Sustainable Development in Petrochemical Industries
1. SUSTAINABLE DEVELOPMENT
Sustainable development has been defined as balancing the fulfillment of human needs with the
protection of the natural environment so that these needs can be met not only in the present, but
in the indefinite future.
The term was used by the Brundtland Commission which coined what has become the most
often-quoted definition of sustainable development as:
"Meeting the needs of the present without compromising the ability of future generations; to
meet their own needs."
The field of sustainable development can be conceptually divided into four general dimensions:
social, economic, environmental and institutional. The first three dimensions address key
principles of sustainability, while the final dimension addresses key institutional policy and
It covers the aspects of:
Sustainable demographic dynamics
Protecting human health
Promoting human settlement
Protecting education, public awareness and training
2. Sustainable Development in Petrochemical Industries
Sustainability advocates often sum it up as a quest for triple-bottom-line growth (see figure).
Note that with the triple bottom line, limiting environmental impacts is just one component of a
sustainability strategy. Another is economic development: An environmental initiative that
subtracts from an organization’s profit is not in fact sustainable, because the organization cannot
afford to sustain it. Indeed, it should contribute to shareholder returns by cutting costs or increas-
ing revenues. Social well-being also plays a role, with issues such as maximizing worker health
and safety and minimizing toxic spills and other impacts on the community. For many
companies, addressing these issues supports their right to operate.
SUSTAINABILITY: THREE PATHS TO VALUE
Sustainability remains top-of-mind because many companies worldwide have used it to generate
top-line growth while simultaneously cutting costs to achieve meaningful bottom-line returns. In
other words, when it works, sustainability is not only about environmental benefits, but it’s also
about profitability. Regional industry players are already recognizing the potential of sustain-
3. ability within the petrochemicals industry. The value from sustainability will likely come from
one or more of the following three paths:
1. Cost Reduction
2. Brand Enhancement
3. Revenue Generation
Any company determined to reduce its negative environmental impact must start by
benchmarking and tracking resource use, waste and greenhouse gas emissions. A chemical
manufacturer undertaking such an effort would become more disciplined and familiar with every
detail of its supply chain and production processes. Sustainability improvement opportunities—
in manufacturing processes, energy efficiency, logistics, risk management and other
capabilities— naturally lead to cost reduction. But viewing such improvements through a
―sustainability lens‖ often uncovers cost savings that might otherwise go unrecognized.
In the most obvious example, when a company rethinks its manufacturing processes or develops
a more efficient catalyst to use fewer inputs (feedstock, energy, water, among others), it ends up
saving money on those inputs. Improved efficiency may also be an effective argument in
convincing governments to increase allocations of stock. Several petrochemical manufacturers
have already begun sustainability-driven cost-reduction initiatives. In general, we can classify
these activities into the following four categories:
Improve internal manufacturing process to optimize yields.
As noted above, companies can increase yield from chemical feedstock with the use of new
processes, equipment or more efficient catalysts (that can also be greener using bioprocesses).
Increasing the amount of final product that can be created from the same input of feedstock is a
critical sustainability lever. Some examples undertaken by Gulf companies include the adoption
of zero- or minimum-effluent processes using an environmental management system based on
the ISO 14001 and ISO 9001 standards
Reduce waste from the process of direct and indirect inputs.
The use of pollution-control facilities—including wastewater treatment plants, waste collection
and disposal mechanisms, and plants designed to minimize air emissions—will reduce the waste
4. of direct and indirect inputs. Sample waste management activities undertaken in the region
include recovering noble metals, recycling used oil and using dust from industrial air filters (bag
house dust) in concrete cement. As the Gulf is a water-stressed region, several companies are
also promoting water efficiency via minimization, recovery and recycling.
Increase energy efficiency.
Utility expenses can be reduced by cutting usage of secondary energy through improved
operating efficiency, cogeneration, and integrating electricity from internally generated solar,
wind or geothermal sources, among other steps. Energy conservation measures are applicable not
only to the core processes but also to relevant indirect energy usage (such as lighting and HVAC
Improve supply chain efficiency.
