Key Takeaways

In the current wave of industrial decarbonization, the distinction between thermochemical and electrochemical pathways is often framed as a technological choice. In practice, it is more accurately a question of how capital, energy, and infrastructure interact at scale. Investors and operators who have lived through multiple technology cycles tend to converge on this view: industrial chemistry is not always tethered to how favorable a certain reaction is, but rather requires a systems-level view of what scales economically once embedded in the real world.

From both an investor and operator perspective, the recurring challenge is that early-stage technologies are often evaluated at the molecular level of the reaction, while deployment risk emerges at the level of the plant, the site, and the surrounding infrastructure. The thermochemical versus electrochemical distinction is useful precisely because it exposes where those mismatches tend to occur.

In this primer, we’ll go over the technical aspects of both types of chemistry, what changes when scaling from lab bench to pilot plant, and what factors typically drive the economics of each process. From there we’ll highlight some key constraints that often go unnoticed, and wrap up with a discussion of what all this means to an early-stage investor.

Anyone who’s cooked food on a stove is familiar with the concept of thermochemistry. Thermochemical systems use heat as the primary driver of chemical transformation, typically operating at elevated temperatures and pressures to accelerate reactions that don’t happen under human-friendly conditions. In industrial settings, a major feature is that they benefit greatly from economies of scale. As reactors, furnaces, and separation units get larger, capacity grows according to volume (r³) rather than surface area (r²), which allows energy losses and material costs to be spread over much higher throughput. This scaling behavior is one reason thermochemical pathways historically dominate commodity chemicals: once built, they reward size, integration, and continuous operation, making them well suited to centralized production in industrial hubs. At sufficient scale, the high upfront capex pays off with relatively low opex later.

Industrial thermochemical reactors are almost always heated either by burning fossil fuels in a colocated furnace, or by recovering heat from another furnace or exothermic (heat-generating) reaction on the premises. Take the example of steam cracking. Petrochemical feedstock such as naphtha or ethane is fed into a large reactor and heated by a gas-powered furnace. Heat, steam, and the presence of a catalyst “crack” the feedstock molecules into a more useful form. But this kit does not stand alone; it is one component of a massive refinery or chemical plant. The design of that facility includes at least one way to capture the “waste” heat from the cracker furnace and use it elsewhere on the premises for another process, like distillation. Operators routinely point out that a reaction running at 800-900°C inside a well-integrated system can be cheaper, on a per-unit basis, than a milder reaction that sheds energy irreversibly. Thus, high temperature does not automatically equal expensive!

Heat recovery is only one example of the intra-connectedness of a world-scale petrochemical plant. When considered holistically, it becomes clear that these facilities behave less like collections of discrete units and more like entire organisms. Upstream and downstream processes are interdependent, sharing utilities, intermediates, and constraints. Heat introduced at one point is reused downstream; exothermic reactions are treated as energy sources rather than losses; separations are highly optimized around available temperature and pressure gradients. A disruption in one area can ripple across the site, even if the other units are technically sound. This deep integration is a core economic strength of thermochemical systems, but it also explains why they resist piecemeal modification.

Operators who have built and run large chemical assets tend to emphasize the same point early in any discussion: the reactor is rarely the hard part. The difficulty lies in the balance of plant (BoP) that surrounds it – the heat recovery, separations, compression, materials handling, and neighboring infrastructure that inform the economics of feedstock and downstream product logistics. In practice, these surrounding systems are where failures originate. Unplanned downtime is more often triggered by materials degradation, utility disturbances, or logistics interruptions than by anything happening inside the reactor itself. A thinning section of metal discovered during inspection, a fouled exchanger, or a leaky cooling system can force shutdowns that erase months’ worth of incremental optimization. This is why operators evaluate new technologies through the lens of failure propagation, not just steady-state performance. From an investor’s perspective, this highlights overall reliability as the most desirable characteristic of thermochemistry, rather than absolute efficiency in a single part of the system.

