The browser you are using is not supported by this website. All versions of Internet Explorer are no longer supported, either by us or Microsoft (read more here:

Please use a modern browser to fully experience our website, such as the newest versions of Edge, Chrome, Firefox or Safari etc.

US, Europe subsidize rapidly expanding petrochemical industry

Photo of smoke plumes from factory
Photo: Pixaby

With the market for fossil fuels in decline, the oil industry is investing heavily in the chemical and plastics industry instead. The strategy seems to be working: the plastics industry is growing faster than the global economy. Multibillion-dollar subsidies from states and publicly funded banks, combined with weak legislation, are reasons behind the rapid growth, according to a new report from Lund University in Sweden.

During the past three years, Fredric Bauer, researcher in environmental and energy systems at Lund University, has mapped and analyzed the global chemical industry together with research colleagues. The conclusions are presented in the report "Petrochemicals and climate change: Powerful fossil fuel lock-ins and interventions for transformative change". Some results have previously been published in scientific journals, while others are completely new.

The researchers examined the world's leading chemical companies and their connection to the oil industry. The picture presented is clear: many of the world's largest oil companies, such as Saudi Aramco, Exxon, Shell, Sinopec and Petronas, are successfully selling more and more oil to the chemical industry.

“We see it clearly with oil states that want to ensure that there is a market for their product. They build new fossil-based chemical industries themselves or through partnerships. The one leading the pivot is Saudi Arabia, but the tendency is the same in other parts of the Middle East, Central Asia and parts of Africa. Plastic is the big product, but it also involves fertilizers, pharmaceuticals and paint”, Fredric Bauer explains.

The scale of the change stunned the researchers.

“That the industry would reposition itself when the classic fuel market is declining, and the number of electric cars increasing, is not that strange. However, what we see now is a completely unrestrained production growth. This surprised us”, says Fredric Bauer.

The rapid expansion of the petrochemical industry risks stifling the growth of budding chemical companies that are trying to invest in sustainable, and currently more expensive, production. This includes bio-based or recycled chemicals which in turn can be used to manufacture fossil-free plastics, paint, cleaning agents and other common chemicals.

The accelerated growth has partially been made possible by large-scale financing from various public actors. This became clear when the researchers examined the financing of large-scale new investments over the past decade.

“This was perhaps the most shocking finding. Contrary to the Paris Agreement, which clearly states that the financial sector must contribute to a fossil-free transition, billions are flowing into new fossil-based projects. Public actors such as development banks and export credit institutions are contributing to this”, says Fredric Bauer.

In the last ten years, the companies have received financing from public funds amounting to almost 50 billion dollars. The transactions are primarily being made in the form of loans and guarantees from state-funded development banks and other financial institutions, and were largely from countries in the West.

“We identified large capital flows from the US, Canada, Japan and the UK. Countries in Asia such as Korea and China also invested financially”, says Fredric Bauer.

Public funding also lends legitimacy to the projects, and thereby increases the chances that the projects will be able to receive private funding from investors.


Fredric Bauer

Fredric Bauer
Researcher, Environmental and Energy Systems Studies
Lund University 

Recommendations from the report:


Redirect financial flows away from petrochemicals

To fulfill the Paris Agreement, financial sector actors must stop financing investments in fossil-based and emissions-intensive petrochemical production. This includes public and private banks, private investors, insurers, and development finance agencies.

Strengthen global governance of the petrochemicals sector

Ensure an ambitious global plastics treaty that includes restrictions on fossil- based plastics production, and seizing ongoing efforts at the UN to develop a new global framework for the management of chemicals.

Sustainable chemical firms could form a leadership group

Chemical industry firms that aim to truly be part of the solution to climate change should break with industry organisations engaged in greenwashing and climate delay rhetoric.

Address the logic and structure of the industry through political interventions

Governments could intervene to restrict further expansion of fossil-based petrochemical capacity, ensure a rapid phase-out of the most emissions-intensive facilities, and require all large chemical firms to present transition plans and roadmaps away from the current fossil dependence.

Support developing countries and fenceline communities

A key priority should be to address the harm that the petrochemical industry inflicts on fenceline communities in countries and regions where it is already present, and has been sometimes for decades, and to work with local stakeholders and social movements in shaping the transformation of the industry.