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Plastics are an indispensable part of modern society. Compared
with alternative materials, plastics reduce the overall carbon
footprint - both for the durable and no-durable goods we consume
and the packaging used to protect and distribute those goods.
Plastics demand growth has been driven by its value-in-use, as it
represents the best material choice for a wide array of
applications due to its many cost-effective properties. However,
the impact of uncontrolled management of plastics waste after
initial use, which contributes to land, river, and oceanpollution
as well as biological food chain effects, is damaging the public
image of chemicals. It is also fostering an increasing number of
regulatory mandates and policies from consumer product companies
seeking to curb plastics usage. The proposed solutions often do not
consider the viability of other materials solutions and lack a
fundamental understanding of the associated infrastructure
capabilities or needs.
From a waste management standpoint, the chemical industry has
historically focused its attention on technical achievements that
reduce the initial consumption of plastic used to produce and
package products. However, the lack of a more robust and circular
approach by value chain stakeholders has led to a crisis of
plastics pollution, which has become a disruptor for the chemical
industry.
The global scale of the problem is daunting, and the industry's
challenges continue to escalate with global demand growth, which is
fueled by consumer convenience trends and the robust performance
properties of plastics. If overall plastics consumption continues
with the same usage patterns (see Figure 1) plastics waste in
landfills and the environment will grow to over 10.5 billion metric
tons by 2030.
This "plastics paradox" of high value-in-use versus unmanaged
waste has placed plastics and the chemicals industry under intense
public scrutiny. Accumulated plastics waste in oceans from the
uncontrolled release of debris via rivers, particularly in
Southeast Asia, provides a striking visual reminder of damaging
environmental effects. Plastics sustainability is now one of the
top priorities for the chemical industry as it threatens to disrupt
demand and, at the public level, be viewed as an existential threat
that will challenge the industry's social license to operate. The
findings from a recent IHS Markit multi-client study, Plastics
Pathway to Sustainability, exposes four key findings associated
with plastics sustainability and reviews numerous strategic
implications for the plastics value chain.
The potential impact on virgin resin demand is
significant
Near 50% of the virgin demand growth (from 2018 to 2030) for
polyethylene (PE) and polypropylene (PP) is viable for recycle or
displacement for the major demand centers. This represents over 20
million (MM) tons of PE and 20 MM tons of PP). Nearly 20% of
polyvinyl chloride (PVC) virgin demand growth (from 2018 to 2030)
is also viable for recycle or displacement for the major demand
centers. This is occurring at a time when chemicals are
increasingly viewed as a strategic portfolio hedge to plateauing
oil demand. While global demand for fuels is growing at 1% annually
and expected to plateau in about two decades, the demand for
chemicals is growing at a multiple of GDP -3% to 4.5% annually.
While chemicals represent nearly 7% of the refined barrel, by 2030
chemicals may comprise over 14% of the refined barrel. With
chemicals outpacing refining on demand growth and returns on
capital expenditures over the last decade, chemicals represent an
opportunity to balance the diversified product portfolios of oil
and chemical companies and help them manage risk. The additional
uncertainty of future demand growth for plastics adds further
complexity to capacity planning and increases the competitive
hurdles for attracting capital.
Strategic implications of demand risk include the possibility
that diversification from oil to petchems may be less impactful
than currently anticipated. In addition, slower market growth
creates the potential for extended down cycles, and marginal supply
curves flatten with potential lower long-term margins. Moreover,
the demand contribution from developing markets may evolve much
differently than anticipated. Furthermore, sustainability
performance potentially affects entity valuations as well as
available financing.
Policy decision-making occurs at a faster pace but
without validated data
Today, over 60 countries have introduced bans and levies on the
use of plastics. Both the public and private sectors are increasing
efforts to curb consumption and improve management of single-use
plastics. These actions are often driven by limited understanding
of the consequences and available alternatives or the ability of
infrastructure to deliver. The EU directive requires new plastic
products to contain at least 50% recycled materials by 2025 and 75%
by 2035. On May 9, 2018, the American Chemistry Council's (ACC's)
Plastics Division announced goals that commit US plastics resin
producers to recycle or recover all plastic packaging in the US by
2040. The issue represents a mismatch in scale: The problem is at
large scale (e.g., 20 MM tons each for PE or PP), while the scale
of current commercial solutions is orders of magnitude smaller.
Also, the geographic dispersion of the problem is orders of
magnitude larger than chemical industry standards. The EU policy
will require significant investment in physical infrastructure,
with initial estimates in the range of €1.5B per year. ACC's policy
requires development of technology, massive infrastructure, and
social systems.
Technology is not ready for required recycle
volumes
Current mechanical recycling processes have scale and economics
limitations while processes such as chemical recycling are in their
technology development infancy. Waste collection streams and
systems are dispersed with relatively low-input volumes compared
with the requirements needed to achieve economic scale. From a
strategic standpoint, forced regulated solutions have limited
ability to deal with massive plastics volumes without scaled
technology. To be competitive with natural feedstocks, recycle
economics also require logistics efficiency to convert plastics
waste into highquality, prime-equiva-lent, fit-for-use
materials.
The infrastructure is inadequate to address
sustainability policies
Critical infrastructure elements - including collection,
sorting, processing, and end-use application facilities and their
harmonization - remain in early development. In the U.S. in 2016,
50% of PE material purchased for recycle was of unsuitable quality
for further processing. Gaps in supply and end-use demand for
recycle material remain. Current plastics processing technology is
labor-intensive, high-cost mechanical recycling, compared with
thermal and chemical process technology under development. Today,
many collection systems are under economic pressure and are
overwhelmed with waste volumes of all materials. Stakeholders such
as chemical producers, converters, brand owners, retailers, and
waste management companies are confused about their sustainability
responsibilities. System design, mechanisms for consumer social
behavior, and viable value chain economics for recycling continue
to trail demand. The underlying strategic challenge for
participants and stakeholders is how to align waste management
priorities with other societal needs, which differ significantly
among regions. Additionally, while the impact of mechanical
recycled plastics replacing virgin resin is potentially
significant, those volumes fall well short of addressing the
disposition of plastics waste beyond landfill. New application
areas must be developed for mechanically recycled plastics, and the
chemical and thermal recycling infrastructure will play a critical
role.
Participants in the plastics value chain are just beginning to
understand the complex solution options and the related strategic
implications. As a result, we are now seeing the emergence of more
sophisticated and collaborative cross-value chain efforts, compared
with previous ad-hoc, sometimes desperate responses from businesses
and governments. The value chain is moving away from "who is
responsible?" to "what role do I play in collaborations along the
value chain?" Recent good examples of this step-change in approach
by industry participants include the Alliance to End Plastics Waste
and the TerraCycle Loop™ Shopping System.
Much work remains to develop sustainable business and behavioral
models that address this systemic issue, and the call to action
needs to be dramatically expanded. Ad-hoc actions by governments
and corporations to ban plastics could prove costly if policy
makers do not consider whether there are viable, economical
alternatives. They must also carefully balance the prioritization
of plastics waste versus other social needs.
Posted 09 May 2019 by Dewey Johnson, Vice President Global Base Chemicals Insight, IHS Markit and
Robin Waters, Director, Plastics Planning and Analysis, IHS Markit