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No time to waste: What could offer

Plastics waste is hurting the chemical as well as the environment. By taking the lead on recycling, chemical players could add a new dimension to the industry and help solve the problem.

Thomas Hundertmark, Chris McNally, Theo Jan Simons, and Helga Vanthournout

It’s not news that the plastics-waste issue is becoming acknowledging that the “use once and discard” a crisis and that, in the eyes of the public, the model, which the has grown up chemical producers that make all those plastics are with, should be replaced by a new model where deeply implicated. The public’s concern is already plastics are recycled as much as possible. translating into new regulations on plastics in the European Union and elsewhere, and major customers, This marks a watershed moment for the chemical such as the consumer-packaged- (CPG) industry, given that more than one-third of the industry, are ramping up efforts to increase recycled industry’s are made up of and content and reduce their plastics consumption. plastics production and plastics-related products. What is news, however, is that chemical-industry But as the industry starts to mobilize, there is a leadership has started to declare that its concept lot of uncertainty about what steps represent the of stewardship and sustainability now extends to best way forward. We believe that the chemical dealing with plastics waste. It is also increasingly industry has a central role to play in unlocking

1 McKinsey on Chemicals September 2018 many of the challenges of the plastics-waste issue. plastics materials makes economic sense, there We also believe there are opportunities to build a should be a clear advantage to making this shift. new and profitable branch of the industry based on recycled plastics, which our research suggests could Beyond the policy decisions that will set the overall represent a profit pool of as much as $55 billion a year direction, let’s look in more detail at three areas that worldwide by 2030.1 will be crucial to making this ramp-up in recycling possible and in which the is likely Don’t waste all that good plastics waste to have a role to play. Plastics waste washing up on pristine shorelines, from Antarctica to the Arctic, and vast floating Meeting needs in recycling islands of plastics waste in the Pacific Ocean have There are three principal approaches to the reuse of received much media coverage and contributed to plastics: mechanical recycling, chemical recycling, the shift in consumer sentiment. Our colleagues have and processing the plastics waste back to basic suggested ways that government and industry can feedstock. All have suffered from a vicious cycle, stop the flow of waste into the oceans and this tragic where a lack of raw materials due to low rates of environmental degradation.2 In this article, we focus recovery of used plastics has limited their growth on the plastics-waste question from a recycling- and dampened interest in their further development potential perspective. and investment; this could now be reversed.

From this perspective, marine plastics Mechanical recycling takes used and may be best understood as the highly visible tip of physically processes it back to pellets, leaving the iceberg. The majority of used plastics go to the chain intact. Recycling of and incineration, where materials are terephthalate (PET) and high-density polyethylene lost forever as a resource. Our research shows has been established as a viable business, but there that currently only 16 percent of plastics waste is is room for further process optimization. A key reprocessed to make new plastics; the “leakage” challenge is finding how to preserve the performance into oceans is primarily due to lapses in quality of through recycling steps and avert or a complete lack of waste-disposal the deterioration that currently occurs. systems (Exhibit 1). Chemical recycling, also referred to as From a resource-efficiency and conservation recycling, puts used plastics through a chemical perspective, this analysis suggests that a huge process that breaks them back down to their amount of potential value is currently being lost— . Such an approach is only feasible value that could instead be captured by better for condensation-type that can be approaches to reusing plastics waste. re-monomerized, such as (notably PET) and , but this still represents substantial An array of policy decisions will be needed at the volumes, and there remains considerable scope for national and local levels to bring to reality the process improvements. switch of the plastics-waste flow from landfill and incineration to recycling. But in general terms, Processing back to feedstock requires breaking for those parts of the world that are not awash in polymer chains down to hydrocarbon fractions abundant hydrocarbons and where the reuse of through catalytic or thermal processing. A number

No time to waste: What plastics recycling could offer 2 Industry Pub 2018 No time to waste: What plastics recycling could offer Exhibit 1 of 2

Exhibit 1 The majority of plastics waste currently goes to landfills and incineration.

