CHEMICAL LEASING: TOWARDS CHEMICAL-FREE FACTORIES

This article was originally published in Actu-Environnement .

Surprisingly, it’s possible to rent chemicals just like renting a car or office space. In the industrial zone of Antwerp, Belgium, Solvay rents sulfuric acid: it receives the chemical, uses it to dry chlorine, and then returns the used product to its supplier, who recycles it for further use.

Chemical leasing is a business model in which a supplier sells its customer not a chemical product, but the service provided by that product. This service may include metal cleaning, surface treatment, or part painting. The supplier retains ownership of the chemical product, which it provides or leases to its customer.

The supplier no longer invoices its customer based on the quantity of product sold, but on the quantity of service provided: for example, the quantity of surface treated or the number of parts painted. The Dupont chemical group, which manages Volvo’s paint shop, is paid per unit of surface painted, not per quantity of paint used . ¹

However, not all chemicals are suitable for chemical leasing, particularly those used in finished products. Chemical leasing is suitable for products, such as solvents or paints, that are used for processes such as cleaning, coating, degreasing, or painting.

In a traditional model, the supplier is incentivized to sell the largest quantity of products to increase its revenue. With chemical leasing, product consumption becomes a cost factor for the supplier and no longer for the customer. The supplier will therefore seek, this time, to reduce its consumption to increase its profitability. To reduce this consumption, the supplier has several means: designing the most efficient products possible, advising its customers on more efficient product use, or recycling used chemicals in order to reuse them. Chemical leasing is therefore a virtuous model that leads to a reduction in chemical consumption (see figure below).

Reducing chemical consumption has significant economic benefits. By replacing the purchase of cutting oil with its rental in its factories, Renault has reduced the total cost of ownership of these lubricants by 20% ² .

Chemical leasing also offers numerous environmental benefits. On the one hand, it helps reduce resource consumption. In Austria, chemical leasing could reduce the amount of chemicals used by 4,000 companies by 150,000 tonnes annually ^. By charging car manufacturers for the number of parts painted rather than the amount of paint delivered, BASF Coatings has reduced paint consumption per vehicle by ²⁰  %. Chemical leasing also helps reduce waste. Safechem, a subsidiary of the chemical group Dow, for example, has implemented closed-loop solvent management that has reduced waste by 99.5% and pollutant emissions by 98% ^. Chemical leasing is also a great way to comply with European REACH regulations.

Yet, despite such challenges, the adoption of chemical leasing remains anecdotal. In Europe, only Germany ⁶  and Austria ⁷  have assessed its implications for their industries. UNIDO, a United Nations agency, has funded a few pilot projects in emerging countries such as Egypt, Ukraine, and Colombia. Only the United States has significantly adopted, not chemical leasing, but a similar model: chemical management services (CMS). CMS is a business model in which the customer purchases chemical products and associated services: procurement, transportation, inventory monitoring, and end-of-life chemical management. The supplier is paid based on the quality and quantity of services provided to reduce product consumption. The automotive industry (with Ford and GM) and the electronics industry (with Dell) are implementing CMS, relying on a few major suppliers such as Haas Group International and Quaker Chemical.

Changing business models is undoubtedly one of the main obstacles to implementing chemical leasing. The customer must entrust some of their products, processes, and expertise to a supplier they trust. The supplier must develop new areas of expertise, sometimes far removed from their own, such as recycling their products or optimizing their customers’ processes.

While these obstacles should not be underestimated, neither should the benefits of chemical leasing. As the European chemical industry faces stiff competition from the United States and Asia, chemical leasing represents an opportunity that would be a shame to overlook.

¹  Chemical management services in Sweden and Europe: Lessons for the future. Oksana Mont, Pranshu Singhal and Zinaida Fadeeva. Journal of Industrial Ecology. January 2006. 
²  Remaking the industrial economy. McKinsey Quarterly. February 2014. 
³  Chemical leasing – An intelligent and integrated business model with a view to sustainable development in materials management. Thomas Jakl, Reinhard Joas, Rainer Nolte, Rudolf Schott, Andreas Windsperger. Ministry of Environment, Forestry and Water Management. October 2003. 
⁴  Service Strategies for Value Enhancement in the Chemical Industry. Arthur D.Little GmbH. 2004. 
⁵  Chemical product services in the European Union. Institute for prospective technological studies. January 2006. 
⁶  Chemical Leasing as a model for sustainable development with test procedures and quality criteria on the basis of pilot projects in Germany. German Federal Environment Agency, Dessau-Rosslau. March 1, 2010. 
⁷  Chemical leasing – An intelligent and integrated business model with a view to sustainable development in materials management. Thomas Jakl, Reinhard Joas, Rainer Nolte, Rudolf Schott, Andreas Windsperger. Ministry of Environment, Forestry and Water Management. October 2003.