Plastic - Outlook - For - 2022 - No - Time - To - Waste (Barclays, January 2022)

Special Report
5 January 2022
Sustainable & Thematic Investing

FOCUS
Plastic outlook for 2022: No time to #ESGTransition
#climatechange
waste
The war on plastic waste is set to accelerate in 2022 despite Sustainable & Thematic Investing
disruption caused by the pandemic. We view upcoming Katherine Ogundiya
+44 (0)20 3134 1391
packaging taxes, a raft of new regulations from Asia and katherine.a.ogundiya@barclays.com
developments in advanced recycling tech as overlooked Barclays, UK
investment catalysts, with additional polymers beyond PET Hiral Patel

+44 (0)20 3134 1618
coming under greater scrutiny. hiral.patel@barclays.com
Barclays, UK
European Consumer Staples

Mandeep Sangha
+44 (0)20 3555 2504
mandeep.sangha@barclays.com
Barclays, UK
U.S. CHPC & Beverages

Lauren R. Lieberman
+1 212 526 3112
lauren.lieberman@barclays.com
BCI, US
U.S. Chemicals
Michael Leithead, CFA
+1 212 526 0018
michael.x.leithead@barclays.com
BCI, US
IG and HY Credit
Maggie O’Neal*
+ 44 (0) 20 7773 6924
maggie.oneal@barclays.com
Barclays, UK
Barclays Capital Inc. and/or one of its affiliates does and seeks to do business with companies
Andrew Keches, CFA*
covered in its research reports. As a result, investors should be aware that the firm may have a
+1 212 412 5248
conflict of interest that could affect the objectivity of this report. Investors should consider this
andrew.keches@barclays.com
report as only a single factor in making their investment decision.
BCI, US
This research report has been prepared in whole or in part by equity research analysts based
outside the US who are not registered/qualified as research analysts with FINRA. Edward Brucker, CFA*
This is a Special Report that is not an equity or a debt research report under U.S. FINRA Rules 2241- +1 212 526 4435
2242. edward.brucker@barclays.com
BCI, US
* This author is a debt research analyst in the Fixed Income, Currencies and Commodities Research
department and is neither an equity research analyst nor subject to all of the independence and
disclosure standards applicable to analysts who produce debt research reports under U.S. FINRA
Rule 2242.
FOR ANALYST CERTIFICATION(S) PLEASE SEE PAGE 33 .
FOR IMPORTANT FIXED INCOME RESEARCH DISCLOSURES, PLEASE SEE PAGE 33 .
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Completed: 05-Jan-22, 14:28 GMT Released: 05-Jan-22, 16:45 GMT Restricted - External
Barclays | Sustainable & Thematic Investing
CONTENTS
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1. 2022: THE YEAR OF THE PLASTIC TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Packaging tax: the new regulatory tool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Company progress on recycled content threatened by limited supply . . 8
Impact of plastic packaging taxes is wide ....................................9
Consumer deposit schemes: Where are we now? . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Plastic taxes impact on packaging companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2. BEYOND PET: MORE POLYMERS UNDER SCRUTINY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Revisiting the plastic packaging universe: scrutiny will extend beyond
PET . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Mechanical recycling picks up post lockdowns . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Recycling capacity has prioritised PET to the detriment of other

polymers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
3. RECYCLING TRENDS: IS TIME UP FOR ADVANCED RECYCLING TECH? . . . . . . . . . . . 23

Mechanical recycling in 2022: year of rebound and investment . . . . . . . . 23
Revisiting advanced recycling technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Waste-to-energy: the elephant in the room . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Recycled plastics as a source of carbon credits? . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
4. TIME TO LOOK EAST: ASIA IS THE BIGGEST RECYCLING MARKET. . . . . . . . . . . . . . . . 28

