Ecological and economic profile of the caustic-chlorine industry

There are broadly two categories of industries. Explained simply, one makes the final product the way we see them on the shelves and one supplies the raw material or intermediate product to make the final products. The manufacturing industry depends on the intermediary industry. The manufacturing industry is at the forefront, normally facing the brunt for any environmental pollution while the intermediary industry remains obscure from the public gaze.

That is exactly why the third rating of the Green Rating Project (GRP) is significant. This time, GRP focuses on the caustic-chlorine industry of India — a key contributor to the country’s economy as well as pollution. What makes it worse is the fact that the caustic-chlorine industry has no control over the end use of the products it manufactures.

Prior to rating the caustic and chlorine sector, GRP had rated the pulp and paper sector where pollution peaked during production while for the automobile sector, pollution was maximum during the stage of product usage. The rating of the caustic-chlorine sector is unique because the issues of concern here relate to:

The output at the end of the production process – chlorine and caustic soda – that are used extensively by industries to make products like pesticides and organo-chlorine that are highly detrimental to the environment.

The utilisation, storage and transportation of the products. For example, storage of large amount of chlorine is similar to a time bomb, which if explodes, will kill all living organism within its sphere of influence.

Deadly mercury pollution and contamination arising due to emissions of mercury into air, water and land. The fact that an industrial disaster that occurred 50 years ago continues to haunt the sector and has laid the basis for a totally new environmental framework indicates the potential environmental danger associated with the sector. We are referring to the infamous Minamata tragedy where mercury was dumped into the sea by a Japanese chemical company leading to its toxic contamination (see box: Liquid death).

Another issue that has considerably impacted the environmental trends of the Indian caustic-chlorine industry has been the influence of the global market on the Indian market. A situation has been created for the Indian industry, where on one hand, it has to deal with chlorine, that is neither storage nor disposal friendly and on the other hand, it has to face a glut of caustic soda in the market, because of dumping of caustic soda by China and the countries of the Gulf region.

2.1 Industrial relevance of the caustic-chlorine industry

The chemical industry in India is possibly the best example to study the process of industrialisation. The basic inorganic and organic chemicals produced in the chemical industry provide the building blocks for several downstream industries.

Caustic soda and chlorine - one of the most important inorganic chemicals - are used by almost all industries for one thing or the other. The importance of the sector can be gauged by the fact that caustic-chlorine industry is among the twenty largest chemical industries in the world. Products made from caustic soda and chlorine are used everyday by people and they have become an integral part of our lifestyle (see table 2.1).

In India, caustic soda is the principal product of the industry and chlorine is treated as a by product of the industry, though the global caustic-chlorine industry is driven by chlorine. For an Indian caustic-chlorine industry to be financially viable, caustic soda has to realise more than 65 per cent of the cost, as chlorine prices are low. But, in the past few years, chlorine has started getting importance as a principal intermediate material in the manufacture of PVC.

In India, caustic soda is primarily used in the manufacture of pulp and paper, detergents, viscose, aluminium, petroleum refining, metal cleaning etc. Paper and pulp sector followed by humanmade viscose fibres and alumina accounts for the major chunk of caustic consumption (see graph 2.1).

Global consumption pattern of caustic soda differs from that of India. Globally, chemicals account for 40 per cent of the total consumption followed by paper and pulp with 18 per cent, alumina with 8 per cent, soap and detergents with 7 per cent and humanmade fibres with 7 per cent. The rest 20 per cent is distributed among other uses (see graph 2.2).

In the US, the largest user of caustic soda is the organic chemical industry (30 per cent), and the inorganic chemical industry (20 per cent). The pulp and paper industry uses about 20 per cent of the US caustic soda production for pulping wood chips, and other process. In Europe, the chemical industry is the major consumer of caustic soda followed by the paper industry. Other users are aluminium industry.

Similar to caustic soda consumption pattern, pulp and paper sector is one of the major consumer of chlorine in India. However, it is in HCl production that maximum amount of chlorine is consumed in India (see graph: 2.3). In recent times, the use of chlorine in PVC manufacturing has also increased and currently about 11 per cent of the chlorine is consumed by PVC sector. In recent years India has also started to export substantial quantity of chlorine based products.

