Future trends for a circular chemical industry
“I take the view that everything is connected”: Richard Carter, independent consultant and former BASF senior executive and Itero Technologies Advisory Panel member, in conversation with Simon Hansford, CEO at Itero, chemical recycling technology provider.
This piece was originally published in Packaging Europe.
SH: Looking at the demand for recycled polymers, what changes have you seen in recent years and how do you see that changing in the future?
RC: There has been a massive surge in demand for recycled polymers in recent years, occurring alongside rapid development of the market and an increased willingness to pay premium for sustainable materials. This increase in demand can be split into three distinct product groups: bio-based polymers, recyclate from mechanically recycled polymers, and pyrolysis oil-derived polymers.
In terms of how that demand will change in the future, underlying changes are happening and how that unfolds will impact overall demand. One of the key drivers is the EU ETS (European Union Emissions Trading System) and the associated regulatory framework for European carbon pricing. The trajectory is clear for the price of carbon. At present, the cost of EUA (European Union ETS Allowance) oscillates between around €80 to €100 per tonne for carbon in Europe and is expected to increase by at least 50% over the next five years due to various factors including the reduction of fee allowances by the EU.
Combined with the Carbon Border Adjustment Mechanism (CBAM) which will impact imports into the EU, any forward-thinking company strategy must not only consider, but also assign a cost to carbon. It’s not a matter of ‘if’ but ‘when’ companies will start paying tax for carbon if they do not significantly reduce their carbon footprint and/or inputs.
For chemical recyclers supplying pyrolysis oil for the steam cracker, they can contribute to reducing the carbon footprint and, consequently, lower potential carbon tax obligations. Mechanical recycling, given its larger scale within a more established industry, will also be a multiplier in reducing carbon emissions as new facilities come on stream.
SH: What do you see as the role and power of nonprofit organisations?
RC: Nonprofit organizations play a key role in shaping the dynamics of sustainability and circularity. Their influence has now extended to the point that if you're not linked to an NGO that is relevant in your sphere, it is conspicuous.
For example, the Ellen MacArthur Foundation is a major stakeholder in the recycled polymer space, providing a platform for citizens and organisations to engage meaningfully. It has created a sense of moral, social, and environmental commitment alongside a collective conscience within the industry.
Collaboration between NGOs, trade organisations, and market actors has evolved significantly. They are now working together and collectively influencing legislators to enact policies that promote sustainability and circularity. This is noteworthy, particularly in collaboration between NGOs and trade organisations, where organisations are coming together to create change beyond their individual influence. This shift from simply pushing for policy changes to collaborative efforts has reshaped the dynamics of the circular value chain, which is replacing the traditional linear model.
In this new circular value chain, collaboration is not an option; it's a prerequisite. Players in the industry, including polymer producers, are recognizing that securing the necessary feedstock for recycling and having a reliable market for their recycled products hinges on effective collaboration. This collaboration is seen as a response to the reality that some are investing in recycling waste materials to meet their own sustainability goals.
SH: So where do you see the most pivotal shifts required to create a supply loop rather than a supply chain?
RC: Collection. One of the most critical areas for transformation is collection, particularly at the household level. The journey starts at the point of origin – our homes – and extends into either municipal or private industry collection depending on the specific country's setup.
It's essential and some countries need to move faster. The key is simplicity and clarity in these systems. In fact, if you cannot explain it simply, then it's likely to encounter difficulties in gaining widespread adoption. Collection methods and systems need to be user-friendly, incentivized, and accessible to people at all levels of society. This leads me to emphasise the role of education to create awareness at all levels and ages. The success of past public awareness campaigns in specific countries appears to have been forgotten. I currently see a gap here, and a real opportunity for government policy, effort, and investment.
SH: And on that theme of sorting for different waste streams, how do you see that industry fitting in, developing, and supporting circularity?
RC: Of course, the sorting industry plays a crucial role and is closely connected with the collection process. The development and support of circularity rely significantly on the effective sorting of different waste streams.
The complexity comes in here because first, there needs to be legislation to force the packaging producers to clearly label and/or digitally watermark the packaging material/item. The prerequisite to sorting will be the rapid adoption of technology to accurately label/mark packaging which makes me very confident in the sorting industry.
SH: I'll come on to the next question which you had also touched on, namely, that collaboration across the value chain is central to a circular transition. Where do you see collaboration working well for new circular technologies and where could you see some improvements?
RC: Now that's a hard question to answer because everyone has their own experience with collaboration. However, there are dynamics at play that impact the effectiveness of collaboration, as well as areas for improvement.
One of the challenges I see for collaboration in the new circular value chain for chemical recycling is the inherent contrast between large-scale, and global, petrochemical industries with capital-intensive operations, and the very small but highly innovative chemical recycling companies in the early stages of development. When you add to this the large brand owners and supermarket chains, as well as key links in the circular value chain, the challenge becomes clearer. To ensure effective collaboration, it's crucial to create an atmosphere where the larger partners do not “drown” the smaller ones in administration or onerous decision pathways in a way that stifles that innovation and speed to delivery. I think most large multi-national organisations understand this, but the challenge is to delegate enough control to the smaller partners – which takes a lot of trust and courage.
