Fueling Plastics

Untested Assumptions and Unanswered Questions in the Plastics Boom

• The infrastructure to produce new plastics is growing rapidly. Massive investments in new plastics infrastructure rest on two critical but as yet unquestioned assumptions: (1) that demand will increase continuously and (2) that supplies of cheap feedstocks will remain available for decades. • Demand growth is specifically projected among two segments of the population: millennials and consumers in the Global South. • Evidence of shifting consumer attitudes against single-use, disposable plastic casts doubt on industry assumptions of indefinite demand growth. • Because plastic production depends heavily on cheap fossil fuel feedstocks and energy, the coming phase-out of fossil fuels will force plastic producers to bear more of their upstream costs, dramatically altering the investment risk facing their production facilities. • Alternative plastics, such as bio-based and electricity-based plastics, entail their own economic and environmental challenges, and require distinct production processes not found in investments currently being planned. • To date, industry assumptions have received little critical attention despite their central importance to the long-term prospects for these investments and for the plastics industry as a whole. • Investors and analysts should ask whether the current plastics boom poses the same risks to assets that it poses to communities, ecosystems, and the planet.

The Long-Term Prospects for the Plastics Boom | 1 | Center for International Environmental Law To address the urgent threat of cli- mand for their products will both through 2040.2 The International mate change, the global community increase for decades. Recent social, Energy Agency’s New Policies Sce- must rapidly reduce its use of fossil political, and economic changes call nario — which predicts significant fuels as a source of energy. Almost these assumptions into question, increases in greenhouse gas emis- all plastics are made from fossil fu- and the rationale underlying these sions from oil use for transportation els, and the two product chains investments is not being adequately — forecasts that 44% of the increase are intimately linked. Even small vetted or tested. Stakeholders, in- in crude oil consumption through changes in the price of oil or gas cluding investors in these projects 2040 will be for petrochemical pro- can have significant consequences and members of the communities duction.3 for the plastics industry. It should where they are being built, should be expected, therefore, that a ma- demand answers to the many ques- Put simply: the natural gas jor shift in fossil fuel markets, and tions raised around the viability of boom in the US has made an eventual phase-out of fossil fuels these new projects. plastic feedstocks really, as an energy source, will fundamen- tally affect the long-term economic Industry really cheap. prospects of the plastics industry. Moreover, plastic production is it- Expectations The plastics and fossil fuel industries self a carbon-intensive process and is are investing heavily in new capacity The plastics industry expects con- likely to be impacted by regulation to increase ethylene and propylene tinual, unfettered growth in plastic that applies a cost to carbon. production over the next several de- production and consumption over cades. As of December 2017, the Despite these factors, plastics man- the next several decades. Saudi Ar- chemical industry has already an- ufacturers are accelerating their amco is investing heavily in petro- nounced over $185 billion of new 1 investments in new production fa- chemicals; ExxonMobil projects investments in the United States cilities under the assumption that that naphtha and natural gas liquids alone, mostly in “chemistry and supplies of their feedstocks and de- will be used primarily as feedstocks plastics products.”4 Other observers “expect China to invest more than Trends in Chemical Industry Growth $100 billion in coal-to-chemicals technology in the next five years.”5 These investments, as well as those in other parts of the world, lead an- alysts to expect production capacity for both ethylene and propylene to increase by one-third between 2016 and 2025.6 In the United States, producers of polyethylene are ex- pecting to increase production ca- pacity by as much as 75% by 2022.7 The petrochemical industry expects two large groups of consumers to create the demand for increasing supplies of single-use, disposable plastics: millennials in the United States and European Union8 and consumers in the Global South whose incomes are rising.9 These assumptions, however, ignore the American Chemistry Council, Shale Gas and New U.S. Chemical Industry Investment: $164 Billion and Count- proliferation of social and politi- ing, slide 9 (Apr. 2016), available at https://www.slideshare.net/MarcellusDN/acc-shale-gas-and-new-us-chemi- cal changes that call into question cal-industry-investment-164-billion-and-counting.

The Long-Term Prospects for the Plastics Boom | 2 | Center for International Environmental Law industry assumptions of unfettered to look at options to address marine “endeavo[r] to reduce unnecessary growth in plastic demand and con- litter and microplastic, including the plastic use.”24 sumption. possibility of a new legally binding agreement.22 Significantly, govern- None of these developments by In North America and Europe, ac- ments specifically acknowledged themselves signal an immediate end tion is being taken at the local, na- “the challenges of addressing marine to the plastics economy — particu- tional, and supranational level to re- plastic pollution in the face of in- larly given the limited control peo- duce plastic consumption and waste. creasing production and consump- ple have over packaging choices in Over the past several years, bans tion of plastic in products and pack- much of the world. Viewed together, 10 on plastic bags, plastic microbe- aging.”23 Accordingly, UNEA urged however, they demonstrate a grow- 11 ads, and plastic buds (the stems that all countries and stakeholders ing resistance in many parts of the of cotton swabs)12 have multiplied. Moreover, in January 2018, the Eu- ropean Commission announced a Plastic Bag Bans in the US and the World Europe-wide strategy to reduce plas- tic pollution and ensure that all plas- tic in Europe is recyclable by 2030,13 and the United Kingdom pledged to eliminate all avoidable plastic waste by 2042.14 Importantly, these efforts are not solely being pursued in the United States and Europe, but are also tak- ing place in the very markets the in- dustry hopes to exploit. So far, a doz- en African countries have banned, partially banned, or taxed disposable or single-use plastic bags.15 Taiwan has announced a ban on microbeads beginning in mid-2018,16 a ban on plastic straws in 2019,17 and the in- tent to ban all single-use plastic by 2030.18 China has banned imports of several kinds of plastic waste.19 Finally, on the international stage, the plastics crisis is attracting at- tention and concern.20 As evidence of the pervasiveness and severity of plastics pollution becomes inescap- able, nations of the world are de- manding — and now actively pur- suing — a global response. From December 4 to 6, 2017, the United Nations Environmental As- sembly (UNEA) met in Nairobi, 21 Kenya. At this meeting, UNEA Plastic Bag Bans in the World, ReuseThisBag.com, https://www.reusethisbag.com/reusable-bag-infographics/plas- decided to create an expert group tic-bag-bans-world.php (last visited Mar. 14, 2018).

