BÖRMEMO 02 | 15.01.2015
The German Chemical Industry – Competitiveness and Bioeconomy The chemical industry is traditionally a key part of the German economy. The sector is characterized by a highly concentrated structure. The chemical industry’s main customers include the automotive industry and the machine-building sector, which in themselves are central to the German economy. The chemical corporations active in Germany, as well as a number of highly specialized medium-sized companies, compete globally. German chemical companies generate nearly 60% of their revenue abroad. Together with the USA, Japan and China, Germany is one of the largest players in the global market. Although many raw materials and preliminary products are imported, Germany has been a net exporter for many years. [1] The reason for its success is its efficient and almost optimally configured composite structure at its base in Germany, which allows it to produce in a highly efficient and fully integrated manner. The key raw materials for the About BÖRMEMOS BÖRMEMOS summarize the Council’s appraisal of key aspects of the bioeconomy in a condensed form. They do not claim to provide a comprehensive study of these facts. Rather, they present a focused and generally comprehensible view of each area and its relationship to the bioeconomy. BÖRMEMOS are designed as an incisive contribution to public debate. They are part of a series of analyses to be published by the German Federal Government’s Bioeconomy Council. They have their theoretical basis in extensive background papers that are also published on the Council’s home page. BÖRMEMOS are assessed together with BÖR background papers (peer review). While this process is taking place, they are identified as preliminary and the authors are named. This memo on agriculture was provisionally published on 04.06.2014 and finally approved by the Council at the 10th meeting, after going through the process outlined above.
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Preliminary Remarks
The German chemical industry competes very successfully in the global market. It has strong links to important economic sectors, such as the automotive and machine-building industries. The chemical industry therefore plays a key role in innovation. chemical industry are petroleum products (naphtha) and natural gas. Nowadays, renewable raw materials such as fats, starches, cellulose and sugar are already being successfully used in biobased and thermochemical processes, if they offer competitive advantages in terms of sustainability, profitability or technology. They are used to supplement chemical synthesis where there are advantages in terms of sustainability, profitability or technology. Although, proportionally, the use of renewable raw materials has increased slightly over the last few years to around 13%, there is no discernible trend towards a comprehensive turnaround in the choice of raw materials. [2] The Bioeconomy Council hopes that its recommendations will help to identify and overcome obstacles to innovation and investment in the chemical industry on the road towards a biobased economy. Current World Situation Chemical companies throughout the world rely on size and global presence. While regional differences in labor costs now seem to be less important in relocation decisions, the proximity to attractive growth markets, and therefore to new customers, is becoming increasingly important. This is where Asia is scoring right now. Thanks to the rapid growth in consu-
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BÖRMEMO 02 | 15.01.2015 Chemical Industry – Competitiveness and Bioeconomy
Overview and Key Aspects Definition: Bioeconomy is the knowledge-based production and utilization of biological resources to provide products, processes and services in all sectors of trade and industry within the framework of a future-oriented economic system. Within the European Union, the bioeconomy is seen as a desirable and important element of socially, economically and ecologically sustainable lifecycle management [3]. • In Germany there are around 1,600 companies in the chemical sector, employing approx. 325,000 people. • Nearly 60% of the total revenue of around EUR 145 billion is generated abroad. • German chemical corporations are responsible for more than half the sector’s turnover and employ the majority of the sector’s workers. The numerous medium-sized companies are mostly applied processors of basic and special chemicals. • The growth in turnover since the financial and economic crisis is mainly due to rising producer prices and growing foreign markets. • The chemical industry uses biological resources and methods in a targeted way, where they can save costs or offer ecological benefits. In the short and medium term, there is no prospect of a great expansion beyond current applications or of replacing the more efficient petrochemical-based manufacturing methods.