Deep systems integration is one reason why high-temperature processes persist even when lower-temperature alternatives exist on paper. Another reason is that decision-making inside these assets is structured around a clear hierarchy. Safety and reliability are prerequisites; optimization comes later. Small efficiency gains are welcome, but only insofar as they do not introduce new instability. A modest increase in yield is never worth a higher probability of human injury or unplanned shutdown. As a result, operators consistently favor processes whose behavior under stress is well understood, even if they appear harsher or less elegant than newer alternatives.

From an investor standpoint, two crucial insights flow from the above discussion. First, absolute safety and reliability are non-negotiable requirements before any new technology is even allowed to be considered. Any proposals that require materials or methods bearing incrementally higher risk than what is already known are dead on arrival. Second, assets with high upfront capex but durable margins once operational are preferred, assuming feedstock access and utilization remain stable.

That assumption of stability carries more weight than it may initially appear to. Feedstock continuity and downstream utilization are operational constraints that shape daily decision-making. Disruptions in either direction can quickly undermine economics, regardless of how efficient the core process is. This is one reason thermochemical assets are typically embedded in industrial hubs: proximity reduces exposure to logistics risk and supports the stability that durable margins require.

To that point, let us consider a world-scale refinery. First the crude oil and/or natural gas used as feedstock must be transported in from its source. The refinery then processes this feedstock into many different products: from gasoline and jet fuel, to the raw molecules for plastics, to the residue that becomes asphalt. Each of these products has its own offtaker and its own safety considerations for transport. It is therefore advantageous for the refinery to be located near the downstream manufacturers, to minimize both transport costs and the risk of hazardous discharges like the 2013 spill of vinyl chloride in Ohio. A particularly harmful toxic spill and the subsequent responsibility for cleanup (or possibly lawsuits) can wipe out any profit from trading in a narrow-margin commodity chemical.

Historically, these patterns have repeated across commodity chemicals. Steam cracking, ammonia synthesis, and most polymerizations all initially converged on thermochemical architectures because the reactions were commercialized in the early 1900s, but they stuck around because they scaled predictably and integrated well with available infrastructure. Industrial systems tend to lock in architectures that minimize total system cost, not absolute severity of reaction conditions.

In contrast to thermochemical processes, where the input energy comes from heat, electrochemistry (e-chem) uses electrons as the energy source. At a very high level, the unit of an e-chem process is the cell: a container that separates two chemically distinct areas, yet allows for limited transfer across the gap. When a voltage is applied across these two areas, chemical reactions occur. (The inverse situation, where chemical reactions generate a voltage, is how you make a battery.) A “good” e-chem process needs the smallest possible voltage to perform a very specific reaction as fast as possible. Thus, when evaluating an e-chem technology, some key figures of merit are the following:

There are often tradeoffs between these qualities, e.g., a higher overpotential may drive faster kinetics. Where the optimal reaction conditions lie depends on the specific chemistry and the demands of the customer. To make good decisions, the investor must understand these factors.

When evaluating an e-chem reaction it is important to keep track of the number of electrons needed per unit of chemical change. This is a physical limit to any e-chem process. A good rule of thumb is that a stronger chemical bond requires more energy to make chemistry happen. Consider carbon dioxide (CO₂), which has very strong bonds between atoms. To make ethylene (C₂H₄) from CO₂ and hydrogen, so many electrons are needed – twelve per molecule of ethylene – and the market price of the product is so low that the cost of electricity eliminates any profit. This is why economically feasible ethylene production by CO₂ electrolysis (“breaking with electrons”) is a tantalizing but as-yet-unsolved problem.

Additionally, it is important to note that electrochemical systems are more often custom-built than thermochemical systems are. You can heat up most liquid mixtures in a big vessel bought off the shelf, but novel e-chem cells may have unique membranes or configurations that have to be made in-house. This necessarily drives higher capex, especially in early stages. An e-chem deal is made more attractive when the reaction can be conducted in standard, mass-produced cells.

Electrochemical pathways appeal strongly to investors because they promise precision, modularity, and alignment with an increasingly electrified energy system. That appeal is well-founded, but it is often incomplete. Electrification does not automatically simplify the operational problem; it shifts it. Control at the reaction level must be matched by control at the infrastructure level. Power availability, redundancy, and quality become first-order concerns. A system that performs beautifully under ideal electrical conditions may struggle if it introduces new sensitivity to disturbances that the site cannot easily absorb. This means that onsite battery storage is likely necessary, to maintain a steady flow of electricity to the cell.