The Long-Term Prospects for the Plastics Boom | 3 | Center for International Environmental Law Thomas Hawk/Flickr world, and among the international the bulk of the fossil material is pro- are used for fuel as well, while the community, to the continued ex- cessed to become fuel for combus- ethane and some propane are used pansion of plastics use at the scale tion, and another part is sent for use to make petrochemicals. Natural envisioned and demanded by the in chemical production, especially gas is typically 90-95% methane, al- current wave of plastic infrastructure the production of plastics. The pro- though it can have a greater share of investments. duction processes of plastics and fos- NGLs.26 sil fuels are therefore closely linked, In addition to anticipated increas- both in the product chains and in These materials — natural es in demand, the plastics industry physical location. expects that plastic feedstocks will gas liquids from gas de- remain cheap and abundant for the Originally, petrochemicals (plastics) velopment and naphtha next several decades. As will be dis- were a way for fossil fuel companies from oil refining — exist in cussed below, however, global efforts to make money from their waste abundance because there is to reduce fossil fuel consumption streams. However, when fossil fuel threaten these assumptions and are production materials will no lon- demand for the other com- likely to raise the cost of plastic pro- ger be used for energy in the not- ponents of the gas and oil. duction significantly. Together, these too-distant future, plastics produc- converging forces raise fundamen- ers will need to adapt their supply All of the chemicals in NGLs can be tal questions about the long-term chains and industry economics to be combusted, like methane, so their profitability (and viability) of these are fundamentally different. floor price is determined by the multi-billion dollar investments. relative amount of energy one can Natural Gas is the primary source create by burning the heavier NGL Relationship between of chemicals for plastic production molecules. Typically, petrochemical in North America and the Middle producers will buy these NGLs to 25 Fossil Fuels and East. Natural gas is composed of make plastics and other products, Plastic Production mostly methane, as well as ethane, raising the price above the floor val- propane, butane, and other chemi- ue. However, there is so much avail- Fossil fuels (oil, gas, and coal) com- cals. Typically, the methane is used able natural gas in the United States prise the primary feedstocks for as fuel, while the remaining chemi- that some ethane is being sent into plastics, with nearly all plastic de- cals (“natural gas liquids” or NGLs) the fuel stream with methane (a pro- rived from fossil sources. Typically, are separated out. Some of the NGLs cess called “ethane rejection”) and is

The Long-Term Prospects for the Plastics Boom | 4 | Center for International Environmental Law currently trading at its floor heating Plastic Supply Chain value. Put simply: the natural gas boom in the US has made plastic feedstocks extremely cheap.27 Oil is the primary source of chemi- cal feedstocks for plastics in Europe and Asia,28 although the importa- tion and use of natural gas liquids is growing.29 During the refining process, oil is heated to different temperatures and separated by boiling point. One of the products of this process is naph- tha, which is used to make ethylene, propylene, and gasoline, as well as other petrochemicals.30 Depending on the type of oil, naphtha can rep- resent between one sixth and one third of the total production from a refinery.31 American Chemistry Council, Shale Gas and New U.S. Chemical Industry Investment: $164 Billion and Count- ing, slide 5 (Apr. 2016), available at https://www.slideshare.net/MarcellusDN/acc-shale-gas-and-new-us-chemical- Because naphtha is a product of the industry-investment-164-billion-and-counting. oil refining process, its price is direct- ly and powerfully linked to the price maybe on the prospect that the Celsius and to strive to keep tem- of oil.32 Currently between 4% and world’s growing supplies of cheap perature increases to no more than 8% of global oil production is used natural gas could be short-lived. … 1.5 degrees.36 This agreement sig- to make plastic. Business-as-usual The world does not use coal to pro- naled an understanding by the glob- projections reflect industry assump- duce industrial quantities of olefins al community of the need to phase tions that, by 2050, plastic’s share of … only China uses its coal for these out fossil fuels as an energy source global oil use will be around 20%.33 purposes.”34 and their commitment to do so. Europe’s reliance on oil as a plastic The process of producing olefins Despite this commitment, plastic feedstock is an important reason the (ethylene and propylene) from coal producers and fossil fuel companies, shale gas boom has given the US a is also extremely carbon-intensive, which are often the same companies, massive competitive advantage in even when compared to other ole- are investing heavily in new produc- plastics production in recent years. fin-producing processes.35 Efforts to tion capacity, especially in the Unit- reduce, or add a cost to, emissions ed States.37 Recent developments, Coal can be turned into plastics, al- will make an already expensive pro- however, cast significant doubt on though the process is typically more cess even more so. the assumptions underlying these expensive than processes that use investments. naphtha or natural gas liquids. This The Phase-Out of point is emphasized by a Deutsche To achieve the goals of the Par- Bank report, which states, “China’s Fossil Fuels is Agreement, the transition away coal-to-olefins and/or coal-to-urea from fossil fuels must necessarily do not make economic sense in a In December 2015, over 190 coun- be rapid. A 2016 analysis from Oil world awash in low-cost natural tries signed the Paris Agreement, Change International found that gas. Notwithstanding, China con- determined to limit atmospheric potential future emissions from cur- tinues to grow its coal-to industries; warming to well below 2 degrees rently operating oil and gas fields

