Good afternoon, ladies and gentlemen. It's our pleasure to present BASF's carbon management program to you. Today's keynote and the subsequent Q&A session are live streamed. If you intend to ask a question during the Q&A session, please additionally register for the conference call and get your dial-in details. A replay of the webcast will be available at basf.com later today. One final remark, today's presentation contains forward-looking statements that may not prove to be accurate. We do not assume any obligation to update these forward-looking statements above and beyond the legal requirements. With this, I give the floor to Dr. Martin Brudermüller, Chairman of the Board of Executive Directors and Chief Technology Officer. Sorry.
Ladies and gentlemen, a very warm welcome to our webcast on BASF Carbon Management and the R&D strategies to reduce CO₂ emissions. Today, I speak to you in my dual role as a CEO and a CTO. The importance of innovation at BASF is highlighted by this particular constellation, and it's also expressed by the purpose of BASF, our company. We create chemistry for a sustainable future. This means that we not only produce chemicals, we also create innovative solutions for the needs and the challenges of our customers, building on BASF's unique tradition in innovation power and technological know-how. We are proud of this heritage, and we aspire to be a leader in innovation in future as well. Therefore, and out of conviction, we run an innovation platform that is unrivaled in the chemical industry with regard to competencies, resources, and diversity.
You know that BASF is a pioneer in sustainability in the chemical industry. For more than 20 years, we have developed the Eco-Efficiency Analysis that enabled for the first time the assessment of contributions of chemical products and solutions to a sustainable development. We further developed this tool into the so-called C-Balance and AgBalance. To the best of our knowledge, BASF is also the only industrial company that publishes a comprehensive corporate CO₂ footprint since 2008, including the supply chain and our customer industries. Our Biomass Balance approach is another innovation by BASF, replacing fossil resources right at the start of our Verbund. With the bio-based raw materials, customers are able to buy a BASF product as certified bio-based without any qualification approval.
Once more, the flexibility of our Verbund system is demonstrated here in the context of sustainability. We are convinced that a company's business activities have to be assessed holistically, including positive as well as negative impacts on society and the environment. Therefore, we have developed the Value to Society methodology to assess all the different factors in common monetary terms. We strive to further enhance our positive contribution to society and to minimize the negative impacts of our business activities. We want to increase the Value to Society. Sustainability is an integrated part of BASF, you know that. It is firmly anchored in our investment decisions, in portfolio management, and certainly also innovation. With our new strategy, we have set ourselves ambitious non-financial goals, and one of these goals is the focus of today's event, greenhouse gas emissions and BASF's Carbon Management.
Let's start with a look on global greenhouse gas emissions and BASF's position in this perspective. In the main part of my talk, I will present our Carbon Management to you. Let us have, at the end, a look into the future of carbon resources. Global greenhouse gas emissions and the associated man-made climate change are among the most pressing challenges we are facing today at that time. On this slide, you see global greenhouse gas emissions are depicted on an index scale with the emission of the year 1990 as a reference. If the development of the last 30 years continue, our planet will warm up by more than four degrees. I will not talk about all the consequences today because I think we all share these impressions, and we are aware of the situation.
Based on this awareness, politicians reached an agreement on global climate goals with the so-called COP 21 at Paris. The subsequent national commitments of the subscribing countries will, if they are executed as promised, lead us to the blue graph on the picture here in the diagram. You will see immediately that this is not sufficient, as the resulting global warming still amounts to about 3 degrees. To stay at or below 2 degrees, the world has to stick to the emission scenarios depicted here in green. You see how large the difference is in comparison to the existing commitments.
One general remark, if I talk here about CO₂ emissions, we actually mean CO₂ equivalents because we talk about a whole bundle of gases that are all together called greenhouse gases. BASF has already shown that greenhouse gas emissions can indeed be avoided on a larger scale. Since 1990, we have doubled our production volumes and nevertheless cut our greenhouse gases by half. This means that we have reduced our emissions from 2.2 tons of CO₂ equivalents per ton of sales products in 1990 to 0.6 tons in 2017, which is a reduction of more than 70%. We are proud of this achievement, and I think we have set an impressive benchmark with this.