Asia set to overtake Europe with stricter plastic waste policies . . . . . . . . . 28
Asia is the largest plastics market and new anti-waste policies may
cause global disruption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
5 January 2022 2
EXECUTIVE SUMMARY
The pandemic has been a major setback to global plastic waste management, with
increased consumption exacerbated by widespread closures of recycling facilities
during lockdowns. However, we expect this to change this year as regulators look to
introduce their most ambitious regulations to date covering all polymers (not just
PET), which will have widespread implications across the value chain. Many upcoming
catalysts, which we believe will drive plastic back up the sustainability agenda in 2022,
have been overlooked. Most imminently, plastic packaging taxes covering all polymers
are set to be introduced across Europe and the US – starting with the UK in April. In
many instances, these taxes may make recycled plastics (which have typically had a
30% premium over virgin materials) cheaper than virgin plastics. Secondly, a record
number of consumer deposit schemes will be rolled out over the next 24 months across
the world. And, for the first time since the Green Sword Movement in 2018, plastic
waste management policy in Asia has advanced materially – with China, South Korea
and India approving significant regulations in late 2021. Amid all of these
developments, we see substantial costs for companies seeking to comply with the new
set of rules, especially given the tight supply of recycled materials. This renewed focus
on plastics is attracting new entrants and investments in sustainable solutions, such as
reverse vending machines, which are used in consumer deposit schemes, and advanced
recycling technologies, which are needed to supplement traditional mechanical
recycling. In this latest report in our ‘Plastic Waste’ series, we show how this theme is
likely to accelerate in 2022, affecting companies across multiple sectors, and we
believe that the cost of inaction will only get higher.
To minimise the risk of being caught out we believe investors should prioritise the
following areas this year: 1) upcoming plastic taxes; 2) focusing on other polymers in
addition to PET; 3) revisiting advanced recycling technologies; and 4) looking to Asia,
which has upgraded its plastic waste policies.
1) 2022: The year of the plastic tax. Starting in April with the UK, plastic packaging taxes
will be the main plastic management policy tool, with Italy, Spain and the US all set to
follow. In our view, packaging taxes are going to be disruptive and costly, and many
investors and companies are unprepared. Veolia found that 83% of businesses were
unaware of the UK’s upcoming plastic packaging tax. These taxes, which will apply to all
polymers, are expected to close the pricing gap between virgin plastic and recycled plastics,
which often have a 30% premium. This will financially impact many companies, with our
case study in the EU Beverages sector suggesting UK packaging taxes will likely negatively
impact gross margins for both AG Barr and Britvic by 500bps. While we acknowledge that
plastic taxes are a near-term overlooked priority, consumer deposit schemes (CDSs) still
play an important role. Although numerous CDSs were put on hold during the pandemic,
many countries (e.g. the UK) are resuming their roll-out and many more have committed to
new CDSs, including Slovakia and Turkey. In our view, CDSs will be costly to beverage
companies and food retailers, whilst reverse vending machine producers such as Tomra and
Envipco look set to benefit from these upcoming schemes.
2) Beyond PET: More polymers under scrutiny. In our view, investors need to expand their
attention beyond polyethylene terephthalate (PET). PET is the plastic used in beverage
bottles and has been a priority for many regulators and consumer brands. Even with a
5 January 2022 3
global focus on obtaining food-grade recycled PET, there is still a worldwide shortage; for
example, research by the Recycling Partnership estimates that there is a 1 billion lb gap
between the supply of rPET in the US to meet consumer 2025 company pledges. However,
over the past few months the focus has expanded beyond PET to other polymers. Our
‘Single-use plastic packaging outlook’ (Figure 14) suggests that high-density polyethylene
(‘HDPE’), polypropylene (‘PP’), and low-density polyethylene (‘LDPE’) will join PET as
priority polymers. This should push plastics up the sustainability agenda for many more
sectors, including consumer, fashion, personal care, consumer goods and construction,
in addition to beverages. Unfortunately, recycling capacity is skewed to PET, meaning
supply for other recycled polymers is severely limited. We expect this supply-demand
imbalance to become a pressing sustainability issue for many companies in the near term,
including consumer-facing brands and recycling companies.
3) Recycling trends: Is time up for advanced recycling technologies? In our view,

supplementing traditional mechanical recycling with advanced recycling technologies will
be critical to meet demand for recycled plastics. These technologies are the only processing
methods that can break down all types of plastics via a fully circular closed loop. We
acknowledge that there has been excitement surrounding these technologies in the past,
yet companies have disappointingly failed to scale up operations. In our view, there has
been sufficient disruption, including incumbents pivoting strategy (e.g. Loop Industries),
new entrants (including large chemicals companies such as Eastman) and investment in
this technology (e.g. PureCycle SPAC in March 2021) to warrant re-examination of their
potential. We update our ‘Advanced plastic recycling landscape’ (Figure 25) to highlight the
c.20 main players in this space and explore the key technologies (e.g., gasification,
methanolysis, glycolysis) that we believe have the most potential for wide-scale disruption
and success. In 2022 we will be particularly following the scaling-up of methanolyis plants
following Eastman’s recent entrance into the market and also after SK Innovation’s $56.5m
investment in Loop Industries in August 2021.
4) Time to look East. The West (Europe specifically) has been at the epicentre of plastic
waste management policy. In our view, this should change, with Asia poised to become the
largest market for recycled plastics. Asia is already the world’s largest producer of plastic,
accounting for 48% of global production; however, as a region, up until last year it had been
relatively lax on plastic waste regulation. In 2021 we saw a proliferation in plastic waste
management across the region, with notable developments in India, South Korea and
China. In many cases these policies are stricter than the requirements in Europe.
The impact on companies is two-fold. 1) Increased international competition: Many

