The fifth round of negotiations for the Global Plastic Treaty are taking place in Busan this week. One of the most controversial proposals on the agenda is a cap on global plastic production.
A production cap was previously the centrepiece of environmental group campaigns and supported by the High Ambition Coalition, a grouping of jurisdictions including the European Union, Korea, Japan and many developing nations. Over the summer, the United States, a previous opponent of a cap, also pivoted towards supporting one (though whether their position will change following the election is unclear).
The rationale for a cap has traditionally been made from an environmental perspective. But increasingly there is also an economic and a business case.
Demand for plastic has boomed over the past two decades – much of it driven by China. In 1992, China accounted for less than 10 per cent of global plastics demand; today, it accounts for 40 per cent, making it the single largest market in the world for plastic.
Chinese consumption has led to a period of unprecedented growth and profitability for the plastics industry. Giddy on high margins, over the past two decades the plastics industry has raced to add capacity, urged on by the expectations of continued China-driven growth. Each producer had its own strategic reasons: China, previously the world’s largest importer of plastics, had its sights set on self-sufficiency; the Gulf states are diversifying downstream to secure the future outlets for their fossil resources once demand for oil starts to decline; on the back of the shale revolution, the US surged ahead to become the world’s most competitive producer of plastic, and wanted to press that advantage.
But the industry – along with many others – got the Chinese economy wrong. A confluence of factors: a demographic crisis, the bursting of the stimulus-driven asset bubble which had fuelled consumption and investment through the 2010s, and some missteps during Covid – led the Chinese economy to stumble and falter. Chinese growth from 1989 to 2021 averaged 8.8 per cent; from 2024 to 2030, it is likely to fall to between 3-4 per cent.
This sharp and sustained slowing of growth in the world’s most important plastics market has serious implications for the industry. The combination of weaker than expected demand growth with the coming onstream of unprecedented additional supply has created a crisis of overcapacity. In a number of key plastic categories, the market is now oversupplied to the tune of tens of millions of tonnes per annum – leading many plastic manufacturers to operate their facilities at negative margins as they struggle to offload their production. Large players have seen their credit ratings downgraded on worsening profitability and outlook. An unsustainable situation, for the planet and for shareholders.
Yet the strategy of many industry players seems to be to struggle on and wait for better days. Faced with anaemic growth in China, hope is now pinned on an explosion of demand in emerging economies in Southeast Asia, Latin America, Africa – the very regions with underdeveloped waste management systems least able to handle the burden of plastic waste.
We are heading towards a catastrophe. Surely there is a better path?
The energy transition will require moving away from fossil fuels, including for plastic production. A cap on plastic production – which today is overwhelmingly based on virgin fossil fuels – is a logical extension of this principle.
A cap imposed at the political level may in fact help to reset the imbalance between demand and supply that is currently plaguing the market. A long-term cap could aid the industry to undertake a more realistic assessment of future demand, and plan for a scenario that takes into account existing overcapacity and the needs of the energy transition.
Rather than accepting that plastic production will double or triple by 2050, planning for “peak plastic” in advance of that date will encourage the industry to look at consolidation rather than unfettered growth. In such a scenario, where projected supply exceeds demand, there would be a case for inefficient assets to shut, and for capital expenditure in new production capacity to be subject to a higher degree of scrutiny, with investors demanding a financial return that is commensurate with the risk of asset stranding. Carbon pricing can be an effective tool to channel investment towards the most environmentally and economically competitive assets.
Moreover, confronting the reality of peak plastic could provide the impetus needed for the industry to transform itself, to find a new paradigm for value creation, not focused on commodity growth but on higher-value strategies like circular and low carbon solutions.
The plastics industry has a place in a net zero world – but finding it requires a new paradigm. Agreeing a global cap on plastic production in Busan could be a meaningful first step.
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Ying Staton is chief sustainability officer and vice president, Asia, at Plastic Energy, a chemical recycling company
