--- title: "Chemical Decarbonization: The 52% Innovation Gap for VCs" description: The chemical sector emits 1.3 to 2.5 billion tonnes of CO2e a year, and 52 percent of abatement levers still need innovation. What that gap means for climate VCs. image: https://www.fiegenbaum.solutions/hubfs/pexels-cluster-images/15970032.jpg --- [Skip to content](https://www.fiegenbaum.solutions/en/blog/chemical-industry-carbon-crisis-52-percent-innovation-gap-climate-vc#main-content) [![Fiegenbaum Solutions Logo](https://www.fiegenbaum.solutions/hubfs/Branding/Fiegenbaum-Solutions_Logo.svg) ![Fiegenbaum Solutions Logo](https://www.fiegenbaum.solutions/hubfs/Branding/Fiegenbaum-Solutions_Logo.svg)](https://www.fiegenbaum.solutions/en/?hsLang=en) - Services - [Climate Risk Assessment](https://www.fiegenbaum.solutions/en/climate-risk-analysis-for-companies) - [VSME Report](https://www.fiegenbaum.solutions/en/vsme-reporting-for-smes) - [ESG Due Diligence VCs & Series A+](https://www.fiegenbaum.solutions/en/esg-due-diligence-vcs-series-a-startups) - [Corporate Carbon Footprint](https://www.fiegenbaum.solutions/en/company-carbon-footprint-methods-tools-best-practice) - Tools - [Scope 3 Quick-Check](https://www.fiegenbaum.solutions/en/scope-3-quick-check) - [ESG Investment Quick-Check](https://www.fiegenbaum.solutions/en/esg-investment-quick-check) - [CSRD Materiality Screening](https://www.fiegenbaum.solutions/en/csrd-materiality-screening) - [Pricing](https://www.fiegenbaum.solutions/en/esg-climate-consulting-fixed-prices-carbon-footprint-vsme-due-diligence-climate-risk) - [About me](https://www.fiegenbaum.solutions/en/about-me) - [Blog](https://www.fiegenbaum.solutions/en/blog) - [Contact](https://www.fiegenbaum.solutions/en/contact) ###### 4 min read # Chemical Decarbonization: The 52% Innovation Gap for VCs By: [Johannes Fiegenbaum](https://www.fiegenbaum.solutions/en/blog/author/johannes-fiegenbaum) on 10/15/25, 4:52 PM · Last updated October 6, 2026 [Climate VC & Impact Investing](https://www.fiegenbaum.solutions/en/blog/tag/climate-vc-impact-investing) [ClimateTech Startups](https://www.fiegenbaum.solutions/en/blog/tag/climatetech-startups) ![Refinery plant with pipelines and a process tower](https://www.fiegenbaum.solutions/hubfs/pexels-cluster-images/15970032.jpg) The chemical industry is a central part of daily life, yet [contributes significantly to global greenhouse gas emissions](https://www.wri.org/insights/chemical-accounting-emissions-transparency). In the US alone, it accounts for 4 to 5% of total greenhouse gas emissions, according to RMI. A [report by RMI from January 2025](https://rmi.org/chemistry-in-transition-charting-solutions-for-a-low-emissions-chemical-industry/) examined the 52% innovation gap in chemical industry decarbonization. This gap represents not only a challenge but also enormous opportunities for [climate tech venture capital (VC) investors in Germany](https://www.fiegenbaum.solutions/en/blog/esg-venture-capital?hsLang=en) and worldwide. This article illuminates the core elements of the discussion, provides insights into investment strategies, and shows how technological innovations can transform the industry. ## The Chemical Industry: A Paradox Chemicals form the basis of 96% of all manufactured goods and play a key role in emission-reducing technologies. At the same time, [the industry is one of the most emission-intensive worldwide](https://www.epa.gov/ghgreporting/ghgrp-chemicals), both through the use of fossil fuels as energy carriers and as raw materials. According to the World Resources Institute, [chemical production generates between 1.3 and 2.5 billion tons of CO2 equivalent annually](https://www.wri.org/insights/chemical-accounting-emissions-transparency), representing roughly 3-5% of global greenhouse gas emissions. Demand for chemicals is expected to continue rising, even in net-zero scenarios, as they are crucial for the production of fertilizers, plastics, and numerous other goods. **Live data:** the Fiegenbaum Atlas provides green bond volumes, CSRD benchmarks, EU ETS prices, updated automatically. [Open the dashboard](https://atlas.fiegenbaum.solutions/en/esg-kapitalmarkt?utm_source=fiegenbaum-solutions&utm_medium=blog&utm_campaign=atlas-esg-kapitalmarkt&utm_content=chemical-industry-carbon-crisis-52-percent-innovation-gap-climate-vc). ### Decarbonization Challenges Emissions from the chemical industry arise along the entire value chain: - **Raw material extraction**: Mining and transport of fossil raw materials. - **Process energy**: Provision of heat and electricity in production facilities. - **Chemical reactions**: Generation of CO₂ and other emissions during material transformation. - **End-of-life emissions**: Combustion or decomposition of chemical products, e.g., plastics. The goal of a climate-neutral chemical industry therefore requires solutions at all levels, from raw material selection to more efficient [production methods](https://www.fiegenbaum.solutions/en/company-carbon-footprint-methods-tools-best-practice?hsLang=en). ## The 24-Lever Matrix: A Tool for Investors A crucial part of the report is the development of a **24-lever matrix**. This analyzes emission reduction levers along various chemical production pathways. The levers were divided into four main categories: 1. **Alternative production methods**: For example, the use of electrified processes or novel processing methods. 