Global polymer flows, millions of metric tons per annum, 2016

rocess losses 4% Feedstock recycling <1%

Chemical Mechanical (polymer) recycling 12% (monomer) recycling <1% 330 180 300

110 260 Collected for ( = 100%) recycling 16% urale ncinerated 25%

Landfills 40%

Nondurale 150 nmanaged dumps or leaks 19%

Virgin olymer Applications Waste feedstock production creation2

1 Durable applications with an average lifetime >1 year will end up as waste only in later years; nondurable applications go straight to waste. 2 150 million metric tons of mixed plastic waste from nondurable applications that end up as waste in same year, plus 110 million metric tons of mixed plastic waste from production in previous years. Source: McKinsey analysis

of are under development. Among these, to 220 million metric tons per year, if current flows may offer the biggest potential, because to landfill and incineration are redirected and it should be able to process a wide range of low- recycling capture improves. The waste-management quality mixed-plastics-waste streams. This could be industry that collects plastics waste and does particularly useful for processing flexible packaging, preliminary processing has its own set of challenges— a major portion of the waste stream, which today’s notably a lack of scale even now—and these will need mechanical recycling processes cannot handle well. to be addressed if it is going to be able to handle these massive new flows. Strengthening the waste-management chain Our projections suggest that the volume of plastics In developed economies, the industry tends to have going to recycling could increase fivefold by 2030, high costs due to small scale and lack of efficient

3 McKinsey on Chemicals September 2018 collection and sorting processes, with so far limited From waste to resource: Adding a new application of . In emerging economies, branch to the chemical industry plastics waste is typically processed through If all these factors can be aligned, chemical informal systems—individual workers picking can help to solve the plastics-waste through waste dumps, with hand sorting at collection problem. Less recognized is the potential within this points and landfill sites—and this represents a for chemical-industry players to build new kinds of processing structure that cannot easily be scaled up. profitable businesses, which, as noted above, could represent a profit pool of $55 billion per year by 2030. In our view, the chemical industry could have at least a temporary role in supporting the plastics-waste- Under a scenario where much larger quantities of management sector as it ramps up its operations. plastics waste are routed for reuse instead of going In industries such as aluminum and , where to landfill and incineration, we see a potential recycling has become part of the industry’s structure, for chemical companies to transform two areas: producers played an important role in getting polymers produced from mechanical recycling, and the whole field of pyrolysis and chemical recycling recycling established, including making investments of used plastics. Projecting a step further, it’s in and having of recycling infrastructure. possible to imagine a wholly new configuration of A seat at the table and plastics plants. There has been confusion on the part of all First, petrochemical and plastics companies are stakeholders—which, besides the chemical industry, strongly placed to advance the development of include policy makers, consumers, the waste- improved technologies for mechanical recycling management industry, OEMs, and others—about and the markets for polymers made from mechanical who is responsible for managing plastics waste. recycling. Some companies have started to make Customers and consumers have been so happy with moves in this area—for example Borealis and the versatility, convenience, and low cost of plastics LyondellBasell have recently acquired polymer- that they have accepted the downsides linked to recycling companies in Europe—but there is clearly plastics’ ubiquity and durability, such as pollution. scope to develop this area further in view of the But the history of the chemical industry has many much increased used-plastic volumes that could examples where public opinion has ultimately become available. reversed its view on such trade-offs: from lead to chlorinated fluorocarbons to chlorinated , Second, in pyrolysis and chemical recycling, and so on. petrochemical and plastics companies are arguably ideal candidates to on technology enhancements The chemical industry is increasingly aware that it’s that will be needed to make those processes work at another of these transition points. It’s therefore better and capture higher margins. Some companies, important for the chemical industry to be at the including, for example, SABIC, are already active in table with all stakeholders, and to come with clear development work, but these are still early days. The points of view on how to solve the problems. But the focus will be on process scale, quality, and new industry is also increasingly recognizing that to technologies that can deal with the lower-value end of be a credible participant, it needs to start making the spectrum of plastics waste—a large part of the pie. meaningful and bold moves right away. In addition to their own work, chemical companies

