The ACC call for 30% recycling of plastics by 2030 emphasizes chemical recycling, and in our ESG and Climate report yesterday we talked about an alternate path for plastics, one that focuses on reducing waste rather than increasing recycling. The product standardization and consumer and municipality waste collection and sorting rigor that would be needed to maximize mechanical recycling are significantly harder to achieve than the changes that would be needed to dramatically increase chemical recycling – i.e. it may be easier and less expensive to get to zero waste than it is to get to maximum recycling. Maybe we are thinking about this wrong, but to change tacks from here the industry would need to demonstrate that plastic waste can be removed, at scale, and then convince the plastic buyers that the path is better. We discuss the possibility in more depth in yesterday’s report.
We talked a little about recycled polymer pricing in our ESG and Climate report yesterday. Recycled polymer pricing is rising relative to virgin polymer pricing (see chart below) and is likely to continue to rise unless hydrocarbon prices push virgin resins materially higher. Demand for recycled polymer is growing quickly and more quickly than supply, and we expect this to be reflected in an increased premium, barring more raw material inflation. Recycling is a fixed cost business – each step has a well-understood cost and companies are innovating to try and lower the cost of each step, but as so many different stakeholders are in the chain, it is a complex problem. One of the reasons why see the LyondellBasell/Suez venture works in The Netherlands is because Suez controls the waste in a region where recycling compliance at the household level is high. Despite this, it has taken a couple of years to get to the volumes needed to make the venture adequately profitable – mostly ensuring enough pure recycled polyethylene and polypropylene makes it to the facility. If polymer buyers are willing to cover the full cost of recycling in terms of the prices they are willing to pay, more material will become available – if LyondellBasell/Suez can demonstrate that they can make money when all the stars are aligned, it will likely encourage them to work with other municipalities in other parts of Europe (first) to see if they can replicate what they are doing now. In our view, all of the other advertised recycling programs are very small, very focused on niche applications, and don’t move the needle.
Recycling is a fixed cost business – it does not vary with the price of oil or the price of natural gas – and the more willing potential customers are to pay on a fixed cost basis, to cover the collection, separation, cleaning, and re-pelletizing costs, the more recycled material will make it back into the cycle and not into landfill or pyrolysis. The pyrolysis technologies being discussed by the major polymer producers are a solution to the plastic WASTE problem, and they allow for a degree of recycling potentially, but they will never be able to bid waste polymer away from a mechanical recycling alternative if the buyer is willing to cover the costs. We have written extensively on these topics in our ESG and Climate reports and we would point readers back to Unwanted: Chemical Recycling – Necessary Now, Less So Later and the second section of True Blue: Not Green but Likely Good Enough.
Well done LyondellBasell, for one of the most sensible moves we have seen today concerning polymer labeling. The “Circulen” labeling will tell customers what they are getting and where it came from – mechanical recycling, chemical recycling, or a renewable feedstock. This should eventually lead to tiered pricing as customers, especially packagers try to solve for ambitious more sustainable packaging solutions that look very hard to achieve today.
We are focusing on one of the recycling headlines in today's ESG & Climate Report referencing a collaboration between Mars Wrigley and Danimer Scientific. The news release highlights two important issues – using biodegradable polymers where they are most fit for purpose, in this case, single-use candy wrappers – and the need for consumer education. We already have a confusing set of labels for polymers, as summarized in the image below, and adding biodegradable plastics, which would contaminate a recycle stream even further, requires a huge leap of faith that consumers can not only identify the products that can be composted but are willing to do so.