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The Future’s Not in Plastics report finds that mounting pressure to curtail the use of plastics— now  a worldwide public concern—could slash virgin plastic demand growth from 4% a year to under 1%, with demand peaking in 2027.

This post is sourced from Carbon Tracker’s The Future’s Not in Plastics – Why plastics demand won’t rescue the oil sector report, analyses and related information releases.

The chart below sets out the societal cost of plastics and why investors must take notice of emerging trends. But more importantly, it shows solutions to the plastic epidemic facing humanity.

Externality Costs of Plastics

Plastics impose a massive untaxed externality upon society which the report estimates is about $1,000 per tonne ($350bn a year) from carbon dioxide, health costs, collection costs, and ocean pollution.

Why Investors in the Oil Sector should care

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

Forecasts from BP and the IEA both see petrochemicals as the largest driver of expected oil demand, making up 95% and 45% respectively.

But plastics demand is likely to peak as the world starts to transition from a linear plastic system to a circular one and governments act to hit climate targets. The implication is peak oil demand and hundreds of billions of dollars of stranded petrochemical capital expenditure.

The implication for big oil is that the industry will lose its primary growth driver, making it more likely oil demand has already peaked in 2019.

The petrochemical industry already faces huge overcapacity, but is planning to spend a further $400bn on 80 mt of new capacity. Unless stopped, this will result in continued low prices and stranded assets.

There are solutions

There are three main solutions – reduce demand through better design and regulation; substitute with other products such as paper; and massively increase recycling.

Policymakers in Europe and China are now implementing much more stringent regulatory regimes using the five key tools of taxation, design rules, bans, targets, and infrastructure.

Moreover, the COVID shock is likely to reduce plastic demand by around 4% this year and give policymakers more room to act.

Key Findings of The Future’s Not in Plastics report

The future’s not in plastics. The oil and petrochemical industries are betting their future growth on demand for plastics. But plastics demand is likely to peak as the world starts to transition from a linear plastic system to a circular one. The implication is peak oil demand and potentially $400bn of stranded petrochemical capex (capital expenditures).

Plastics drive growth. As demand growth drivers like transportation have fallen, so plastics make up all the expected growth in oil for petrochemicals, and are the largest driver of expected oil demand, with 95% and 45% of oil demand growth in the central forecasts of BP and the IEA.

Plastics are uniquely vulnerable. Plastics impose a massive untaxed externality upon society of at least $1,000 per tonne ($350bn a year) from carbon dioxide, health costs, collection costs, and ocean pollution.

There are technology solutions. There are three main solutions – reduce demand through better design and regulation; substitute with other products such as paper; and massively increase recycling.

Why now? Policymakers in Europe and China are implementing much more stringent regulatory regimes using the five key tools of taxation, design rules, bans, targets, and infrastructure. Moreover, the COVID shock is likely to reduce plastic demand by around 4% this year and give policymakers more room to act.

Peak oil demand. If demand for virgin plastic stops rising, the oil industry would lose its primary growth driver. This makes it all the more likely that 2019 was peak oil demand.

Stranded petrochemical assets. There is a stark contrast between the plans of the petrochemical industry for 4% annual capacity growth and the threat of lower demand growth. The petrochemical industry already faces huge overcapacity, but is planning to spend a further $400bn on 80 mt of new capacity. Unless stopped, this will result in continued low prices and stranded assets.

ICYMI:
It’s Closing Time: Stranded Liabilities Are The Flipside of Stranded Assets
The Stranded Asset Parade Is Starting

This work is licensed under a Creative Commons Attribution-NonCommercial 4.0 International License.Creative Commons License


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