This is Dana Perkins and you're listening to Switched on the BNAF podcast. So, as mister McGuire said to Ben in the graduate, just one word plastics, there's a great future in plastics. Think about it all right. I'm pretty sure that it was delivered slightly better in the movie and possibly on this show, because I don't think it's the first time we've actually used that quote, but I think about it every time when we talk about plastic recycling.
So here we are at Biennia doing some thinking about plastics again. Plastic production is set to double between twenty twenty two and twenty fifty, so action is needed to address the inefficiencies in the existing recycling process. At the moment, only seven to ten percent of it is actually recycled. So four years ago on this show, we discussed chemical recycling, and at the time it was an up and coming technology that could potentially help address issues with lower grade
feedstocks that the existing system can't recycle. So on today's show, four years on, we're going to revisit chemical recycling and look at what's chained in the intervening period. I'm joined today by Kirti Vasta, who's a senior associate from our Sustainable Materials team. Kirti recently wrote a two part note which reviews the science behind chemical recycling. She also gets into the expanding capacity in the near term and the forecast for the longer term, and she also thinks about
the investors who are in this market. To access parts one and two of Karti's recent research on chemical recycling of plastics, B and e F subscribers are going to be able to find it at BNF dot com or on the Bloomberg terminal. Now, if you like this podcast, make sure to subscribe to receive updates on future shows, and if you want to share us with others, give us a review. But right now, let's jump into our conversation with Kirti Vasta to find out what is the
latest in chemical recycling. Kerti, thank you for coming on the show today.
Thank you for having me.
We are here for an update on the chemical recycling space. Now, for those who aren't familiar, we're going to talk about this and actually get into some more detail. But really what's happening from a policy standpoint, economics, market dynamics, and we're going to update because actually on switched on we add a whole show dedicated to the fundamentals of chemical recycling back in twenty twenty. But let's just assume that nobody's listening to every single one of our episodes and
they remember exactly what we said four years ago. So, Katy, can you just talk a little bit about chemical recycling from a definition standpoint and how it differs from mechanical recycling.
So maybe before I dive into exactly what chemical recycling is, it might be helpful to just take a step back and explain the majority of recycling processes today and how they work and how it relates to chemical recycling. So, the majority of recycling infrastructure in place today is mechanical recycling. Now,
this is a fairly simple process. What it essentially involves is plastic waste being sold by grade and type and then being washed and shredded and melted back into pellets which can then be used to produce plastics.
Again.
Now, this is, as I mentioned, a fairly simple process and often leads to waste that is of quite a low grade, doesn't always go back into high quality packaging materials, and can often have a few challenges associated to it around the efficiency of that yield, and of course the
sorting process can be quite a challenge. It it has to be very meticulously sorted, and of course that can be costly considering the different types of colors and grades and types of plastics that are in our packaging and our materials today.
So this is an industry ripe per disruption. It's too complicated. Inter Chemical recycling, yes.
So chemical recycling is a broad term that refers to new forms of recycling using chemical processors. And an analogy I like to use here is something quite similar to unbaking the cake. Right, so assume your plastics is the cake. You're basically stripping down plastics back to its original ingredients. So this is in some cases your flour, your sugar, your eggs, but in the case of plastics, it would be the hydrocarbons. So this is the oil that has
originally gone into producing plastic. And the best part of chemical recycling is that you can actually make virgin quality plastics again given that you strip down your waist into the original ingredients that it was made of, and that can go back into producing high quality plastics. Again that can go into packaging and your sensitive contact materials.
So getting it to that virgin grade must be really important because when I think of the plastics that are used, for example, that are possible to be used for food preparation or to hold food, is actually what I'm thinking of, is that where needing virgin quality plastics is really really important or is it across all applications that virgin materials are actually preferred.
That the area of packaging is currently where the biggest demand is for chemically recycled or high quality recycled plastics. So, as we know, there's the plastics crisis ongoing, Mismanaged waste is ending up in our oceans and our environment, and a lot of brand owners of companies like Pepsi, Coca Cola, do None are setting targets now to really manage that waste and improve their packaging to incorporate more recycled material now.
In order for them to do that, they need a high quality material that can be food contacts approved, it can be going into packaging materials and the like. So this is where chemical recycling really poses as an opportunity. Considering the mechanically recycled material that's currently on the market, as I mentioned, is often of quite a low grade.
So consumer brands that are actually using plastic packaging are now coming up with different targets to try and get more of the plastic recycled, which then makes the question how much of existing plastic waste actually is being recycled right now.