mer demand and technological advances in the Asia-Pacific region, the global chemical industry is continuing to expand in the medium term. There is no predatory competition. As the fastest growing manufacturing locaiton in the world, China has therefore been able to take global market shares away from the big players (the USA, Japan and Germany), even though production in these countries has also increased [4]. By 2030 China is expected to become the leading chemical-producing nation [5]. Raw material costs have a significant influence on competitiveness of petrochemicals, polymers and basic chemicals. Crude oil and gas prices therefore play a crucial role in energy-intensive, fossil-based production. While in recent years crude oil prices have remained uniformly high on the world markets, there has been a great regional variation in gas prices since 2010. As a consequence of extensive shale gas exploration in the USA, the price of natural gas fell to approximately one third of the
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European price. Since 2010, US chemical companies have hence enjoyed noticeable cost advantages, especially due to the use of natural gas crackers [4]. However, production using natural gas is less efficient than when using crude oil crackers. This would to some extent offset the cost advantages [6]. In the longer term, however, it is the innovative strength of companies and therefore investment in research and development that will have the greatest influence on the competitiveness of the chemical industry [4]. Because of the shift in demand to emerging countries, the chemical industry’s innovative activities are also relocating to there. China, in particular, but also Japan and Korea, are increasing their share of global patent applications, expenditure on R&D and scientific publications [1]. Status Quo in Germany The German chemical industry has a well established, for the most part highly integrated and networked structure. In total it manufactures more than 30,000 different chemicals. The main products are petrochemicals at 32% of total turnover (2013), followed by fine and special chemicals (26%), polymers (23%), in addition to inorganic basic chemicals (10%), and detergents and personal hygiene products (9%) [7]. The chemical industry makes a significant contribution to the innovative strength of German industry, because many future-oriented technologies require the use of chemical know-how and product developments. With research and development expenditure of around EUR 5 billion, the chemical industry is in fifth place when it comes to research effort, coming in behind the automotive industry, the electrical industry, the machine-building sector and the pharmaceutical industry [8]. Internationally, it is one of the most research-intensive within the highly developed chemical nations [9]. Sustainability in the Chemical Industry For many years the chemical industry has been making great efforts to minimize its energy and resource intensity. For example, it has more than halved its energy consumption since 1990 but this is still well above average for the manufacturing sector. It has also been possible to drastically reduce the amount of waste produced by the chemical industry. Currently 98% of raw materials are fully utilized in the production process. [10] The VCI [German Chemical Industry Association] estimates that further efforts to optimize resources will lead to relative decoupling of resource consumption by 2030. However, in absolute terms,
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BÖRMEMO 02 | 15.01.2015 Chemical Industry – Competitiveness and Bioeconomy
the chemical industry’s consumption of raw materials will continue to increase [5]. In the course of sustainability initiatives, such as the “Chemistry3” initiative, bioeconomic questions have been incorporated in the strategic discussions [11]. Resource efficiency is important not only for cost reasons but also for reasons of sustainability. However, the chemical industry is afraid that its competitiveness could be adversely affected if the same level of environmental standards imposed in Germany is not also applied in the rest of the world [12]. Biobased Processes in the Chemical Industry In its traditional way of operating, Germany obtains its basic chemicals from cracking crude oil fractions in so-called steam crackers. In 2011, 19 million metric tons of fossil raw materials were processed in this way. This means that the chemical industry used around 15% of the total petroleum consumption in Germany for material processing. [2] Renewable raw materials, especially starch, sugar, cellulose, oils and fats, are frequently processed to produce enzymes, amino acids, vitamins, fine chemicals and plastics. New areas of application and production are emerging from bionics, for example in the form of biomimetric surface coatings for dirt-repellent paints. Apart from product benefits, process improvements, specifically a reduction in energy consumption and greenhouse gas emissions, are important drivers of biobased chemistry. If domestically available renewable raw materials or waste products are to be used, it is not only logistics that is important but also their consistent quality and plentiful availability at all times of year. New digestion processes (e.g. for pulping wood) could make access to local resources easier. The basic requirement for this is that such processes must make economic sense and be usable long-term. Challenges for the Bioeconomy The following challenges emerge on the way towards a comprehensive change in the raw materials base. • Establishing new processes: Under the existing market and framework conditions, established fossil-based production usually offers cost advantages and better margins compared to new, still to be established, biobased production. There is therefore no financial incentive to invest in the development of more environmentally friendly, biobased products and processes.
