Marcelo Lu
President - BASF Canada
Part of the Spotlight on Clean Growth

Resource Efficiency, Neutralization and Zero Emissions: The Path to Canada’s Clean Growth Economy

Takeaways

  1. The chemistry industry can help Canada’s clean growth agenda by improving the efficiency of our materials and processes.
  2. The transition to a clean growth economy will happen in three phases: first, resource and waste reduction, then emission neutralization, and lastly zero emissions.
  3. Digitalization will completely integrate value chains across Canada and the world, which will reduce waste and help us meet industry demand faster.

Action

The clean growth agenda needs to be implemented smartly; the government should not overburden industry and the economy but concentrate on smart regulation. Inefficiency in both those areas will spill over to the social side making people lose focus of the environmental part of the balance.


How would you define a clean growth economy?

The transition to clean growth is a shift of mindset from a linear way of viewing business to a more circular method. Even from the investment side of things, the view is shifting from one focused on the short term to looking for long-term solutions. If you read Larry Fink’s BlackRock letter, you know that investors or shareholders are starting to value the sense of purpose that a company gets from making a socioeconomic and environmental impact. There needs to be a balance between financial returns, and social and environmental impact.

“The transition to clean growth is a shift of mindset from a linear way of viewing business to a more circular method.”


What steps must Canada take to transition into a clean growth economy? How can innovation in chemistry impact Canada’s clean growth economy in the future?

It is very important to have a value chain approach. There are clear industries where Canada has a competitive advantage over a lot of other countries. Agriculture, mining, energy as well as biotech tend to be Canadian strongholds. Those are areas where Canada has all the raw materials, resources and human capital it needs to push forward the transition to clean growth or zero emissions.

I view this shift in terms of three transition periods. The first transition would entail reducing the amount of emissions and resources we use and the waste we generate in all of our production processes. For example, we have a polymer that allows you to do solid and water separation very quickly, something that nature would take 50 to 100 years to separate. By processing tailings water smartly with our polymer, you get solid-water separation in a matter of weeks to months. That means you can manage, separate and treat water with smaller tailings ponds. Of course, with time, we aim to do away with tailings ponds entirely, but in some industries we need to go through the transition of optimizing current processes and make newer processes – such as in-situ extraction of oil from bitumen – more efficient, economical and less energy intensive. Moreover, the savings generated from a cleaner more efficient process can be reinvested into clean growth initiatives and innovation.

“The chemistry industry can support this transition [to clean growth] by innovating to make the use of resources increasingly efficient.”

The second transition area would be neutralizing, which means coming up with solutions that neutralize emissions. One of the examples here is Bullfrog Power’s business model of selling renewable power that is inserted into the grid and displaces fossil fuels. It is unconventional for a company to be buying renewable energy that it is not physically using. But this system allows a company to neutralize its hydrocarbon emissions on a macro level. Specific to the chemical sector, an example would be our insulation spray foam, which gives significant insulation value to buildings and allows the owner to use a lot less energy and even strive for passive houses that have zero energy needs.

The third transition is when we achieve zero emissions, wherein all industries are somehow integrated via their supply chains and data, namely industry 4.0. Once you are able to map out all the information across a value chain, you are able to quickly assess where waste occurs. For example, industries that need to keep large inventories such as the auto sector and food sector will be able to more accurately forecast demand due to digitalization and integration. So, they will not need to maintain an inventory, which many times ends up going to waste or loses economic value. Once we get that level of integration, then we can start talking about a zero emission economy.

“Agriculture, mining, energy as well as biotech tend to be Canadian strongholds. Those are areas where Canada has all the raw materials it needs to push forward the transition to clean growth or zero emissions.”

The chemical industry can support this transition by innovating to make the use of resources more efficient and enabling circular system thinking in production processes. There are a lot of examples where we can excel in the reduction of resource use and waste. One that I always mention is construction. The infrastructure investment that Canada is making in its cities is very significant, but the construction industry has barely innovated as far as clean growth is concerned. It is still using many of the same materials invented decades ago. Some of the processes have changed but there is so much more that can be done by reducing the amount of water, concrete and labour that is needed to do construction work. Chemistry can transform the construction industry. For example, we have an admixture that can significantly reduce the amount of cement required in concrete formulation. This was used in the construction of the Freedom Tower in New York where we saved 70% of the cement that would have been needed in that concrete mixture and replaced it with recycled material, fly ash or waste from other buildings that had been demolished. We are now in discussions with developments in Downtown Toronto to make use of that technology here in Canada.