So right now it's extremely low. Globally, plastics recycling is around seven to ten percent, and that's extremely low. That's way too low, absolutely, and that can vary right between different markets. So in Europe it's a little bit better because the infrastructure for recycling is already in place, but if you look at developing countries, it's extremely low. Often plastic waste just ends up getting incinerated and land filled,
and so there is a real challenge here. And what's exciting about chemical recycling actually is that a lot of this waste that's often mismanaged it cannot be recycled, can actually be recycled through chemical recycling processes. So chemical recycling can accept mixed bales of plastic waste, so this is all of your different types and colors and grades of
plastics with a certain level of contamination. It can then take that waste and process it and produce the hydrocarbons that can then go into making plastics again.
So such a small amount of plastics are actually being recycled, and I am thinking back to the show that we did over four years ago on this time, and I think the number was roughly the same back then. There just isn't a lot that's actually being recycled. So the exciting thing about chemical recycling is that we could get
more of our plastic waste recycled. Are there projects that are happening right now or reasons that we might see in the industry to believe that this might be the right time to see chemical recycling scale and actually fulfill its potential to increase the amount of our waste stream that's actually being turned over.
Absolutely yes. So Actually, in the last two or three years at BINF we've been tracking capacity of chemical recycling projects, and since twenty twenty, we've tracked around forty new chemical recycling plants being announced. That accounts for about two point three million tons of expected capacity that's likely to be commissioned by twenty thirty. So this is really exciting because it can really fill that gap that's currently in the market in terms of managing and dealing with this this
waste that's very difficult and hard to recycle. Of course, this is still only announced capacity, but it is quite exciting to see that companies are really jumping on board now and planning to build this capacity in different parts of the world.
So these new projects and these new plants that are going in, what type of chemical recycling are they actually going to be? Because there are kind of two subsets of this, which is feedstock recycling and monomer recycling, And I want to know which of the two is getting better adoption and might be the bigger one of the two.
So let me start with monomer recycling. So this is essentially a process whereby plastics like polyethylene territhylate also known as PET, so this is what your clear plastic water bottles are made of and polystyrene are basically broken down into that monomer level, so they go from a polymer to a monomer. And this is often a fairly energy
intensive process. But what it then means is that plastics which previously would not be easily recycled, can then go through this process and we get a higher grade, a high equality of scrap, but also more feedstock can actually go through this process and produce the monomers to then go back into plastics. Now, what's really exciting about monomery recycling is that it's not only plastic packaging materials that
actually can go through this process. So actually just last month we had an announcement from BASF who is basically using the same process to actually produce recycled nylon which is going into jackets that are being sold in Zara. So this is actually a really interesting application for all types of polymers which can go through this process of monomer recycling.
So when I see this item is made from recycled plastic bottles, that is essentially the process it's going through, and we can think about chemical recycling as really the technology that was used to make that possible.
Yes, now there is still a gap in terms of how much material is being chemically recycled. So for example, pet bottles, that is actually one of the most easily recycled plastic today, and a lot of it can actually be mechanically recycl called quite well. But where chemical recycling is really going to make a dent in the market is for the flexible wrappers and films that are very hard to recycle today, and that's something that isn't quite
on the market yet as a chemically recycled product. And then the other type of recycling process that we look at is feedstock recycling, and this is often a process called pyrolysis, which is basically heating up plastic waste in the absence of oxygen to produce a type of naptha or a pyrolysis oil, which can then be used to produce your plastics again. Now, this is actually the most popular form of chemical recycling capacity that we're seeing being announced.
About seventy percent of all the capacity we've tracked actually is for feedstock recycling, and a lot of this is actually being led by plastics producers, including companies like Exomobile, Lined or Bizell Borealis to Some of these companies are the traditional oil and gas companies who are thinking about ways in which they can introduce more sustainable feedstock into their value chain and also are basically responding to what their customers are now demanding, which is more recycled, more
greener products for their products and packaging.
So there are two benefits here when we think about recycling, and this really a broader conversation around circular economy. One is the reduction of waste and the things that you'd pointed out with plastic ending up in the ocean and you know, in some cases ultimately our food. But then there are the emissions associated with recycling plastics and reducing the overall emissions through not using virgin materials and the
emissions associated with extraction. Are these waste streams through these new plants ultimately being made more local and also reducing the shipping and supply chain related emissions, or are their centers of the world where most of this chemical recycling is likely to be placed and we're going to be strapped with those shipping related emissions for some time to come.
That's a great question. And right now, because the market is still quite new, a lot of this capacity that has been announ hasn't yet come online officially. Right we're just starting to see the first large scale plants actually come online. It's going to be really interesting to see how this kind of dynamic evolves and where exactly chemical recycling plants are located. There's currently this debate if chemical recycling plants are located close to existing waste management facilities.
