The “Hard stuff”: confronting the energy transition in the chemical industry

As the global push towards decarbonization accelerates, the McKinsey Global Institute (MGI) offers a sobering yet vital reality check. In their recent publication, “Ten physical realities the energy transition must tackle,” McKinsey unpacks the concrete, large-scale transformations required to shift away from fossil-based energy systems. This shift is not only technical or economic—it is fundamentally physical. For industries like chemicals, deeply entwined with fossil feedstocks and energy-intensive operations, the insights are particularly relevant.

The chemical industry at the epicenter

The chemical sector is both a critical enabler of the energy transition and one of the most difficult to decarbonize. According to McKinsey, the so-called “big four” industrial materials—steel, cement, plastics, and ammonia—account for two-thirds of all industrial emissions. Plastics and ammonia, of course, are core chemical products. Their production depends heavily on fossil fuels, both as high-temperature heat sources and as raw material feedstocks.

Decarbonizing the chemical sector requires addressing these dual challenges: sourcing renewable process energy and replacing fossil-based molecular building blocks. Technologies such as electrocracking, low-emissions feedstocks like green hydrogen, and biobased or recycled carbon inputs are being explored. However, McKinsey points out that many of these innovations are still nascent, limited in deployment, and often capital-intensive.

High-temperature heat: the bottleneck

A significant barrier to decarbonizing chemicals is the need for very high-temperature heat—often above 500°C. Electrification options like industrial heat pumps are increasingly viable for lower-temperature applications, but they fall short for thermal processes central to chemical transformations. While electric arc furnaces or rotodynamic heaters show promise, their adoption in chemicals is limited. Innovation is needed in both technology performance and retrofitting feasibility to avoid locking in high-emission infrastructure during the next asset turnover cycle.

Hydrogen & conversion losses

Hydrogen emerges in McKinsey’s analysis as a key low-emissions energy carrier, especially relevant for chemicals as both a fuel and feedstock. Yet the report urges caution: hydrogen’s efficiency challenges are significant. From production via electrolysis to final use in furnaces or fuel cells, 40–75% of energy can be lost through conversions.

Despite these losses, hydrogen remains one of the few viable options for producing high-temperature heat and molecular inputs without carbon emissions. However, scalable innovation in hydrogen production (particularly green hydrogen), transportation, and end-use technologies is essential. The chemical industry must also strategize around when and where hydrogen offers a comparative advantage over direct electrification or bio-based routes.

Carbon capture: critical but costly

For existing assets where electrification or hydrogen retrofits are unfeasible, carbon capture, utilization, and storage (CCUS) is a fallback solution. This is particularly true in sectors like cement and chemicals where CO₂ is emitted as a process byproduct. But as McKinsey highlights, CCUS is not a panacea. Capturing CO₂ from low-concentration streams, common in the chemical industry, can be three to four times more expensive than in high-purity scenarios like ethanol production.

To overcome this, chemical players must invest in capture technologies tailored to dilute emissions and support the buildout of CO₂ transport and storage infrastructure—something that will require industry-wide collaboration and policy support.

Electrification of power: a quintupling

Underlying all decarbonization strategies is the need for a vastly larger, cleaner power system. The transition to electric heat pumps, hydrogen electrolyzers, and electrified reactors depends on reliable access to low-emissions electricity. McKinsey estimates the global power system may need to quintuple in generation capacity by 2050.

For the chemical sector, this is both an opportunity and a risk. Access to low-cost, clean electricity could become a competitive differentiator. But without rapid expansion of grids and renewable capacity, high electricity prices or instability could derail transition plans. Grid readiness, location decisions, and demand management strategies (like shifting power-intensive reactions to off-peak periods) will become increasingly strategic.

Critical materials and supply chains

McKinsey also emphasizes the surge in demand for critical raw materials—like lithium, nickel, and rare earths—required by batteries, wind turbines, and EVs. While less directly relevant for traditional chemical plants, this dynamic affects upstream and downstream partners, from renewable energy developers to suppliers of electrochemical technologies.

For chemical innovators, this highlights a need to diversify feedstocks and explore circular business models. Increasing recycling, developing rare-earth-free catalysts, or engineering alternative chemistries could offer resilience in a resource-constrained future.

Innovation Is non-negotiable

Throughout McKinsey’s analysis, one theme is unmistakable: the current pace of technological deployment is far below what’s needed. Only about 10% of the low-emissions technologies required by 2050 are in place. The chemical industry must accelerate R&D in several areas:

• Advanced electrification: High-temperature electric reactors, resistive or inductive heating solutions.
• Low-emissions feedstocks: Bio-based chemicals, CO₂-derived molecules, and green hydrogen pathways.
• Modular CCUS systems: Efficient capture for low-concentration emissions integrated into existing assets.
• Demand-side flexibility: Intelligent process controls and thermal storage to align operations with variable renewable supply.

These are not only technical problems—they are also questions of timing, scale, and systems integration. For instance, as McKinsey warns, many of the world’s blast furnaces will be relined by 2030. Similar “lock-in” risks exist in chemical infrastructure. If retrofits don’t align with innovation readiness, high-emissions processes could persist for decades.

Facing the hard stuff

The McKinsey report is a call to confront the “hard stuff”: the material, logistical, and infrastructural realities of energy transition. For the chemical sector, these realities are especially acute. Yet, within these constraints lie immense innovation opportunities.

As Catalisti works to foster partnerships and accelerate cleantech breakthroughs in Flanders, this insight offers clear direction. The path forward must blend pragmatism with ambition—investing where the science is promising, scaling where the business case is strong, and collaborating across the value chain to build an industry that is not only more sustainable but more resilient and future-proof.

Source: McKinsey Global Institute article “Ten physical realities the energy transition must tackle”, April 2025.