The days of carefree plastic use may soon be over. Even though the world is suffocating in polluting waste, sales of fresh polymers are projected to rise 40% to $529 billion by 2031.
This may change if supporters of taxes and other restrictive measures prevail at ongoing talks for a global treaty to end plastic pollution by 2040. Drastic action would shrink a promising market for Big Oil and cut packaging firms’ margins.
Derived from fossil fuels, plastic represents an alluring business line for energy majors as the green transition reduces the need to burn oil for electricity and heat.
While growth in oil demand is expected to settle at a mere 0.5% annually, crude used for plastic is forecast to grow at around 3.5%. By 2050, 20% of global oil could be used to make plastic.
That’s probably why petrochemical players are backing recycling as the solution to a waste crisis, rather than levies or outright product bans. Top virgin polymer producers ExxonMobil, Dow, Sinopec, Indorama Ventures and Saudi Aramco collectively contributed to about a fifth of waste from single use plastic in 2021, Minderoo Foundation estimates suggest.
This approach is misguided. Turning used plastic into packaging and other products is complex and expensive. And the world lacks sufficient infrastructure to sort discarded resins: only 9% of global plastic is recycled each year, the Organisation for Economic Co-operation and Development reckons. Trying to bulk up on waste management would be costly and come too late to fend off an environmental disaster.
And even if the necessary infrastructure was in place, plastic weakens at each recycling step.
Taxes and other charges are the fastest and most effective means of reducing the allure of virgin polymers. Fresh plastic tends to be 30% cheaper than recycled alternatives.
Until that gap is closed, packaging firms will have an incentive to produce bottles and food containers from new polymers. Recycled plastic is also scarce.
“We cannot recycle our way out of this mess,” United Nations Environment Programme Executive Director Inger Andersen said.
Hopes for a global treaty on plastic in 2024 are high. Some 90% of people support measures to combat plastic pollution, a global Ipsos survey from 2021 shows.
Countries including Britain have already started applying levies on virgin plastic packaging. A simulation from Barclays suggests the UK levy could cut gross margins by 5% at soft drinks players like $3 billion Britvic and $700 million A G Barr.
Yet, financial players are ignoring the risks, buying up packaging companies to serve insatiable plastic demand, recent M&A data shows.
With plastic increasingly under fire, investors should take notice. — Reuters
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