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Auto industry provides a model for the transition to Net Zero

Economic growth

Flooding in China and Europe, record temperatures in the USA, wild fires – all these are signs that climate change is accelerating. After all, the world has gone from 2.5bn people in 1950 to 7.9bn today. That must have an effect. In this interview with Felicia Loo and John Richardson on ICIS News, I discuss what companies need to do to meet Net Zero targets. 

SINGAPORE (ICIS), Felicia Loo–The world is undoubtedly under the weather these days, no pun intended, becoming more unpredictable on man-made climate change.

Against the backdrop of extreme weather – heatwave and wildfires in North America, severe floods in China and Europe – and the pandemic, what more could the petrochemical industry do to help salvage the situation?

For starters, the industry could step up to the plate by adopting a global carbon tax, according to ICIS senior consultant John Richardson.

“The only answer, in my view, is a global carbon tax that provides the funds to enable a global energy transition,” said Richardson.

This would result in financial penalties forcing changes in everyone’s behaviour as after all, the International Oil Companies (IOCs) are facing sufficient pressure from investors to cut back on carbon, but this is not the case with the National Oil Companies (NOCs).

The NOCs would then be compelled to move in the same direction as the IOCs, and the tax would also provide the revenues to enable both the NOCs and IOCs to accelerate innovation in carbon management, Richardson elucidated.

Some of the vast revenues that such a global tax would generate could be used to meet basic needs in the developing world, and this would result in financial penalties forcing changes in everyone’s behavior, he pointed out.

“Further, demand growth for petchems has to be met if we are to continue the battle against extreme poverty and allow more people to achieve middle-income status.

Also of importance is to take a leaf out of the auto industry’s book.

“Essentially, I believe companies now have to read the writing on the wall for the continued use of fossil fuels – both as feedstocks and as virgin plastics,” said Paul Hodges, chairman of New Normal Consulting.

“They need to follow the example of the auto industry in deciding to change their business model. Autos are our largest customer industry, and its response to climate change is a very helpful example for us,” Hodges added.

When it gets down to brass tacks, the board needs to confirm that the company has decided to stop using fossil fuel-based feedstocks and stop selling products based on fossil fuels such as virgin plastics, by an agreed date. They then need to confirm the new business model, and their timeline for introducing it, according to Hodges.

“For a plastics company, this could involve making a commitment to start to develop business in recycled plastics – as a precursor to becoming a software-based producer of packaging solutions in defined sectors,” he explained.

“The next step is to implement an agreed strategy to achieve these targets,” said Hodges, adding this means deciding to use the profits from today’s fossil fuel-based output to fund the development of the new business in recycled plastics.

“This needs a 5-10 year plan with stage gates, alongside the necessary resource commitments in terms of people and cash,” he said.

Hodges suggested the next step is to announce target dates for the transition, which will need to be aligned with the targets set by legislators and brand owners in specific markets and geographies. Finally, companies need to articulate the details of their new business model, and to explain how they plan to transition from today’s position to the future.