Western companies with strong plastic waste management solutions are well positioned to
aid the East in its sustainability efforts. We are already seeing Tomra and Loop Indorama
partnering with companies in South Korea and China, respectively. We expect this trend to
continue in the short term but note that domestic peers could be favoured in the long term.
2) Greater demand for recycled content: As countries such as India introduce
requirements for minimum amounts of recycled content in plastic packaging, we expect to
see further competition for recycled polymer. We believe this will materially affect
companies’ ability to meet existing global sustainability pledges and likely act as a catalyst
for advancements in recycling technology, including vertical integration.
Plastic waste took a back seat as a sustainability topic during the pandemic. As a
result, many material developments were overlooked. The upcoming plastic packaging
taxes, new consumer deposit schemes, advanced recycling technology innovation and
new regulations from Asia are among the key catalysts indicating that plastics will
again be a key theme in 2022, impacting companies throughout the value chain.
5 January 2022 4
FIGURE 1. Four themes for 2022
Plastic outlook for 2022: No time to waste

Plastic is still king for now…
Plastic production and consumption have continued to soar despite global bans
Covid impact Spotlight on so drinks
+50%
Plastic consumption soared as individuals Plastic is the most used packaging material
Global plastic production
increased between 2008 prioritised hygiene, and deliveries increased PET remains the most popular plastic
and 2020 Lockdowns forced the temporary closure of Glass has been losing market share to aluminium
recycling facilities
Many plastic management policies, such as
consumer deposit schemes, were delayed
1. 2022 is the year of plastic taxes

Global waste management policy is expanding to use taxation to encourage the use of recycled materials in plastic packaging
EU UK Spain US Italy
In effect Apr 2022 2022 (TBC) 2022 (TBC) Jan 2023 (TBC)
2. Beyond PET: More polymers, such as PP, HDPE and LDPE, are under scrutiny
Packaging taxes will boost the demand for recycled plastics of all polymers, but further investment in recycling capacity is urgently required
Plastic packaging recycling rates in Europe European recycling installed capacity
vs recycling output (2019)
60% EU 2030 Target
Million tonnes Installed recycling capacity
50% 3.0
European Union (excl. UK) Recycling output
40% UK 2.5
30% 2.0
1.5
20%
1.0
10% 0.5
0% 0.0
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 PET LDPE HDPE/PP
3. Recycling trends: Is time up for advanced recycling tech?

Demand is not being met by mechanical recycling alone; progress in advanced chemical and biological recycling technology is attracting
new players
1 billion lbs Advanced recycling may hold the key

of rPET Thermal Conversion Biological Chemical
The shortfall required for Enzymatic
US consumer brands to meet Gasification Pyrolysis Methanolysis Glycolysis Hydrolysis Purification
depolymerisation
2025 sustainability goals
Heat with low Heat without Chemical Chemical Water at high
Enzyme Solvent
oxygen levels oxygen catalyst catalyst temperature
4. Time to look East: Asia is the biggest recycling market

Since banning imports of plastic waste, Asia set to overtake Europe with stricter regulations
Asia China India South Korea
48% of plastics are 2021 Five-Year Plan Prime Minister Modi New tax on hard-to-recycle
produced in Asia prioritised plastic waste, pledged to phase out plastics and green light for
vs. 19% in North America e.g. building 60 recycling problematic single-use chemical recycling
vs. 16% in Europe facilities plastics by 2022
Source: Barclays Research, Plastic Recyclers Europe, Global Data, Eurostat, The Recycling Partnership, China’s Five-Year Plan, India’s Plastic Waste Management
Amendment Rules, South Korea’s Comprehensive Measures of Waste Recycling
5 January 2022 5
FIGURE 2. Key catalysts and companies to watch
Companies & catalysts to watch

Plastic is still king for now…
Company exposure to key substrates varies within the packaging sector
Revenue Exposure Revenue Exposure
Issuer Ticker Plastic Paper Aluminium Glass Issuer Ticker Plastic Paper Aluminium Glass
Amcor AMCR High High Low Low International Paper IP 0% 100% 0% 0%
Ardagh Metal Packaging AMPBEV 0% 0% 100% 0% Mercer International MERC 0% 100% 0% 0%
Avery Dennison AVY High High Low Low O-I Glass OI 0% 0% 0% 100%
Ball Corp BLL 0% 0% 100% 0% Packaging Corp of America PKG 0% 100% 0% 0%
Berry Global BERY High Low 0% 0% Sealed Air Corp SEE 100% 0% 0% 0%
Crown Holdings CCK 0% 0% 100% 0% Sonoco SON Low High 0% 0%
Graphic Packaging GPK 0% 100% 0% 0% Sylvamo Corp SLVM 0% 100% 0% 0%
Greif GEF 25% 16% 59% 0% WRKCO Inc WRK 0% 100% 0% 0%
1. 2022 is the year of the plastic taxes

