Energy policy and petrochemical transition: cost is in energy, not construction
Mixed-integer optimisation model showing that energy prices—not capex—determine petrochemical decarbonisation costs.
This report quantitatively evaluates how energy policy — particularly for power and hydrogen — shapes the transition cost and technology choice for Korea's petrochemical industry along the decarbonisation path.
The Core Challenge of Process Transition
Because petrochemicals use fossil fuels simultaneously as feedstock and heat source, fuel-only switching has clear limits. Process-level technology shifts — including electric crackers and hydrogen-based processes — emerge as the central alternatives.
Methodology
Targeting major Korean petrochemical complexes, we built a Mixed-Integer Programming (MIP) model incorporating carbon-budget constraints, technology readiness, and electricity/hydrogen price scenarios, and compared the costs of various transition pathways.
Key Findings
Total transition cost is driven by long-run cumulative energy purchase cost, not capital expenditure:
- Rising electricity prices + hydrogen prices indexed to electricity → cost burden of hydrogen-based pathway expands sharply
- Stable electricity prices + renewable-based hydrogen supply decoupled from electricity → cost gap between electric cracker and hydrogen pathways is limited
Even under the same carbon budget and technology readiness, energy policy design is the decisive factor in the scale of transition cost and the technology-choice risk facing firms.
Policy Recommendations
- Redesign petrochemical restructuring criteria to include carbon budget, infrastructure, and post-transition energy cost
- Integrate industrial and energy policy
- Develop a place-based transition strategy that bundles infrastructure deployment with industrial and labour transition at the level of petrochemical clusters
◆ Related in Petrochemicals