Electrochemical systems excel where control matters more than throughput, and where the advantages of distributed deployment offset higher project capex. On-site hydrogen production via water electrolysis is a frequently cited example. Producing hydrogen directly at a refinery or chemical plant that uses it avoids the complexity of hydrogen transport and storage, making the levelized cost of hydrogen lower in the distributed case when compared to centralized production. In these cases, the value proposition is not cheap hydrogen in the abstract, but hydrogen delivered in the right place, at the right time, with acceptable reliability. Currently that need is served by onsite steam methane reforming, a thermochemical process that innovators are trying to replace with electrolysis.

From an operating perspective, electrochemical systems can also offer faster ramp-up and shutdown, finer control over reaction conditions, and, in some cases, cleaner product streams than are yielded by thermochemical systems. These attributes matter in specialty chemicals and applications where demand is intermittent or the products are delicate.

However, electrochemical systems are unforgiving with respect to energy economics. Electricity is, in almost every case, the dominant operating cost, and losses at the electrode level – overpotential, resistance, degradation, etc. – convert directly into dollars. Unlike heat in a thermochemical system, electrical losses in an e-chem cell are nigh-impossible to recover and reuse. Operators who have modeled or piloted electrochemical systems consistently emphasize that small deviations in power price assumptions can overwhelm gains from improved materials or design. For investors, this introduces exposure not only to technical execution risk but to long-term electricity market dynamics.

Despite these limitations, there are a handful of industrial electrochemical processes currently practiced at scale. Chief among these is the chloralkali process. Chloralkali is the electrolysis of sodium chloride (NaCl, a.k.a. table salt) into elemental chlorine and sodium hydroxide (NaOH), both critical upstream chemicals for industry. Other e-chem processes like electrowinning and electrometallurgy are prevalent in the supply chains of certain metals. For example, in copper production, copper-rich solution is extracted from ore via heap leaching, and electrowinning is used to reduce the atoms from their soluble ionic form into pure metal sheets.

Both electrowinning and the chloralkali process are done at large (megatons/year) scale, though the facilities are usually not as physically massive as petrochemical refineries. At bottom, these chemical transformations are done with electricity because they cannot be done thermochemically with anything close to sensible economics – or, indeed, at all. When presented with an e-chem deal, the shrewd investor will examine whether the reaction in question truly needs to be done this way, or if electrifying a furnace would provide more value per electron.

One of the clearest divergences between the two pathways appears in capital scaling behavior, a point that comes up repeatedly in discussions with both industrial investors and plant operators. Thermochemical systems benefit more than e-chem from economies of scale, but only within defined materials regimes. Those regimes are enforced not only by design codes, but also by maintenance reality. Large plants operate in a constant state of inspection and repair, managing corrosion, erosion, and fatigue across thousands of components. Scaling thermochemical systems successfully depends as much on inspection discipline and materials management as on process design. This operational maturity is difficult to replicate outside established industrial contexts.

Reaction conditions drive capex in a stepwise fashion. The harsher the environment – whether in terms of temperature, pressure, acidity, or some combination – the more expensive the materials needed to safely contain the reaction. For example, a higher grade of aluminum metal is needed for an airplane fuselage than a soda can, because of the different operating conditions under which each product functions. Similarly, in thermochemical systems, capital costs increase sharply when operating conditions cross thresholds that require more exotic alloys or stricter safety systems. Experienced operators are acutely aware of these cliffs, and design processes to avoid them whenever possible. If the reaction conditions border on such a cliff, a modest reduction in pressure or temperature can have an outsized impact on capex by keeping equipment within cheaper materials classes.

Electrochemical systems exhibit a slightly different pattern. As electrochemical systems grow, complexity often migrates from the reactor into the balance of plant. Power electronics, cooling systems, controls, and interconnections accumulate, and coordination becomes more demanding. At sufficient scale, the system can begin to resemble the tightly coupled architectures it was meant to avoid. Modularity remains an advantage, but it is not immune to integration challenges.

