Report: World could reach peak plastic production in 2027, risking billions of dollars for oil majors

Global oil majors are planning to invest $400bn in virgin plastic production within five years - but much of this investment is at risk as governments beef up plastics and climate targets, and as consumers continue to push for plastic-free products.

The virgin plastics industry is described in the report as a 'bloated behemoth' which is primed for disruption

The virgin plastics industry is described in the report as a 'bloated behemoth' which is primed for disruption

That is the conclusion of a new report from think tank Carbon Tracker and systems change service provider SYSTEMIQ, entitled: ‘The Future’s Not in Plastics: Why Plastics Demand Won’t Rescue the Oil Sector’.

Published today (4 September), the report highlights how future scenarios used by oil majors like BP and trade bodies like the International Energy Agency (IEA) are still predicting a global growth in oil demand through to 2040, despite trends towards cleaner heating and electric transport, which will accelerate in the coming decades. This is because they rely on a boom in the global demand for plastics. BP sees plastics driving 95% of the sector’s growth within this timeframe.

Oil majors are investing in line with such scenarios, collectively planning to funnel $400bn into new virgin plastics production capacity by the end of 2026, the report states. With this level of financing, global production would increase by 25%.

But these scenarios are fundamentally flawed in light of changing national policy frameworks around materials and climate change, compounded by the so-called ‘war on plastics’ by consumers, the report warns. It predicts that up to $300bn of plastic production assets could be stranded by mid-century as a result of these trends.

On the policy piece, the report highlights the EU’s proposal of a tax on non-recyclable plastic waste of up to €800 per tonne; the bloc’s ambition to recycle 85% of municipal waste by 2035; bans on plastic waste imports by China and other Asian nations and the global movement to ban single-use plastic bags. In the UK, a new tax will be applied to plastics producers which do not include at least 30% recycled content from April 2022.

Couple these changes with the shift towards national and corporate net-zero climate targets – at a time when plastics life cycles are expected to become more carbon-intense – along with changing consumer demands, and the world could reach peak plastics demand as early as 2027, the report concludes.

Such a scenario will only materialse, however, if governments move more rapidly to remove subsidies for the oil sector and to impose stronger taxes on plastics producers. If the social and environmental externality costs of virgin plastics were imposed on producers in full, they would be required to pay $1,000 per tonne, the report states.

“The petrochemical industry is already facing record low plastic feedstock prices as a result of massive overcapacity,” lead report author Kingsmill Bond said.

“Remove the plastic pillar holding up the future of the oil industry, and the whole narrative of rising oil demand collapses.”

Responding to the report, A Plastic Planet’s co-founder Sian Sutherland said: "For far too long there has been this delusional narrative coming from the fossil fuel industry… all in the name of compensating for the impact of clean energy technologies which are driving their profits down. 

"Governments around the world are starting to take action to cut plastic, organisations too, and the public are making themselves heard. Perhaps the major oil companies should invest in cleaner alternatives and place their eggs in a different basket which won't leave a lasting impact on the planet for future generations to come."

Alternative investment

Oil majors and their investors seeking to avoid the risks of the global transition away from virgin plastics are encouraged by the report to invest in technologies which improve plastics reduction and recycling, or scale-up alternative materials.

Based on SYSTEMIQ’s previous research, the largest opportunity lies in reduction. New delivery models which rely on refill, like TerraCycle’s Loop platform or Unilever-owned Cif’s ‘Eco-refill’ concentrates, are cited as particularly strong choices.

There are also sizeable benefits to be reaped from investments in scaling-up recycling capacity and rolling out more innovative and efficient solutions. Mechanical recycling is more mature and typically lower-carbon than chemical recycling, SYSTEMIQ states.

As for alternative materials, SYSTEMIQ identifies compostables as the sub-market which will grow the most rapidly through to 2040 in both a ‘business-as-usual’ scenario and scenarios where more rapid transformation occurs.

The overarching conclusion is that the stagnation of virgin plastic demand will soon mirror the stagnation in oil demand for the energy sector. 

Industry action

The publication of the report comes shortly after the Ellen Macarthur Foundation launched a US version of its Plastics Pact, supported by more than 60 organisations including corporates like Mars, Kimberly-Clark, Nestle and Coca-Cola. The Pact’s ambition to create a new circular economy for plastics is crucial, given that recent Foundation-backed research warned that the volume of plastic entering oceans and waterways will triple and the global ocean plastic stock will quadruple by 2040.

In related news, the Alliance to End Plastic Waste this week published its first annual progress report. The report confirms that the 2025 targets for the Alliance are unlocking at least five times the initial $400m investment made by founding members; deliver multiple zero-plastic cities; diverting more millions of tonnes of plastic waste from landfill, incineration and dumping in 100 at-risk cities and supporting more than 100 million people with paid roles in waste management.

Sarah George



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