While the above levers concentrate on operations within manufacturing facilities, a sustainability
strategy can also help improve supply chain efficiency and reduce net consumer costs. Indeed,
optimizing an entire supply chain network can eliminate logistics and transportation costs,
rationalize assets and facilities, improve demand forecasting and determine use of more energy-
efficient transportation modes. A comprehensive supply chain sustainability strategy uses
advanced scheduling to minimize transportation trips and optimize routes—thus having a direct
impact on a manufacturer’s environmental footprint—and addresses ways to reduce penalties
and fines within environmentally regulated markets. While the benefits may not appear crucial
today, they will become more relevant as Gulf companies become more global.
Sustainability can be an attribute for investors, customers and the public. Some influential
stakeholders view a company’s environmental practices as a proxy for corporate attributes that
are otherwise difficult to quantify. For example, investors may view a company’s sustainability
practices as an indicator of the quality of its corporate governance, risk management and
5. Revenue generation
Perhaps the most significant source of potential value from sustainability—although arguably
also the hardest to attain—is the promise of harnessing customers’ interest in sustainability to
generate new revenues. We can classify these opportunities into three categories:
Develop new products.
Because many end- consumers are concerned about making a smaller impact on the planet,
companies that serve them are seeking to design products that meet those needs. These new
products need new inputs. For example, to improve fuel efficiency, automobile manufacturers
are increasingly looking for lightweight components. A petrochemicals manufacturer that can
contribute to lighter-weight plastics will open a potentially large new revenue stream. Likewise,
many manufacturers are seeking products with higher recyclability or lower greenhouse gas
emissions (perhaps made with alternative feedstock). In any industry, one of the surest ways to
grow revenues is to develop new products that meet current demands—and today’s demands
center on sustainability.
Create competitive differentiation.
As players at the top of the multinational product value chain—such as Wal-Mart—embrace
sustainability, they are realizing they are only as sustainable as their supply chains and the
products they sell. Thus they are starting to demand, and pay for, more active environmental
footprint management from their suppliers. Petrochemical manufacturers with a sustainability
focus can provide added value to their customers in the form of clear improvements in environ-
mental measures. These companies can use this added value as a differentiator to crack particu-
larly difficult accounts—which, we believe, are likely to increase in number.
Leverage downstream pricing.
Gulf petrochemical companies are strategically positioned as key suppliers to some of the
world’s largest, most resource-intensive and environmentally effective industries. For example,
petrochemicals are critical inputs to the housing and transportation industries, which emit 15
percent and 10 percent of global greenhouse gas emissions, respectively, according to the IEA.
As these customers (and end-consumers) demand access to environmentally sustainable solu-
6. tions, petrochemical manufacturers have an opportunity to extract premium pricing for products
that reduce downstream greenhouse gas emissions and other negative environmental impacts.
GATEWAY TO GROWTH
The petrochemicals industry is clearly preparing for a new era of intense global competition in
which environmental initiatives and sustainability could be a tremendous source of value. Three
paths to this value exist—reducing costs, increasing brand value and generating revenues—but
choosing which (if any) of these paths to take requires weighing the value of sustainability
against corporate goals. If the two are ill-matched, it is wiser to do nothing than to invest in
meaningless gestures. If there is a potential match, however, there is value in capitalizing on
customers’ and investors’ interests in alleviating environmental risks. Above all, it is important
to remember that sustainability initiatives generate true success only when they are fully and
meaningfully integrated into corporate strategy. In this way, sustainability can be the gateway to
7. SUSTAINABLE DEVELOPMENT FOR ENERGY SECTOR
Radical change in the energy system is essential in the decades immediately ahead in order to
address effectively the multiple economic, social, environmental, and insecurity challenges
posed by conventional energy. This can come about only through a concerted international effort
to speed up the rate of technological innovation worldwide for technologies that offer promise in
addressing sustainable development objectives – with particular attention given to developing
countries, which account for much of the world’s energy demand growth and where problems
posed by conventional energy are severe.
The effort should be aimed at channeling some of the enormous private-sector financial and
technological resources to the development and widespread deployment of such new energy
technologies. In the industrialized countries, public policies supportive of innovation directed to
the needs of the developing world as well as domestic needs are called for.
