ESG focus: Plastic Recycling – Lay Of The Land, Part 1

ESG Focus | Mar 25 2020

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Plastic recycling is preparing for a golden decade as the fourth industrial revolution, the shift to a circular economy, climate change and global regulation conspire to drastically increase demand.

ESG focus: Plastic Recycling - Lay Of The Land, Part 1

With the exception of this two-part Introduction, this four-part series of articles focuses mainly on fossil-fuel-based plastic recycling over bioplastics because the bulk of activity will occur in the petroleum-based polymer market in the near term given it is the best prepared and offers the most immediate solution to a pressing problem. Bioplastics will be examined in a separate article.

-Plastic recycling at the forefront of shift to circular economy
-Petrochemical polymers have the jump on bioplastics as big oil muscles in
-Government subsidies and regulations will guide the market

By Sarah Mills

Introduction

Plastic recycling represents the jump-off point for the world’s shift to a sustainable fourth industrial revolution - the circular economy. 

It is being given priority as a matter of global urgency, given the impact of single-use plastic on ocean food chains and human health.  

Authorities, not-for-profits, scientists, businesses and investors are diverting funds to the endeavour, heralding huge disruption for the recycling, waste management and plastic industries: and presenting huge opportunities and risks for investors.

As The Guardian points out, humanity’s impact on the Earth in the past century has been so overwhelming, and plastic and other pollutants so prevalent and permanent, that geologists recommend a new geological epoch be declared – the Anthropocene.

The plastic industry appears unstoppable

Estimates on the size of the global plastic market, the raw material for recycling, vary widely from as low as US$0.4bn to as high as US$1.5trn, and the industry contributes 3% to the world’s economy. 

The World Bank estimated the global economy would tip US$89trn in 2019, which puts plastic’s contribution (it affects many industries) at roughly $2.7trn. High stakes.

The market is expected to grow 40% by 2030, according to The Guardian, and at a compound average growth rate of 3.5% out to 2026, according to Grand View Research. 

In 2018, roughly one third of all plastics produced were used in single-use packaging, a planetary scourge. 

The world’s governments are implementing bans on single-use packaging but are proceeding with caution given plastic is built into nearly every business in the world. Existing business models and disruptive technology need to adapt to integrate with the complex value and supply chains, from producers to businesses, to retailers, consumers and recyclers. 

The besieged petrochemical, plastic packaging and consumer goods industries are presenting recycling as the solution, and governments appear to be favouring this tack. 

The World Bank expects the quantity of plastic waste and costs related to its treatment are likely to double by 2025 – many would say this is a conservative estimate.

Recycling is estimated at between 9% and 12% of the world’s plastic production – roughly US$40bn taken on the conservative lower-end estimate of plastic production above. 

According to Principles of Responsible Investment, the goal is to move that to 100% within 10 to 15 years – a $120bn opportunity according to the Ellen MacArthur Foundation - and growing, given a sharp acceleration in plastic production in recent years. 

According to ResearchAndMarkets.com, the global recycled plastics market is expected to reach US$66.73bn by 2025, and post a compound average growth rate of 7.8% out to 2025.

Petrochemical and plastic packaging industries close ranks

The Plastic Waste Alliance, the international body representing the plastics and packaging companies and associated industries, have lobbied governments heavily to opt for recycling and a circular economy over taxes and plastic bans; and have committed US$1bn to reduce plastic production and improve recycling. 

However, most have tens of billions of dollars riding on existing business models. As with all disruption, each step towards recycling represents a hit to the industry’s existing profit base, discouraging incumbents from innovating swiftly enough to meet the challenge laid down by governments. 

Already, incumbents are pushing for an extended timeline to build the infrastructure for a circular model.

The petrochemical and fossil fuel industry meanwhile has embarked on an aggressive strategy to ensure the future of plastic, investing nearly US$200bn since 2010 into fracking-based plastics production. 

Plastic appears to be a strategic choice for big oil as the climate-change battle intensifies. Shell’s $6bn ethylene-fracking plastic plant near Pittsburgh is just one of dozens planned for the US, India, China and the Middle East. 

Plastic now uses nearly 14% of the world’s oil and gas. By 2050, estimates suggest plastic production could be driving half of all oil demand growth, according to The Guardian.

By flooding the world with plastic, the petrochemical industry also increases the pressure on the governments to favour recycling over regulation. While this strategy could backfire, it is unlikely. 

A recent McKinsey report suggested plastic recycling could generate profit-pool growth of as much as US$60bn for the petrochemical and plastics sector.

A circular economy and the fourth industrial revolution (4IR)

The world is shifting to a circular economy and there is a concerted drive from authorities to ensure 4IR is built upon a sustainable model. This is what the world’s petrochemical industries are banking on.

Zero waste, recycling, smart design, product interchangeability, multi-tasking of equipment, and additive manufacturing will form the foundations of this model. 

According to Reiter, the shift to a sustainable circular economy will generate US$2trn in revenue alone and US$4.5trn in productivity gains.

Plastic and recycled plastic are expected to play a critical role in 4IR, as a component of new technologies. The demand for plastic in electronic vehicles alone will be huge, given lighter cars mean lower emissions. 

Ironically, climate-change mitigation favours plastic; and as climate change appears to trump plastic pollution as an ESG investment and global governmental priority, plastic recycling’s future is assured.


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