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.