Plastic taxes will close the gap between premium recycled polymers and virgin plastic. The rise in consumer deposit schemes is also
accelerating action on waste management
Plastic taxes will make rPET more price competitive Regulatory catalysts on the horizon:
with virgin PET
2021 2022 2023
USD/mt
2,000 rPET: vPET +
30% premium Packaging
tax
1,500 vPET + EU UK Spain US Italy
Italy/Spain tax
1,000 Consumer
vPET + UK tax
deposit
vPET vPET + US tax scheme
500
2017 2018 2019 2020 Jamaica Slovakia Turkey Latvia Ireland Portugal UK
2. Beyond PET: More polymers, such as PP, HDPE and LDPE, are under scrutiny
Our sustainability ranking of polymers highlights that PVC and PS are at risk of bans as packaging materials
Sustainability A B B C D D Varies HDPE, LDPE and PP
ranking will join PET as priority
Symbol 1 2 5 4 3 6 7 polymers given their
recyclability and broader
PET HDPE PP LDPE PVC PS OTHER
sustainability credentials
Regulatory Packaging tax Packaging tax Packaging tax Packaging tax Packaging tax Packaging tax Packaging tax
focus Consumer Carrier bag Candidate Increasing Candidate
deposit charges for bans bans for bans
schemes Candidate
for bans
3. Recycling trends: Is time up for advanced recycling tech?

Advanced recycling tech providing opportunities for new entrants and incumbents
Thermal Conversion Chemical Biological
Agilyx INEOS* Plastic Energy* Eastman (PRT) Mura* PureCycle Tech Carbios
BASF LyondellBasell Pyrowave* Loop Industries PolyClean Tech*
Eastman (CRT) Maire Tecnimont Gr3n* Polystyvert*
Enerkem* New Hope Energy* Ioniqa* Poseidon Plastics*
* denotes private company
Eastman (PRT) = Eastman polyester renewal technology, Eastman (CRT) = Eastman carbon renewal technology
4. Time to look East: Asia is the biggest recycling market

As Asia seeks to combat plastic waste, we see scope for increased competition and partnerships. However, it remains to be seen whether
domestic or international companies will take market share in the long term.
Chemical recycling being pursued actively: SK Global (South Korea) & Loop Industries (Canada)
Mechanical recycling & sorting: TOMRA (Norway) and Incom (China)
Source: Barclays Research, Company reports, Statista
5 January 2022 6
1. 2022: THE YEAR OF THE PLASTIC TAXES

Up until late 2021 plastic packaging waste management policy had almost exclusively
focused on polyethylene terephthalate (‘PET’). PET is the plastic used in beverage bottles.
Consumer deposit schemes and laws requiring a minimum amount of recycled content in
beverage bottles have therefore been the main tools utilised. During the pandemic, plastic
consumption soared and governments are now responding to the resultant increase in
plastic waste - without resorting to widespread bans, given the accepted utility of plastic
packaging.
Instead, countries are turning to packaging taxes to target plastic and raise finances to build
waste management infrastructure. 2022 is set to be the year of plastic packaging taxes, with
the UK launching the first national tax from April 2022 (Figure 3), which will force companies
to use recycled content in packaging across all plastic polymers or face a tax. These taxes
should close the pricing premium that recycled plastics typically have over virgin plastics. To
manage this cost and increase access to recycled plastic packaging we are seeing
companies, such as Coca-Cola and L’Oréal, vertically integrating their operations and
investing in recycling facilities. Our case study looks at the impact on soft-drink beverages
companies and our updated packaging landscape (Figure 13) shows packaging companies’
exposure to the various substrates (plastic, paper, aluminium and glass).
Packaging tax: the new regulatory tool

During the pandemic, recycling stalled and momentum on plastic waste management dipped,
yet consumption of plastics increased. Many countries are now revisiting policies and enacting
stricter measures to deal with the proliferation of plastic waste generated over the past few
years. France banned the use of plastic packaging for most fruits and vegetables, which went
live on 1 Jan 2022. Beyond outright bans,the UK, Europe and the US are all in various stages of
plastic tax proposals (Figure 3), with the UK’s tax launching first and entering into effect from
April 2022.
FIGURE 3. Pipeline of plastic packaging taxes
Levy Date effective Application Subject of tax Legal instrument Legal status
Packaging and Packaging
Europe €800 per ton January 2021 Non-recycled plastic packaging EU Member States Approved
Waste Directive
Plastic packaging with Plastic packaging
UK £200 per ton April 2022 Finance Bill 2020 Approved
<30% recycled content manufactures
The virgin plastic content of Producers or imports of Law on Waste and Pending
Spain €450 per ton 2022 (TBC)
single-use plastics single use plastics Contaminated Soils approval
Rewarding Efforts to Decrease
$0.10-$0.20 Pending
US 2022 (TBC) Virgin plastic resin Resin producers Unrecycled Contaminants in
per lb. approval
Ecosystems (REDUCE) Act
The virgin plastic content of Producers or imports of Pending
Italy €450 per ton January 2023 2022 Italian Budget Law
single-use plastics single use plastics approval
Note: The European packaging tax will be levied on EU Member States. The packaging taxes proposed by Spain and Italy are in addition to the EU’s tax and will be levied at
the company level.
Source: Barclays Research
Regulation designed to tackle plastic waste has historically prioritised imposing targets for
recycling rates. Previous rules on recycled content in plastics (e.g. EU’s Single-Use Plastics
Directive) were limited exclusively to polyethylene terephthalate (‘PET’) beverage bottles.
Interestingly, these upcoming taxes are set to cover all single-use packaging plastics (subject to
region-specific nuances). This will have two effects:
• Changing the price dynamics between rPET and virgin PET (Covered in Section 1).
• Expanding the focus from only PET to all packaging substrates (Covered in Section 2).
5 January 2022 7
Company progress on recycled content threatened by

