How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk

This research paper, conducted by the World Resources Institute (WRI) and Standard & Poor's Rating Services, analyzes how two potential U.S. federal climate policy scenarios—a market-based cap-and-trade system (the American Power Act) and EPA regulation—would affect the credit risk of 13 energy-intensive chemicals subsectors.

• Under the American Power Act (APA), most large U.S. chemical facilities would be required to hold permits for facilities emitting more than 25,000 tons of CO2 or equivalent greenhouse gas. WRI estimates that 10 of the 13 examined chemicals subsectors would be eligible for free allowance rebates, meaning they would face no net compliance obligations at the subsector level from 2016 through 2033. Only the ethyl alcohol, phosphatic fertilizer, and industrial gas subsectors would likely be ineligible for these rebates.
• The APA's impact on credit risk varies by subsector based on energy inputs and competitive positioning. Large commodity chemical subsectors (such as petrochemicals, plastic materials, and resins) may face higher production costs due to their heavy reliance on natural gas-derived feedstocks, which could weaken credit metrics. Conversely, the industrial gas subsector may face the highest compliance costs relative to its size but is considered to be in the best position to pass those costs to customers.
• At the company level, the APA creates potential for both revenue and cost based on emissions intensity relative to peers. Companies with lower GHG emissions to output ratios than their subsector average can sell or bank excess free allowances for cash. For example, a hypothetical carbon black producer (Company A) with low emissions would see a negligible positive impact of $0.01 to $0.03 per dollar of U.S. sales. In contrast, a hypothetical industrial gas producer (Company B) ineligible for subsidies would face compliance costs of $0.06 to $0.17 per dollar of U.S. sales, potentially deteriorating its profitability and leverage metrics.
• EPA regulation of GHGs is viewed as a distinct scenario from cap-and-trade, with WRI suggesting 2016 as the earliest possible start date for existing facilities. The EPA is likely to consider absolute emissions, reduction potential, cost feasibility, and the remaining useful life of facilities. Specifically, nitric acid and adipic acid production are identified as likely targets for regulation due to their nitrous oxide (N2O) emissions.
• The research identifies three primary credit-related differences between cap-and-trade and EPA regulatory scenarios: cash flow flexibility, compliance-related revenue, and management strategy. Cap-and-trade offers more flexibility between capital expenditure and allowance purchases and allows low-emitters to generate revenue by selling allowances, whereas EPA regulation is expected to be easier to manage within existing operations but lacks these financial opportunities.

APA

World Resources Institute (n.d.). How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk. https://www.wri.org/research/how-us-federal-climate-policy-could-affect-chemicals-credit-risk

Chicago

World Resources Institute. How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk. n.d. https://www.wri.org/research/how-us-federal-climate-policy-could-affect-chemicals-credit-risk.

Wikipedia

{{cite report |author=World Resources Institute |title=How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk |url=https://www.wri.org/research/how-us-federal-climate-policy-could-affect-chemicals-credit-risk |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{worldresourcesinstitutendhow, author = {{World Resources Institute}}, title = {{How U.S. Federal Climate Policy Could Affect Chemicals’ Credit Risk}}, institution = {World Resources Institute}, url = {https://www.wri.org/research/how-us-federal-climate-policy-could-affect-chemicals-credit-risk}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }