Basic Chemicals Special Topic: Chemicals' Dual-Carbon Path Comes into Focus

Essence Securities reiterates 'Outperform-A' on basic chemicals in this special topic on dual-carbon policy. Top-level goals, cutting CO2 per unit of GDP 17% below 2025 by 2030 and lifting non-fossil energy to 25%, are being implemented through coordinated industry and local mechanisms. National carbon-market coverage has expanded from about 40% of China's emissions at launch (power, 2021) to about 60% after steel, cement and aluminum smelting joined in 2025, and should reach roughly 80% once petrochemicals are included, expected in 2027; the sector entered routine emissions reporting in February 2026. Setting allocation benchmarks is complicated by wide carbon-intensity gaps between routes for the same product, such as carbide PVC at 7.83 tCO2/t versus 2.20 for ethylene-based, while requirements that new 'two-high' projects displace equal or greater emissions create a policy-driven capacity ceiling favoring asset-rich leaders. Internalizing carbon costs differentiates routes: phosgene-based PC costs RMB455/t more than non-phosgene routes, recycled polyester carries only 20-30% of virgin fiber's footprint, and natural soda ash holds an RMB84/t advantage over the ammonia-soda process. Suggested names include PetroChina, Sinopec, Rongsheng Petrochemical, Hengli Petrochemical, Baofeng Energy, Hualu Hengsheng and Zhongtai Chemical, with no individual targets; risks span policy timing, CBAM and demand.