As we sift through the positioning for the upcoming COP26 meeting and the attention focusing report from the IPCC this week, it is a reasonable question to ask what this means for the plastic waste issue. If governments, lobbyists, and activists are likely to be more focused on climate change action over the next few years, which seems to be a reasonable conclusion, will there be the bandwidth for plastic waste? The plastic waste issue is less open to interpretation than the climate change issue and is a visible problem for all, but if governments need to prioritize where they spend their incremental dollar, and/or where they provide incentives of penalties, the climate is going to be pushed to the front of the line in our view. Plastics producers will have to deal with emissions, like any other industrial user of power and heat. The risk is that local governments, looking for revenue to support climate initiatives see taxing virgin plastic (or unrecycled plastic) as a way to both push plastic waste initiatives forward and raise revenue. Adding a plastic tax in the US to the superfund proposal in the infrastructure bill would be hitting the chemicals industry from two sides and would give bodies like the ACC far more grounds for pushback. For more on the IPCC analysis see our ESG & Climate Change report from this week.
Separately, the European carbon price (below) looks off-trend, but if we were o take out the depressing effects of the initial COVID impact on the economy in Europe and what that meant for CO2 emissions and the lower need for credits, the current price would be much closer to trend. We maintain the widely held view that pricing will continue on an upward trend and likely overshoot the expected longer-term steady state of around €100-120 per ton before settling back to that level as larger carbon abatement projects come online, whether that is more renewable power to replace coal or CCS projects.
Source: Bloomberg, C-MACC Analysis, August 2021