The flip side of the coin is if you have done your homework, a further improvement is increasingly difficult to achieve due to the technological barriers and also the limitations imposed by the laws of nature. Reducing specific greenhouse gases by more than 70% was a pioneering achievement indeed. However, this does not change the fact that BASF is still a large greenhouse gas emitter today. We make this very transparent again as a pioneer in this field. For over 11 years now, BASF has been publishing a comprehensive corporate carbon footprint with a holistic scope, including the sourcing of the raw materials as well as our customers' processes and the disposal of our products at the end of their lifetime. As an example, you can see our carbon footprint here on the chart of the year 2017.
What is more important, we do not only analyze this annually, we also take action wherever this makes sense, and we can in all the steps along the value chain. In doing so, we create innovative solutions such as, for example, the aforementioned Biomass Balance approach or new biodegradable products. At BASF, sustainability has always been a driver for innovation. The emission generated in our own production processes, called Make here on this slide, could be reduced because we continuously optimized our Verbund. This includes the utilization of CO₂ as chemical raw material. At BASF, our Ludwigshafen site, we convert more than 400,000 tons of CO₂ already today to a sales product that you all know from your daily life. I will tell you the story a little bit later in my presentation.
We have realized that the successful measures of the past will not be sufficient for the future. Our assets are highly optimized already, and we are unable to further reduce emission significantly from here. Therefore, any growth of production volume will inevitably lead to increasing emissions. However, we want to be the leading chemical company in the future, and that means certainly also to grow our production volumes further and to enhance our performance. At the same time, we also have the aspiration to remain the pioneer in climate protection. We therefore, I think it's clear we need to break new grounds to overcome this dilemma. Carbon Management is now how we call our new path forward to reconcile production, volume growth, and climate protection.
It will help us even further reduce the specific CO₂ emissions per ton of sales product, and it includes the carbon management research program that targets fundamentally new CO₂-efficient production technologies. In addition, we also look at our materials mix, and we develop recyclable and biodegradable products together with our customers. This is part of our innovation approach. Close the loop is, I think, the word here. We have also started with the so-called ChemCycling project that converts waste streams into raw materials of the Verbund. What does carbon management for BASF mean? Various concepts of reduction of CO₂ emissions are discussed publicly today. Many of them appear questionable, however, I have to say, to use when you consider the energy consumption and requirements. From our point of view, avoiding the generation of CO₂ directly in the chemical processes has to be in the focus.
Therefore, this is the first priority in our Carbon Management program. Why do we actually talk about Carbon Management when the whole world is talking about decarbonization? Well, it's simply because we cannot only talk about our emissions and our efficiency about our production itself without talking about our products. Today, you have the rare occasion to see the BASF product. Of course, it does not exist, but the average chemical formula, kind of a hypothetical formula of all our sales product together, you see here on the chart. You see also below that, what is actually the composition by weight distribution of the different chemical elements per kilogram. This average product of BASF contains 50% of carbon and 21% of hydrogen.
Both elements stem from naphtha and natural gas, as well as to a small share, I have to say today, already from renewable raw materials. Some of this carbon is even extracted from CO₂, whether you believe it or not, I will show you a little bit later. Oxygen and nitrogen account together for about 30%, and these elements we get rather cheap just from the air around our production. This slide exemplifies that the chemical industry cannot be decarbonized, and that's also why we don't talk about decarbonization. Chemistry is about the conversion of carbon-containing materials, and the vast majority of our materials we sell every day is actually containing a huge amount of carbon. Not using carbon is not an option, but the option is how to manage it well, and that's exactly why we call it Carbon Management.
Management needs transparency, so let's have also a look on the carbon balance of BASF. You see in this chart that 75% of the carbon is actually converted into products. We call this the so-called structural carbon. Unfortunately, chemical conversions are normally very energy-intensive overall due to the laws of nature. As a consequence, 25% of the carbon we buy is consumed for the necessary process energy and thereby converted to CO₂. That's the carbon we call fugitive carbon. Please note that we have already taken out the discontinued oil and gas business from these calculations. Carbon Management actually targets the fugitive carbon. Besides the environmental burden, you should also keep in mind every ton of CO₂ emissions means also a loss of value for BASF by burning a raw material.