REQUIREMENT OF CHANGES
Effectively addressing the multiple environmental and energy insecurity challenges posed by
conventional energy will require radical changes in energy technology and a speeding-up of the
rate of technological innovation worldwide for technologies that offer promise in addressing
sustainable development objectives. A high priority should be to encourage technological
innovation in developing countries, which account for much of the world’s incremental energy
demand and where the problems posed by conventional energy are especially severe.
It is desirable to find new ways for national and international public sector bodies to work
cooperatively to harness the dynamism of the private sector in the promotion of environmental
and energy security values and to do so making maximum use of market forces in finding the
least costly options for promoting these values.
The ongoing process of reform to promote competition and greater economic efficiency in
electricity markets can assist the needed transition to cleaner and more secure energy
technologies, if the market reforms include measures to promote energy technological innovation
in ways that would serve sustainable development objectives.
8. New public benefit initiatives relating to energy technological innovation are needed at national,
multilateral, and bilateral levels. At the national level new policies are needed to direct
investments to innovative technologies for sustainable development in a manner consistent with
the ongoing transition to more competitive markets. What is most needed at the multilateral level
is a framework for channeling vast private sector financial resources to this innovative process,
with an emphasis on developing countries. It has been proposed here that the Global
environment facility be given this responsibility for the coming era when energy market reforms
are largely in place. Additional bilateral assistance for this process channeled through this
framework could facilitate access to large, rapidly-growing markets by private firms from
industrialized countries, without the tied-aid constraints that have hampered effective technology
transfer via bilateral aid in the past.
The combination of rapid energy demand growth plus environmental and energy market reforms
could potentially transform developing-country energy markets into favorable theaters for energy
Under these conditions, developing-country governments would have considerable market power
to direct the course of this innovation – including the power to induce the private sector to
provide those environmental energy technologies that they believe are well-suited to their
development needs. With large internal markets, large rapidly industrializing countries in
particular have an opportunity to become market leaders for selected sustainable energy
technologies, with eventual export capability.
It is desirable to put the needed innovation policies in place soon – during the ongoing (often
tumultuous) changes that are taking place in the power sector throughout the world. Fundamental
policy changes such as those proposed are typically easier to introduce when institutions are in
ferment, as is presently the case in the power sector. In a decade’s time these reforms will be in
place in most parts of the world and will lock in mechanisms for determining success/failure of
the dual aims of attracting private capital to energy and addressing public benefits.
Once power sector reforms have been put into place the policy arena will become quiescent, and
it will be more difficult to bring about fundamental change.
9. POLICIES OF DEVELOPING COUNTRIES
First, developing countries generally and especially the rapidly industrializing countries such as
Brazil, China, India, Indonesia, and South Africa, are becoming favorable theaters for
(1) Most rapidly industrializing countries have large, rapidly growing, unserved internal markets,
nascent infrastructures for industry, commerce, transport, and housing, and plentiful natural
resources, including renewable energy resources that offer the potential for serving energy needs
in sustainable ways.
(2) Within their elite populations, many of these countries have substantial numbers of scientists
and engineers, many of whom were trained at leading universities of the industrialized countries.
(3) In conjunction with the globalization of the economy, most developing countries are moving
toward the development of strong domestic capital markets and market reforms, including
energy market reforms, that will provide investment climates favorable to innovation generally
and energy sector innovation in particular.
Second, developing countries have needs for new technologies that are often different from those
of already industrialized countries. One example is that most developing countries are moving
through the early stages of infrastructure-building and thus have enormous demands for basic
materials and are in need of innovative technologies that will facilitate this infrastructure-
building, whereas in the already industrialized countries, which are entering their post-industrial
development phases, the demand for basic materials is saturating and there is little need for
fundamentally new basic materials processing technologies. More generally, the technological
innovations that emerge from the capital rich, labor-short industrialized countries are not always
good fits to the needs of labor-rich, capital-short developing countries.
Third, early deployment of advanced energy production and use technologies that are inherently
low-polluting offers the advantage that environmental goals can be realized with much less
regulatory infrastructure and cost than would be required if these goals were pursued instead by
mandating and enforcing the use of increasingly more stringent end-of-pipe controls for dirty
10. This is an important consideration for most developing countries where:
(1) local/regional environmental issues are rapidly becoming major concerns,
(2) Regulatory infrastructure development for environmental management is embryonic, and
(3) It is desirable to minimize the high costs required for such infrastructure development in the
light of the many other pressing needs that government bureaucracies there must address.
