Electrolysis technologies provide an opportunity for the chemical sector to decarbonize its supply chain and use renewable electricity as an alternative to oil and gas feedstock.

While many forecasts show that oil and gas will continue to dominate in the chemical sector, Lux Research’s new report, “Electrifying Chemicals: The Cost of Producing Chemicals from Electricity,” predicts that emerging power-to-chemicals technologies will disrupt those figures and provide a new route of production, especially for the niche product sector.

Power-to-chemical technologies are still in the early stages of development, and many key questions remain unanswered. To assess the impact of power-to-chemicals, Lux evaluated three main economic factors – the cost of electricity, feedstock prices, and the imposition of carbon taxes – that are driving adoption for eight key chemicals.

The report shows that innovations in CO2 electrolysis will lead to the displacement of natural gas for pure carbon monoxide and formic acid production by 2050, but unless there is a large drop in electricity prices, incumbent production methods will remain intact for hydrogen, methanol, ammonia, and ethylene, among other chemicals.

“While this may come as a surprise, high carbon taxes only incentivize the adoption of carbon capture and storage (CSS) in thermochemical plants instead of encouraging a transition to electrochemical platforms," Lux Analyst Runeel Daliah said. "Even tripling the carbon tax from $50/ton CO₂ to $150/ton CO₂ is not effective enough to cause a switch to electrolysis technologies.”

To incentivize a switch, Lux Research advises putting a penalty on sourcing carbon from fossil resources rather than taxing direct CO₂ emissions.

Even higher feedstock costs for incumbent production routes aren’t enough to justify a widespread transition to electrification in the chemical industry, although they do improve the cost-competitiveness of power-to-chemical platforms. Lux predicts that some changes may occur due to concerns around feedstock availability and security, especially in regions with large industrial sectors and no access to cheap oil and gas feedstock, such as Europe, Japan, and South Korea.

All eight chemicals Lux evaluated showed a lower cost of production with power-to-chemical platforms if the cost of electricity were to drop to $0.01/kWh.

“Low electricity prices would lead to widespread adoption of power-to-chemical platforms,” said Daliah. “As we continue to see innovation and deployment in renewable electricity generation, we expect to see a knock-on effect and much higher adoption in the chemical sector.”