It is not possible to minimize losses more efficiently and make really better use out of by-products than in the BASF Verbund. The Verbund is highly efficient, you know that, for the management of the chemical value chains, and therefore it's also ideal actually for carbon management. By the way, we also address the structural carbon, certainly with all our innovation approaches and very newly also with the ChemCycling project. To steer the Verbund, you need certain tools, and we have a very proprietary tool developed, which is the so-called Verbund simulator. It actually can mirror every step of the value chains and connect all these products in a rather complicated network, where you can drill down by-product, what is the use of raw material, what is the energy, and what is actually also the emissions.
This allows to steer this production very precisely. As an example here on the picture, you see just on the right side the excerpt of the network which relates to, for products in the value chain based on ethylene. You see how complex the Verbund and the network overall is. When I talk about efficiency in the Verbund, let me demonstrate this with two examples, what we mean with efficiency gains in the Verbund. You see on this slide here in every line, basically a part of a value chain. I'm honest here and clearly say that also some of our competitors certainly run integrated value chains.
What is actually the very particular aspect of the BASF Verbund is that BASF is not only very effectively running the value chains as such, but we also interconnect them and gain all kind of synergies by doing this. I give you one example here. By burning sulfur to produce sulfuric acid, you actually have a release of energy, and we use this energy to produce steam. This steam actually we transfer into another production, for example, here the production of urea, which consumes energy next door. That is very efficient. With this, we don't only avoid CO₂ emissions by the pure efficiency of the processes, we also reduce the emissions through the smart integration of different processes. This would be difficult to steer if you are a single chemical company which has only a site with a few of these operations.
They just don't have the opportunity to tap into this potential. To sum it up, BASF production Verbund perfectly minimizes consumption of raw material and energy and the generation also of side products. You know Ludwigshafen is our largest Verbund site, and it is here where we make use out of 10 million tons per year of excess steam that is produced by productions without wasting it. For example, our acrylic acid plant, which is the largest steam generator here at the site, is delivering 450,000 tons of steam every year to the adipic acid plant, which is actually requiring energy to run this reaction. You know adipic acid is an important raw material in the production of polyamides or nylon, as you know it.
To produce urea, as I said, we do not need only steam. You need also nitrogen, you need carbon, and you need also oxygen in the molecule. Nitrogen stems from the precursor molecule of ammonia. Hardly believable, the carbon and the oxygen is actually coming from CO₂. In the urea plant, we are overall utilize about 440,000 tons of CO₂ per year as a raw material. That is, as such, would be emitted as excess CO₂, and it stems from the ammonia production as an off gas.
By the way, urea is not only a large scale chemical product that is made from CO₂, it's competitive and it's the only one that is made with competitive economics and an acceptable energy consumption. The Verbund site in Ludwigshafen avoids approximately 6 million tons of CO₂ emissions through these kind of clever integrations of our plants. Nevertheless, it is still, with all this optimization, a large CO₂ emitter, and it actually emits about 8 million tons of CO₂ every year. That is why we can also not rest on our laurels. Let's have a look at the large CO₂ emitters at our Verbund site in Ludwigshafen, and we get a little bit more details in here where it really comes from. You can see that, almost half of our emissions are generated actually by our power plants.
We have three of them at the site. They are, by the way, very efficient. They are among the most efficient power plants, definitely in Germany and, I guess, worldwide, because they couple steam and electricity production, and this is very efficient. The other two large emitters are, on one hand, the steam cracker and the ammonia production, which both emit about 1 million tons of CO₂ every year. Beyond this, what is called here others, there are several smaller productions which sum up together also to a quite reasonable amount of CO₂. Then there is N₂O, which is one of the worst greenhouse gases, which is about 300x as effective as CO₂ is itself.
