One of the subjects we covered in yesterday’s ESG and Climate piece was the need for global coordination around the price of Carbon. We used Canada as an example of how lack of coordination can potentially drive unintended consequences. Canada’s high carbon tax does not apply to products that are exported – which may drive an increase in exports and an increase in imports to exploit the loophole. One of the headlines in today's report talks about the need for Europe to impose a carbon-related tax on imports, to level the playing field for those paying the carbon tax in Europe versus importers (maybe from Canada) that are not paying the tax. We either need a system of global cooperation where everyone pays the carbon penalty equally, domestic users and exporters, or we need carbon-based import taxes that are equivalent, again on a globally consistent basis. The odds of this level of coordination happening are quite low, in our view and almost any legislation will have exceptions and loopholes that will allow traders to exploit unintended arbitrages. This is probably one of the hardest problems to solve as global Governments attempt to form a coordinated approach to climate-related initiatives.
Separately, there is much more being written about recycling and plastic waste – likely prompted by ESG investor pressure as well as published initiatives by large plastic consumers. We are focused on a couple of what we believe will be very important factors, one of which we spotted a good example for in a LinkedIn post this morning, but can no longer find, as it has probably been taken down because of the error. The story was about how High-Density Polyethylene (HDPE) could be recycled as many as 10x without losing its properties. The error was the accompanying photo, which showed a bright red HDPE bottle and a bright green one, neither of which can be recycled effectively into the same end-use because of the pigment. Standardization of polymer use (Coke’s move to a clear Sprite bottle) as well as the removal of other additives, will be needed to increase the pool of recyclable materials.
The other important issue, which will impact recycled polymer use is the amount of used polymer that heads off into different uses. Graphene can now be added to plastic furniture, roadbed modifiers, other mixed plastics durable products, such as road barriers, and chemical recycling that does not end up back as a chemical feed, all of which limit the flow of used plastics back into their original use streams. These applications may provide either the better margin or the lowest cost when it comes to plastic waste use or disposal and will limit the streams available to packagers that have high recycle mandates built into publicly started strategies.
