Towards a zero-emission naphtha cracking industry in the Netherlands

Abstract

Following the Paris Agreement, the national government of the Netherlands reached the Climate Agreement together with more than 100 organizations. As part of this agreement, the industry sector is faced with the ambitious goal of 59% CO2 reduction in 2030 with respect to 1990 levels. Since the naphtha cracking industry is one of the most emission-intensive industries worldwide, decarbonization of this industry can deliver a significant contribution to reaching the climate goals. Among other transformations, electrification is regarded as an important decarbonization strategy. However, electrification in the naphtha cracking industry currently faces several barriers. For an important part, these stem from fundamental uncertainties concerning the future markets, the availability of renewable electricity and the capacity of the electricity grid. Moreover, high investment costs combined with a lack of financial and fiscal incentives and low carbon prices make the business case for electrification currently unattractive. In addition, the high degree of systems integration onsite and the baseload nature of the cracking process make the implementation of electrification challenging. Government policy could play a pivotal role in resolving these barriers. The purpose of this research is therefore to explore policy options at a national level that enable an acceleration in the chemical industry’s electrification while being robust against uncertainty. For this purpose, the Robust Decision-Making (RDM) framework was applied. As part of this framework, a system dynamics (SD) model was built to describe the behavior of the socio-technical system of the naphtha cracking industry. This model was then subjected Exploratory Modelling & Analysis (EMA) to simulate the impact of various policy options on the electrification rate against a large number of plausible future scenarios. Moreover, a robust policy search was conducted using a multi-objective robust optimization algorithm.The analyses of the simulation results suggest that profound changes in current policy instruments are required to achieve a significant degree of electrification in the naphtha cracking industry with sufficient certainty. It is advised to increase government funding for electrification, implement a fiscal shift away from gas towards electricity and to increase the effective carbon levy imposed on the industry. However, though the analyses show that government policy has a significant impact on the development of electrification, its success appears conditional on external factors, most importantly, developments in the energy and carbon markets. In fact, the electricity price and the ETS carbon price turn out to be more influential on emission reduction than most policy interventions. The availability of renewable electricity is the single most influential factor affecting CO2 emissions and hence, is considered paramount in achieving emission reduction. Therefore, policy aimed at accelerating electrification should be accompanied by decisive government action regarding the development of renewable electricity sources.