The Long-Term Prospects for the Plastics Boom | 5 | Center for International Environmental Law sale of non-electric cars by 2030.44 The following month, France an- nounced that it would ban sales of gasoline- and diesel-powered cars by 2040,45 and two weeks later, the United Kingdom announced it would do the same.46 Then, in October, Paris, France, announced that it would ban fossil-powered cars ten years sooner, by 2030.47 The same month, China announced that it was pursuing a similar ban.48 Wang Chaunfu, Chairman of Chinese car www.lofotendeclaration.org manufacturer BYD, expects the and coal mines would bring atmo- one hundred major companies have electrification of all vehicles in the spheric warming beyond 2 degrees; committed, through the RE100 ini- country to be complete by 2030.49 reserves of oil and gas alone would tiative, to transition their operations Other countries, including Austria, take us past 1.5.38 to 100% renewable energy.42 Finally, Denmark, Ireland, Japan, the Neth- investors, from individuals to large erlands, Portugal, Korea, and Spain, The divergence between what is nec- institutions with total assets of over along with eight US states, have also essary to achieve the goals of the Par- $6 trillion, have committed to divest declared goals for electric car sales.50 is Agreement and a business-as-usual their portfolios from fossil fuels.43 In addition to their direct regulato- scenario is stark. Fossil fuel company ry impacts, these national targets in projections — even those that claim This accelerating pressure does major markets will create powerful to account for aggressive climate not exist in a vacuum. Recent an- incentives for automotive manu- action — predict growth in produc- nouncements from governmental facturers to reduce their reliance on tion and consumption for decades and industry actors indicate that the internal combustion engines. to come.39 These projections, and shift away from oil as a fuel for trans- the assumptions underlying them, portation may happen more rapidly Not surprisingly, therefore, 2017 are the bedrock upon which new than expected. In June 2017, India also saw a wave of announcements investments in ethane crackers and announced that it would ban the from major car manufacturers about other petrochemical production ca- pacity are being built. Public pressure to meet the Paris Agreement’s goals from businesses, public officials, and civil society is growing. In August 2017, hundreds of civil society organizations signed the Lofoten Declaration, calling for a managed decline of fossil fuel production to avoid the worst impacts of climate change.40 The United States Conference of May- ors released a statement supporting Joe Brusky/Flickr the Paris Agreement and “vow[ing] that the nation’s mayors will con- tinue their commitment to reduce greenhouse gas emissions.”41 Over

The Long-Term Prospects for the Plastics Boom | 6 | Center for International Environmental Law their plans to produce electric vehi- cles. General Motors revealed a plan to introduce 20 all-electric vehicles by 2023, stating that the company “believes in an all-electric future.”51 Volvo announced that by 2019 all of its new cars would contain an electric motor;52 Jaguar Land Rover would do the same by 2020.53 The

VW Group announced it would Jacek Sopotnicki/Shutterstock invest $84 billion in batteries and electric cars;54 Daimler will invest another $10 billion.55 Announce- ments from Ford,56 Hyundai,57 Renault, Nissan, and Mitsubishi,58 as well as Toyota and Mazda,59 simi- larly indicate plans to shift the focus to electric vehicles.

These and other changes are likely to outage, thus performing the exact the ability of “peaker” plants to re- reduce demand for oil below fore- “peaking” function for which gas spond to needs on the electric grids. cast levels in the coming decades. plants are touted.60 The neighboring The fact that batteries and grid-scale Similarly, changes in the market for state of Victoria is now planning to storage can serve that same function natural gas suggest future demand install a similar battery pack.61 as cheaply or more cheaply than gas may not simply continue to expand, massively undercuts those optimis- as many expect. These developments are not restrict- tic projections. ed to Australia. In the United States, Due to the shale gas boom in the for example, California has already These changes have not gone unno- United States, natural gas has in- deployed a massive battery pack,62 ticed. Continually increasing price creased in availability and come and a new report in Minnesota pre- competition from renewables has down in price. However, optimis- dicts that grid-scale storage will be- led to a dramatic and unexpected tic assumptions about the future come cheaper than new natural gas decline in the market for new gas of natural gas are being challenged plants beginning in 2019.63 turbines. General Electric, the larg- by changes to energy economics, as est gas turbine installer in the world, well as an evolving understanding Subsequently, a ruling by the US is expecting 2018 to be its worst year of natural gas’s true environmental Federal Energy Regulatory Com- of turbine installations in 15 years.66 cost. mission noted that energy storage Siemens, another major supplier of companies will be able to compete gas turbines, noted a 30% drop-off A key claim for the necessity of nat- with traditional power plants by in orders in 2017 as well.67 ural gas is that it can be used in peak 2020.64 As noted by business analyt- demand scenarios, responding to a ics firm IHS Markit: “The question Forecasters in 2010 expected glob- rapid increase in the need for energy. is no longer if batteries will disrupt al sales of 300 large gas turbines per The performance of quick-dispatch the power sector … but rather how year.68 In 2013, 212 were ordered, batteries serves to undermine ex- much and how fast?”65 and in 2017, just 122.69 pectations about the need for nat- ural gas to serve this function. In The significance of these econom- Many proponents of natural gas also December 2017, a major battery ic changes bears repeating. One of claim that it has a lower greenhouse installation in South Australia man- the key arguments for the contin- gas emissions profile than coal and is aged to successfully dispatch pow- ued necessity — and success — of therefore a climate-friendly fuel op- er milliseconds after a coal plant natural gas as an energy source is tion. However, a recent NASA study