As complex as the situation here is, as complex is also the bundle of measures we have to tackle or to take to tackle these emissions. Briefly, to explain what is hidden behind the Carbon Management is basically it's a program that rests on three pillars. Firstly, we continue to optimize the Verbund with these kind of measures I just explained. Secondly, we invest in the development of new CO₂ efficient processes. Thirdly, we will gradually shift our energy, external energy supply to renewable resources. Our growth strategy is inevitably leading to higher CO₂ emissions if we do not counteract in some way. Only with our effective, efficient Carbon Management, we can actually achieve CO₂ neutral growth. Otherwise, we would increase our emissions year by year.
There's another obvious idea that is widely discussed, and this is why not taking CO₂ emissions back to the production of chemicals as a raw material. At a first glance, this sounds like a brilliant idea and to be very attractive. However, I would like to show you today why this option is actually limited to a few examples only and makes sense only in very few selected cases. No worries if you see that chart. That is getting a little bit more scientifically here, but I think I need this to explain a bit what is behind this. You can see on this chart actually two so-called energy diagrams.
You see on the left side, the one for the water electrolysis, and you see on the right side, the thermodynamics of CO₂ formation by burning natural gas, CH₄, methane. You see that basically, always the lower position is lower in energy and it lifts up to the reaction. That means it's consuming energy. If you come from the upper layer to the lower layer, it actually sets free energy. What you can see, and you know that is water and CO₂, are actually quite simple, but also very stable molecules, and this is the reason why they are everywhere in nature.
Casually speaking, in a kind of a more popular way, the atoms in these molecules feel very comfortable because they are organized in a very low energy manner in these molecules. That means, on the other hand, if you want to activate these molecules, that means either split water into hydrogen and oxygen or bring back CO₂ to a hydrocarbon, you have to invest huge amount of energy. Unfortunately, this is thermodynamics, and this is nature. We cannot walk around these fundamentals of the law of nature. Whatever you do with intelligent synthesis or catalysts, you cannot. Just think about the Bunsen burner, which you know from the school, from the chemical experiments. That shows you very much that chemistry is energy, and actually, chemistry needs energy.
Using CO₂ as a raw material for chemical reaction is extremely energy-intensive. There's only one prominent case, where I have already talking about, which is urea. Which is a molecule with a structure actually that is quite similar to CO₂, and that is already mentioned some minutes ago in the Verbund example. If you look into all the applications of where CO₂ is used in the chemical industry, which is roughly 100 million tons per year of CO₂ in chemical reactions, it is actually dedicated almost completely to urea. 115 million tons are globally used for the production of urea. BASF is an important supplier of urea, and you might know also one of our most famous sales products here, AdBlue, which is very prominent in diesel exhaust gas treatment.
If you think about CO₂ usage, you certainly immediately think about nature. Because there's actually no one better than nature in using CO₂ in the photosynthesis, in converting it into sugar, into hydrocarbon hydrates and wood and others. This is already more energy intensive. As you see, it is on a higher level compared with CO₂, but it is still far less energy intensive than if you would produce other chemicals or, even worse, synthetic fuels, as it is sometimes discussed. Nature has brought the necessary, very complex biochemical system for the photosynthesis of biomass to actually perfection. We do not do this at BASF, so human technology cannot compete here with the efficiency of nature.
BASF is producing some products like wood binders that at least help that wood as a material, as a versatile material, and the fibers could be used in various industrial applications. Producing industrial chemicals or even the synthesis of fuels from CO₂ would not make any sense. If large amount of CO₂ free energy would be there, you could think about this, but still, you need a lot of energy to do this, and you could do alternative usage of this kind of CO₂ free energy. If you wanna do it, you have to basically reinvest all the energy, and if you do it by fossil fuels, you would produce at least as much CO₂ than you would actually consume by the reaction. I think you agree with me, that does not make sense at all.
Therefore, BASF only pursues research projects on a very selective basis where this really makes sense. Let's assume for a moment that we have no energy challenge because we have sufficient renewable energy without actual limits. What would it be if we convert all the raw materials for the German chemical industry from CO₂ into carbohydrates? This would actually lead overall to about 48 million tons of CO₂ that is converted into raw materials, and that compares to about 905 million tons of CO₂ emissions only in Germany. That is roughly 5% of this. This means that channeling back CO₂ emissions as raw materials in the chemical industry would not really solve our problem. As I said, it's very energy intensive.
