Horizon | Edition 11 LIVE

Plastic is the miracle material of the modern world. Production has surged more than 1,000% over the past 50 years thanks to its near-infinite flexibility as a material, its cost effectiveness and scalability. The powerful properties of cheap plastic have transformed consumer behaviour in sectors from packaging to retail and apparel. Just as the human body can power itself for a time on a diet of junk food, however, this consumption model was bound to cause problems. Low-cost, disposable materials that are near impervious to breakdown in nature were always going to fur up the planet’s arteries in the form of waste, greenhouse gas (GHG) emissions, air pollution and water consumption. Plastic is a vital part of modern life and has a key role to play in delivering a more sustainable future – be it as a key material in delivering the energy transition or in displacing other materials that have an even more challenging environmental footprint. Greater efficiency won’t be enough to tackle environmental challenges that will only intensify under the industry’s current business model, however. In our base case, these efficiency gains are swamped by the impact of rising demand, leaving the world awash in plastic waste and struggling to pursue net zero targets. But the industry can pursue a better future if it takes the tough decisions necessary to bend the curve of environmental damage. In our ‘peak plastic’ scenario, we show that a challenging regimen of diversifying feedstocks, minimising the production footprint and cleaning up the waste chain can deliver a healthier plastics value chain. The industry, therefore, needs to make transformative change across the entire chain – from feedstocks, to how and where we consume plastics, to how we manage them after use. Failure to act could cost the sector the support of stakeholders, including capital markets, maybe even the social licence to operate.

HORIZONS

Plastic surgery:

Reshaping the profile of the plastics industry

November 2021

Guy Bailey, Head of Intermediates and Applications Sandheep Sebastian , Senior Data Scientist Andrew Brown, Head of Polymer Demand

Contents

Reshaping the profile of the plastics industry Peak plastic: a model of sustainability? Time for plastics to go under the knife Getting the chemicals industry fit for the future Conclusion: the changing face of plastics

1. 2. 3. 4. 5.

Peak plastic: a model of sustainability?

To explore the effects of efforts to create a more sustainable plastics value chain, we have run a scenario founded on our base-case industry outlook. We call it the ‘peak plastic’ scenario: the point at which plastic from fossil fuels – the traditional industry feedstock – goes into decline, even as overall plastic demand continues to grow. The model enables us to capture environmental impacts over the full plastics lifecycle – a critical factor when the environmental impacts are felt long after the plastic is produced. It uses cost profiles at each stage of the value chain to drive the industry towards the most profitable options, within the confines of recycling capacity and regulatory standards. We make three key interventions:

Get this insight as a PDF

Time for plastics to go under the knife

There are many actions we can take to tackle the consequences of 50 years of carefree plastics consumption. We can:

Conclusion: The changing face of plastics

The outlook for an industry that maintains the current growth model is not attractive. A more appealing future is there for the taking if companies across the value chain – led by plastics producers, but including converters, consumer-facing companies and waste processors – step up and take ownership of their environmental impacts. Because the sector is so complex, collaboration will be key to ensuring a systemic approach to change across all stages of plastics production and consumption, as in our ‘peak plastic’ scenario. It essential that individual companies do not duck difficult questions. In our sample of industry leaders, while not all companies have yet shown the same level of ambition, it is important to recognise the progress that has been made in terms of public commitments and ambition over the past two years. These commitments now need to be matched with detailed plans on how to achieve the goals and a greater focus on how to help companies in supply chains adapt with them. Companies that follow this regimen will undoubtedly find the going tough at times, given the complexity and uncertainty involved. However, by facing up to such challenges now, the industry can lay the foundations for success down the line. The prize for doing so will be to lead the value chain into a sustainable future.

Get this insight as a PDF

Reshaping the profile of the plastics industry

Few feedstocks can sidestep both of these challenges – those that can are not proven at scale – but there are several different sources that can combat one or the other. The drive to increase recycling is at the front of the queue, addressing both carbon emissions and plastic waste, but we can also make plastics from bio-feedstocks, from waste and by combining captured carbon with low-carbon hydrogen. All of these options have superior environmental profiles to fossil fuels as a feedstock. Restricting feedstocks won’t lead to a ‘healthier’ industry overnight, but it has the potential to be transformative in the medium term. In our base-case outlook, the demand for fossil-fuel feedstocks continues to rise throughout the forecast period. Under our peak plastic scenario, demand for feedstocks from oil, gas and coal maxes out in 2035. Policy and regulations that drive up demand for ‘non-fossil’ feedstocks – and carbon pricing that improves their relative cost structure – see chemical recycling and other renewable feedstocks rise to 25% of all feedstocks by 2050. Meanwhile, demand for oil into chemicals starts to decline in the mid-2030s, falling from a peak of 80 MT per year to less than 70 MT by 2050.