SH: What do you see as the most important role of established chemical and petrochemical companies in a circular transition for plastics?
RC: My view is very clear: the commitment to decarbonise.
Currently, major global players in this industry are still investing in new plastics capacities worldwide, even though there's already an overcapacity issue.
If these companies have not yet internalised the need to leave the old model and move to the Net Zero focused trajectory, then momentum to develop the required circular infrastructure will be slowed, alongside the associated negative consequences of more fossil plastic.
So, what must change is to include decarbonisation as the leading KPI in company strategy metrics. It can no longer be the earnings per share or the dividend but should include carbon intensity and carbon reduction.
SH: How do you see decarbonisation working for the recycling industry?
RC: First, it's essential to consider the entire waste hierarchy pyramid, starting with reduce, redesign, and reuse. Then comes the recycling stage, where the benefits of decarbonisation – especially for chemical recycling - perhaps are less obvious, but extensive evidence supports the fact that one tonne of recycled material in the pyrolysis process can substantially reduce CO2 emissions and carbon intensity vs incineration of plastic waste, or production of virgin naphtha.
To put it together: decarbonisation in the recycling industry requires regulatory support, collaboration, mass balance adoption, and standardisation. Regulatory support is essential to incentivise the building of infrastructure and increased supply of recycled materials. Another key aspect of decarbonisation is collaboration and standardisation. There has been commendable effort, but trade associations must work more intensively together to address the broader carbon footprint challenge. And a key point that requires standardisation and validation is Mass Balance. If I want to prove the sustainable / carbon footprint advantages, then a watertight chain of custody system is required to develop and expand the chemical recycling industry.
SH: Do you see any significant trends in terms of infrastructure in the chemical industry?
RC: Let me give you the short answer: electrification.
This is a crucial element, primarily because electrification impacts Scope 1 and Scope 2 emissions, making it a prerequisite for wide-scale decarbonisation.
Various petrochemical companies are working in consortia to electrify the steam cracking process which is a CO2 emissions-intensive process, mainly due to the energy needed to heat furnaces.
However, a significant challenge in this electrification process is fulfilling the need for increased power requirements which must come from renewable wind and solar sources. It's not enough to electrify the processes; the energy source must be sustainable.
SH: What made you interested in chemical recycling?
RC: Given my background, circular solutions were close to my heart. I spent many years in the chemical industry involved in cracker feedstock procurement and recycling strategies, and when I became independent, I further explored chemical recycling and circular solutions in this industry that I'm so passionate about.
Incorporating the experience of "the plastics challenge" as a citizen (e.g. pollution) and the end of "business as usual" in the chemical industry led me to focus on the topic of chemical recycling. It made sense to me, particularly chemical recycling via pyrolysis. Pyrolysis oil plays a key role in creating value from "waste" resources and circularity from specific waste streams, and this is what brought me to wanting to work with Itero. Itero is targeting a missing link in the circular value chain, diverting precious resources that have been treated as waste from incineration or landfill, and then offsetting the use of virgin fossil products. I am excited about the collaboration because I see a very positive trajectory ahead.
SH: My final question today is: How do you see robust recycling infrastructure with chemical recycling as a part of impacting plastic pollution?
RC: I take the view that everything is connected.
Robust recycling infrastructure, with chemical recycling as a component, has a significant role to play in addressing plastic pollution. This influence extends to both mitigating existing pollution and preventing further pollution. The connections between these aspects are intricate, and regional and global perspectives are essential.
It's fundamental to acknowledge that the solutions needed to address plastic pollution aren't one-size-fits-all. Different countries and regions have distinct waste management systems and cultural norms, requiring tailored approaches. Learning from and implementing strategies developed in one region into another can be a promising step.
We've got to clear up, clean up, and prevent waste, not just in the oceans; cleaning it up on land is the first step and precursor to preventing ocean waste. So, with everything we do, the more we can prevent escaping from the system and getting into waterways and oceans, the better. But again, we've got to be aware and avoid dictating to the rest of the world how to avoid pollution and create circularity.
Richard J. Carter
Richard is an independent consultant and member of Itero Technologies Advisory Panel who in 2021 retired from his role as MD of BASF UK / Ireland. Richard focuses on strategy and the decarbonisation agenda for the petrochemicals and chemicals industry, with particular emphasis on the circular economy and recycling.
Simon Hansford
Simon is the Chief Executive Officer at Itero. He leads the organisation and is responsible for the overall delivery of its corporate strategy. Before Itero, Simon led the Corporate Finance & Legacy operations at global insurance company, Swiss Re. He brings 19 years corporate strategy and finance experience to the team.