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Side note: Bioplastics Plastic is traditionally made from petroleum. Nowadays, however, nearly every type of plastic can also be made from biobased raw materials. The manufacture of bioplastics is truly one of the most successful examples of a bioeconomic process. Worldwide, leading beverage manufacturers have already sold more than 10 billion bottles made from bioplastics. They consist primarily of PET (polyethylene terephthalate), which itself contains two components in the ratio of 70:30. The 30% component (monoethylene glycol) can already be produced from bioethanol. Work is currently being done to develop a way of producing the 70% component using a biobased method. It is only from the information on the packaging (labels) that the customer knows it is a biobased plastic, because the traditional and new plastic are chemically identical, the only difference being the type of raw materials used. Another reason why bioplastics appear so promising is that there are efficient biotech processes for platform chemicals, which could replace petroleum-based raw materials. One of these is succinic acid, which started to be industrially produced from corn, starch or lignocellulose in 2014, with a production capacity of more than 50,000 metric tons per annum. This not only saves on energy but also carbon dioxide. In some cases, production is even emission neutral. However, the sustainability parameters depend on the location and the energy mix used. They need to be checked by means of life cycle assessments. [13] • Converting the existing infrastructure: Germany boasts a mature and beneficial infrastructure for the petroleumbased chemical sector, manifesting itself in the form of crackers, pipelines and integrated and specialized production facilities. These facilities and the exploitation of material flows have been optimized over the course of decades. In most cases the infrastructure was written off several years ago and is therefore highly profitable; the process chains are well established. A transition to biobased production would involve considerable investment in new infrastructure and production facilities. Such investment,however, would not increase profits in the short term and is therefore not popular with the financial market. • Economies of scale: In the basic chemicals sector, profit is primarily determined by economies of scale. For many chemicals there is only one “world scale” production plant. To bring corresponding biotech processes to such
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BÖRMEMO 02 | 15.01.2015 Chemical Industry – Competitiveness and Bioeconomy
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scales of production would require special knowhow, which is currently in limited supply. Biotechnical challenges: Special knowledge in the optimization of production organisms, fermentation and regeneration processes, as well as applications engineering, is required to develop biotech processes. Development times are usually long and the associated costs and expenditure high. Lack of supply chains: So far, farmers and agricultural businesses do not see themselves as feedstock or upstream suppliers for the chemical industry. There are no starting points for building up value chains and alliances that also include small and medium-sized companies. In particular, there are problems due to the heterogeneity of biomass, which is produced locally, mainly by small agricultural units and ideally consists of agricultural residues (cascaded use). Some of the coordination aspects relating to supply chain links and the suitable processing of this biomass for the chemical industry are still not resolved. Lack of financing options: The lack of available venture capital, which is in part due to the lack of depreciation allowances for R&D investment in Germany, has had a negative impact on the innovative strength of German SMEs. Because of their limited capital assets, they are particularly dependent upon investors. In contrast to the pharmaceutical sector, the market for acquisitions of small and medium-sized businesses is underdeveloped in the chemical sector. However, the possibility of making high profits from selling off companies is a key incentive for venture capitalists. Pric e s and demand: Driven by sus t ainabili t y considerations, an increasing segment of consumers is interested in biobased and biotechnologically produced products. However, the willingness to pay premium prices for biobased chemical products is limited. Besides, the biobased content or production process is difficult to communicate to the consumer. In this respect, the first consumer goods companies have launched marketing activities in the bioeconomy with the aim of differentiating and better communicating the benefits of biobased products.
Conclusion The chemical sector is dominated by a few large companies. These companies do not yet perceive the bioeconomy as a key area for innovation and growth. However, certain elements of the sustainability debate can be considered as
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part of a bioeconomy strategy. The size of the companies, healthy demand, almost ideal process conditions and vertical integration rather encourage incremental improvements in existing products and processes based on fossil resources. At the present time, however, it is difficult to imagine the chemical industry comprehensively transforming into a "biobased economy" in the sense of it turning away from petrochemicals. [14] Due to the favourable trend in natural gas (and in future also crude oil), a renaissance in the use of fossil feedstock seems more likely in the midterm than a comprehensive transition to renewable raw materials . The systematic transition to a biobased economy is more difficult than generally assumed, precisely because of the economic strengths and excellent structure of the German chemical sector. It is therefore expected that biological processes will only be used by large companies where biobased products are more economical to produce, if they have no chemical equivalents or if they are clearly distinguished by improved properties in the marketplace. This applies to both fermented complex molecules such as amino acids and vitamins, and to the supplementation of individual synthesis steps by biocatalysis, where, for instance, special selectivities are required. Particularly the many small and medium-sized chemical companies in Germany that develop and manufacture user or consumer-oriented products are already making increasing use of biobased processes. Intensification is clearly discernible in this sector. Observations regarding German Policy The question is: how can the German chemical industry make greater use of the bioeconomy to remain competitive in the future and to produce more sustainably? The potential of the bioeconomy lies not merely in the substitution of raw materials but rather in the development and marketing of new biobased and bioinspired products with enhanced properties. The industry‘s future competitiveness crucially depends upon exploiting this innovative potential. The traditional instruments of public R&D funding as a basis for these innovations must be further developed or supplemented. The structure of funding programs should increasingly be aimed at involving medium-sized companies and investors. In many cases such measures go beyond the remit of individual ministries. We therefore need to look more closely at how to incentivize bold and unconventional business decisions and to encourage the mobilization of investment capital. It is important to involve society in the debate about the future viability of the country and its economic basis at an early
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BÖRMEMO 02 | 15.01.2015 Chemical Industry – Competitiveness and Bioeconomy
stage. This also requires more widespread information and publicity about the social benefits of biobased products and methods and “nudging” incentives for consumers [15]. In order to promote a “market pull” effect, consumers should be enabled to assess the benefits of biobased products, e.g., based on understandable information and verified sustainability measures.
