Sustainability pressures are expected to change the dynamics of plastic consumption with regulation, innovation, consumer preferences, and corporate responsibility all playing pivotal roles.
Certainly, the prolific use of plastics and the negative consequences of disposal is a major sustainability problem that the world must solve. However, we would caution that the media hype around plastic’s imminent demise, and the subsequent impact to the industry, is grossly overstated. Our analysis of those industries/sectors most directly impacted support this view, and these insights, in turn, help guide our investment decisions.
Understanding the magnitude of the problem, both in terms of the environmental impact as well as concerns relating to human health, is central to defining plastic’s role in a sustainable world. Given plastic’s many positive attributes, we believe the sustainability debate should not ultimately be about “if” we use it, but “how” we use it and, crucially, how we dispose of it.
Ultimately, we believe the magnitude of plastic waste will drive change, and this will fundamentally reshape segments of the plastics industry. This paper analyzes the key areas where this reshaping is likely to play out. That said, the changing use of plastic will be gradual and punctuated by regulation and the emergence of technology solutions along the way.
The Positive and Negative Impact of Plastics
Since their introduction in the early 1900s, plastics and plastic packaging have become integral to modern life.
Global demand for plastics has increased twentyfold over the past 50 years, and the International Energy Agency predicts that demand will grow by an additional 45% by 2040, with nearly two‑thirds of that growth coming from Asia.
The obsession with plastic is easy to understand—cheap, lightweight, and durable, the material is beneficial to society in a multitude of ways, including:
- Reducing food waste—by extending the freshness period
- Lowering vehicle emissions—by making cars lighter
- Increasing energy efficiency—through improved building insulation
Despite the many benefits, the vast consumption of plastic is a major sustainability problem that the world must solve. Meanwhile, most plastics have a very short life span (less than one year), yet they can take up to an estimated 450 years to break down, creating a major environmental impact if not disposed of properly.
Accordingly, we believe that the sustainability debate should center on how, not if, we use plastic and, most importantly, how we dispose of it.
(Fig. 1) Global Plastics—Where Does It All End Up?
Global plastics end usage by industry, and how it is ultimately disposed of
As of January 2018
Source: The New Plastics Economy, Ellen MacArthur Foundation (2018).
Source: IEA, The Future of Petrochemicals (2018) (adapted from “Production, use and fate of all plastics ever made”, Geyer, R., J.R. Jambeck, and K.L. Law (2017).
Scoping the Problem
The environmental impacts of plastic are numerous, with implications for human and animal health.
- Ocean leakage—Estimates suggest that there are more than 150 million tons of plastic in the ocean, with a further 8–10 million tons leaking into oceans annually. It has been suggested that, by 2050, there could be more plastic in the oceans than fish. Plastic waste harms marine life in many ways:
— Sea animals ingest plastic, leading to injury or death
— Natural ecosystems vital to ocean health are polluted
— Microplastics consumed by marine life make their way into human food chains
- Land leakage—An estimated 25%–30% of plastic waste is left on land as it escapes waste collection systems or is never collected. As this plastic waste breaks down, chemical byproducts seep into soil, groundwater, and waterways.
- Landfill and incineration—Landfills account for 40%–45% of plastic waste disposal. In many countries, poor disposal practices lead to chemical seepage into soil and waterways. With proper disposal, the environmental impact can be contained. Incineration has negative consequences as it releases carbon back into the atmosphere. However, better practices such as high‑temperature incineration can greatly reduce the emissions impact, while the energy generated can be sold as a byproduct.
- Bisphenol A (BPA)—BPA is used in harder plastics for use in food containers and drink bottles. While the science is not conclusive, there are concerns about the potential health risk for humans and animals. As such, several countries have restricted BPA usage, and the U.S. has listed it as an endocrine disruptor.
(Fig. 2) Top 20 Country Contributors for Land‑to‑Ocean Plastic Waste Leakage
Plastic waste leakage into the world’s oceans shows little sign of abating
As of February 28, 2015
Data are based on 2010 estimates. ppd = per person per day, mmt = million metric tons.
Source: Science Magazine, February 2015, “Plastic Waste Inputs From Land Into The Ocean,” JR Jambeck, et al.
The Role of Plastic in a Sustainable World
Given the magnitude of the disposal problem, we believe the plastics industry will be fundamentally reshaped in four key areas: (1) reduced usage, (2) increased recycling, (3) increased incineration (waste to energy), and (4) replacement by plastic alternatives and/or new biodegradable plastics.
Today, the primary focus in terms of reducing plastic waste is on single‑use plastics. This is a shift from past decades where the focus was on reducing material usage through making plastic packaging lighter weight. Consumer goods companies are now turning their focus to packaging alternatives and/or redesigning packaging to make it recyclable.
On a global basis, only 14% of plastic packaging is collected for recycling, and only 10% is ultimately recycled. Certain plastic packaging materials are recycled at higher rates—such as polyethylene terephthalate (PET) bottles, high‑density polyethylene (HDPE) bottles, and post‑commercial films. Some geographies achieve much higher recycling rates, with the difference usually being dependent on recycling economics for the format and region.
PET used in beverage bottles has a higher recycling rate than any other type of plastic, but recycling rates for PET vary by region. On a global basis, it is estimated that only half of PET bottles are even collected for recycling, and then only 7% is recycled, bottle‑to‑bottle.
(Fig. 3) Industrial Impact of Reshaping Plastics Usage
Source: T. Rowe Price research.
In Focus—Plastic and the Packaging Sector
In 2015, plastics made up 25% of global packaging volumes (up from 17% in 2000). Demand for plastic packaging has been driven by increasing applications including food and beverages, personal and household care, consumer electronics, and construction. Most estimates for future growth sit around 4% compound annual growth rate, with food and beverage applications growing at a slightly faster rate than other categories.
While gross domestic product growth will be a key driver of growth in plastic packaging, it is also true that regulators, companies, and consumers are all showing interest in addressing the end‑of‑life problems that come with plastic packaging. This is especially the case for food and beverage applications, so we believe key drivers of success among packaging companies will be: (1) product innovation and (2) the ability to develop a circular business model.
Highlighted below (Appendix 1) are just some of the regulatory measures that have been introduced, or that are planned, specifically aimed at reducing plastic packaging. Similarly, Appendix 2 details the corporate commitments being undertaken by many of the industry’s key customers. (Note: The lists are illustrative and not exhaustive.)
(Appendix 1) Government Regulation Affecting Plastic Packaging
As of December 31, 2018
Source: T. Rowe Price research.
(Appendix 2) Corporate Commitments Concerning Plastic Packaging
As of December 31, 2018
Source: T. Rowe Price research.
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