No time to waste: What plastics recycling could offer 4 can back small start-up companies active in this area on pyrolysis-treated waste from the large volume of with promising technology offerings. newly available waste plastics that could be coming into the market, alongside the or natural- Thinking big and bold gas-liquids feeds they have traditionally been using Beyond this, there’s scope for chemical companies (Exhibit 2). to think big and bold about what would be possible with a massively increased flow of plastics waste ready This is the kind of investment that petrochemical for reuse. In a scenario where pyrolysis technology companies are well used to making—involving large matures and offers low-cost economics in large-scale investment sums and requiring the of plants, it is possible to imagine a new type of fully large-scale plants, and taking risks where future integrated plant configuration, able to accept used prices are a key component of the equation for plastics as well as traditional feedstocks. Our research value creation. suggests that the economics of such plastics waste– based feedstocks could be highly competitive with Established plastics producers would also be in a –based feedstocks at crude-oil prices strong position to invest in mechanical recycling Industryof $75 per barrel Pub 2018and still competitive at a level of on a large scale—a much larger scale than what has $65No pertime barrel. to waste: What plastics recycling couldbeen offer tried to date due to the constraints of plastics- Exhibit 2 of 2 waste supply. They would also be able to make these Petrochemical and plastics companies would be large-scale mechanical recycling units part of their well placed to invest in new feedstock units based integrated production sites.

Exhibit 2 How plastics waste could feed into an integrated petrochemicals complex.

Product flows

Integrated operation

eet mer t mp prt prt prt be

r prt e rb e et prert

eet mer e reer reer re te eer2 p1 etre rt

1 To treatment plant for disposal of final residue. 2 Processing of plastics waste to convert it to chemical feedstock, along with waste-to-energy units to supply energy requirements. Source: McKinsey analysis

5 McKinsey on Chemicals September 2018 Working with other stakeholders Finally, there’s a clear role for chemical companies to get involved with and work alongside other A clear change is under way in the business and stakeholders. The waste-management sector will societal environments in which the chemical be the one to take the lead on expanding its operations, industry is operating, with consumer sentiment which should be helped by a new virtuous circle of about plastics-waste pollution on the rise, regulators much higher plastics-waste volumes to handle, and imposing new requirements, and a wider embrace this should attract more investment and technology of circular-economy thinking in the business development, particularly in areas such as automation. community. Leaders in the chemical industry clearly But chemical companies can help in improving the recognize this and want to act. Producers face a mix operations of plastics- and sorting by of challenges and opportunities, but it’s clear that contributing new technology in areas such as better the industry can make a significant contribution to solvents and additives for washing plastics as well resolving those challenges and to also build a new as tracing materials that can be added to plastics to recycling-based dimension to the plastics business. facilitate automated infrared sorting.

1 Our forthcoming report, The circular economy in At the same time, chemical companies building petrochemicals: Plastics recycling, will present additional large-scale pyrolysis facilities may consider and more detailed findings. 2 partnering with or investing in waste companies See “Saving the ocean from plastic waste,” November 2015, McKinsey.com. as a way to ensure the supply of large quantities of plastics waste that they will need, at least in the Thomas Hundertmark (Thomas_Hundertmark@ early days, in a pattern not dissimilar to the McKinsey.com) is a senior partner in McKinsey’s aluminum and paper industries. office,Chris McNally ([email protected]) is a partner in the office,Theo Jan Simons As the makers of plastic resin, chemical companies ([email protected]) is a partner in the are also strongly placed to move thinking forward Cologne office, andHelga Vanthournout (Helga_ about how to optimize the of plastic packaging [email protected]) is a senior expert in the for ease of recycling. Besides working with CPG Geneva office. companies, chemical companies will have an The authors wish to thank Florian Budde, Stefan important role to play in discussions with consumer Emprechtinger, Manuela Hollering, Henry Keppler, and regulators. Clearly this is an area Mirjam Mayer, and Christof Witte for their contributions where some companies are already active, but there to this article. is plenty of scope to do more. Designed by Global Editorial Services. Copyright © 2018 McKinsey & . All rights reserved.

No time to waste: What plastics recycling could offer 6