Fourth, their lower wage rates at all levels of scientific, engineering, and managerial skills make
developing countries attractive to technology owners for launching new technologies in the
market. Local manufacture implies not only local job creation opportunities but often potentially
lower costs than for the same technologies imported from the industrialized world, leading to
larger domestic markets and opportunities for export growth. The low wage rates and potential
large internal markets of the large rapidly industrializing countries are factors that could enable
some of these countries to become leaders in the development and deployment of some new
sustainable energy technologies, because costs for these technologies could thereby fall faster
and reach lower levels if substantial early deployment activities were pursued there. Moreover,
there is an urgency to put such product development/ manufacturing activities into place while
these wage rate differentials are still significant.
HUMAN AND INSTITUTIONAL CAPACITY-BUILDING
Human and institutional capacity-building are needed if sustainable energy technologies are to
make major contributions in providing energy services for developing countries.
Multi-disciplinary expertise and institutions are needed for
(2) Technology testing and adaptation,
(3) Manufacturing and marketing
(4) Monitoring and evaluation
(5) Policy analysis, development, and implementation,
11. (6) Social sciences for understanding better behavioral issues relating to technology deployment,
(7) Technology assessments to provide private and public decision-makers independent advice
on the merits of alternative candidate sustainable energy technologies.
GUIDELINES FOR A DOMESTIC ENERGY INNOVATION POLICY
It is beyond the scope of the present analysis to develop energy innovation policy proposals that
might be adopted by one or more countries. Rather, what follows is a set of guidelines that
should be considered in framing such policies.
1. Establish clear long-term goals for energy innovation (e.g., some combination of supporting
long-term economic growth, economic competitiveness, rural development, the needs of the
poor, improving environmental quality, reducing greenhouse gas emissions, and promoting
enhanced energy security) and allocate scarce public resources in ways aimed at maximizing
social benefits with regard to such goals.
2. Create an economic, institutional, and social climate conducive to energy technological
innovation – including efficient energy and capital markets, transparent rules relating to
industrial organization and protection of intellectual property, and broad public support for the
goals and the process of the energy technology innovation effort.
3. Evolve regulatory and/or tax policies giving proper market signals that fully reflect
environmental and energy insecurity damage costs to energy producers and consumers in making
energy technology choices.
4. Create an effective and efficient energy technology infrastructure consisting of science and
engineering knowledge that is available to private industry and embodied in human, institutional,
and facility forms.
5. Deal comprehensively with all elements in the energy innovation value chain (including
fundamental research, applied research, development, demonstration, technology cost buy-down
in early deployment, and overcoming institutional barriers to widespread deployment), giving
attention to the various forward and backward linkages among all elements of the energy
innovation value chain.
12. 6. Insist on a diversified portfolio of technologies that qualify for public-sector support to
safeguard against the risks that not all energy innovation investment will lead to successful
commercial products and that public agencies will not be successful in ―picking winners‖ (they
have a poor track record in this regard).
7. Sustain the energy innovation effort. Although periodic reallocation of energy innovation
resources is essential in the light of program reviews that reveal successes and failures as well as
changing public priorities for innovative activity, ―roller-coaster‖ support for technological
innovation activities should be avoided. An especially damaging aspect of the ongoing energy
R&D crisis is that it is forcing the dismantling of many groups that have developed unique
capabilities for doing effective R&D – capabilities that will take a long time to rebuild. A strong
R&D capability depends not only on the formal education of the R&D work force but also on its
field experience. One form of this experience known as ―tacit knowledge‖, the unwritten
knowledge about how technologies perform in practice, is key to the success of technological
development and can easily be lost when R&D programs are destabilized. The effectiveness of
an R&D effort depends to a large degree on there being a relatively stable long-term financial
commitment to the process that is shielded from the vagaries of short term market fluctuations
ENVIRONMENTALLY SUSTAINABLE GCC PETROCHEMICALS | A.T. Kearney
Addressing challenges to sustainable development with innovative energy technologies in
a competitive electric industry (Robert H. Williams)
ACEEE 2011. American Council for an Energy Efficient Economy. “Advancing Energy
Efficiency in Arkansas: Opportunities for a Clean Energy Economy.”