Capital costs of e-chem scale more rapidly with capacity because throughput is tied to electrode area and stack count, rather than reactor volume. This can make early deployments seem more accessible and can offer the false promise of continued simplicity at scale. As systems grow, however, the accumulation of balance-of-plant equipment can wipe out modular advantages. Operators who have attempted to scale these systems note that complexity increases faster than anticipated, even when individual modules perform as expected.

Lastly, we must consider the robustness of the reactor. Processes with a single manageable feed and a stable product are far more tolerable to sensitive equipment than those producing multiple high-pressure or highly reactive streams. This suggests that electrochemical and other modular approaches may be better suited to specific, selective downstream conversion steps than to replacing upstream platforms that are highly integrated, high-throughput, or perform messy chemistry.

From an operating standpoint, an important distinction between thermochemical and electrochemical systems is how energy losses propagate through the process. As discussed above, in thermochemical plants, energy losses are often recoverable. Heat produced at one step can frequently be reused downstream, particularly in large, intimately integrated sites. Operators design plants with this in mind, treating heat as a circulating resource rather than a consumable input. This saves a lot of money in fuel costs. Note, however, that the fuel can be so cheap that an efficiency of ~80% is accepted.

In electrochemical systems, losses are typically final. Overpotential losses appear as low-quality heat at the electrode interface and are rarely reintegrated into the process in a meaningful way, unless you are already performing high-temperature electrolysis. This heat can even interfere with the reaction conditions, meaning that additional cooling kit is sometimes needed, which draws additional (expensive) power. As a result, electrical inefficiencies compound directly into operating costs. This reality explains why electrochemical pathways tend to be competitive only at low electricity prices.

Investors who have underwritten both types of assets tend to view this as a key risk differentiator. Massively scaled thermochemical systems tend to be more forgiving of energy price volatility, particularly when sited in areas with stable sources of fossil fuels. E-chem systems require either structurally low-cost power or a willingness to absorb margin variability. This reinforces the point that e-chem is more economically suited to producing high-margin fine chemicals rather than commodity petrochemicals.

Electricity is not unique in its price volatility, however. Thermochemistry, particularly petroleum refining, is deeply dependent on the prices of oil and/or natural gas. Consequently, thermochemical processes can be very sensitive to geopolitical factors that affect these prices. When Russia invaded Ukraine in 2022, spiking natural gas prices in Europe drove energy costs through the roof and affected business for chemical manufacturers there. When oil prices increase due to political tensions in the Middle East, refineries feel it. To make matters more complicated, petroleum refineries are often owned and operated by the oil producers themselves. The detailed operating economics of the ExxonMobils and Aramcos of the world are beyond the scope of this article; suffice to note that there are multiple drivers at play.

One might think that a long-term sales contract for methane or electrons could mitigate some of the volatility risk. In some cases, a power purchase agreement (PPA) does lock in a specific electricity price for years at a time. These PPAs can even support construction of new solar or wind installations by guaranteeing offtake. Natural gas contracts are often more complicated. Long-term contracts typically build in some price stability, but rarely state the equivalent of “the buyer will pay $X per unit for ten years.” We won’t go down the rabbit hole of natural gas purchase agreements today. The main takeaway is that long-term purchase agreements are not a silver bullet to solve the energy price volatility problem.

With all that in mind, a useful way to compare cost structures is to note that thermochemical economics are often driven by feedstock spreads and utilization rates, while electrochemical economics are driven by power cost. In both cases, though, small improvements are easily overwhelmed by disruptions in uptime. The most consequential cost driver at scale is often the one least visible in early-stage models: the frequency and severity of unplanned events. You can have the most elegant process in the world, but if a rogue bird fries your site’s main transformer, you’re going to hemorrhage money until it’s fixed. As such, robustness of both the core reactor and surrounding system is highly valued for any chemical deal.

