Chemical Makers Poised to Gain In New Cap-and-Trade System

By ANA CAMPOY

With legislation pending in Congress that could put a price on greenhouse-gas emissions, the energy-gulping chemical industry is trying to position itself to emerge as an unlikely winner.
Chemical makers are one of the biggest energy users among manufacturers, expelling about 5% of U.S. carbon dioxide emissions, according to government data. They face heavy costs under a proposed system to cap emissions that would require the industry to purchase permits to pollute.
But a so-called cap-and-trade system would also boost demand for some chemical companies' products, from insulation to solar-panel components, because those products would help others cut back on the energy use.
"This is really our sweet spot," said Calvin Dooley, chief executive of the American Chemistry Council, an industry trade group.
The fate of the climate-change bill is still undecided -- after approval from a key congressional panel last month, it is expected to come up for a vote by the House later this summer -- but the current version proposed by Reps. Henry Waxman (D., Calif.) and Edward Markey (D., Mass.) will increase costs for many companies and potentially force some to go overseas, said Mr. Dooley.
The chemical industry provides virtually all basic materials for other manufacturers, many of which would be forced to cut emissions or buy pollution permits under cap-and-trade.

This plant in Loudon, Tenn., co-owned by DuPont Co. and Tate & Lyle PLC, produces a key ingredient in a corn-based alternative to nylon. It generates 63% fewer emissions than the traditional process.

Success for a chemical company in a cap-and-trade system could boil down to the energy-saving value of the products it sells -- not just how much energy it consumes.
To be sure, some companies may have trouble finding that balance, said Michael Arne, assistant director at SRI Consulting, a research firm that calculates CO2 emissions from chemical processes. A potential carbon tax "could significantly erode the margins," of companies that use very energy-intensive processes, he warned.
Chemical companies sell a variety of energy-saving materials, including industrial gases used as an insulator between glass panes in energy-efficient windows, foams used in the blades of electricity-generating windmills, and light-weight plastics used in car parts that help vehicles consume less energy.
Some chemical companies report that demand for their energy-saving products is strong already, even in the midst of the economic recession.
DuPont Co. expects that by 2015 its sales from renewable materials that displace fossil fuels will nearly double to $8 billion. That could include sales of ethanol made from corn cobs and switchgrass that the company is developing in a joint venture with food-ingredient company Danisco AS.
German chemical maker BASF SE sees big business opportunities in the weatherproofing of residential homes, which typically contain an average $17,000 worth of chemical products, according to the chemistry council. There's room to raise that to up to $30,000 per house, says BASF. Among its weatherizing products: tiny wax-filled capsules that can be embedded in plaster, wall board and insulation. The wax absorbs heat when it melts and releases it when it solidifies.
Other chemical companies are installing projects that will lower their own energy bill and potentially generate pollution credits to help offset their emissions. Dow Chemical Co., for example, uses methane from a landfill to power a plant in Dalton, Ga., where it makes carpet backing.
"Whether your inspiration is cap-and-trade or the prospect of $140-a-barrel oil, you need to be strategically involved in this space," said Rich Wells, vice president of energy for Dow.
Write to Ana Campoy at ana.campoy@dowjones.com