amount of nitrogen fertilizer used in China's crop hectares is 306 kilograms, much higher than the world average and more than twice that of the United States. The problem has improved in recent years, and during the 13th Five-Year Plan period, the government actively controlled fertilizer use through farmer education and local supervision. In the future, with the integration of land ownership, large farms are expected to gradually replace individual farmers as the mainstream farming model. Large farmers use far less nitrogen fertilizer per hectare than small farmers; At the same time, large farmers are also more willing to adopt optimized farming techniques, such as the use of organic fertilizers, slow-release fertilizers and other new fertilizers, to further improve the efficiency of fertilizer use.

2. Existing carbon reduction technologies: Emerging gasifier and fuel electrification technologies are mature and, if widely applied in the industry, can effectively reduce carbon emissions by more than 50%, but will incur additional capital expenditures and operating costs. Due to the low overall profit level of the coal chemical industry, external thrust is needed to internalize the external cost of carbon emissions in order to improve the application space of these two technologies in the industry.

a. Emerging gasifiers: China's existing gasifiers are still dominated by old fixed beds, and their single-furnace production capacity is low and pollution treatment is difficult, which has been generally eliminated by modern coal chemical industry abroad. With the increase of carbon emission requirements, coal chemical enterprises need to actively replace production capacity, eliminate and upgrade the old fixed bed gasification technology with high coal consumption, and use new high-efficiency pulverized coal gasification and other technologies. It is estimated that by 2030, by upgrading gas equipment, the industry has the potential to reduce coal consumption per unit by 30%, thereby reducing carbon emissions by about 15%.b. Fuel electrification: Coal-fired electrification, which can eliminate carbon emissions from coal (50% of the total), is a mature technology, but it significantly increases operating costs in high-temperature processes, and is estimated to cost more than $100 to reduce 1 ton of CO2.

3. Emerging carbon emission reduction technologies: CCUS and electrolytic hydrogen, two emerging technologies, are the starting points to solve the last mile of carbon emission reduction in the synthetic ammonia industry. Both of these technologies can reduce carbon emissions in the production process of synthetic ammonia by more than 80%, but they are still in the stage of technological exploration.

A. Carbon capture utilization and storage (CCUS) : CCUS has a good coupling with the development of coal chemical industry, because the carbon dioxide concentration is high, the capture cost is much lower than other industries. According to our estimates, the cost of CO2 capture per ton in the synthetic ammonia industry is about 80 yuan, while in other industries (e.g., cement, electricity) it is more than 200 yuan. This technology can be preferentially used in North China, Northeast China, Inner Mongolia and other places close to oil fields to reduce carbon emission costs through carbon dioxide flooding. In the next 30 years, if the development of CCUS is improved, the construction of transport pipelines and storage facilities, and the formation of industrial synergies with other high-carbon industries, it is expected to further expand the application of the industry.

b. electrolytic hydrogen: The use of electrolytic hydrogen to produce synthetic ammonia instead of coal to produce hydrogen, this technology has been mature, but due to the current high cost, has not been applied in the synthetic ammonia industry. According to our calculation, assuming that the industrial electricity price is 6 yuan per degree, the cost of electrolytic hydrogen to synthetic ammonia is more than 3 times that of coal to hydrogen. With the further improvement of the efficiency of electrolytic hydrogen conversion and the reduction of the price of new energy, in some areas with surplus renewable energy, the future cost of electrolytic hydrogen can be lower than that of coal to hydrogen. If the cost advantage is obvious, the ammonia industrial plant cluster may gradually transfer to this area, and the carbon dioxide required for downstream urea production can be obtained from the carbon dioxide captured by the surrounding high-carbon enterprises.Inspiration to coal chemical enterprises

Turn crisis into opportunity, lock downstream demand in advance, and look for future business opportunities: Evaluate the demand changes of major downstream customers in a low-carbon environment, and find low-carbon growth points. In the face of new growth opportunities, analyze potential revenue to identify key development directions and develop entry plans. For example, the agricultural demand of the synthetic ammonia industry will decline significantly, and the impact of carbon emission reduction on future earnings can be reduced by entering the downstream fertilizer industry or alcohol and ammonia co-production.

Take the initiative in the production process and look for carbon reduction opportunities: To deeply understand the impact of the national carbon emission reduction target on the coal chemical industry chain during the 14th Five-Year Plan period, formulate carbon emission reduction target according to the current carbon emission situation of the enterprise, and formulate specific emission reduction measures at the asset level, calculate its emission reduction potential and investment return, that is, the economic benefit, investment cost, operating cost and corresponding risk estimation, and find out the most feasible and economical carbon emission reduction path. Coal chemical enterprises can proactively check and close low value-added product production lines, establish fine chemical production control capabilities through digitization, and upgrade to more mature emerging gasifier and fuel electrification technologies, thereby reducing coal consumption levels.

First, pay attention to the impact of zero-carbon transition on the whole industrial chain of coal chemical industry, advance layout: regularly track emerging technologies such as CCUS and renewable energy instead of coal to hydrogen, and accelerate small-scale pilot under the premise of conditions. At the same time, research and establish a number of future scenarios to predict the final form of the industry chain in a zero-carbon environment, and prepare for future product and service upgrades and business transformation.