2. **Alternative energy and heat sources**: The switch from fossil fuels to renewable energy sources. 3. **Clean operational processes**: Efficiency improvements and measures to reduce methane leaks. 4. **Alternative raw materials**: Use of recycling materials or CO₂-neutral raw materials. An example: Converting natural gas-fired steam crackers to electrified processes could avoid significant emissions. Similarly, the report shows that targeted measures to [reduce methane leaks](https://rmi.org/chemistry-in-transition-charting-solutions-for-a-low-emissions-chemical-industry/) (e.g., in raw material supply) alone could [reduce emissions from steam cracking by up to 26%](https://www.fiegenbaum.solutions/en/blog/science-based-targets-initiative-sbti-guide-eu-companies?hsLang=en). ## Innovation Needs: The Remaining 52% Despite already available technologies, an **innovation gap of 52%** of emissions remains that cannot be fully covered with today's means. This substantial gap highlights the critical need for breakthrough technologies and novel approaches. The report suggests three strategic priorities for innovations: 1. **Produce less**: Promote recycling and circular economy, design products more efficiently, and avoid unnecessary chemical production. 2. **Produce better**: Make existing technologies more efficient and less energy-intensive. 3. **Produce differently**: Development of novel raw materials, processes, or even new business models (e.g., modular production facilities instead of centralized large plants). The chemical industry therefore faces a paradigm shift: The combination of efficiency improvements and disruptive technologies will be necessary to achieve [net-zero goals as outlined by the IPCC](https://www.ipcc.ch/report/ar6/wg3/). ## Geographic Differences: Why Location Matters The report emphasizes that regional differences are crucial. Factors such as the availability of CO₂ storage, renewable energy, or recycling infrastructure significantly influence the feasibility and scalability of solutions. In Germany, with its strong focus on climate protection and energy transition, specific opportunities arise, for example through the expansion of [hydrogen infrastructure](https://www.fiegenbaum.solutions/en/blog/power-purchase-agreements-ppas-2025-renewable-energy?hsLang=en) or the promotion of recycling technologies. The European chemical industry faces unique challenges and opportunities in this transition. ## Action Recommendations: Concrete Steps for Investors For climate tech VCs and companies in the chemical sector to utilize their role as pioneers, the following measures are crucial: - **Focus on existing solutions**: Technologies like methane leak reduction and industrial heat pumps can be effectively deployed today. - **Promote innovation**: Investments in research and development must be intensified, particularly in disruptive areas like alternative raw materials. - **Utilize regulatory levers**: [Political frameworks](https://www.fiegenbaum.solutions/en/blog/physical-risks-and-transition-risks-how-to-assess-climate-risks?hsLang=en) can be decisive in increasing the competitiveness of low-emission technologies. - **Create demand**: Companies along the value chain should collaborate to develop markets for low-emission chemicals. Recent analysis by [Rhodium Group shows that US petrochemical sector emissions reached 306-343 million metric tons of CO2 equivalent in 2023](https://rhg.com/research/us-petrochemical-emissions-2023/), underscoring the scale of the challenge and the potential impact of targeted interventions. ## Key Trends: Modular Production and Circular Value Chains A particularly promising trend is **modularization**. Instead of relying on centralized, global facilities, smaller, decentralized production plants could be located near raw material or end-use sites. This would not only reduce transport emissions but also promote flexibility and innovation. Another central theme is **circularity**. Promoting recycling materials and using chemical recyclates could play a key role in [reducing emissions along the entire value chain](https://www.fiegenbaum.solutions/en/blog/decarbonising-scope-3-emissions-a-guide-to-insetting-strategies-and-funding-climate-hardware-startups?hsLang=en). Next step Turn climate risk or ESG data into a decision? In a 30-minute intro call we map where your biggest lever is, with no obligation. [Book an intro call](https://www.fiegenbaum.solutions/en/contact?hsLang=en) ![Johannes Fiegenbaum](https://www.fiegenbaum.solutions/hubfs/Johannes_07-modified.png) ### Johannes Fiegenbaum ESG and sustainability consultant based in Hamburg, specialised in VSME reporting, carbon accounting and climate risk analysis. Works with mid-sized companies, investors and financial institutions, and built the VSME reporting software VSEasy. [More about](https://www.fiegenbaum.solutions/en/about-me?hsLang=en) Related articles ## You may also like ### [Climate VC & Impact Investing Impact Carry in VC: Link Carried Interest to ESG Outcomes Impact Carry combines financial goals with measurable impact objectives, transforming the compensation structure in venture capital (VC). The idea: VC teams receive their share of ... 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