limited supply
Plastic packaging policy has focussed on bans and recycling. From a regulatory perspective
there have only been requirements for recycled content in PET beverages bottles. We have
therefore seen many consumer brands going beyond legal requirements and pledging to use
high amounts of recycled plastics in packaging. The pandemic hindered company progress as
recycling facility closures, due to lockdowns, increased the scarcity of rPET. With upcoming
packaging taxes, it will be interesting to see if companies revisit their self-made pledges and
move to regional targets in countries where taxes are likely to be in force and move away from
global pledges, such as Keurig Dr Pepper’s target to achieve 30% post-consumer recycled
content in its packaging by 2025.
Progress slow on rPET: 11% recycled content in Europe

As mentioned, the beverages industry has been particularly targeted by regulation, given the
focus on PET. Under the EU’s directive on single-use plastics, companies are required to ensure
that plastic beverage bottles contain at least 25% recycled content by 2025, the figure rises to
30% in 2030. The EU estimates that in 2020 the average recycled content in bottles was 11% -
clearly there is a long way to go.
Despite the relatively low rPET levels across Europe (where PET recycling infrastructure is
strongest), many large consumer brands are on track to meet the EU’s 2025 requirements,
assuming there are no issues or shortages of food grade recycled-PET (Figure 4). Companies
achieving +30% rPET, such as Coca-Cola EP, would be exempt from the UK’s packaging tax –
hence rewarding progress here.
FIGURE 4. Progress towards recycled content targets
60%
50% 50%
50%
41%
40%
30% 31% 30%
30% 26% 28%
20%
20% 17%
10%
4%
1%
0%
Danone S.A. innocent drinks Coca-Cola EP Britvic
2018 2019 2020 2021 EU 2025 Target
Source: Barclays Research, Ellen MacArthur Foundation, Company Reports
90% of company rPET pledges won’t be met by 2025

“There’s simply not enough Despite efforts by many companies, Gartner predicts that 90% of 2025 sustainable packaging
recycled plastic available to meet targets will be missed. For example, non-alcoholic beverage companies covered by Barclays
the commitments that have been have noted challenges sourcing rPET, although many pledges remain unchanged. CCEP
made by not only just P&G, but our acknowledged some short-term constraints that drove up pricing for rPET but has stuck by its
peers and industry” – Jack goal to source 50% of total PET needs from rPET by 2023. PepsiCo’s 2021 ESG report noted that
McAneny, VP of Global ‘PepsiCo is already one of the largest customers of food-grade rPET in the world. If there was
Sustainability, P&G more available, we would buy it, and if there were more markets where it could be used, we’d
utilize it. Currently demand outpaces supply, especially for food-grade rPET’.
5 January 2022 8
Consumer brands taking a more vertically integrated approach to meet pledges

EQUITY RESEARCH Notwithstanding the supply constraints, many companies are investing into plastic recycling
U.S. CHPC & Beverages projects as a way to shore up recyclate materials in the future. For more information on the
Lauren R. Lieberman dynamics and volumes of recycled plastics see Section 2.
+1 212 526 3112
BCI, US • Keurig Dr Pepper, PepsiCo and Coca-Cola are all part of the ‘Every Bottle Back’ initiative
that includes directing $400mm to The Recycling Partnership and Closed Loop Partners
Heather Gornik through a new $100mm industry fund to be matched on a 3:1 basis by other grants &
+1 212 526 9237 investors.
BCI, US
• Coca-Cola: The brand has invested in recycling facilities in many different regions, all in a
bid to improve recycling infrastructure and increase the supply of food grade rPET. Recent
examples include:
° Coca-Cola Europacific Partners in August 2021 announced that a joint venture had been
formed between CCEP, Asahi Beverages, Pact Group and Cleanaway Waste
Management to build a PET recycling facility in Australia with the capacity to produce
20kt of rPET a year.
° Coca-Cola Philippines in November 2021 announced its plans to open a recycling facility
in the country in 1H22 via a JV with Indorama Ventures (one of the largest PET
producers). The facility will have a capacity of 30kt of rPET each year.
• L’Oréal & Veolia: In December 2021, utility company Veolia announced its new partnership
with L’Oréal. Veolia will supply L’Oréal worldwide with high-quality recycled plastic to use in
cosmetic packaging. The recycled resins will help contribute to L’Oréal’s sustainability goals,
including reducing carbon emissions.
Impact of plastic packaging taxes is wide

