Sustainability

Other producers in the polymers space are making investments to change the feedstock of their current products with a lower-carbon, waste-based raw material. German specialty chemicals leader Evonik has been present in Thailand since 1989, producing high-quality precipitated silica (under the brand SIPERNAT) and aluminum silicates (under the brand ULTRASIL) at its Rayong site. Recently, the company announced it will replace the sand used to make precipitated silica with rice husk ash (RHA), a waste product. “We teamed up with a local bio power plant producer called Phichit Bio Power, and with Pörner Group, an Austrian engineering company that has the in-house technology to convert the ash into a water glass. We use the colorless liquid to precipitate silica using the same downstream process in our operations,” said Mathias Pascaly, the managing director of Evonik in Thailand.

By replacing the sand with RHA, Evonik can skip the power-intensive melting stage, reducing GHG emissions for Sipernat by 30%. The precipitated silica (Sipernat) is then sold to tire manufacturers, helping in the production of green tires.

As Evonik illustrates, the next level of innovation in bio-based platforms comes from the conversion of waste, as well as products with no defined use and whose removal does not have a negative impact or has a positive impact on the surrounding ecosystem, into new products. For example, in the feed-to-food value chain, Behn Meyer Group, one of the largest food ingredients and chemical distributors in Southeast Asia, has recently proven a new technology to upcycle food waste into a commercial supermarket product, through its newly created company, the Thai-based Nutrivo Ingredients, a producer of plant-based fiber proteins. Moreover, the company also invested in a Norwegian producer of renewable-based solutions from marine deposits of calcified algae. “By harvesting replenishable marine minerals from the ocean floor, we are bringing to the feed, food, and cosmetics industries a completely sustainable, chemical-free, natural ingredient,” said Dirk Lorenz-Meyer, chairman at the 180-years-plus company.

This type of new-generation investment with a focus on sustainability takes a holistic view of the entire emission chain of a product; sometimes, even a seemingly harmless waste product can have hidden downsides. For example, Meyer explained: “Organic fertilizers have been attracting more interest in recent years, but something that is relatively new and that we have been pursuing at Behn Meyer is the shift away from animal waste, which is the typical raw material for organic fertilizers. After being composted, animal waste-based fertilizers can still contain antibiotic residues, as well as viruses or other disease vectors. We have been moving to plant-based waste, mostly palm oil.”

Stuck in the energy trilemma

In 2021, Indorama Ventures (IVL), became the largest issuer of sustainability-linked bonds (SLB) in Thailand. The 10 billion Baht (US$293 million) bond was AA-rated, the second-highest score obtainable. The Bangkok-headquartered PET producer also obtained US$300 from the International Finance Corporation (IFC) to recycle 50 billion PET bottles every year by 2025. This marked the first-ever “blue loan” – a financial instrument to fund the sustainable use of ocean resources - to be awarded to a plastic manufacturer. The investment community is clearly rewarding chemical companies, including plastic producers, for their sustainability efforts. In fact, a study by McKinsey found a correlation between improved shareholder returns and improved sustainability profiles. At the same time, investors can also castigate companies that do not show strong ESG credentials.

“Soon, businesses may not be able to access financial assistance unless ESG checklists are complied with. Whilst the world is unified in its sustainability intent, I firmly believe that each country must be allowed to develop its climate plans to meet the set targets within its own scope of resources rather than imposing other countries’ templates. Another region’s approach (e.g., Europe) may not be suitable for countries like Malaysia,” commented Sharifah Zaida Nurlisha Syed Ibrahim, CEO at MMC Oil and Gas Engineering, a contractor in the oil and gas sector in Malaysia.

ESG criteria may not only be a barrier for accessing financing, but also for imports. Under the EU’s Carbon Border Adjustment Mechanism (CBAM), importers of fertilizers and other commodities into the EU will have to declare the embedded greenhouse gas emissions (GHG) of the imported goods and buy the corresponding CBAM certificates, according to the weekly average prices of EU Emission Trading System (ETS) allowances expressed on € / ton of CO2 emitted. The CBAM enters into force in a transitional phase this October, and it will become a permanent system in January 2026.