The Long-Term Prospects for the Plastics Boom | 7 | Center for International Environmental Law confirmed that, when methane leak- for use in the production of plas- of their preferred feedstocks. As age is properly accounted for, natu- tics. These materials — natural gas the market for burnable fossil fu- ral gas is no better — and perhaps liquids from gas development and els is dramatically reduced, plastics much worse — than coal as far as naphtha from oil refining — exist in producers have three choices: They the climate is concerned.70 As such, abundance because there is demand must absorb more of the cost of pro- continued and accelerating action for the other components of the gas duction of fossil fuels and the dis- to reduce greenhouse gas emissions and oil. posal cost of the majority of unused and combat climate change could material, change their production further impact the economic viabili- To illustrate this point, it’s instruc- processes to use different compo- ty of natural gas as an energy source. tive to compare the capital expendi- nents of fossil fuels, or switch to al- ture for ExxonMobil’s upstream (the ternative feedstocks. The foregoing social, political, and segment which explores for and drills economic developments, taken to- for crude oil and gas) and chemi- If the source of feedstock is natural gether, undermine the rosy predic- cal segments. In 2016, Exxon’s up- gas, it is possible to use the methane tions of future fossil fuel use relied stream activities earned almost $200 in natural gas to produce feedstock on, and promoted by, the fossil fuel million in profits, compared to over chemicals for plastics. Theis meth- and plastics industries. $4.6 billion for the chemical seg- od, called the Fischer-Tropsch pro- ment.73 However, capital expendi- cess, is similar to the coal-to-olefins Effects on the Plastic tures for ExxonMobil’s upstream ex- process used in China.75 However, it ploration and production amounted is considerably more expensive than Supply Chain to over $14.5 billion, whereas ex- using ethane and other larger chem- penditures for the chemical segment icals.76 As the global community phases out were only $2.2 billion.74 While it is fossil fuels, markets for oil, gas, and beyond the scope of this paper to at- The non-naphtha components of oil coal — the feedstocks for plastics — tempt to apportion costs of upstream can also be cracked and refined to will necessarily be affected. While make precursor chemicals for plas- it is difficult to predict exactly how tics.77 However, as is the case with this will happen, there are some If the market for burnable natural gas, the most efficient pro- predictable consequences of such a fossil fuels diminishes, cesses are the ones already in use, significant shift in the markets for plastics producers must and if the industry is required to fossil fuels. either absorb all fossil fuel use other parts of the oil mix, it will make the process more expensive. In the short term, sociopolitical and production and disposal economic changes that reduce de- costs or change their pro- In addition to changes in produc- mand for fossil fuels may help plas- duction processes to use tion costs and processes, changes tics manufacturers. Dow Chemical will also be necessary for plants and (now DowDuPont), an American the various components of equipment. Many facilities that company that uses natural gas to fossil fuels. are now operational or are being produce plastics, revealed as much planned perform specific functions in a statement to the United States activities to chemical production, and cannot easily be repurposed. Congress.71 In the statement, Dow the disparity in the scale of expenses The most extreme examples are the made its interests clear: It wanted for the different segments illustrates new ethane crackers in the United the price of natural gas as low as the degree to which upstream fossil States, which are designed specifical- possible.72 fuel production subsidizes down- ly to produce ethylene from ethane, a process that produces virtually no This potential price decrease only stream chemical production. propylene.78 If plastic producers are helps plastic manufacturers if the This dynamic poses a fundamental required to use new feedstocks and total amount of supplied fossil challenge to plastics producers, as new production processes, their fuels can satisfy the demand for they need demand for fossil fuels production facilities — which re- feedstocks. As stated before, only to drive the large-scale production quire massive investments of time a fraction of oil and gas is efficient

The Long-Term Prospects for the Plastics Boom | 8 | Center for International Environmental Law US Industrial Sector Energy Consumption by Type of Industry, 2016 of the cost of plastic production is its energy input,85 and the produc- tion process itself is enormously carbon-intensive. As noted in an American Chemistry Council re- port, “The business of chemistry is energy-intensive; in fact, it is the second largest user of energy (fuel and nonfuel) in manufacturing sec- tors (petroleum and coal products is the largest). Within the chem- ical industry, this is especially the case for basic chemicals,” including ethylene, propylene, and plastic res- ins.86 Regulations that make green- house gas emissions more expensive will make plastic production more expensive as well. A 2016 report from the Environ- mental Integrity Project underscores Note: Together, bulk chemicals and refining account for 43% of US industrial sector energy consumption. Emis- how emission-intensive these new sions from both sectors are relevant when considering the impacts of plastic production. 87 Use of Energy in the United States Explained: Energy Use in Industry, Energy Information Administration (last petrochemical projects are. In visited Mar. 19, 2018), https://www.eia.gov/energyexplained/index.cfm?page=us_energy_industry. 2015 alone, the emissions from 44 planned or permitted petrochemical and capital — will have to change price tag of well over $4 billion.”81 projects would amount to 19 coal- as well. At present, ExxonMobil and Saudi fired power plants.88 The largest eth- Arabia Basic Industries Corp. are ane cracker in St. James, Louisiana, Because of this need, it is important partnering on a $9.3 billion ethane has projected CO2-equivalent emis- to note both the enormous size of cracker in Texas.82 sions of more than 10 million tons individual facilities and the risk in- per year.89 By comparison, the aver- herent in their construction. A typ- The wisdom of constructing new age 500-megawatt coal-fired power ical ethane cracker in the US Gulf ethane plants in the United States plant emits 4.6 million tons of car- Coast formerly cost between $1.5 is being questioned by some with- bon dioxide per year when operated 79 and $2 billion to construct. How- in the chemical industry itself, who continuously.90 ever, shortages of labor and materi- are warning that a supply glut could als are significantly driving up costs. depress ethylene prices.83 Moreover, Additional investigation and analy- In 2017, the total project cost of swings in oil and gas prices, key sis are needed to project exactly how new ethane crackers rose 19% to determinants of the relative com- the production costs will change as $2.5 billion, a nearly 40% increase petitiveness of individual crackers, the global community shifts away over projections at the beginning of have already caused delays and proj- from fossil fuel combustion as a this wave of US petrochemical con- ect cancellations, especially in the source of energy. It is well under- struction.80 Northeastern United States.84 stood, however, that the chemical feedstocks for plastic production are Other estimates place the cost even Finally, before the industry sees abundant because of fossil fuel de- higher. According to the American fundamental changes to its supply velopment and that the fundamen- Chemistry Council, “[a] new natu- chain, plastic production may be tals of the industry will be radically ral gas-based ethane cracker could challenged in the short term as ef- changed when this is no longer the have an annual capacity of 1.5 mil- forts to combat climate change ap- case. Plastic production will be more lion metric tons or more, with a ply a price to carbon. Two thirds expensive as fossil fuels phase out.