What's really great is what could happen is all of the waste that can be mechanically recycled using the existing infrastructure. Would be mechanically recycled first, so that would be like your rigid plastics, your pet bottles, your shampoo bottles, and detergent bottles, which are made of HDPE high density polyethylene. That's often an easily recycled material. And then all of the rest of the plastics which can't be easily recycled,
will go through a chemical recycling plant. And what that means is for a chemical recycler is they're located very close to the existing feedstock stream that might be the remainder of waste from a material recovery facility site. And so that's kind of one way that they could be positioned. It would reduce their car in terms of shipping the feedstock that they need from maybe other areas of the country. Now, another way which we see potential chemical recycling plants being
positioned is at a petrochemical facility. So this would be integrated within a large petrochemical complex, for example, and the benefit there would be that they would have the existing infrastructure, so this is like the pipes and the tanks to store the different types of feedstocks that are being produced and This would also result in a cost saving if the chemical recycling plants were to be located here, and then the feedstock produced would go straight into a steam
cracker at the petrochemical facility and also result in a cost saving.
Can you talk about some of the companies that are actually in this space. Are there big brands that are doing this and is it being spun out from existing companies like, for example, the chemical recycling companies or the petrochemical companies or are they new companies that are looking to join partnerships with these existing players in this space.
Yes, So what's really interesting in this market is that there is a really diverse group of players. So you've got the pure play chemical recycling companies. These are fairly new, early stage startups. So companies include mirror technology, plastics, energy, and what they're doing is they are in many cases
partnering with plastics producers. So this is companies like Dow Lined or Bezel to actually sell the feedstock that they're producing from their chemical recycling plants to these companies that
want to produce more recycled plastics. The other really interesting area that we've seen companies get involved in is the brand owners companies like the non Nesle, Coca Cola that have targets to really increase the amount of recycled material in their products are forming partnerships directly with chemical recyclers like Loop Industries, for example. And this is mostly around pet given that that's really one of the areas where a lot of demand for the recycling material is today.
So you've mentioned some of the consumer brands that have created these targets. How are they incentivizing people to actually recycle these things properly if you will? Are they just going into the usual municipal waste streams and it's about how well things are then collected from that point, I mean, I guess my question is really how are they going about achieving their targets.
Yeah, it's a really good question. So for some companies like Denan Nesle, they have targets to increase their post consumer recycled content in their products and packaging by fifty percent by twenty twenty five. Now twenty twenty five is round the corner, and we know that that material isn't quite on the market and isn't available for these brand
owners to really make use of and incorporate today. So it's a really interesting question to see kind of what exactly will happen and how these companies will reach their targets by next year. One thing they should absolutely be doing more of is thinking about the end of life management options for their plastic packaging. What we have seen is some companies redesigning their packaging to make it more recyclable.
I know Coca Cola has recently introduced right bottles without the label around the side of it, which is basically reducing the amount of packaging needed but also improving that recyclability of that material. So these are sorts of design changes which we're likely to see more of as this material becomes kind of more in demand and required on the market.
Is there a policy pressure in policy incentives to increase recycling.
Yes, So policy is the one thing that I would say has really changed since the last time that we looked at this area of chemical recycling and the impact it can have. So in the last few years, we've
seen governments introduce post consumer recycle content mandates. For example, in the UK, there's currently a thirty percent recycled content mandate for all plastic packaging on the market today, and if that isn't met there's a plastics tax which is imposed on companies, so this is really driving demand now
for more recycled material on the market. Now, we did some number crunching to really understand what the demand and supply looks like currently in the UK, and we believe there's quite a significant supplied deficit of around thirty thousand metric tons of recycled plastic, which is high grade and can go back into some of these packaging applications. In other markets as well, Europe is considering a similar post
consumer recycled content mandate. France Spain that have also introduced similar mandates, So this is really pushing corporates that maybe don't have their targets in place already to have to abide by these rules as well.
So policy makers want to see more recycled, the brands themselves want to see more recycled, and I think most everyday citizens I'm just going to speak from my own heart here, would like to see less plastic in the waste stream and more things being turned around in the circular economy. But then that brings us to the economics of it all and whether or not that really holds up.
So let's just talk a little bit about the green premium that's currently associated with certain types of pet and really how big that is.
So at BINGF, what we did was some economic analysis to really understand how profitable chemical recycling plants could be. Now, the advantages, of course, chemical recyclers have a low feeds doot cost because they're using a low quality scrap which would otherwise be incinerated or landfilled, and they're producing a very high quality, potentially virgin quality material, which means that you can sell it on the market at the same price.
But in the last few years, what's also been really interesting to see is the green premium that's been stacked on top of that virgin price for some of these recycled plastics. And so we think currently for materials like pet and polyethylenes which are chemically recycled, given the green credentials of those materials, there's roughly a fifty percent green premium above the virgin price in markets like the US
and Europe. So fifty percent is of course a huge markup right, And as a result, what we also looked at is the internal rate of return of projects. So we looked at a typical chemical recycling plant in the US and what we found is that the IRRs can be in the range of fourteen percent to twenty two percent, which is really quite high.
