Overcoming Decarbonization Hurdles in the Pulp and Paper Industry

The energy crisis sparked by the Russian invasion of Ukraine brought historically high gas and electricity prices and sounded the alarm for European energy systems. While the immediate impact might be in the rearview mirror, its lessons are still reverberating across energy-intensive industries like pulp and paper (P&P).

With production projected to increase through the end of the decade, greater efforts are needed to mitigate the industry’s vulnerability to energy market fluctuations and reduce its dependence on fossil fuels, by switching to green molecules and electrons. The sector could facilitate this transition by embracing innovative technologies to reduce energy demand and readying its assets and processes to accommodate the fuels of the future.

Production and Trends

The energy crisis contributed significantly to a decrease in paper production levels and increased prices. After surging in Q2 2022, production prices trended downward in 2023 but remain above pre-crisis levels, while the decline in production values has continued.

Key Insights

• Starting in Q2 2022, the produced volumes of paper and board softened due to the energy crisis. That declining trend continued in 2023 despite lower fuels costs, as e-commerce slowed to pre-Covid-19 levels, but the long-term trend is for continued growth.
• The energy crisis impacted prices, with the European Producer Price Index (PPI) for pulp and paper products increasing by ~30% between Q4 2021 and Q4 2022. Starting in early 2023, prices started declining but remain ~15% above pre-crisis levels.

If energy for production processes is one side of the coin, the other is ensuring sustainable sourcing of raw materials and working to improve supply chain collaboration in a circular economy. Various frameworks (including the European Union’s Waste Framework Directive) prioritize reusing materials before focusing on recycling them — even offering reuse-based incentives. However, in the P&P sector, reusing material is often impractical, while paper fiber can be recycled on average more than seven times.

The materials issue in the P&P industry is also prominent from the end-product perspective. P&P often directly competes with plastics, especially as it relates to packaging. Using cardboard rather than plastic for bottle carriers impacts the sustainability of the entire value chain, from replacing the fossil fuel feedstock to the comparative ease of paper recycling. Each successful innovation spurs new market growth and reduces the need for unsustainable plastic use.

With these and other factors at the forefront, the P&P sector has much to consider as it positions itself as a leader in sustainability and decarbonization. The key among these considerations is to understand the barriers to decarbonization and how to overcome them.

Understanding the Barriers to Decarbonizing Pulp & Paper

As in all energy-intensive industries, a critical issue for achieving Net Zero is having access to affordable and plentiful green energy. The P&P industry requires both heat and electricity to produce paper products – heat to dry the paper and electricity to run the machines. Heat decarbonization is often the primary pain point.

Large, energy-intensive mills use significant amounts of gas and sometimes coal to fire their long-term assets, as the high-temperature steam and hot air needed are not yet readily available using heat pumps. Biomass boilers using wood chip feedstock and green gases are viable alternatives, but considerations such as cost and availability, make industrial heat a complex problem to solve.

Several issues arise in the effort to decarbonize the European P&P industry while maintaining competitiveness:

• Policy Predictability: Having clear regulations regarding whether biomass and biogas/biomethane will be considered “green” under decarbonization standards like the GHG Protocol, RED, and SBTi can mitigate price uncertainty by providing the predictability needed for investments. It is still unclear when that will be decided. Delaying clarification may slow sector decarbonization, as companies may not want to invest in these renewable solutions until that question is resolved.
• Sourcing Availability: The supply chain for green gases is still limited, but there has been a big push to reduce natural gas dependence through local solutions, such as biogas and biomethane production, for instance through the REPowerEU plan. However, until economies of scale develop – likely after 2030 – the price gap between biogas and natural gas may disincentivize the switch. Hydrogen is the key to future P&P industry decarbonization but will require massive investment over the coming decades.
• Technological Readiness: While the availability of affordable green molecules and electrons is a determining factor, the readiness of companies to integrate those technologies into their production processes must not be overlooked. Energy-intensive production involves large assets that are hard to replace. The ability of a site to decarbonize rests on having fit-to-purpose solutions, ensuring the energy supply and assets match, and safeguarding business continuity.

Next Steps for the Pulp and Paper Industry

The challenges to achieving Net Zero should not be an excuse for 'green stalling'. The first step is to set an ambition and prepare a roadmap suitable to the context or country. At the site level, a decarbonization study is needed to identify the best solutions to tackle the mill’s energy challenges, together with a risk analysis to mitigate commodity and technology uncertainties.

In parallel, and without waiting for a fully-fledged decarbonization strategy, companies could launch an energy efficiency program. Such a program offers immediate savings that can be reinvested in a broader decarbonization plan. And then, along with both strategy preparation and efficiency measures, companies could engage in stakeholder alignment, preparing the entire organization for the shift from natural gas to biomass or biogas, and readying it for the adoption of new procedures.

Current efforts to decarbonize a P&P organization take an integrated approach that includes the following elements:

• Onsite Renewables: Solar PV is a mature solution for carbon reduction but only covers a fraction of energy use and is expensive. If CAPEX is a challenge, one option is power purchase agreements (PPAs), where a renewables developer funds and operates a solar PV array at a company’s site, delivering a steady amount of green energy to that site without the company having to provide CAPEX upfront.
• Fuel Switching: High-temperature forced air is part of the paper manufacturing process. Exhaust from gas turbines has been the method of choice in the past. Removing gas turbines to decarbonize the process, however, would eliminate that source of hot air. Since electrical solutions are not yet fully developed, biomass solutions from wood feedstock, black liquor, or biomethane can potentially provide the necessary levels of heat without using fossil fuels.
• Prioritizing Scope 3: Scope 3 emissions, associated with the forestry industry and logistics in recycling, are gaining attention. The challenge lies in balancing the need for fresh fiber and pulp with the increasing cost of primary materials. Energy efficiency initiatives are underway, with a focus on reducing the reliance on new, primary materials.

Periods of significant transformation bring many uncertainties, as companies seeking to embrace the energy transition know all too well. Familiar concerns about investing in emerging technologies and the scaling of green fuels have been joined by new concerns about energy security and affordability. The events of 2022 illustrated the importance of both reducing demand and ensuring reliable access to affordable energy, a crucial lesson for industrial companies with significant energy needs.

With all the uncertainties to consider, undertaking a holistic decarbonization program is a challenging endeavor. Companies seeking to accelerate their Net Zero transition might be aware of the challenge but may lack the expertise and network of connections to get the job done. Fortunately, they don’t have to do it on their own. Companies that know the value a comprehensive decarbonization program has for their economic success can enlist an external partner with the capabilities to guide decarbonization efforts over the hurdles of strategy and solution design, financing, and contracting processes, to deliver an end-to-end energy solution.