August 2021

Base-case outlook for plastic demand, GHG emissions and mismanaged waste

Source: Wood Mackenzie

curb fast-plastic demand reduce fossil fuel-derived carbons seek out alternative, renewable feedstocks come together to achieve collective goals through value chain collaboration

• • • •

Getting the chemicals industry fit for the future

The necessary changes will undoubtedly be a bitter pill for some chemicals and plastic producers to swallow. Change is hard and there is a lot invested in the current paradigm. It is a simple choice, however: take action today, or have change forced upon you tomorrow. An industry that emits 40 GT of GHGs cannot evade the judgement of governments, consumers and investors and will be subject to an ever more uncomfortable regulatory squeeze. If we look at the sustainability commitments of the 30 largest chemical companies involved in the plastics value chain – with combined revenues of US$ 650 billion as of 2019 – we can see significant variation in how the industry is planning to adapt to a more sustainable future. The biggest areas of focus are on shifting to lower-carbon energy inputs and driving operational efficiency. These are low-hanging fruit, but even so, not all companies have stated policies on achieving greater sustainability. One-quarter of chemicals industry leaders have committed to action in one or fewer areas, and none has commitments across the board.

Join the debate. Get in touch with Andrew

Andrew Brown

Head of Polymer Demand

Andrew heads the polymer demand modelling team, forecasting across multiple value chains. His work includes identifying and analysing trends across sustainability, recycling and consumer preferences to develop and integrate base case and alternative scenario views for the future. Andrew joined our Chemicals team in May 2018, and has played a key role in creating market research products for chemistries throughout the chlor-vinyls chain. Prior to joining Wood Mackenzie, he was an Integrity Management Engineer for National Fuel Gas Company, managing 2,000 miles of transmission pipeline facility risk and supporting business strategy development.

Join the debate. Get in touch with Sandheep

Sandheep Sebastian

Senior Data Scientist

Sandheep is a Senior Data Scientist working in the Polymer Demand team. His work includes analyzing and interpreting data and building models that use the information to predict trends and behavior of consumers towards end use applications. Sandheep joined our Chemicals team in January 2014, and has worked on organizing, storing, analyzing and modelling a variety of industry data across multiple chemicals commodities and building analytical products to support clients. Prior to joining Wood Mackenzie, he was a Statistical Analyst for Sequoya Analytics, analyzing and modelling consumer trends for the consumer packaged goods industry.

Join the debate. Get in touch with Guy

Guy Bailey

Head of Intermediates and Applications

As our head of Intermediates and Applications, Guy leads a team of analysts focused on plastics, fibres and sustainability in the chemicals value chain. Guy joined Wood Mackenzie Chemicals in December 2018. Prior to this he was the head of analytics at risk consultancy Verisk Maplecroft. In this role he led a team responsible for delivering quantitative analytics to support clients from the financial services, corporate and government sectors to measure and mitigate exposure to political, economic, environmental and societal risks. Guy’s previous roles included leading work on regulation at the Confederation of British Industry.

Missed our previous editions of Horizons? Download them here.

Edition 9 | Sept

Edition 8 | Aug

Edition 7 | Jul

Diagnosis and a grim prognosis

The plastic industry has at least recognised that there is a problem. It is making progress, pouring attention and capital into the partnerships and technologies required to reduce its environmental footprint. Diagnosis is not a cure, however; things will have to change. Our baseline outlook for the plastics sector is one of robust growth. Humans consume around 50 kg of plastic per capita per year, on average. This number hides huge inequalities, though, with the average American consuming more than 100 kg per head and residents of low-income economies using less than 5 kg. Inevitably, as populations around the world grow richer, they will consume more plastic. In our base-case view, plastic demand will grow 90% by 2050. Growth rates will slow in high-income economies where demand is sated, but faster-growing economies will pick up most of the slack. Emissions and waste will rise swiftly in response to this bump in demand – albeit not as swiftly as before, as waste collection gathers pace and the industry becomes more efficient.

Plastic feedstocks in our ‘peak plastic’ scenario, by source

Source: Wood Mackenzie

Sustainability actions identified by the Top 30 chemical companies

Source: Wood Mackenzie

The risk of failing to act is to lose the support of stakeholders, including capital markets, maybe even the social licence to operate. So, what does a company that wants to set the pace for the industry need to do to get in shape for a more sustainable future? To minimise its footprint, it will need to take decisive action in three key areas.