Location-specific taxes could prompt a change in company pledges
Proposed packaging taxes could have a number of implications for companies. In addition to
being an additional cost to businesses, plastic taxes might prompt large consumer companies
to pivot their sustainability targets away from global recycled standards and instead to having
specific requirements in locations where packaging taxes are in place. For example, PepsiCo has
a new 100% rPET target for European countries, including the UK and Spain, where packaging
taxes have gained most traction. This is primarily due to the global scarcity of rPET, and thus
focusing efforts to locations where there is a legal cost to not using rPET is prudent.
Packaging taxes could make virgin plastics more expensive than recycled
plastics
We use PET to illustrate the impacts of taxes + virgin plastic vs the cost of the recycled plastic, as
this polymer has the highest recycling rates and the most established infrastructure. Food-
grade recycled PET (rPET) has carried a premium over virgin plastics, with S&P Global Platts
reporting a 20% premium in July 2021 in Europe; NAPCOR, the National Association for PET
Container Resource, has also reported that rPET a 20% premium over virgin PET in the Americas
(2020 PET Recycling Report, NAPCOR, 2.11.21). However, scarcity of rPET means that producers
of recycled plastics can charge even more. We therefore assume a 30% premium over PET. A
new plastic tax is likely to close the pricing differential and encourage the increased use of rPET.
Taxes rates proposed by Spain and Italy on virgin plastic exceed the typical rPET premium and
so will make virgin PET more expensive than rPET (Figure 5). Unlike the plastic tax in the UK, the
plastic taxes pending in Spain and Europe cannot be avoided by using a specified amount of
plastic recyclate.
5 January 2022 9
FIGURE 5. Plastic taxes will make rPET more price competitive with virgin PET
USD / mt
2,000
1,500
1,000
500
2017 2018 2019 2020
vPET vPET + UK tax vPET + Italy/ Spain tax
vPET + US tax rPET: vPET + 30% premium
Source: Barclays Research, Statista
Figure 5 shows average annual PET prices up to 2020. It is worth noting that virgin PET prices
are regional, closely linked to oil prices and can therefore be volatile. For example, tight supply
chains meant that virgin PET reached a 10-year high in November 2021 in Europe of €1,500/mt,
exceeding rPET prices by €30/mt (S&P Global Platts).
Going forwards, now that recycling capacity has increased and waste collection has resumed
and is returning to 2019 levels, there are signs that rPET prices could be very competitive with
virgin PET prices, especially once the plastic taxes are taken into consideration. This may
naturally accelerate the increased use of rPET in bottle packaging, however the next issue will
be capacity rather than pricing. For more information on installed rPET recycling capacity, see
Section 3.
Case study: Costs in European beverages

EQUITY RESEARCH Within the UK soft drinks sector, PET is far and away the single largest source of packaging
European Consumer Staples material (Figure 6) and represents c.72% of total UK soft drinks packaging. The next largest is
Mandeep Sangha aluminium, which represents c. 16% of packaging.
+44 (0)20 3555 2504
Barclays, UK
Laurence Whyatt
+44 (0)20 7773 5324 FIGURE 6. In 2021 PET accounted for the vast majority of UK soft drinks packaging material
Barclays, UK PET Glass Aluminium Foil Board

100%
Pack material as % of CY20 volumes
80%
60%
40%
20%
0%
Flavoured Packaged Concentrates Carbonates Still drinks Energy Nectars
Water Water
Source: Global Data, Barclays Research
PET accounts for 30% of input costs for AG Barr

Whilst disclosure around the proportion of PET as a percentage of COGS is limited across our UK
soft drinks coverage, we know from AG Barr that PET accounts for c.30% of input costs (Figure
7). Given broadly similar category exposure, we would expect that PET would represent a
similar level of COGS for Britvic. On the other hand, Fever-Tree has a policy of not using any
PET in its packaging and therefore the company has zero exposure.
5 January 2022 10
FIGURE 7. PET accounts for c.30% of AG Barr’s COGS
Other
Utilities
Cans
Sugar
Commodity
Spend
Juice
PET
Ingredients
Glass
* Graph from 1H22 presentation
Source: Company documents, Barclays Research
In terms of company commitments towards switching from PET to rPET, both AG Barr and
Britvic have very ambitious targets. For example, AG Barr has committed to using 100% rPET
across all of its brands by 2023. Similarly, Britvic targets 100% of its plastic packaging in its GB
operations to be made from rPET by the end of 2022. As such, the incremental cost of rPET vs
virgin PET will become an increasingly important factor, going forward. Thus far, both
companies have been relatively limited in their disclosure around the incremental costs of rPET
but, as highlighted above, its cost could be c.30% more than virgin PET. In our discussions with
AG Barr, the company has also mentioned that it is harder to hedge rPET as an input, which is
particularly problematic given the inflationary cycle the companies are currently going through.
Switching to 100% rPET could cost Britvic £74m per year

In order to try and estimate the potential financial impacts of fully switching from virgin PET to
rPET, we apply a c.30% price premium to COGS inputs for both AG Barr and Britvic. Using this
calculation, we estimate this could cost AG Barr an additional £12m a year in COGS which
negatively impacts gross margins by c.500bps. Similarly, for Britvic we estimate the equivalent
costs would be £74m per year, which also equates to a c.500bps of margin impact. We note that
these calculations are rather rudimentary given that some proportion of existing PET use will
already be rPET, but without further disclosure it is difficult to estimate what this level is.
Going forward, we would like to see greater transparency from our coverage on the cost of
achieving its packaging-related ESG goals, particularly those that relate to switching to rPET.
Further, given the number of ambitious targets across the wider Beverages sector around rPET,
we would also like to understand what other type of investments companies may be
considering in order to ensure future supply stability of rPET, such as investing in rPET
production facilities, and what the potential costs of this would be.
Consumer deposit schemes: Where are we now?