It would also not move really the needle with regard to the emission reduction in the climate change mitigation. Instead, I mentioned it already, we have to avoid emissions on a large scale in every aspect of daily life. Transportation, housing, food supply, and many more. This needs innovation. It needs breakthrough innovation with products and solutions from chemistry. In addition to this, chemical industry, of course, has to contribute its share. We have to develop entirely new production processes that avoid CO₂ emissions on a larger scale. BASF is breaking new ground here within pioneering its Carbon Management research program. To look at our activities more comprehensively, I would like to cast a spotlight also on the BASF products and solutions that particularly contribute to a sustainable development in our customers, because that is BASF business.
You know that in the new strategy, we have also given ourselves a new target to actually boost these Accelerator sales from EUR 16 billion-EUR 22 billion in really with this outperforming in terms of sustainability. I would like at least to give you two examples for that, Accelerator products and how we with this help also our customers to avoid CO₂. I think you are aware that two large areas of daily life is actually housing and individual transportation that contribute very high CO₂ emissions globally. If you look on the left side, I would like to talk about tackling CO₂ in construction. I think for decades now, BASF is very active in this field and there is no other company that has been ever more innovative in the area of insulation materials than BASF.
Our insulation materials have an excellent CO₂ footprint across the product cycle. Today, I am proud to introduce a new product, Cavipor, which is our brand new mineral-based insulation material. Perfect insulation performance equal to polystyrene. It's a so-called Styropor. It has a very good flammability rating. It is hydrophobic, it's open cell for vapor diffusion, and it's even sound absorbing. Cavipor is delivered as a suspension to the construction site, and then it's foamed with pressurized air into cavities of the building shell. When dry, the foam is actually containing 80% inorganic materials, and at the end of the life cycle, it can just be disposed with the other construction materials.
The transport sector is not only BASF's largest industry, customer industry, it is also a very important sector for CO₂ emissions. This sector is responsible for about 14% of global greenhouse gas emissions. Electric mobility, I think, is in everyone's mouth, and it combines a huge opportunity if it is coming with renewable energies to really reduce CO₂ emissions on large scale. To achieve this, high performance batteries are pivotal, and batteries, you know that is actually pure chemistry. That's also why BASF is very active in this development, and we are present in the growing market of innovative cathode materials that determine the capacity and basically the performance of a lithium-ion battery.
It is an art to fine-balance the chemical composition of various metals, but also combining this with layering and doping technologies in order to achieve a fast and deep lithium release and charging, which is the important process in a battery. We have set ourselves very ambitious goals here. By 2025, we want to double the range and the lifetime of batteries while cutting costs and size in half and reducing the charging time by 75%. So far, we have now talked about climate protection and the necessary carbon management. I've elaborated on the key challenge to avoid CO₂ emissions on a substantial scale.
In the outlook, I would like now to present BASF's new climate protection goal to you and four specific projects that you get an idea what we actually do in R&D and innovation within the Carbon Management program. It is our ambition to be the leading chemical company. I said this, and with this also to continue to set the pace in the industry. We want to further increase our volumes. That's clear if you grow. We want, on the other hand, also to be the climate leader here in the industry. We want to grow, and that means then at the end, we want to grow CO₂ neutral. Despite our growth, we keep and strive to keep our CO₂ emissions at the current level.
This is very ambitious, I can tell you, as it means further reducing specific emissions significantly at our already very highly optimized production sites. We are indeed confident to reduce the specific CO₂ emissions by one-third again, and thus offset a production volume growth of up to 50% until 2030. In the past, I mentioned this, we have been successfully doubling our production while cutting emissions in half, and we have significantly optimized our assets, and meaningful investments have associated this development. Our new goal is very ambitious as the assets are highly optimized, and we will mainly reach this goal only through further process optimization on one hand, procurement on renewable energy on the other hand.