The Long-Term Prospects for the Plastics Boom | 9 | Center for International Environmental Law Alternative with production costs for ethylene other major challenges, such as re- and propylene doubling or tri- circulating various persistent organ- Feedstocks are More pling. As one observer noted, “Us- ic pollutants that are banned under Expensive ing electricity and carbon dioxide international law in the biosphere.99 as the main feedstock for ethylene Nevertheless, setting aside concerns As the global community begins and propylene production will only about the feasibility of creating a to phase out fossil fuels, some have make sense under a very strict cli- circular plastics economy while suggested that plastics manufactur- mate policy where fossil feedstock is maintaining projected levels of out- ers switch to alternative, low-carbon completely phased out.”95 put, recycled plastic requires differ- methods of plastic production,91 in- ent facilities to produce than virgin cluding recycled plastics, bio-based Finally, proponents of recycling — plastic,100 raising further questions plastics, and plastics formed from especially in Europe, where the EU about the prudence of building new electricity. As a preliminary matter, has committed to circular economy ethane crackers. it bears note that most of these al- principles — argue that the indus- ternative feedstocks require substan- try can increase the share of plastic Switching to alternative feedstocks tially different production processes that gets re-used to reduce its depen- or recycled plastics, even if plausible 96 and technologies than existing fos- dence on fossil fuels. According to in the short term, would not solve sil-based plastics. Accordingly, these a report by GAIA and Zero Waste the industry’s problem of grow- technologies would be unlikely to Europe, however, even the best ing opposition to plastic pollution. improve the economic prospects of available recycling technology, fully Plastics made from alternative feed- existing or proposed petrochemical deployed, could only process a max- stocks (but with the same chemical investments even if they were wide- imum of 53% of the current plastic properties) would pose many of the 97 ly deployed. More fundamentally, mix. (To date, only 9% of plastic same long-term hazards and would 98 these purported solutions present has ever been recycled.) Therefore, likely be subject to the same social several of the same environmental it is extremely unlikely that the recy- and political opposition as modern problems as traditional plastics and cling process could absorb the cur- plastics. cost more to produce. rent plastic waste stream, much less planned increases in plastic produc- Moreover, and as noted above, the Proponents of bio-based plastic sug- tion. Recycled plastics also present technologies and processes required gest that, by using organic carbon instead of fossil carbon to produce plastics, the industry can wean it- self of its dependence on fossil fu- els.92 These plastics are considerably more expensive to produce, and many (because they are chemically identical to fossil-based plastics) still present the same challenges of waste disposal and plastic pollution.93 Another alternative to fossil-based plastic is to use electricity to form

the chemical feedstocks for plastics Emilian Robert Vicol/Flickr by pulling carbon dioxide out of the air.94 This process requires enormous energy inputs, even when compared to traditional plastic production, which is itself energy-intensive. The plastics produced in this way would be considerably more expensive,

The Long-Term Prospects for the Plastics Boom | 10 | Center for International Environmental Law Karsten Würth/Unsplash

for these alternative feedstocks differ foreseeable future by steady demand for decades to come, even as the glob- substantially from the technologies for and supply of fossil fuel feed- al community has begun to phase used to produce virgin plastic resins stocks. out the very fossil fuels upon which from fossil fuels. Accordingly, in- plastics producers depend. Proposed creased adoption and use of alterna- To date, these assumptions have alternatives to virgin fossil-based tive feedstocks would neither benefit received little critical attention de- plastics, in addition to facing their nor justify the petrochemical-based spite their central importance to the own economic and environmental plastics infrastructure that is the fo- long-term prospects for these invest- challenges, will in no circumstances cus of current investment. ments and for the plastics industry have positive economic impacts on as a whole. The foregoing analysis the current wave of investments in Conclusion suggests this is a significant over- petrochemical-based plastics infra- sight, which raises serious questions structure. Plastics manufacturers and fossil about whether project proponents fuel companies are currently invest- and investors are adequately consid- Plastics producers are depending on ing hundreds of billions of dollars in ering the risks of imminent and po- increasing demand and abundant new production facilities, with the tentially significant changes in both feedstock supply to fuel their in- heaviest investments focused in the the supply chains of their feedstocks dustry for the next several decades. Northeastern US and the US Gulf and the demand for their products. These assumptions may be un- Coast. With plastics production ca- founded and unjustified. Plastics manufacturers assume de- pacity in the US already far exceed- mand for disposable plastics will There is compelling evidence that ing domestic demand, and global continue to rise, despite evidence the rush to build new plastics in- capacity exceeding existing global that global awareness of plastic pol- frastructure poses massive risks for plastics demand, these investments lution is growing and cultural atti- communities, ecosystems, and the assume producers will reach new tudes are changing. Industry invest- planet. Investors and analysts need and steadily growing markets for ments reflect a further underlying to ask whether the plastics boom is their products, and that production assumption that supplies of cheap putting assets at risk as well. processes will be subsidized for the hydrocarbons will remain the norm

The Long-Term Prospects for the Plastics Boom | 11 | Center for International Environmental Law Endnotes