When we first published on plastic waste in 2019, we highlighted the importance of Consumer
deposit schemes ‘CDS’ - see “Plastic Waste: Don’t lose your bottle” (19.06.19). A CDS works by
imposing a levy on single-use containers, which is refunded when the container is returned.
Consumer deposit schemes still remain a highly efficient and popular tool to boost the quantity
and quality of plastic waste collected. However, multiple lockdowns and the accompanying
economic fallout has meant that many pending schemes have been delayed. This is
unsurprising given the time, the number of stakeholders involved, and the costs of setting up
such a scheme. For example, Department for Environment, Food and Rural Affairs (‘DEFRA’)
estimated it would cost £846m to establish a CDS in the UK (Introducing a deposit return
scheme on beverage containers, DEFRA, 15.02.2019).
5 January 2022 11
Nevertheless, it has been positive to see that pending CDSs have not been scrapped altogether,
but the delays have been substantial in some countries (Figure 8). The pandemic has shown the
challenges with implementing physical measures to tackle plastic waste, as building new
infrastructure required to roll out CDSs was not possible. In our view, this has made packaging
taxes an even more attractive policy tool and explains why we have seen such an interest in
taxes over the past 12 months.
FIGURE 8. Recent and upcoming consumer deposit schemes
Country Implementation date Original go live date Materials covered Deposit

Jamaica June 2021 Late 2019 PET and HDPE Plastic ($1 Jamaican dollar)
Slovakia January 2022 January 2022 PET and aluminium Plastic (€0.12) | Metal (€0.10)
Turkey January 2022 By 2023 PET, HDPE, glass and metal TBA
Latvia February 2022 February 2022 Plastic, glass and metal Both materials (€0.10)
Malta April 2022 Late 2020 PET, glass and metal All materials (€0.10)
Ireland Third quarter 2022 Third quarter 2022 PET and aluminium Both materials (€0.10) - TBC
Poland 2022 2022 Plastic and glass TBA
Portugal By 2023 Early 2022 Plastic, glass and metal TBA
Scotland 16 August 2023 April 2021 PET, glass and metal All materials (£0.20)
England, Wales &
Late 2024 2023 PET, glass and metal TBA
Northern Ireland
As an aside, the pipeline of consumer deposit schemes looks promising for reverse vending
machine manufacturers, such as Tomra (TOM:ASA). However, we are already seeing
competition between suppliers. Malta, for instance, has chosen to purchase 300 machines from
Dutch RVM manufacturer and distributor Envipco (ENVI:AMS) rather than Tomra, which
reported a 75% market share of the global RVM market in 2021. On the other hand, Tomra has
signed a contract to supply the Latvian system with 800-1000 automated beverage collection
machines. We expect this competition to intensify between RVM companies (Figure 9), as more
countries seek to tackle plastic waste.
FIGURE 9. 3Y performance of RVM producers Tomra and Envipco vs ACWI
250
200
150
100
50
-50
Jan 19 Apr 19 Jul 19 Oct 19 Jan 20 Apr 20 Jul 20 Oct 20 Jan 21 Apr 21 Jul 21 Oct 21
Tomra Envipco ACWI
Source: Barclays Research, Bloomberg
5 January 2022 12
Plastic taxes impact on packaging companies

Plastics still dominate despite regulatory focus
A lot of plastic waste management policy has focused on packaging for beverages. For example,
consumer deposit schemes, and minimum recycled content in PET beverages bottle set in the
EU’s Single-Use Plastic Directive. Yet plastic remains the packaging material of choice for soft
drinks (Figure 10), with PET being the most used plastic polymer (Figure 11).
FIGURE 10. Plastic dominates packaging substrates for soft drinks FIGURE 11. PET is the most used plastic in soft drink beverage
packaging
100% billion beverage units

90% 180
80% 48 49
46 47
70% 43 45
130
60%
50%
80
40% 130
115 119 124 124
30% 111
20% 30
10%
0% 2015 2016 2017 2018 2019 2020
-20
2015 2016 2017 2018 2019 2020
Plastic Metal Glass Paper PET Other plastic
Source: Global Data, Barclays Research Source: Global Data, Barclays Research
Glass losing share to aluminium