Globally, the majority of chlorine production is used in the manufacturing of organic chemicals including vinyl chloride monomer, ethylene dichloride, glycerine, glycols, chlorinated solvents, and chlorinated methanes. Vinyl chloride, which is used in the production of polyvinyl chloride (PVC) and many other organic chemicals, accounts for one-third of the total chlorine production (see graph 2.4). The other major consumers are pulp and paper industry, other inorganic chemicals, disinfection treatment of water and the production of hypochlorites. Globally, more than two-thirds of all chlorine is consumed in the same manufacturing plant in the production of other chemical intermediates, though in India two-thirds of all chlorine is sold.

Graph 2.1 INDIAN DEMAND PATTERN OF CAUSTIC SODA (in percentage)	Graph 2.2 GLOBAL CONSUMPTION PATTERN OF CAUSTIC  SODA (in percentage)
Source: CMIE Report, 2000-2001.	Source: Indianfoline, reports, Chlor-alkali industry.

Globally, the caustic-chlorine industry is driven by the demand-supply of chlorine and not caustic soda. Across the world, demand for chlorine is higher than that of caustic soda, which is considered a by-product.

The world production of caustic soda is estimated to be around 45 million tonnes per year. The global production of chlorine is in tune of 40 million tonnes. The global installed capacity of caustic soda in 2001 was about 54.4 million tonnes while for chlorine, it was about 48 million tonnes.

It is estimated that 65 per cent of the world’s caustic-chlorine industry is concentrated in three regions; North America, Western Europe and Japan. Out of this, the share of US is about 30 per cent, the EU accounts for about 25 per cent and Japan’s share is about 10 per cent.

The US is the largest consumer and is also a net importer of caustic soda, whereas China and Saudi Arabia are the net exporters. The forecast for the global demand for both chlorine and caustic predicts an increase although this would mainly be in Latin America and Asia. Between 1997-2002, the global capacity of the caustic-chlorine industry is likely to increase by around 6.6 million tonnes per year, largely driven by strong growth projections of PVC in developing countries.

Globally, the economic impact of chlorine is very large. It affects nearly every industry in one way or the other. For instance, PVC is used in automobile interiors, construction and nearly every business uses chlorine-bleached paper. According to one estimate, globally the chlorine industry accounts for nearly $71 billion in sales. The chlorine sector provides a $2.9 billion trade surplus for US and affects an estimated 40 per cent of the total gross domestic product in US.
 

Graph: 2.4 GLOBAL CONSUMPTION OF CHLORINE (in percentage)	Graph: 2.3 CHLORINE DEMAND IN INDIA – VARIOUS SEGMENTS
Source: Indiainfoline, sector reports, Chlor-alkali industry.	Source: CMIE Report, 2000-2001.

The US is self sufficient in caustic production. Europe is approximately in balance in chlorine and has traditionally been the world’s second largest exporter of caustic soda; currently it is a net importer. Australia and South-East Asia are the main importing areas. New capacity in the Middle East and South-East Asia may upset these traditional trade patterns. While globally, the chlorine growth may average 2-3 per cent per year over the next 10 years, it is forecast to be less than 1 per cent per year in Europe and 3-4 per cent per year in India.

2.2 The Indian caustic-chlorine sector - the economic challenge
In the last few years, the Indian caustic soda companies have not done well financially. Over-capacity and cheaper imports have resulted in a glut of caustic soda in the domestic market. This can be seen from the fall in capacity utilisation over the years (see table 2.2). Things have improved since 2001 due to the revival of the paper industry. As is the case with most commodity-based industries, this industry too is cyclical in nature. In recent times the domestic industry is also facing an over-capacity problem. Five large-scale caustic soda units have come up since 1997 with companies like Reliance entering this sector. Gujarat Alkalies & Chemicals Ltd (GACL) is the biggest producer of the sector.

2.2.1 Influence of global politics on Indian industry
The favourable economics of production in the US and Gulf (cheap electricity, salt and ethylene) make it possible for the US to export ethylene dichloride (EDC), which is the basic raw material for making PVC, and the Gulf countries to export caustic soda at attractive prices. The US is the largest exporter of EDC followed by Europe. The main importing areas are Australia (alkali for the alumina industry) and South-East Asia (EDC and caustic).
 