1. See Anjli Raval & Andrew Ward, Saudi Aramco sustainable products is growing. These trends https://qz.com/1065681/after-issuing-the- Plans for a Life After Oil, Financial Times are driving increased demand for chemical worlds-harshest-ban-on-plastic-bags-kenya- (Dec. 10, 2017), https://www.ft.com/content/ products serving large end-use segments such as adjusts-to-life-without-them/. e46162ca-d9a6-11e7-a039-c64b1c09b482. packaging, automotive, consumer goods, and construction.”). 16. See Juvina Lai, Taiwan to Ban All Cosmetics 2. See ExxonMobil, 2018 Outlook for Energy: Containing Microbeads, Taiwan News (Aug. 4, A View to 2040 24 (2018), available at http:// 10. See, e.g., State Plastic and Paper Bag Legislation, 2017, 4:55 PM), https://www.taiwannews.com. cdn.exxonmobil.com/~/media/global/files/ National Conference of State Legislatures tw/en/news/3225656. outlook-for-energy/2018/2018-outlook-for- (July 5, 2017), http://www.ncsl.org/research/ energy.pdf. environment-and-natural-resources/plastic- 17. See Taiwan to Ban Disposable Plastic Items by bag-legislation.aspx; Ilya Rzhevkiy, EU Ban 2030, Japan Times (Mar. 1, 2018), https:// 3. See International Energy Agency, World on Plastic Bags Making Impact, Epoch Times www.japantimes.co.jp/life/2018/03/01/ Energy Outlook 2017 (2017), http://www. (Aug. 31, 2016, 4:19 PM), http://www. environment/taiwan-ban-disposable-plastic- iea.org/weo2017/#section-1-2. theepochtimes.com/n3/2147559-eu-ban-on- items-2030/. plastic-bags-making-impact/. 4. See Fact Sheet, American Chemistry Council, 18. See id. U.S. Chemical Investment Linked to Shale 11. See, e.g., Jareen Imam, Microbead Ban Signed Gas: $185 billion and Counting (Dec. 2017), By President Obama, CNN (Dec. 31, 2015, 19. See Kimiko de Freytas-Tamura, Plastics Pile Up available at https://www.americanchemistry. 12:46 PM), http://www.cnn.com/2015/12/30/ as China Refuses to Take the West’s Recycling, NY com/Shale_Gas_Fact_Sheet.aspx. See also health/obama-bans-microbeads/index.html; Times (Jan. 11, 2018), https://www.nytimes. American Chemistry Council, Shale Gas and Adam Vaughan, UK Government to Ban com/2018/01/11/world/china-recyclables-ban. New U.S. Chemical Industry Investment: $164 Microbeads From Cosmetics by End of 2017, The html. Billion and Counting (Apr. 2016), available Guardian (Sept. 2, 2016, 12:49 PM), https:// 20. See Lili Fuhr, Why a Global Treaty is Needed to at https://www.slideshare.net/MarcellusDN/ www.theguardian.com/environment/2016/ Tackle Our Plastics Problem, World Economic acc-shale-gas-and-new-us-chemical-industry- sep/02/uk-government-to-ban-microbeads- Forum (May 23, 2017), https://www.weforum. investment-164-billion-and-counting. from-cosmetics-by-end-of-2017; Laura org/agenda/2017/05/we-need-a-global- Walters, Government Bans Production and treaty-to-tackle-the-worlds-plastics-problem- 5. See Gerald Ondrey, Methanol-to-Olefins Plant Sale of All Microbeads, Stuff.co.nz (Dec. 4, heres-why; https://www.unenvironment.org/ Starts Up in China, Chemical Engineering 2017, 6:09 PM), https://www.stuff.co.nz/ news-and-stories/press-release/un-declares-war- (Feb. 22, 2017), http://www.chemengonline. national/politics/99525500/government- ocean-plastic. com/methanol-to-olefins-plant-starts-up-in- bans-production-and-sale-of-all-microbeads; china. Canada Microbead Ban Enters into Force, 21. See United Nations Environmental Assembly, Business Green (Jan. 5, 2018), https://www. 6. See Mitsubishi Chemical Techno-Research, Draft resolution on marine litter and businessgreen.com/bg/news/3023850/canada- Global Supply and Demand of Petrochemical microplastics, UNEP/EA.3/L.20 (Dec. 5, microbead-ban-enters-force; Lucas France, Products relied on LPG as Feedstock (Mar. 2017), available at https://papersmart.unon. Banning Microbeads in Cosmetics in France by 7, 2017), available at http://www.lpgc.or.jp/ org/resolution/uploads/k1709154.docx. 2018, EcoMundo (Mar. 22, 2017), https:// corporate/information/program5_Japan2.pdf. www.ecomundo.eu/en/blog/ban-microbeads- 22. See id. ¶ 10(d)(ii). 7. See Katherine Blunt, Ethane Consumption Surges cosmetics-france-2018; Carina Van Uffelen, with Petrochemical Boom, Houston Chronicle Ban on Microbeads in UK, Italy and New 23. See id. at 2. (Feb. 24, 2017), https://www.houstonchronicle. Zealand, Plastic Soup Foundation (Dec. 23, 24. See id. ¶ 6. com/business/article/Ethane-consumption- 2017), https://www.plasticsoupfoundation.org/ surges-with-petrochemcial-boom-12705962. en/2017/12/ban-on-microbeads-in-uk-italy- and-new-zealand/. 25. See American Chemistry Council, 2017 php. Elements of the Business of Chemistry 60 (2017), available at https://www. 8. SPI, Plastics Market Watch: Plastic 12. See Libby Brooks, Scotland to Become First americanchemistry.com/2017-Elements-of-the- Packaging Wraps It Up 14 (3rd ed. 2015), UK Country to Ban Plastic Cotton Buds, The Business-of-Chemistry.pdf. available at http://www.plasticsindustry.org/ Guardian (Jan. 11, 2018, 5:14 AM), https:// www.theguardian.com/uk-news/2018/jan/11/ sites/plastics.dev/files/2015-03116-SPI-PMW- 26. See Ayhan Demirbas, Methane Gas Hydrate Packaging-Interactive.pdf. scotland-to-become-first-uk-ban-plastic-cotton- buds; France, supra note 11. 60 (2010). 9. See Mark Eramo, Global Ethylene Market 13. See Press Release, European Commission, 27. See Andrew Taylor, Abhijit Kodey, Adam Outlook: Low Cost Feedstocks Fuel The Rothman, & Jerry Keybl, The Feedstock Next Wave Of Investments In North First-Ever Europe-Wide Strategy on Plastics (Jan. 16, 2018), available at https://ec.europa. Advantage Continues for North American America and China 10 (2013), available at Chemical Companies, BCG Perspectives (July http://media.corporate-ir.net/media_files/ eu/commission/news/first-ever-europe-wide- strategy-plastics-2018-jan-16_en. 9, 2015), https://www.bcgperspectives.com/ IROL/11/110877/05_Global_Ethylene_ content/articles/process-industries-feedstock- Market_Outlook_Eramo.pdf; ExxonMobil 14. See Elizabeth Piper & Andrew MacAskill, advantage-continues-north-american-chemical- Financial & Operating Review http://cdn. UK’s May Pledges to Cut All Avoidable Plastic companies/. exxonmobil.com/~/media/global/files/financial- Waste by 2042, Reuters (Jan. 10, 2018, review/2016_financial_and_operating_review. 5:34 PM), https://www.reuters.com/article/ 28. See American Chemistry Council, supra note pdf (“Demand growth for chemical products is us-britain-politics-plastic/uks-may-pledges- 25, at 60. expected to continue to outpace GDP growth to-cut-all-avoidable-plastic-waste-by-2042- by nearly 20 percent per year. More than 80 29. See Carolyn Davis, Ineos Inks Agreement idUSKBN1EZ2WJ. percent of the increased demand is expected to to Ship U.S. Ethane to China Cracker, come from developing economies, particularly 15. See Lily Kuo, After Issuing the World’s Harshest Naturalgasintel.com (Nov. 21, 2017), http:// in Asia, where the middle class is expanding, Ban on Plastic Bags, Kenya Adjusts to Life www.naturalgasintel.com/articles/112516-ineos- urbanization is increasing, and the need for Without Them, Quartz (Aug. 31, 2017), inks-agreement-to-ship-us-ethane-to-china- cracker.

