Plastic’s versatility has driven rapid growth in its use, even as its negative environmental impacts have become the subject of intense public debate. As the EU is in the midst of revising its rules around packaging and packaging waste. It asserts that legislation must be changed to align with its wider goal of creating a low-carbon circular economy.
Despite several previous attempts to take a tougher stance, the reality is that even up to 2023, the EU’s regulation of packaging has been relatively light touch.
The challenge
Using Wood Mackenzie data and industry related examples, we took a hypothetical business to illustrate the challenges facing companies, and the value chains that support them operating in the context of the materials transition. The construction and infrastructure sectors are the biggest consumers of materials globally, but, given the evidence all around us of our failure to manage packaging waste, it’s packaging firms that are in the public eye.
Circular business models which are based around minimising the material impact of a product or service have been given a huge boost by the Sustainable Development Goals and by organisations such as the Ellen MacArthur Foundation. The approach is often simplified to a focus on:
- Reducing the amount of material used. Soft drinks companies, for example, have gradually reduced the weight of their bottles to reduce their plastic content, and many packaging applications have moved from rigid to flexible wrapping for that reason.
- Re-using products to minimise the need for new material inputs. These are less common in the packaging sector, but experimentation is underway. Pepsico purchased Sodastream at the end of 2018 to tap into this trend, and Loop is trialling an innovative delivery-and-collection model in selected markets, with disposable packaging replaced with more durable alternatives.
- Recycling to capture material post-use and displace the need for new inputs.
21st century packaging will continue to use disposable packaging and concentrate on the recycle element of circularity. Its next step, then, is to determine the right material to use. This will vary according to the product, but will include decisions about the appropriate weight, strength, barrier and optical properties required of the packaging material – and the environmental impacts of each option.
As we can see with the example of drinks packaging, it is rarely the case that there is an ‘obvious’ choice, and the best material may change from location to location, depending on local context (water usage may be more of a concern if operating in a water-stressed location, for instance).
If we make the assumption that 21st century packaging eventually settles on polyethylene terephthalate (PET). Its next challenge is to explore how to collect and process the post-consumer waste so that it can be returned to the value chain. In the plastics value chain, we can see this approach being supported by consumer-facing brands through public commitments – and the requisite budget – to include recycled material in their packaging. Nestle, for example, is putting US$2 billion aside to pay the higher prices necessary to secure recycled inputs.
Materially better outcomes: two scenarios
21st century packaging has put the materials transition at the heart of its strategy, to act responsibly and in line with its customers’ expectations and regulatory requirements.
If other companies in the sector act in the same way, what will that mean in terms of plastics production and waste generation in the future?
In this case study, we use Wood Mackenzie data and a hypothetical business to illustrate the challenges facing companies, and the value chains that support them, operating in the context of the materials transition.
If companies in the plastics and packaging sector put the materials transition at the heart of their strategy, to act responsibly and in line with its customers' expectations, how would that impact future plastics production and waste generation?
Two scenarios focused on the major packaging polymers – polyethylene (PE), polypropylene (PP) and polyethylene terephthalate (PET) – help us to explore the answer to this question.
Current path scenario
- Gradual increase in collection rates
- EU and Asia remain global leaders in managing post-consumer waste, reflecting legislation and recycling economics, respectively
Sustainable future scenario
- Increasingly stringent regulatory targets added – all global markets model EU Single Use Plastics Directive ambitions
- Chemical recycling receives major investment and adds capacity quickly post-2030, enabling fast growth in recycling of flexible and coloured packaging
The ‘current path’ represents the world if it continues as it is today. Recycling rates gradually rise, driven by a combination of increased demand from consumer-facing brands and legislative targets. The recycling rate for the selected polymers more than doubles in the 2020 to 2040 forecast, rising from 17% to 38% of polymer produced for packaging applications.
Under the ‘sustainable future’ scenario, one where the packaging sector as a whole follows the actions of our hypothetical company, we can see a marked difference in outcomes.
With more stringent legislation to incentivise companies to be ambitious, our data shows a big increase in volumes of packaging going through mechanical recycling processes, and significant investment into chemical recycling technologies and capacities. Faster growth in the recycling of flexible, multi-material and coloured packaging follows.
The cumulative impact of these changes is another near doubling of the recycling rate, up to 67% of the observed packaging polymers. By 2040, this results in an additional 53 million tonnes of packaging plastic prevented from going into landfill, energy recovery or unmanaged waste streams in comparison to the ‘Current Path’ scenario. Cumulatively, from 2020 to 2040, this rises to 382 million tonnes.
The impact of this on the value chain will depend on how circular the recycling chain is. For instance, how much recycled plastic is ‘downcycled’ into non-circular products and the precise split between recycling routes.
By 2040, if we assume that the industry focuses on maximum value retention by eliminating downcycling, and that chemical recycling hugely increases the recycling potential of polyethylene and polypropylene applications, we would see:
- 25 million tonnes of recyclate going back into the polymer stream, displacing virgin polymer demand
- 10 million tonnes equivalent going back into the value stream at the monomer level, displacing the need for ‘virgin’ feedstocks
- 60 million tonnes equivalent at the feedstock level, displacing demand for oil and gas inputs.
In total, 95 million tonnes of displaced demand across the value chain would represent a reduction of around 1.5% in global oil demand by 2040. However, the impact on the petrochemical feedstock sector is far more significant, equating to the loss of all petrochemical feedstock demand growth from 2032 in our base case outlook.
These changes will add to pressure on an already challenged refining sector and pose searching questions about which assets will be most robust to these changes. The most competitive, integrated sites in the future may need to incorporate refining, petrochemical production, waste collection, sorting and chemical recycling hubs.
None of the scenarios above, however, are likely to describe the exact path we take. But they do illustrate the extent to which decision-makers can alter the current trajectory to achieve growth that satisfies society’s demands without further stressing the environment.
As in other sectors, the packaging industry – and the industries that support it – will need to navigate a complex mix of regulatory interventions and technological investments to thrive in the materials transition.
How will the materials transition impact other industries?
Textile and Apparel
- The textile & apparel value chain has multiple, competing materials, presenting a complex array of choices for consumer-facing brand to select from: cotton and wool use vast quantities of water as an input, while polyester breaks down into micro-fibres in the oceans.
- The processing of post-consumer waste lags far behind the packaging sector – much more needs to be done to prevent waste going to landfill and leaching into the environment.
- Most pressingly of all, the industry needs to work out if the ‘fast fashion’ model prevalent in developed economies is sustainable. If not, the industry will need to focus on reducing output – but how can the industry as a whole do this and continue to grow?
Construction
- Construction and infrastructure are the biggest users of materials, particularly of non-metallic minerals such as sand and aggregates. The extraction and processing of these materials can be destructive to local ecosystems, yet there are few obvious alternatives.
- Metals and plastics also contribute significantly to these sectors. Here we can see tentative steps at using new materials that have a smaller environmental impact, and at redesigning production systems to reduce waste:
- Replacement of metal and concrete in buildings with Cross Laminated Timber.
- Modular building systems, with ‘units’ of a building created in a factory setting to reduce waste given ease of precision production.
- Onsite use of 3D printing using composites to minimise waste/ offcuts.
With a growing focus on plastics and its impact on the environment, our chemicals market intelligence and data services can help you keep track of the forces shaping regional and global markets.