Reality: 15 Million Tonnes Of Market Failure
A Sobering Look At The Linear Present
The year is 2020 and the corona pandemic has the planet in its grip. Meanwhile, it may not come as a surprise that the plastic pandemic is also still a key factor in the lives of the majority of Germans. According to a representative survey conducted by the SINUS Institute¹ on behalf of YouGov at the beginning of June 2020, three out of four Germans viewed the state of the world’s oceans as just as important as it was before the pandemic, making the deposition of plastics into the world’s oceans the all-dominant concern. 77 per cent cited this as the most critical problem to be solved.
The awareness of the problem is not matched by adequate progress when it comes to recycling. More than 90 per cent of the nearly 400 million tonnes² of plastic products produced annually are made from petroleum-based virgin material. Why is humankind unable to recycle more plastic? Paper, metal and glass are being recycled, after all.
First of all, there is a paradox that needs to be explained. The plastics recycling industry is complaining about how difficult it is to market their output. At the same time, an increasing demand for recycled materials from major manufacturers and plastics processors is not being met. How does this figure? Why do supply and demand not match?
To understand this market failure, it is important to know that we are not dealing with one dysfunctional market for recycled plastics, but with at least two:
- The market for so-called ‘downcycling’ materials, suitable for robust applications such as the production of flowerpots, park benches or artificial turf: Here, we are seeing an over-supply. Suppliers can no longer sell their output because the Covid-19 pandemic has pushed the already low price for crude oil and thus the cost of producing virgin plastics below that of down-cycled materials (see pages 22–25 of the report).
- The market for so-called upcycled or closed-loop materials for high-end applications such as cosmetics packaging, automotive parts, consumer goods or the construction sector: Here, demand is predominant. Driven by the requests from consumers and stricter regulation, distributors are increasingly committing to increase the share of recycled materials in their products. The only problem is that they cannot find the necessary qualities and quantities to permanently convert their production (see pages 28–29 of the report).
Both markets for recycled plastics do not function properly. But why is that the case? The plastic pandemic can essentially be boiled down to three causes: high price, low quality, no transparency. And market participants cannot agree on whether any interventions in the market should be taken — and if so, which ones.
[Problem 1] The Price
Every year, 15 million tonnes of waste end up in the world’s oceans³ — from a commodity that generated billions in revenues during production. This shows that at the end of its first use cycle, plastic is obviously not valuable enough to be reused.
Few consumers could conceive of the idea that brand-new plastic should be so much more inexpensive than used material. After all, a second-hand car also costs much less than a new one — why is it any different for plastics? But it is. Fresh material is between 20 and 30 per cent less expensive to buy than the recycled material of comparable quality. Why should this be?
Broadly speaking, the industrial-scale production of virgin materials has about a 40-year head start on plastics recycling. The supply chains and processing methods of the petroleum and petrochemical industries are optimised for extreme efficiency, whereas plastics recycling, especially of consumer waste, only became part of the plastics industry with the introduction of the Dual System just over 30 years ago. And that only applied to a limited number of plastics. About half of the waste from the Dual System ends up being incinerated. In other words, this is an ‘indirect’ form of burning crude oil. And this in a time when there is such a heated debate on phasing out coal-based energy generation and climate change.
The process steps of collecting, sorting and reprocessing of waste are less streamlined, and the market and technology have attracted little private investment and research funding due to a lack of demand for recycled plastics. Thus, the few trailblazer projects for producing high-quality recycled plastics are significantly more expensive than the industrial-scale processes in the petrochemical industry. Not to mention that it also buys its raw material at extremely reduced prices. On the other hand, hardly anyone has any use for the downcycling-quality materials that are available in large volumes.
[Problem 2] Quantities & Quality
So, while there has been little serious demand from the major plastics-consuming industries such as the packaging, automotive, construction and consumer goods sectors, this is changing at a breath-taking speed. The number of companies that have voluntarily signed up to the Ellen MacArthur Foundation’s Global Commitment to use recycled materials and improve the recyclability of their own products has grown by a factor of 200 in the last three years alone.⁴
But while board members express the will to improve the circularity of their plastic products, their chief buyers are surprised to find that even if one is willing to pay 20 to 30 per cent more for recycled materials, in most cases the markets are fiercely competitive (for instance the PET sector) or the quantities and quality to meet the demand of even a medium-sized established company simply is not available.
In the EU, 50,000 plastics processors are set against as little as 1,000 plastics recyclers, mostly small and medium-sized companies with 10,000 to 20,000 tonnes of annual capacity. There is no clearer way of illustrating the recycling gap of the linear plastics economy: A lack of volume and technological progress.
The large petrochemical groups BASF, Dow Chemical, Borealis and the like have also recognised this gap and are investing in chemical and mechanical recycling processes (see pages 35–39 of the report). They are not afraid to jeopardise their own business model, which in essence consists of the production and sale of virgin material. They are keen not to miss the boat when it comes to reorganising the value chain. BASF launched the new business unit ChemCycle in early 2019. The Borealis AG bought into two mechanical recyclers, EcoPlast and mtm Plastics.