However, we are aware that also these measures come to a limitation in the longer run, and therefore, we have to work on breakthrough innovation, step change for innovation, to have additional options to further reduce CO₂ beyond the timescale of 2030. The broad portfolio that I have just mentioned helps to diversify the chances of success to achieve our emission reduction goal. You know that process optimization does not result in quantum leaps. It rather delivers a gradual performance improvement. At that time, it carries a low execution risk, certainly, and we are very, very skilled in doing that because that's actually BASF business since more than 150 years. The shift to BASF's external power supply towards more renewable energy has a greater CO₂ reduction potential.
As an illustration, to give you the electricity demand for the German chemical industry amounts to approximately 50 TWh per year, and that equals about 25% of the renewable energy production in Germany today. With an increasing CO₂ reduction efforts, electricity demand will actually continue to grow. It grows quite drastically. Availability and cost are a key to success in this transformation over the way forward. Yet, the greatest potential of all is actually in fundamentally new CO₂ efficient processes and technologies. This is where BASF can leverage its unique innovation power. We can concentrate on only a handful of basic petrochemicals that nevertheless represent about 70% of the CO₂ emissions of the chemical industry.
As a chemical company, you may well shift your portfolio towards CO₂ light downstream specialties, but you will still have to buy CO₂-intensive petrochemicals with their emissions payback from somewhere. Thus, who, if not BASF, should lead this challenge? No other company actually runs such an R&D project and program in this area as we do, because also no other company, chemical company, has a catalyst platform like we do. We can build on a wealth of expertise and experience in this field, and we strive to game-changing innovation. These are truly new grounds. We could certainly invest our research money in less risky projects. But I think this is not what comes with a leading chemical company, and that is also not what we address in our purpose. We create chemistry for a sustainable future.
At the end of my presentation, I would like to present four specific projects, which I give you a very brief overview that you get a little bit gist and the idea what actually is behind, the Carbon Management research project. They address BASF's most important petrochemicals and large CO₂ emitters. Let's first talk about the so-called steam cracker. You see here on the chart, actually that you need a lot of energy to crack at the very beginning of the value chains, longer carbon hydrogen chains into smaller building blocks, which you then use for making chemistry. You bring up the temperature to 850 degrees in the presence of steam, and you crack these chains.
That is exactly the point where a lot of CO₂ is emitted because to heat up this furnace, you normally take natural gas. In a steam cracker like operation like BASF in Ludwigshafen, this would come up to roughly 1 million tons of CO₂. The question is now, can you do that alternatively? We are working on substituting these petrochemical fired or fossil raw material fired burners into the so-called e-furnace. That means bringing in the energy by electricity by a special heating system, which then would allow us to reduce the CO₂ emissions from a steam cracker by roughly 90%. BASF therefore aims to develop the world's first electrical heating concept for steam crackers within the next five years.
At the same time, certainly material testing is necessary to determine which metallic materials can still withstand these high temperatures. I tell you it looks easy, but it's everything else than that. It's actually a very challenging attempt. A second important part to anchor the Carbon Management project in is the production of hydrogen. This is one of the large CO₂ emitters. It's actually more than 8 tons of CO₂ per ton of hydrogen, and that classically is done by steam reforming. The chemical industry overall uses a lot of hydrogen. It's a very important raw material. At BASF it is used, for example, in the ammonia synthesis. Furthermore, hydrogen will also be essential for many sustainable energy carrier ideas and energy storage applications in the future.
Together with some cooperation partners, BASF is therefore developing a new process technology to produce hydrogen actually from natural gas. This technology splits methane directly into the components of hydrogen and carbon. The resulting solid carbon can either be used in other applications where it's inevitable, like, for example, steel or the aluminum production, or you can also, if necessary, dispose it. This methane pyrolysis process requires comparatively little energy, and if that energy again comes from an e-furnace or an electrical heating system, then actually you can produce hydrogen basically without CO₂ emissions. As a central high volume intermediate, you know that olefins is at the very beginning of petrochemical industry and these are very important materials also for BASF. It's interesting to develop something as an alternative to a steam cracker.
