Green finance and decarbonization of petrochemicals: Slim pickings in a crucial but hard-to-abate industry

Achieving the greener, more equitable and sustainable future envisaged by the SDGs needs a massive investment push into new sectors, sources of energy, modes of transport and manufacturing and agricultural processes. It must support both decarbonisation and low-carbon economic growth.

One line of thought argues that the finance for such a catalytic shift must come from public resources and a developmental State. Another runs that the private sector is best equipped for this and must just be given space to do the job, albeit with some judicious de-risking by the government when needed.

This paper aims to put some empirical evidence into the debate, looking at what is actually happening in terms of finance to the crucial but little studied petrochemical sector.

The focuses on one of the fastest growing categories of market-based mechanisms for so-called green finance, namely green bonds, issued both by sovereign states and by private corporations, in the crucial but little-studied sector of petrochemicals.

Greening of the petrochemical industry could make a significant impact into de-carbonisation as it is highly fossil-fuel dependent and carbon-emitting. It is however difficult to abate, as the sector has over decades become extremely large and deeply embedded into numerous and far-reaching value chains that deliver useful final and intermediate products on which daily life depends – from fertiliser to pharmaceuticals. Transformation will impact both negatively and positively on the livelihoods of millions of people.

In this challenging context, the paper asks the question whether market-based mechanisms such as bonds are likely to help to decarbonise the petrochemical sector.

The paper focuses in particular on the experience of Asia, where some of the challenges, but also the opportunities, of transitioning away from outdated and polluting processes are most acute.

Detailed case-studies of two green bond issuances in the sector provide some interesting and potentially important lessons for future issuances; this may be crucial given the very wide-spread and ambitious pledges for low to zero-carbon made by industry players.

The paper is part of a wider project titled:  Mobilising Resources for a Green New Deal in Asia.