Malaysia, as well as Indonesia, Thailand, and Singapore, continue to depend on fossil fuels within their energy mix. In Malaysia, petroleum, gas, and coal make up the bulk of the country’s energy source, with renewable energy accounting for just 6% of the total consumption. Indonesia’s energy supply comes in majority from oil (35%), coal (37%), and gas (18%), with the remaining consecrated to hydropower, geothermal, biofuel, and renewable sources. Thailand’s energy scene is dominated by gas (63%), followed by coal (21%), and the rest being green. According to a report by the International Energy Association, the region’ import needs will only accelerate as demand for energy grows.

But besides securing its energy needs, the region will also need to make sure its energy is clean and affordable. The so-called “energy trilemma” – or how to reconcile reliability, with affordability, and sustainability – is a challenging one for the region. In economic theory, a trilemma involves three mutually exclusive options, and this seems to be the case for many SEA countries. Speaking about the case of Malaysia, Sharifah commented: “Malaysia cannot abruptly shift to full solar energy or wind energy because these alternatives are not sufficient to ensure energy security. Malaysia has declared that, whilst supporting climate targets, gas will remain the main transition energy until an alternative is available.”

More immediately urgent in the country’s concerns is the cost factor. Malaysia has one of the cheapest energies in the world, thanks not only to its natural oil and gas resources but also to government subsidies. However, the government has recently removed subsidies for large industry suppliers, hurting the country’s competitiveness as a manufacturing base. “The electricity tariff for large industrial players grew by 41% effective January 1st, 2023. While I understand the strategy, I am concerned that this could impact the entire economy,” said Kenny Teh, the country’s managing director at Air Liquide, a major industrial gas producer.

Concurrent with the issues of energy affordability and security, it cannot be forgotten that SEA has been identified by the Intergovernmental Panel on Climate Change (IPCC) as one of the most vulnerable regions to climate change; typhoons, floods, and draughts have become more frequent and more violent in recent years. In the Vietnamese Mekong Delta, the ocean’s seawater has been flowing into the freshwater delta at unprecedented levels due to climate change. “Many fruit and rice growers have stopped producing due to high salinity levels,” said Dirk-Lorenz Meyer, board member at the Behn Meyer Group, which is currently working on solutions for more salt-tolerant seeds and crops.

Perhaps the one factor that reconciles the need for sustainability with that of profitability is consumer preference for greener products. Taking this trend into account, a country’s competitiveness is starting to be measured not only in the cost per unit produced but also in the CO2 footprint released. Large chemical companies like Covestro, which produces polycarbonates, specialty films, and elastomers in Thailand, see the country’s lack of a carbon reduction framework as a disadvantage: “Thailand is still on its way to providing infrastructure to use green energy or the frameworks to buy carbon credits, as other countries do. So this is part of our challenges as the production of performance materials is highly energy-intensive, which can render us uncompetitive unless we can switch to greener energy sources in line with our customers’ climate goals,” said Timo Slawinski, the managing director.

Consumer preferences are not effective without a reinforcing government policy. Speaking about the context of Malaysia, Peih Yoke Hoo, Malaysia’s managing director for Linde, the leader in industrial gases, including hydrogen, told GBR: “Companies with an international presence face pressures to meet global targets on emissions. Not many customers and suppliers are able to lock into the lower-carbon energy options as only limited applications are allowed. Reliable access to clean power is often a challenge for companies. The central issue lies in the uneven distribution and availability of clean power, forcing many companies to pay a premium on green energy or technology to meet their decarbonization targets. However, we have several global customers that are environmentally conscious and pay great attention to things like replacing natural gas with renewables in the context of our SMR (steam methane reforming) plant, because our carbon footprint is also their carbon footprint.”

Singapore is the only country in Southeast Asia to have introduced a carbon policy in the form of a carbon tax. However, at COP26, Indonesia signed the regulation to introduce a carbon cap-and-tax system to facilitate international carbon trading.