Edition 10 | Oct

David Brown, Head of Markets and Transitions, Americas Ram Chandrasekaran, Head of Road Transport Brian Mcintosh, Title

Demand. We apply a framework for reducing demand in sectors using ‘fast-moving’ plastic, such as retail, hospitality and apparel. We assume that current initiatives to reduce demand – such as Loop for packaging and Depop or thredUP for apparel – take an ever bigger market share End-of-life. We apply a rising carbon tax throughout the value chain, increasing the relative attractiveness of recycled plastics over virgin applications, driving investment into greater collection and recycling capacity Feedstock selection. We apply a rising carbon tax to feedstock sources, making plastic-to-feedstock, bio-feedstocks, waste-to-chemicals and low-carbon hydrogen more attractive than fossil fuel-derived feedstocks, and gas-derived feedstocks more attractive than oil and coal

• • •

The planetary prognosis from this outlook is predictably grim:

48 gigatonnes of GHGs emitted over the forecast period, equating to 12% of the planet’s remaining carbon budget, to have a 67% chance of staying below 1.5 °C of warming 4.3 billion tonnes of waste released by non-managed routes – that is, plastic in the environment, or the equivalent of 150 trillion soft-drink bottles

• •

Preventing a clogging of the earth’s arteries will take more than a bit of nip and tuck, however.

What is really needed, however, is a framework that can be implemented and stuck to in the longer term. A good place to start is to cut out those elements of the plastics diet that do the most obvious harm. This means taking steps to restrict our appetite for the convenience of disposable plastics in fast-moving sectors of the economy. Under our peak plastic scenario, this displaces 90 million tonnes (MT) of polymers in packaging, apparel, retail and hospitality from now to 2050, corresponding to 13% of all plastic demand and a quarter of plastics demand in these sectors.

Source: Wood Mackenzie

Restricting the consumption of disposable plastics

The next step is to seek out better inputs. Eighty-five per cent of base chemicals are currently produced from fossil-fuel feedstocks. These underpin the scalability of the industry, but come with two unpalatable side effects:

They require the ongoing extraction of fossil fuels, contributing more to GHG emissions They are non-biodegradable, contributing to the challenge of plastic waste

1. 2.

What does this healthier regime mean for the planet? At first glance, the picture looks a lot rosier. Carbon emissions in this scenario are down 36% in 2050, with cumulative savings of 8 gigatonnes (GT) over the forecast period. It also puts a serious dent in the amount of waste going into the environment or unsanitary dumps: waste into the environment is down 35% in 2050, with a saving of more than 1.5 billion tonnes over the next three decades. This scenario does not lead to a ‘harmless’ plastics sector, however. Without any offsets, it would still see the sector producing 1 GT of emissions in 2050, while tens of millions of tonnes of poorly managed waste would continue to flow into the environment. To achieve a neutral environmental footprint, more drastic efforts are required.

Diversify feedstock selection

Eighty-five per cent of current feedstocks in the plastics sector come from oil, gas and coal. It is an inescapable fact that bringing ‘virgin’ carbon into the value chain will see it released into the atmosphere at some point – be it instantaneously through the incineration of plastic waste or over time as it breaks down in landfill. Leading-edge companies will, therefore, be exploring alternative carbon feedstocks to create ‘renewable carbon loops’. Options include the outputs of chemical and advanced recycling, bio-feedstocks, waste-to-chemicals and the combination of low-carbon hydrogen and captured carbon. While none of the potential alternatives can deliver at scale today, with appropriate investment in research and development, they have the potential to provide a substantial proportion of the industry’s needs in future.

As an energy-intensive industry, one of the easiest things to control is where facilities source their power and how they use it. While there are big challenges to overcome, including achieving the high temperatures necessary for some chemical processes and addressing intermittency, more than half of the top 30 chemical companies are committed to absolute reductions by these routes. Options being explored include electrification, low-carbon hydrogen as a fuel and carbon capture.

Minimising the production footprint

Carbon commitments by the top 30 chemical companies

Source: Wood Mackenzie

The world has woken up to the problem of plastic waste. Companies across the value chain – from chemical producers to consumer brands – are making commitments to boost recycling and clear up the mess. This energy and investment is welcome, but far more needs to be done before the problem is solved – investment in greenfield recycling capacity, in particular, needs to pick up pace if targets are to be met. One area where the industry would do well to get ahead of the curve is on taking responsibility for its waste, creating Scope 3 accounting for both the plastic waste and the carbon embedded within it. The industry has generally avoided this approach so far, noting the complexity of the plastics value chain. Only four of the Top 30 producers mention Scope 3 in their carbon commitments at all. However, with the big focus on plastic waste and the large proportion of carbon embedded in plastic products, companies that can show they are tracking and addressing their downstream Scope 3 will get ahead of regulators and customers, and steal a march on their peers.

Clean up the waste chain

Edition 6 | Jun

Edition 5 | May

Edition 4 | Apr

Edition 3 | Mar

Edition 2 | Feb

Edition 1 | Jan

Plastic surgery:

Reshaping the profile of the plastics industry

Under our peak plastic scenario, demand for feedstocks from

oil, gas and coal maxes out in 2035.

To achieve a neutral environmental footprint,

more drastic efforts are required.

not all companies have stated policies on achieving

greater sustainability.

Leading-edge companies will, therefore, be exploring

alternative carbon feedstocks

investment in greenfield recycling capacity, in particular,

needs to pick up pace

Guy Bailey

Head of Intermediates and Applications

Join the debate. Get in touch with Guy