The Long-Term Prospects for the Plastics Boom | 12 | Center for International Environmental Law 30. See Naphtha Market Analysis By 43. See DivestInvest, https://www.divestinvest. Mashable (Sept. 26, 2017), https://mashable. Application (Chemical, Energy & Fuel) And org/ (last visited Mar. 1, 2018). com/2017/09/26/mercedes-responds-to-elon- Segment Forecasts To 2022, Grand View musk/#Ol6wQOil1mqQ. Research (Mar. 2015), available at http:// 44. See Jackie Wattles, India to Sell Only Electric www.grandviewresearch.com/industry-analysis/ Cars by 2030, CNN (June 3, 2017, 5:22 PM), 56. See Paul Lienert, Ford Creates Team to Ramp naphtha-market [hereinafter Naphtha Market http://money.cnn.com/2017/06/03/technology/ Up Electric Vehicle Development, Reuters (Oct. Analysis]. future/india-electric-cars/index.html. 2, 2017), https://www.reuters.com/article/ us-ford-motor-electricvehicles/ford-creates- 31. See Naphtha & Oil Derived Plastic, 45. See Angelique Chrisafis & Adam Vaughn, team-to-ramp-up-electric-vehicle-development- Plasticrubbish, http://plasticisrubbish. France to Ban Sales of Petrol and Diesel Cars by idUSKCN1C7224. com/2013/12/21/oil-to-plastic/ (last visited on 2040, The Guardian (July 6, 2017, 9:20 AM), July 11, 2017). https://www.theguardian.com/business/2017/ 57. See Sohee Kim, Hyundai Bolsters Electric Car jul/06/france-ban-petrol-diesel-cars-2040- Lineup to Narrow Gap With Rivals, Bloomberg 32. See Duncan Seddon, Petrochemical emmanuel-macron-volvo. (Dec. 12, 2017, 6:00 PM), https://www. Economics: Technology Selection in a bloomberg.com/news/articles/2017-12-12/ Carbon Constrained World 12 (Graham 46. See Jim Pickard & Peter Campbell, UK Plans to hyundai-bolsters-electric-car-lineup-to-narrow- J. Hutchings ed., 2010), available at http:// Ban Sale of New Petrol and Diesel Cars by 2040, gap-with-rivals. vcmstudy.ir/wp-content/uploads/2016/06/ Financial Times (July 26, 2017), https://www. VCMStudy-Duncan_SeddonPetrochemical- ft.com/content/7e61d3ae-718e-11e7-93ff- 58. See Fred Lambert, Renault, Nissan & Mitsubishi Economics.pdf. 99f383b09ff9. Alliance Will Launch 12 New All-Electric Vehicles Within the Next 5 Years, Electrek 33. See The New Plastics Economy: Rethinking 47. See Brian Love, Paris Plans to Banish All But (Sept. 15, 2017, 11:18 AM), https://electrek. the Future of Plastics, World Economic Electric Cars by 2030, Reuters (Oct. 12, 2017, co/2017/09/15/renault-nissan-mitsubishi- Forum 7 (2016), available at http://www3. 3:26 AM), https://www.reuters.com/article/us- alliance-12-new-all-electric-vehicles/. weforum.org/docs/WEF_The_New_Plastics_ france-paris-autos/paris-plans-to-banish-all-but- Economy.pdf. electric-cars-by-2030-idUSKBN1CH0SI. 59. See Brett Williams, Toyota and Mazda Join Forces to Develop Electric Vehicles, Mashable (Sept. 34. David Hurd, Shawn Park, & James Kan, 48. 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The Long-Term Prospects for the Plastics Boom | 13 | Center for International Environmental Law 67. See Ed Crooks & Patrick McGee, GE and PM), https://www.mysanantonio.com/business/ 93. See Daniel Posen, Paulina Jaramillo, Amy E. Siemens: Power Pioneers Flying Too Far from the eagle-ford-energy/article/ExxonMobil-chooses- Landis, & W. Michael Griffin,Greenhouse Gas Sun, Financial Times (Nov. 12, 2017), https:// site-near-Corpus-for-massive-11083395.php. Mitigation for U.S. Plastics Production: Energy www.ft.com/content/fc1467b8-c601-11e7- First, Feedstocks Later, 12(3) Envtl. Research b2bb-322b2cb39656. 83. See Ed Crooks, Chemical Industry Split about Letters (Mar. 16, 2017), available at http:// the Case for More US Plants, Financial iopscience.iop.org/article/10.1088/1748-9326/ 68. See id. Times (May 2, 2017), https://www.ft.com/ aa60a7/pdf. content/28649ac0-2f23-11e7-9555- 69. See id. 23ef563ecf9a. 94. See Ellen Palm, Lars J. Nilsson, & Max Ahman, Electricity- Based Plastics and Their Potential 70. See Sharon Kelly, New NASA Study Solves 84. See Anya Litvak, Waiting Game as Low Oil Demand for Electricity and Carbon Dioxide, 129 Climate Mystery, Confirms Methane Spike Prices Have Chemical Cracker Developers J. of Cleaner Prod. 548 (2016), available at Tied to Oil and Gas, DeSmog (Jan. 16, Sitting Tight, Pittsburgh Post-Gazette http://www.sciencedirect.com/science/article/ 2018, 10:22 AM), https://www.desmogblog. (Mar. 10, 2015, 12:45 AM), http://www. pii/S0959652616302529. com/2018/01/16/nasa-study-resolves-climate- post-gazette.com/powersource/companies- mystery-confirms-methane-spike-ties-oil-gas. powersource/2015/03/10/Low-oil-prices-make- 95. Id. Appalachian-cracker-plant-developers-nervous/ 71. See Statement for the Record, Dow Chemical stories/201503100013. 96. See, e.g., Press Release, Plastic Recyclers Company, Hearing on The Future of Natural Europe, 65% plastics packaging recycling Gas, before the S. Comm. on Energy and 85. See American Chemistry Council, supra note target is attainable - New study shows Natural Resources (July 19, 2011), available at 25, at 10. substantial environmental, social and https://www.energy.senate.gov/public/index. economic benefits (Dec. 13, 2017), cfm/files/serve?File_id=42c5c3ee-b9d1-69e2- 86. See id. at 57. available at http://plasticsrecyclers.eu/ 3307-f3c4fbde9a5a. news/65-plastics-packaging-recycling-target- 87. See Environmental Integrity Project, attainable-new-study-shows-substantial- 72. See id. Greenhouse Gases from a Growing environmental?utm_source=POLITICO. Petrochemical industry (2016), available EU&utm_campaign=0ad073e05a- 73. See ExxonMobil, 2016 Financial & at https://www.desmogblog.com/sites/beta. EMAIL_CAMPAIGN_2017_12_22&utm_ Operating Review 83 (2017), available at desmogblog.com/files/Petrochemical%20 medium=email&utm_term=0_10959edeb5- http://cdn.exxonmobil.com/~/media/global/ Industry%20Pollution.pdf. 0ad073e05a-189654589. files/financial-review/2016_financial_and_ operating_review.pdf. 88. See id. at 1. 97. See GAIA & Zero Waste Europe, Recycling is Not Enough: It’s Time to Rethink 74. See id. at 84. 89. See id. at 8. How to Solve the Plastic Waste Crisis 75. See Seddon, supra note 32, at 201. 90. See id. at 3. (2018), available at http://www.no-burn.org/ wp-content/uploads/Recycling-is-Not-Enough- 76. See Udo Jung et al., Why the Middle East’s 91. See, e.g., Will Beacham, Circular Economy online-version.pdf. Petrochemical Industry Needs to Reinvent Will Mean Complete Shift in Feedstocks for Itself, BCG (Nov. 7, 2016), https://www. Petchems – PwC, ICIS (Jan. 25, 2018, 10:05 98. Laura Parker, A Whopping 91% of Plastic bcgperspectives.com/content/articles/process- AM), https://www.icis.com/resources/ Isn’t Recycled, National Geographic (July industries-energy-environment-middle-easts- news/2018/01/25/10186617/circular-economy- 19, 2017), https://news.nationalgeographic. petrochemical-industry-reinvent-itself/. will-mean-complete-shift-in-feedstocks-for- com/2017/07/plastic-produced-recycling-waste- petchems-pwc/. ocean-trash-debris-environment/. 77. See Naphtha Market Analysis, supra note 30. 92. See, e.g., Barbara Grady, Bill Gates’ $14 Million 99. See Toxic Toy or Toxic Waste: Recycling POPs 78. See Jeffrey S. Plotkin, The Propylene Gap: How Sees a Future in Low-Carbon Plastics, GreenBiz. into New Products, IPEN, http://ipen.org/ Can It Be Filled?, American Chemical Society com (Sept. 15, 2016, 1:05 AM), https://www. documents/toxic-toy-or-toxic-waste-recycling- (Sept. 14, 2015), https://www.acs.org/content/ greenbiz.com/article/bill-gates-14-million-sees- pops-new-products (last visited Mar. 14, 2018). acs/en/pressroom/cutting-edge-chemistry/the- future-low-carbon-plastics. propylene-gap-how-can-it-be-filled.html. 100. See Beacham, supra note 91.

