Market and product

Chemicals produced from renewable or recycled materials have attracted industry interest for decades. But as the chemical sector endures a prolonged downturn, many targets are falling behind schedule.

The global chemical industry is in a downturn that is both longer and deeper than previous cycles. Oil and natural gas prices peaked in 2022, then declined sharply - pulling prices for many chemical products down by nearly half from their highs. Against this backdrop, sustainable chemicals are finding it increasingly difficult to attract investment, scale up production, and compete in a market where conventional materials remain cheap and abundant.

These are the central findings of a market analysis report recently published by S&P Global, reviewing the progress of the world's 12 largest chemical companies in meeting their sustainable chemicals commitments.

What are sustainable chemicals?

Sustainable chemicals are chemical products with a lower carbon footprint, made from biological feedstocks or recycled materials rather than from crude oil, coal, or natural gas.

There are three main approaches. The first is the use of biogenic feedstocks - such as bioethanol, sugar, vegetable oils, or organic waste. The second is circular recycling, which includes mechanical recycling - grinding and reprocessing plastic materials without altering their chemical structure - and chemical recycling, which breaks down molecular structures to create new raw materials. The third is the use of renewable electricity to synthesize chemicals such as methanol or synthetic fuels, sometimes referred to as e-routes.

Some feedstocks derived from these approaches can be fed directly into existing facilities without modification - known as drop-in solutions. Others require entirely new production processes and supply chains to be built.

Drivers and barriers

There are two main reasons why companies invest in sustainable chemicals.

The first is regulatory pressure. In Europe, a range of policies have been introduced over the past 15 years to curb plastic pollution and promote recycling, including rules on single-use plastics, packaging and packaging waste, and extended producer responsibility schemes that require manufacturers to take responsibility for end-of-life product management. Taxes on virgin plastics - those made from petroleum and not previously recycled - have also been introduced in several countries to help fund recycling initiatives.

The second is voluntary corporate commitment, driven by growing consumer awareness of environmentally friendly products. Some companies accept higher production costs in order to make sustainable chemicals, anticipating a price premium and stronger brand positioning in return.

However, sustainable chemicals must compete directly with conventional equivalents that are produced at lower cost - and in a sector-wide downturn, that price gap becomes harder to close.

Progress remains well short of targets

Sustainable chemicals currently account for less than 10% of total global chemical demand. Among the various approaches, mechanical recycling is by far the most commercially developed. Bio-based chemicals rank second but are constrained by feedstock availability and concerns about competition with food production and biofuels. Chemical recycling remains the least developed pathway, requiring substantial investment in both technology and the infrastructure needed to collect and sort plastic waste.

S&P Global has been tracking the progress of the 12 largest global chemical companies, which collectively pledged to bring 14 million metric tons of sustainable polymers to market by 2030. In 2023, the group sold an estimated 1.3 million metric tons. Sales grew by around 24% in 2024 but are expected to slow to 18% growth in 2025 - amounting to roughly 14% of the group's stated 2030 target. At this pace, meeting the pledge would require a significant acceleration in new investment over the coming years.

Some notable projects are still advancing. ExxonMobil started up its third chemical recycling facility in Texas earlier this year, bringing its total recycling capacity to around 113,000 metric tons per year.

LyondellBasell is constructing its first industrial-scale chemical recycling plant in Germany, expected to begin operations in 2026 with a capacity of 50,000 metric tons per year. Dow has confirmed it will proceed with a net-zero emissions plastics project in Canada with 1.3 million metric tons per year of capacity by 2029 - despite having previously paused the project due to difficult market conditions.

What would need to change?

The S&P Global report concludes that the potential for sustainable chemicals to materially displace conventional feedstocks will remain limited over the next five to ten years, unless several conditions are met simultaneously.

First, a comprehensive regulatory framework is needed that mandates minimum use of sustainable chemicals - similar to what Europe has been implementing with recycling targets and recycled content requirements.

Second, continued technological progress is needed to reduce production costs and enable scale-up, particularly for chemical recycling, which holds considerable potential but has yet to reach price competitiveness.

Third, greater consumer awareness is needed to generate genuine demand and a willingness to pay a premium for sustainable products.

Fourth, producers need to develop a value proposition for sustainable chemicals that goes beyond price - to avoid being drawn into direct price competition with conventional chemicals, particularly in a low oil price environment.

The report does not offer a straightforwardly optimistic or pessimistic outlook. Rather, it frames the current period as a defining test: if the above conditions are met, sustainable chemicals could gradually become a meaningful share of the global chemical industry after 2030. If not, the gap between stated commitments and actual progress will continue to widen.

Source: Maronneaud, Orszynski and Dosumu (S&P Global), "The rise and fall of sustainable chemicals: What would make it different this time?"