As we think about the future, do you expect to see these IRRs staying at this relatively high place or do you think things are going to actually get cheaper in the future making this an easier market to enter.
Yeah, so that's a great question. What we did in our report was we broke down the different cost components associated with a chemical recycling plant. So we looked at the capex costs, the opex costs, and of course the feeds dot costs as well. And what we found actually is compared to the previous year when we looked at the economics of these recycling plants, that capex costs have actually risen quite a lot and it's had a pretty significant impact if we look at the overall costs associated
to building these plants. And that's of course, because construction costs have increased over time, energy costs have as well, material costs have, and so a lot of the plants that were planned to come online back in twenty twenty one and twenty twenty two actually got pushed back and delayed because of these rising costs and in some cases
because of permitting delays as well. So if capex continues to rise over time, this could pose a problem to the returns that these plants could make, but we are hoping to see them stabilize somewhat and that to get easier over time. The other area that is really interesting
here is the feedstock costs. So currently there isn't really a commoditized, transparent market for plastic scrap, and it's a challenge for chemical recyclists to really get hold of the scrap that they need in the correct format at a price which is affordable for them to process. Scrap Prices for pet for example, in the US, have been particularly volatile over the last three or four years, as have
hdpe prices. So these are really interesting market dynamics which can have a really big impact in terms of how it can change the economics of these plants.
Let's talk a little bit about how people may be perceiving the recycled plastics and actually why with an end consumer item, I might see, you know, ninety percent recycled plastics instead of one hundred percent recycled, and where there are needs to actually blend the recycled with the virgin feedstocks.
So today the industry is still very far from producing one hundred percent chemically recycled plastics, but as the technology scales and more capacity comes online, we do expect to get closer to that one hundred percent mark. But currently what actually happens is, particularly from feedstock recycling, we get the pyrolysis oil, and often that pyrolysis oil doesn't meet the specifications that are required to produce plastics because they still have some forms of additives that are used in
the original plastic manufacturing process. So that pyrolysis oil it has two options that either can go through an upgrading process, which is purifying that oil to make it meet the specifications, or it can be blended with virgin feedstock, so that could be your napther, and that would then produce a
higher grade plastic, again with a certain share of that recycled. Now, a lot of the plastics that use chemically recycled feedstocks today use the blending approach because often it's cheaper to do. What we've found in our research is the upgrading the purification stage can be fairly costly and really is only an advantage to chemical recyclers that have access to some of these hydrotreaters and upgrading plants.
So we're talking a lot about how we essentially make plastics from plastics and really some of the challenges, whether they're economic or actually chemical in this process. But there is another place where these recycled plastics can actually go. And I'm not talking about the materials in you know, my zip up jacket from whatever store I bought it from,
but actually that's fuels. Can you talk a little bit about the adoption on that end and some of the issues that might be posed from a market dynamic standpoint.
So coming back to feedstock recycling, since the output from pyrolysis process is something like a hydrocarbon mix like a naptha or a diesel. What we've seen in very early stages of chemical recycling back in twenty twenty and twenty twenty one with some of that feedstock actually not going into producing plastics but actually being diverted to fuel in ships and trucks. Now, in our view, this is not
a circular economy solution. We want to see feedstock remaining in circulation for as long as possible, and if it's being burnt through being in the fuel markets. That is not the place where we see this the market for
this product. Instead, it should really be directed back into the plastics market, and that's really in the last few years where we've seen the highest amount of demand and where we do believe that the recycled feedstock is going, especially because there is this green premium that I mentioned which can actually really incentivize recyclers to divert their feedstock to the plastic market.
So this would not be then considered a sustainable fuel because I think about sometimes like sustainable aviation fuel that's made from feedstocks that actually come from different plans. A recycled feedstock going into fuel would not then be considered a sustainable fuel in these circumstances.
It would not know And the reason why is because that carbon, the embodied carbon in that material is released back out into the atmosphere.
So, Kurty, you tell me a little bit about where you see this as going and if this is a space that is really growing quite quickly, or if we did this episode in another four years we would be standing still.
Yeah, great question. Well, so I'm quite an optimist when I think about chemical recycling, particularly because of the whole attention that plastics and plastics recycling is getting At the moment. We also have the UN Global Plastics Treaty which is currently in negotiation, and that's moving towards a binding legal agreement across these UN member states to actually come up with a way to end plastic pollution. And chemical recycling could really play a crucial role in achieving this by
having the ability to process the hard to recycle waste. So, in my view, I think we are likely to see a lot of this capacity come online just because we're seeing the policy incentives, We've got the green premiums on the market, and companies are really getting on board in terms of really pushing to build this capacity. It's really just going to be a question of how quickly and when.
Great. Thank you so much for sharing an update and your views on where this really exciting market is going.
Thanks so much for having me.
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