Another recurring theme from both operators and investors is that infrastructure compatibility often determines success more than technical merit. As discussed above, thermochemical processes generally integrate well into existing industrial clusters. Feedstock logistics, utilities, permitting frameworks, and skilled labor are already in place. This lowers deployment friction and favors retrofit or brownfield expansion strategies. For investors, this translates into JV opportunities and clearer exit pathways through acquisition by incumbents.

Integration of new thermochemical processes includes not only physical assets, but people and procedures. Operators, inspectors, and maintenance teams accumulate deep, site-specific knowledge over decades. Technologies that align with existing workflows and failure expectations face far less resistance than those that require operators to relearn how risk manifests. Infrastructure compatibility is as much organizational as it is technical.

Electrochemical systems, particularly at scale, can also encounter infrastructure bottlenecks unrelated to chemistry. Grid interconnection, transformer capacity, and power quality become binding constraints. In some cases, projects stall because the surrounding energy system cannot support it at reasonable cost. This pattern is not new; historically successful electrochemical industries, such as aluminum smelting, clustered around cheap, abundant electricity for exactly this reason. The same logic applies today, even if the sources of electricity have changed.

Taken together, these observations suggest relatively clear regimes of advantage.

Thermochemical pathways tend to win in high-volume, price-sensitive markets – such as commodity chemicals – where integration and scale dominate economics. Incremental improvements applied at large scale can generate significant value, and infrastructure compatibility reduces deployment risk.

Electrochemical pathways tend to win where decentralization, control, or feasibility outweigh pure cost minimization. They are strongest when they enable something thermochemistry cannot do easily, rather than when they merely replicate existing processes with a different energy carrier. Low-volume, high-value specialty chemicals are great targets.

Always note that there can be exceptions to these rules – but when an entrepreneur comes to you claiming they’ve invented one, it’s wise to diligence that claim very carefully.

For investors and LPs, the thermochemical versus electrochemical distinction is less about picking winning technology and more about evaluating alignment to industrial application. Choosing electrochemical technologies as portfolio companies implicitly assumes favorable long-term electricity economics and successful modular scaling. Betting on thermochemical innovation assumes access to large markets and incumbent partners (or banks) willing to deploy capital at scale.

Neither assumption is unreasonable. Both require discipline in diligence and clarity about time horizon, risk tolerance, and exit strategy. The consistent message from experienced investors and operators is that industrial decarbonization rewards realism. Technologies that acknowledge system constraints, rather than attempting to wish them away, tend to progress more slowly, but with fewer surprises. In risk-averse industries like petrochemicals, this is the only way to progress at all. Note that the value of grounding this discussion in expert experience is not to privilege incumbency or dismiss new ideas. It is to recognize patterns that have repeated across cycles of industrial change.

Thermochemical and electrochemical pathways are not competing philosophies. They are tools shaped by energy systems, infrastructure, and capital markets. Investors who internalize where each tool fits are better positioned to allocate capital in ways that scale beyond the pilot plant. In that sense, the most important takeaway is not which pathway is favored today, but why those preferences exist and under what conditions they are likely to change.

For the climate tech investor with aspirations of impact, decarbonizing the chemicals industry is less about whether electrification will happen, and more about how to get there. Seeking out pathways to change the deeply conservative incumbent players requires the ambitious investor to learn and respect the rules that have governed the game for decades, and more importantly, why they’ve stuck around so long. As sexy as rapid improvements and system disruptions are, massive shakeups with lasting effects are rare for a reason. When evaluating chemistry deals, never stop at “does this break the laws of physics?” Always seek to understand the integrations, limitations, and safety risks that develop at scale. Without these fundamentals accounted for, not even the most astounding technological breakthrough will have a chance at adoption.

For a deeper dive into pathways for electrifying the chemicals industry, check out this RMI report.

Dr. Micha Ben-Naim, Ph.D. (electrochemical engineering), Materials Engineer at Apple; formerly Investor at Clean Energy Ventures

Catherine Huyett, Senior Associate at RMI; formerly Process Engineering Supervisor at ExxonMobil

Dr. Joshua Speros, Ph.D. (chemistry), Investment Manager at BASF Venture Capital

Opinions expressed here belong solely to us and do not reflect the views of our employers. No AI was used in researching or writing this article. Republished with permission.