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

The report analyzes the potential credit impacts of the American Power Act (APA) and EPA regulations on the U.S. chemicals industry. Under the APA, most subsectors would be eligible for free emissions allowances, mitigating direct compliance costs, though some would face higher production costs due to increased natural gas prices. The study highlights that company-level credit risk varies based on emissions intensity relative to peers, fuel mix, and the ability to pass costs to customers. Compared to EPA regulation, a cap-and-trade system offers more cash flow flexibility and potential revenue from selling excess allowances, but requires more complex management strategies.

• Under the American Power Act (APA), 10 of the 13 examined chemicals subsectors would likely be eligible for free allowance rebates, meaning WRI expects no net compliance obligations for these groups from 2016 through 2033. However, the industrial gas, ethyl alcohol, and phosphatic fertilizer subsectors would not be eligible because they fail to meet thresholds for energy intensity or trade exposure.
• The APA would create divergent financial impacts based on a company's emissions intensity relative to its subsector average. Companies emitting less than their peers could generate revenue by selling or banking excess free allowances, while those with higher emissions would face a cost disadvantage.
• While free allowances mitigate direct compliance costs for many, some commodity chemical subsectors (such as petrochemicals, plastic materials, and resins) could see weakened credit metrics due to higher production costs driven by increased natural gas prices.
• A cap-and-trade system differs from non-market-based EPA regulation in three primary ways: it provides greater cash flow flexibility through the choice between capital expenditure and allowance purchases, allows for compliance-related revenue via allowance sales, and requires more complex management strategies involving carbon market participation.
• Regarding EPA regulation, WRI identifies nitric acid and adipic acid production as likely targets for regulation due to their role as significant sources of nitrous oxide (N2O) emissions.

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} }