The considerable CO₂ emissions resulting from the current production methods in the steam cracker could also be significantly reduced through so-called dry reforming of methane. This process creates a syngas, which is then transformed into olefins via an intermediary step of dimethyl ether. BASF researchers have now been able to find a way to do this for the first time and thanks to a new high performance catalyst system. This new generation of catalysts are being marketed in cooperation with Linde. Depending on the availability of raw materials and renewable energy, this innovation process could then be very attractive complement or even an alternative to the potential electrical heating of steam crackers.
Last but not least, a little even more challenging, one example, a specific example where we really use CO₂ as a chemical feedstock would be the production of sodium acrylate from ethylene and CO₂. Sodium acrylate is actually the most important starting material for superabsorbents, which are widely used in diapers or other hygiene products. An application which has a global demand of about 2.7 million tons. It's a significant application. A few years ago, researchers at BASF have actually, supported by the Catalysis Research Laboratory, CaRLa, which we run jointly with Heidelberg University, found a very successful way to close a catalyst cycle for this reaction. This cycle depicted on the slides, I don't go into the details here of the chemistry.
It is very challenging on one hand, but it consists on a specific series of chemical reactions that have to happen again and again, and with this, really closing this catalytic cycle. In the meantime, BASF experts have made important progress in scaling this process up to industrial scale and have demonstrated that it can be successfully implemented at a laboratory scale in a mini plant. Compared to the current propylene-based production method for superabsorbents, in the new process, CO₂ could replace about 30% of the fossil starting materials. I hope with this quick run-through of four examples from our R&D program, we have come to the end of my presentation, and I hope it gives you a little bit an idea what is behind the Carbon Management program. It is definitely an ambition, and we are striving to make this a successful endeavor.
With this, many thanks for your kind attention, and we are now happy to take your questions. I ask also my colleague, Andreas Bode, who is actually heading the Carbon Management program, to join me on stage to answer some of your questions. Thank you very much.
Dear ladies and gentlemen, we would like to now move on to the Q&A session. One important technical note before we get started, there's a delay between the telephone conference and the webcast. The call is slightly faster than the webcast. If you would like to ask a question, we would ask you to please mute the web audio until after your question has been answered. I will call on you when it's your turn to ask a question. Let me also briefly introduce Andreas Bode, who will join Martin Brudermüller for the Q&A. Andreas is leading the Carbon Management R&D program since January 2018. He's a mechanical engineer by training. He received his doctorate from the Institute of Thermodynamics of the Leibniz University Hannover and joined BASF in 2001.
Since then, he has held various positions in research engineering, globally managed product technology, or was a product manager for catalysts and worked in BASF new business. I would now like to open the call for your questions. Anyone who wishes to ask a question may press star followed by one on your telephone. At the moment, I see a first analyst who would like to ask a question. The first question is from Sebastian Bray, Berenberg. Please go ahead, Sebastian.
Thank you for taking my questions and for the helpful presentation. I would have two questions, one more broader-based and in principle, the other one a bit more financial. The broader-based one is as follows. How exactly does the awarding of CO₂ credits work within the German chemicals industry? When I look at this from outside, am I right in saying that there's a CO₂ review by an industry association every three years, and then based upon consumption and EU legislation, BASF is then awarded a quota, and if it undershoots, it gets credits, and if it overshoots, it basically has to pay? Is this, broadly speaking, how it works? The second question is a financial one.
As a rough guess, if I prorate the BASF sales and its CO₂ exposure, I think it probably produces 11 million tons per annum of CO₂ in Europe. Now, if I assume carbon prices go up by, let's say, EUR 10 per ton or EUR 20, I'm getting to an annualized saving through using this policy, as in through the targets BASF is trying to set, of something in the region at constant carbon, amount produced of EUR 220 million-EUR 440 million. I'm just wondering, are you doing this because you can make an economic case for it and it would genuinely be more expensive to take the additional cost or fines that you would have to pay?
Do you expect this to economically be a loss for BASF, but you do it because of your whole stakeholder argument and the fact that you don't want to pollute? Thank you.
Sebastian, thanks for your question. I maybe take the second question, and Andreas will talk about the first one. I mean, I think what you're talking about, and I think that was also the chart you could see about the measures to reduce the warming globally. We will face in the future an environment where CO₂ will have higher cost. I can only hope that this will be on a global basis so that we all have basically the same framework. That's at least the target that should be out there to keep the competitiveness. There will be a CO₂ cost coming up in the future. In the same moment, there might be a restriction by emitting CO₂ at all because there is also a mechanism to reduce CO₂ certificates over time.