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EU im März 2013 [VCI Comments on the 7th EU Environmental Action Program, March 2013] [13] Bioamber, http://www.bio-amber.com/ignitionweb/data/ media_centre_files/804/Ontario_Canada_LCA_04.16.2013. pdf and FNR. (2014). Marktanalyse Nachwachsende Rohstoffe [Market Analysis of Renewable Raw Materials]. [14] CHEManager Whitepaper. (2014). Bedeutung von Megatrends für den Geschäftserfolg [Importance of Megatrends for
Sources:
Business Success] . www.ChemPharmTrends.de [15] Bioeconomy Council. (2014). Förderkonzept Lebensmittel,
[1] The key figures for the chemical industry relate to 2012. Niedersächsisches Institut für Wirtschaftsforschung NIW
Ernährung & Gesundheit [Concept for Promoting Food, Nutrition
[Lower Saxony Institute for Economic Research]. (2013). Die
Available at: http://bioökonomierat.de
& Health].
chemische Industrie. Branchenanalyse.[The Chemical Industry. Sector Analysis].
Further reading:
[2] VCI [German Chemical Industry Association]. (2014). Rohstoffbasis der chemischen Industrie. [Raw Materials Base of
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Available at: http://biooekonomierat.de
[3] European Commission. (2014). Towards a Circular Economy. A Zero-Waste Program for Europe. Com (398).
Bioeconomy Council. (2010). Berichte aus dem Bioökonomierat 04 [Reports from the Bioeconomy Council 04].
the Chemical Industry]. •
Efken et. al. (2012). Volkswirtschaftliche Bedeutung der
[4] Oxford Economics. (2014). Evolution of competitiveness in
biobasierten Wirtschaft in Deutschland [Economic Impor-
the German chemical industry. Historical trends & future pros-
tance of the Bioeconomy in Germany]. Johann Heinrich von Thünen-Institut.
pects. A report for VCI. [5] Verband der Chemischen Industrie VCI [German Chemical In-
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Nusser et. al. (2007). Potenzialanalyse der industriellen
dustry Association] & Prognos (2013). Die deutsche chemische
weißen Biotechnologie [Analysis of the Potential of Industri-
Industrie 2030 [The German Chemical Industry 2030].
al or White Biotechnology]. Fraunhofer Institute for Systems and Innovation Research.
[6] Helaba Volkswirtschaft/Research. (2014). Branchenfokus. Deutsche Chemieindustrie vor Herausforderungen [Sector Fo-
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VDI Technology Center (2011). Biomasse – Rohstoff der Zu-
cus. German Chemical Industry Faces Challenges].
kunft für die Chemische Industrie [Biomass –Raw Material
[7] VCI [German Chemical Industry Association]. (2014). Che-
of the Future for the Chemical Industry].
miewirtschaft in Zahlen 2014. [Chemical Industry in Figures 2014] https://www.vci.de/Downloads/Publikation/Chemiewirtschaft%20in%20Zahlen%202014.pdf [8]. CHEManager online. Chemie-, Pharma- und Biotech-Forschung in Deutschland [Chemical, Pharmaceutical and Biotech Research in Germany]. 14.10.2014. http://www.chemanageronline.com/news-opinions/grafiken/chemie-pharma-undbiotech-forschung-deutschland [9] VCI [German Chemical Industry Association]. (2013). Branchenporträt der deutschen chemisch-pharmazeutischen Industrie [Portrait of the German Chemical-Pharmaceutical Sector]. [10] Verband der chemischen Industrie VCI [German Chemical Industry Association]. (2012). Factbook 05: Die Formel Ressourceneffizienz [The Resource Efficiency Formula]. Available from: https://www.vci.de [11] Chemie3: Die Nachhaltigkeitsinitiative der deutschen Industrie [Chemistry3: German Industry’s Sustainability Initiative]. Available from: http://www.chemiehoch3.de [12] VCI Stellungnahme zum 7. Umweltaktionsprogramm der
Bioeconomy Council | Lützowstrasse 33-36 | 10785 Berlin | Tel. 030 467 767-43 | Fax 030 467 767-48 www.bioökonomierat.de