How does the Canadian government’s clean growth agenda compare with what is being done in other regions such as Europe and Asia?

There is a lot of discussion focused on the idea that Asia is where a lot of the clean growth needs to happen because it is currently the region that emits most. Being a German company, many of BASF’s standards are derived from European standards, which are already very strict as far as socioeconomic and environmental impacts are concerned. Asia is still a bit behind, but Canada has a setup that is similar to Europe.

“There needs to be a push to encourage all countries to adopt some kind of model on carbon pricing.”

Carbon pricing has become a hot topic, but it can only work once it becomes global practice and there is a level playing field among countries. If carbon pricing is only specific to one region or one country, less environmentally friendly investments would just be redirected to other regions and carry CO2with them – so-called CO2 spill over or bleeding. There needs to be a push to encourage all countries to adopt some kind of model on carbon pricing. It will be a challenge in the beginning but eventually we will get to a point of convergence. It is very encouraging to see what is happening in China now. China has become the biggest clean growth investment center globally; it is a leader in clean growth investment.

“Investors or shareholders are starting to value the sense of purpose that a company gets from making a socioeconomic and environmental impact.”

Canada has mostly achieved the correct balance, but some of its measures are a bit aggressive. With election cycles and political cycles, I understand why the government, specifically the federal government, wants to do things very quickly to get to that baseline very fast. But, the government is leaving some industries behind and creating an economic imbalance. The clean growth agenda needs to be implemented smartly; the government should not overburden industry and the economy but concentrate on smart regulation. Inefficiency in both those areas will spill over to the social side making people lose focus of the environmental part of the balance.


The Canadian and global chemical industry tends to resemble an oligopoly, with a few large multinational companies dominating the market. In the age of start-ups and disruption, do you see this model changing?

It is very clear to BASF that we cannot do it alone in this day and age. A few years ago, we changed our slogan from “BASF, the chemical company” to “BASF, we create chemistry for a sustainable future”. “We” does not only mean BASF, but also the entire ecosystem that thrives on co-creation and collaboration. BASF has started a lot more joint ventures or collaborations recently and has invested, acquired or interacted with more start-ups. We need new ideas from companies that are more nimble than us and we in turn should be able to assist them in scaling up their solutions. We also have a venture capital arm that is investing in different technologies, start-ups and universities. BASF recently signed an agreement with the MaRS Discovery District in Toronto through which we have regular interaction with start-ups and assess whether we can do business with them, invest in them or even potentially acquire them.


How do you see AI, quantum computing and other advanced technologies disrupting or supporting the chemical industry in the coming years?

A few years ago, we started with a digitalization drive, BASF 4.0, which ties us closely with Industry 4.0 – in fact we were one of the earliest chemical companies to embrace this trend. The main anchor for this was the purchase and development of a super computer, which we have called Quriosity. Basically, this is a super computer that has a computational power of 1.75 petaflops – 1 petaflop is 1 quadrillion calculations per second. This computer is able to do R&D with tremendous power and speed that overshadows how we used to research and develop in the past. It gets us quicker to the 95% level of research without having to go through trial and error experiments and more importantly avoiding overall waste in the process. It is able to compute something that takes 5, 10 or 20 years in days, weeks or months. You can imagine the amount of savings that it also brings in terms of time, money and resources. What is even more outstanding is the computer’s memory power and ability to remember failed research topics while engaging in new R&D topics. It will always have the possibility to refer back to failed engagements that new research topics years later may be able to unlock solutions for – all this in a “just-in-time” integrated approach to R&D.

“Digitalization will integrate our supply chains, increase efficiency and reduce wastage.”

Additionally, we also have other advanced technologies supporting our drive towards Industry 4.0 integration. Smart manufacturing will help Canada take on a leadership position in many of the sectors it is already successful in. An example in this segment is the light speed push to get production sites Augmented Reality enabled. This allows operators to visualize their entire production site remotely and do preventative maintenance before shutdowns or accidents occur and improving the overall safety of the site.

Lastly, digitalization will integrate our supply chains, increase efficiency and reduce wastage. High buffer inventory needs throughout value chains will eventually become obsolete, as customer demand forecasting will become much more accurate and interactive with a just-in-time adjustable supply chain. This will not only inject significant amounts of efficiency in industries but also save significant amounts of resources and reduce waste.