With this, you can simply have a problem, you know, kind of license to operate your site because you cannot emit. In this respect, I think it is the understanding of a leading chemical company that has such vast resources in research and so creative ideas like us to really tackle this issue and to take it up as an opportunity, firstly, to really have better processes and more competitive processes which really allow also to maintain and improve our earnings situation in the future. In the same moment, you also have right.
If you don't do anything, you most probably have a burden of cost for CO₂ in the future, which whatever the price is, I mean, there is partly discussed extreme prices of maybe in future up to EUR 100 per ton, you never know, then this would be a huge burden. In this case, a global CO₂ price like this could be also a trigger to actually introduce these kind of new processes because they certainly need investment money, but they also have higher operating costs. Because if you take renewable energy, it's normally burden and still more expensive than the general energy mix you have normally. For that reason, it's a component of both.
I think it is the license to keep the license to operate, to have options to react on restrictions of CO₂ and the burden of CO₂ prices. In the same moment, it is also the opportunity to run ahead of my peers, to do something and to be capable, and to run processes that simply are better. I think it is a mitigation of both, which comes along here to prepare ourselves for the future, and on the other hand, also to be still profitable in the future. I'll leave it maybe with this, and Andreas, you can say something about the first question about CO.
Yeah. Yeah, thank you. Regarding the system in Europe, regarding the CO₂ emission certificates, the system works roughly as follows: the European Union sets a benchmark for each and every process and the 10% of the best plants are averaged, and this is the benchmark. For this benchmark, companies which are energy-intensive and in a global competition, they get free allocation of certificates. That means if you're better than the benchmark, you have some more certificates available than you need, and if your plant is working worse than the benchmark, you have to purchase additional certificates. That's the basic. BASF, in average over several productions, is better than the benchmarks or has been better than the benchmarks in the last years.
We had some certificate overshoot that is necessary to save for the coming years.
Just now imagine we have new processes. They become then the benchmark for the industry.
Understood. Thank you. As a quick follow-up, am I right in then saying if you're allocated an allowance and your plants are all in the top 10%, how exactly is it possible that you then have a net carbon exposure? Is it because the quota doesn't cover the full emission, or how does it work?
That is, you mean a financial obligation? If so, if we have-
I want
The system works that you have to hand in an allowance per ton of CO₂. If that allowance has been allocated to you freely in advance, it doesn't cost you money. Only for those processes where you are worse than the benchmark, you have to purchase allowances on the market, unless you have allowances from other processes where you're better. This is an internal hedging option.
Well, thank you. Dr. Brudermüller, I don't want to take too much of your time, but as a quick guess from your side or a forecast, perhaps, how far away do you think we are from a Chinese carbon price?
Very, very hard to say. I mean, we have experienced this, that they have been testing regions.
I think there were several areas where they tested this out. I think we are still a little bit away from a kind of Chinese national carbon price, because it's on one hand clearly the intention to fuel the industry, and there's still a lot of coal-based chemistry also in China. I think we are still a little bit away from a real functioning system in China.
Takes some years.
Thank you very much for taking my question.
Takes some years.
Anyone who wishes to ask questions may press one on his touch-tone telephone, and please do so now. It's a bit of a challenge because we have the webcast and the call. Currently, we do not have any further analysts or investors who would like to ask a question, so I suggest we wait for another minute, whether somebody here makes clear that he wants to ask a question, or it could also be an option for Sebastian to ask another follow-up question. I think he was very content with what we gave him so far. Since there are no further questions, I would like to close the Q&A. We have come to the end of our R&D webcast. We hope you found the presentation informative and enjoyable. Please be reminded that our quiet period begins on Monday, January 14th.
Therefore, kindly contact the BASF IR team today or tomorrow if you have any further questions. We look forward to speaking with you all again at our full-year reporting on February 26th. Until then, thank you very much for joining us today, and goodbye.
Thank you.