The price of plastic

During the heat wave, as we picnicked on the beach, eating with disposable plastic cutlery and drinking from plastic bottles, the discussion about increasing our appetite for recycling plastic continued. Over the summer, stakeholders have been proposing solutions.

The European Commission in its plastics strategy has already suggested that the value of recycled plastic needs to increase to pay for waste collection, sorting and processing. The counter argument is that virgin plastic is often cheaper, so making recycled plastic even more expensive will further discourage its use. The discussion is further complicated by the technical difficulties of separating and mechanically recycling waste plastic. Plastic degrades during recycling and must be  replaced with virgin plastic after a few cycles. This has led to calls for chemical recycling. All solutions involve extensive investment in new technology so it is important to get the answer right.

Some of the biggest recyclers recently issued a statement saying that companies should be required to use a certain percentage of recycled plastic in the packaging of their products. The French government has just proposed a different course of action; a tax on virgin recyclable plastic. Economic measures up to now, principally landfill taxes and plastic producer responsibility programmes, have not led to the desired increase in recycling in Europe. Instead, large quantities of waste plastic have been sold to China, which is now refusing to accept the majority of these shipments.  A local solution is urgently needed, but which economic measures will best achieve the desired goal? 

In economics parlance, recycled plastic and virgin plastic are substitute goods; they serve the same purpose, and can be used interchangeably for many applications. The cross elasticity of demand between recycled plastic and virgin plastic is positive. To the packaging manufacturer, both types of plastic are suitable raw materials, particularly for non-demanding applications, so they favour the cheaper option, often virgin plastic. The price of virgin PET for instance has been at an all time low, which increases its demand, relative to recycled PET.

So if the virgin plastic price is increased by taxation, demand for recycled plastic should grow. Burgeoning consumer awareness can only aid this process. However, there are some barriers, as the OECD states; “manufacturing firms have limited incentives to use recycled plastics as inputs because of uncertainty about their availability and quality”. Until the market is efficient, consistent, and has grown, we are unlikely to see a big change. 

It is clear that enforcing a minimum percentage of recycled plastic on companies is a more secure and guaranteed way of ensuring demand for recycled plastic increases. However, the required percentage is likely to be small and a buyout would probably be included, so this method doesn’t hold much scope for revolutionary change. Virgin prices will remain lower than recycled, and possibly drop further to compete for the now smaller share of the market. Some progress would be made but it is not clear how much.

Ideally, both initiatives should be implemented. The recycled plastic quota would force companies to take the first step towards recycled plastic use. Once recycled plastic is introduced into the manufacturing process in a limited way, a tax on virgin plastic would incentivise companies to further cut costs and commit more fully to recycled plastic. 

The era of throwaway plastic is coming to an end but we still need its marvellous properties. To continue using plastic, its price must rise to include the cost of recycling: as economists say - there is no such thing as a free lunch.

Economics input from Naomi Williams

Published: 12 September 18

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