The market conditions are such that caustic soda is in demand in India while chlorine is not; while globally the industry requires more chlorine than caustic soda. Though Indian companies have excess chlorine, they cannot export it simply because of the major hazards associated with transportation of chlorine. Chlorine also finds a place in the list of toxic and hazardous substances banned for transnational transportation under the Basel Convention on hazardous wastes. As a result, India is faced with a double edged sword – on one hand, it has a growing chlorine stock that it cannot dispose off and on the other hand, the dumping of caustic soda is forcing the sector to compete with low international prices. This is unviable for the sector as its production costs are high.

As mentioned earlier, the Indian caustic-chlorine industry is highly influenced by the global manufacturing and market conditions. The reasons that make it difficult for the industry to break the existing shackles and face the onslaught of foreign dumping are the following:

Sector still dependent on imported technology
Though the sector is moving towards a cleaner technology (i.e. membrane cell technology), the country is not equipped to provide this technology indigenously. The sector is dependent on imports for even replacement of cell consumables, which is very expensive.

In addition, there is a high import duty on getting membranes. Though the import duty for new membrane cell plants was as high as 25 per cent in 1997-1998, it has been brought down to 15 per cent in 1999-2000. However, spares for repair including replacement of worn out membranes still attracts 30 per cent import duty.

These factors have made the conversion to membrane technology an unviable option and hence most of the companies who have converted to membrane are not doing well financially.

Differential power tariffs
The sector is affected by the difference in energy costs in India and abroad. Energy consumption is about 70 per cent of the cost of making chlorine and caustic soda in India. Compared to international power tariff levels of US 2 cents per kilowatt, current tariffs in India are close to 8-9 cents per kilowatt. In addition, the power supply is highly unreliable with frequent fluctuation resulting in lower operational efficiencies and higher input costs.

Lowering of custom duty on imports of caustic soda led to glut in Indian market
The industry is against the reduction in customs duty on imports of caustic soda. As of 1996-1997, the lower customs duty opened the floodgates for foreign imports as a result of which the expanding PVC sector started shipping in chlorine derived EDC from the Arabian Gulf and Gulf of Mexico, where energy prices were lower. Other countries like France and Japan were also found dumping caustic soda at a very low price in Indian market resulting in a glut. This resulted in considerable increase in imports in 1997-1998 and 1998-1999 (see table 2.3).

The sector had made several representations to the government for levying anti dumping taxes on these countries. As a result, government introduced an anti-dumping duty on imports for caustic soda. The anti-dumping duty levied on manufacturers from Japan is US$ 319.4 per tonne of caustic soda while it is US$ 309.4 for French exporters and US$ 266.9 per tonne of caustic soda for Saudi Arabia.

The sector is now pushing for stopping all imports by making it mandatory for Indian companies like NALCO to use domestic products.

2.2.2 The future of the Indian caustic-chlorine industry
The co-production of chlorine and sodium hydroxide in fixed proportions, 1.128 tonnes of caustic (as 100 per cent NaOH) per tonne of chlorine produced, has always been a problem for the caustic-chlorine industry. Both products are used for very different end uses with differing market dynamics and it is only by rare chance that demand for the two coincides. Depending on demand for which product is dominant, either can be regarded as a by-product. The price then varies accordingly. Price fluctuations can be extreme: in the spot market in cases of oversupply, caustic prices variation can be as low as US$ 20-30 per tonne of caustic soda whereas, in short supply, prices can be US$ 300 and higher per tonne of caustic soda.

Overall, with caustic soda being excess in the major producing countries, the Indian market is likely to be flooded with cheap caustic soda imports making it difficult for the Indian companies to compete with global players on price. In addition, the existing excess capacity in the Indian industry further floods the market with caustic soda. This, coupled with increased cost of production due to increase in power cost, will affect the performance of existing players adversely in coming future.

Paper and pulp, man-made fibres, soaps and alumina are the major user sectors of caustic soda. Together they account for more than 80 per cent of the domestic demand. The paper and pulp sector has been growing at the rate of around 6 per cent per annum in volume terms. The soap industry is expected to grow at the rate of around 9-10 per cent per annum. The demand for caustic soda will grow from this industry. Caustic soda is used in the conversion of bauxite into alumina, though the demand from this sector is sluggish. The demand from humanmade fibre industry has slowed down as the sector itself is growing at a pace of 6 per cent per annum. Therefore, the overall demand for caustic soda is expected to grow at a rate of 6-7 per cent per annum in the future. The domestic industry can also grow at this rate only if it is able to compete with the cheap imports. Survival is going to be hard even for the most efficient companies.