These examples show that the petrochemical industry obviously does not want to hand over a substantial part of its business to the large recycling and waste management companies such as VEOLIA, Suez and Remondis, to name but a few. Meanwhile, there is not even any clear indication whether these players would even be able to serve the market for high-quality applications of recycled plastics, as this requires massive investments in research and development as well as a profound knowledge of polymer chemistry.
Perhaps it will be completely new players that will enter the recycling scene. Maybe a vertically integrated plastics processor like ALPLA — a classic packaging company that is establishing its own recycling capacities around the world. Or a large retailer such as the Schwarz Group, which already has access to vast amounts of plastic waste — the ‘new gold’ of the Circular Plastics Economy⁵ — from its own operations. The struggle for dominance over the recycling market has begun.
The stakes are high. And the dynamics in the market demonstrate that in order for the minimum recycling quota of 25 per cent and more to come into effect, distribution and production methods will have to change radically and swiftly.
[Problem 3] The Lack Of Transparency And Digitalization
Finally, an efficient recycling of plastics requires greater transparency and digitalisation. The waste and recycling industry is a world onto itself, with very few and large top dogs, some medium-sized players and many intermediaries. They all roughly deal with three types of plastic waste streams: production waste, consumer waste and commercial waste.
Each of these waste streams — depending on the type of plastic involved — are not only different in terms of their value. The waste streams are subject to different national and international legal frameworks. In Germany, for example, these include the Closed Substance Cycle Waste Management Act (Kreislaufwirtschaftsgesetz), the Packaging Act (Verpackungsgesetz), the Commercial Waste Ordinance (Gewerbeabfallverordnung) to name just a few. Between EU member states, the regulations again differ significantly (see pages 44–47 of the report).
Furthermore, a network of intermediaries has become part of the path from the production to the recycling of waste. Last but not least, such a non-transparent system also gives rise to illegal activities, as the international police agency Interpol pointed out in August 2020.⁶
Although the rules of the game are more transparent in the plastics processing industry compared to the waste management sector, the wide variety of plastics products and types of plastic gives it a highly fragmented structure.
On top of the lack of transparency and fragmentation, both the plastics and the recycling industry show a very low degree of digitalisation. It is not uncommon for business deals to be initiated and concluded during a visit to a trade fair, with a phone call or by e-mails or fax.
Digital technology can help reduce the transaction costs of recycled plastics at every stage of the value chain — from deal origination, logistics, certification, tracking the material across the globe, to payment processing and insuring the deal. The big question, especially in relation to waste management, is: Will the industry embrace digitally enabled transparency and efficiencies, or will it try to keep the waste markets in the semi-dark?
The fact is that there is a great deal of resistance to change, and not only from the plastics producing industry. The waste and recycling industry will also have to reposition itself if the vision of fully circular plastics is to become a reality one day. Who will be tapping these future ‘gold mines’ is a question that remains to be answered. This also provides an interesting development-policy perspective: Whereas today the countries of the Global South are still treated as the world’s dumping grounds, tomorrow they could supply the world with the urgently needed circular hydrocarbons. After all, what today lies dormant as poorly recyclable plastic waste in illegal landfills in Southeast Asia, Africa and Latin America may in the future become a repository for the raw materials for producing plastics.
Sounds utopian? Perhaps. But the signs of change are unmistakable. Now, in 2020, in view of the increasingly catastrophic effects of the plastic pandemic on humans and animals alike, there is a real chance that the plastics industry will make a sustainable shift.
Christian Schiller (Co-Founder of cirplus) is the author of the article “15 Million Tonnes Of Market Failure” that has originally been published in the below linked report.
Sources
[1] yougov.de (2020). Deutsche machen sich Sorgen um den Zustand der Meere — auch während der Corona-krise.
(accessed on: 11.11.2020)
[2] PlasticsEurope (2019). Plastics — the Facts 2019. An analysis of European plastics production, demand and waste data.
(accessed on: 11.11.2020)
[3] The High Level Panel for Sustainable ocean Economy (2020). Leveraging Multi-Target Strategies to Address Plastic Pollution in the Context of an Already Stressed Ocean
(accessed on: 11.11.2020)
[4] Ellen MacArthur Foundation (2020). Financing the Circular Economy.
(accessed on: 11.11.2020)
[5] CHEManager (2020). kunststoffabfälle — das neue Gold der Chemieindustrie. kunststoffe bieten mehr als unerwünschte Umwelt-, Sozial- und Governance-Risiken (ESG).
(accessed on: 16.11.2020)
[6] INTERPOL (2020). INTERPOL report alerts to sharp rise in plastic waste crime. (accessed on: 11.11.2020)