79. See Infographic: US Ethane Cracker Construction Costs Rise 1-2% Year on Year, Petrochemical Update (Apr. 7, 2016), http://analysis.petchem- update.com/engineering-and-construction/ 1101 15th Street NW, #1100 infographic-us-ethane-cracker-construction- Washington, DC 20005 costs-rise-1-2-year-year. E: [email protected] | P: 202.785.8700 www.ciel.org 80. See Squeezed Labor and Materials Hike US Ethane Cracker Construction Costs, Petrochemical Update (Feb. 18, 2018), The Long-Term Prospects for the Plastics Boomis the fourth in an ongoing http://analysis.petchem-update.com/ series, Fueling Plastics, that examines the links between plastics and fossil engineering-and-construction/squeezed- fuels. labor-and-materials-hike-us-ethane-cracker- construction-costs. The Long-Term Prospects for the Plastics Boom by The Center for Interna- 81. American Chemistry Council, supra note tional Environmental Law is licensed under a Creative Commons Attribu- 25, at 14. tion 4.0 International License. April 2018. 82. See Rye Druzin, Exxon Chooses Site Near Cover image: James Pratt/Alamy Stock Photo Corpus for Massive $9.3B Petrochemical Plant, Mysanantonio.com (Apr. 19, 2017, 6:38

The Long-Term Prospects for the Plastics Boom | 14 | Center for International Environmental Law