According to financial accounting definition, the responsibility of a company ends at the physical boundary of the company. If one uses this definition, then the environmental challenges facing the caustic-chlorine industry is rather manageable. It just has to get rid of the mercury cell technology.

However, if one considers the definition of boundary as per environmental accounting, wherein the boundary is defined as the environmental impact of the company’s processes and products right from sourcing of raw material to the final disposal of the product, the environmental challenges that caustic-chlorine industry faces, is as big as it can ever get for a industrial sector (see table 2.4). In this case, the caustic-chlorine industry will have to take responsibility for the environmental impact of not only the production plant, but also the final products made from the products it produces (mainly caustic soda and chlorine).

2.3.1 Range of issues involved in the caustic-chlorine industry
The sheer range of issues related to the caustic-chlorine industry demand that the environmental impact study of the sector be done in two separate segments. Accordingly, the division has been done as follows:

Environmental impact from the production plant of caustic-chlorine industry; and,
Environmental impact of the products of caustic-chlorine sector once it leaves the plant premises.

Environmental performance of production plant
 

The vulnerability and dangers of mercury losses during the production process and leakage of chlorine during process and from storage is a constant nightmare to both the industry and environmentalists.  

However, two environmental disasters, Minamata in Japan and the oleum gas leak in Delhi alone (see box: Forewarned but not forearmed) have pushed industry to clean up its act at the production plant.

Today, the level of environment management that one sees in the Indian caustic-chlorine industry is nothing less than the global best. The sector has slowly moved away from the toxic mercury cell process and more than 70 per cent of the sector uses the best available membrane cell technology at their production plant. (see box: Moving towards cleaner technology) Compared to Europe and the US, where more companies are using the polluting mercury cell and diaphragm cell technology respectively, the effort of the Indian caustic-chlorine sector in moving towards membrane cell technology is truly commendable. Even at the production plant, the performance of Indian caustic-chlorine sector is more or less comparable to the global best performance (except in mercury emission). The energy consumed by Indian caustic-chlorine industry is probably the least in the world and their consumption efficiency too rivals the global best performance. In addition, to make sure that their eco-friendliness is recognised, they have obtained internationally acknowledged certifications for their environment, health and safety performance. Out of all industrial sectors of India, the percentage of total companies having ISO 14001 for environment and ISO 18001 for health and safety is probably the maximum in the Indian caustic-chlorine industry. However, the biggest challenge that the sector faces is the reduction in mercury pollution. Currently, Indian companies consume as much as 50 times more mercury than a European mill and this is the difference that Indian companies have to eliminate.

Environmental performance of the products
The ultimate use of chlorine is not under the control of the caustic-chlorine industry. The downstream industry makes environmentally damaging products like plastics, pesticides and organo-chlorine from chlorine. Serious questions of adverse health and environmental effects of chlorine and chlorinated compounds have been raised.

Central to the case against chlorine is the contention that chlorinated substances are, as a group, health and environmental hazards. Many chlorinated compounds do show up on lists of toxic substances developed by various government agencies. Chlorinated organic compounds, or ‘organochlorines,’ are toxic, bioaccumulative and the cause of problems such as cancer, immune suppression, birth defects, fertility problems and endocrine disruption. Dioxin - a chlorinated substance - is currently being studied by the United States Environmental Protection Agency as being the culprit in a variety of health and environmental problems. Other chlorinated compounds, such as CFCs are ozone depleters and are already being phased out. The good technical properties of chlorine have actually given it a bad reputation: chlorine has strong binding properties and is a building block in several chemicals that do not break down easily, like PCB and CFC.

In the past few years, numerous groups from industry, government and NGOs have formed to explore the health and environmental issues associated with chlorine use. Some have issued calls to phase out chlorinated compounds, while others have called for further study.

The chlorine controversy is only likely to snowball with increase in scientific research on the issues. Hopefully, the decisions affecting chlorine will be based on rational science and risk assessment, resulting in a better quality of life.