EQUITY RESEARCH One of the key themes in the beverage packaging space over the past few years has been the
U.S. Chemicals & Packaging substrate gains in aluminium cans. We would note, while anti-plastic rhetoric has increased
Michael Leithead, CFA over this period of time, plastic has relatively held share in the beverage market. The biggest
+1 212 526 0018 “share donor” has been glass over this period of time (Figure 12), with substrate losses in beer
BCI, US (very limited plastic exposure) and the emergence of new categories like canned cocktails.
While there have been some upstart initiatives to convert key plastic bottle categories like
bottled still water to aluminium cans or cartons, the absolute volume impact has been quite
limited thus far.
FIGURE 12. Cans winning share of new North American product launches (SKUs)
Aluminum Cans Other Substrates

100%
80%
60%
40%
67% 75%
61%
50%
20% 36% 41%
31%
0%
2014 2015 2016 2017 2018 2019 2020
Source: Ardagh Metal Packaging Reports & Filings; Barclays Research
5 January 2022 13
Companies have varying exposure to packaging taxes

CREDIT RESEARCH Substrate and region will determine exposure
IG and HY Credit Packaging names have varying exposure to the other key packaging substrates. In our view,
Maggie O’Neal* companies with greater exposure to plastic and with revenue exposure skewed to Europe are
+ 44 (0) 20 7773 6924 more likely to be impacted by incoming packaging taxes. We therefore map out the key
Barclays, UK geographic and packaging exposures of our companies (to the extent available in public filings)
in Figure 13.
Andrew Keches, CFA*
+1 212 412 5248 Plastic packaging companies are therefore using more recycled content
BCI, US
• Pactiv Evergreen (PTVE: NASDAQ) - Pactiv Evergreen has been an early mover in the
packaging space when it comes to recyclability. The company currently produces over two-
Edward Brucker, CFA*
thirds of its products with recyclable materials and aims to use 100% recyclable material by
+1 212 526 4435
2030. The recent acquisition of Fabri-Kal should be a step in the right direction for the
BCI, US
transition, given roughly half of Fabri-Kal sales are produced using fully compostable or
*This author is a debt research recyclable materials; its Greenware product line is made entirely from plant-based material.
analyst in the Fixed Income, The expansion of compostable materials should significantly reduce Scope 3 emissions for
Currencies, and Commodities the business since composting reduces the need for chemical fertilisers while redirecting
Research department and is waste away from landfills.
neither an equity research analyst
nor subject to all the Over the next decade, Pactiv aims to achieve its fully-recyclable product offering, while
independence and disclosure reducing Scope 3 emissions and driving input costs lower. Since recyclable plastics often
standards applicable to analysts end up in landfills due to inefficient infrastructure, the company’s focus on creating the
who produce debt research infrastructure necessary to collect and use post-consumer resins (PCR) throughout the
reports under U.S. FINRA Rule business should reduce the business’s reliance on virgin resins while bolstering its ESG
2242. profile.
5 January 2022 14
FIGURE 13. Packaging landscape
Revenue Exposure Packaging Exposure
Issuer Ticker N.America Europe APAC Plastic Paper Aluminium Glass
Ahlstrom-Munksjo AHLMUN 42% 43% 13% 0% 100% 0% 0%

Amcor AMCR 47% 24% 3% High High Low Low
Ardagh Metal Packaging AMPBEV 53% 47% 0% 0% 0% 100% 0%
Avery Dennison AVY 24% 31% 34% High High Low Low
Ball Corp BLL 70% 26% 4% 0% 0% 100% 0%
Berry Global BERY 53% 35% 12% High Low 0% 0%
Constellium CSTM 40% 52% 8% 0% 0% 100% 0%
Crown Holdings CCK 37% 37% 13% 0% 0% 100% 0%
DS Smith SMDSLN 9% 91% 0% 0% 100% 0% 0%
Graphic Packaging GPK 79% 17% 4% 0% 100% 0% 0%
Greif GEF 100% 0% 0% 25% 16% 59% 0%
International Paper IP 78% 14% 1% 0% 100% 0% 0%
Klockner Pentaplast KPERST 31% 58% 7% 100% 0% 0% 0%
Mercer Int'l MERC 17% 42% 41% 0% 100% 0% 0%
Metsa METSA 23% 68% 9% 0% 100% 0% 0%
O-I Glass OI 55% 39% 6% 0% 0% 0% 100%
Packaging Corp of America PKG 100% 0% 0% 0% 100% 0% 0%
Progroup PROGRP 0% 100% 0% 0% 100% 0% 0%

Sappi SAPSJ 32% 47% 0% 0% 100% 0% 0%
Sealed Air Corp SEE 64% 21% 15% 100% 0% 0% 0%
SIG Combibloc SIGCBL 18% 45% 37% 0% 100% 0% 0%
Smurfit Kappa SKGID 22% 78% 0% 0% 100% 0% 0%
Sonoco SON 71% 20% 6% Low High 0% 0%
Stora Enso STERV 6% 72% 18% 0% 100% 0% 0%
Sylvamo Corp SLVM 100% 0% 0% 0% 100% 0% 0%
UPM UPMFH 13% 62% 19% 0% 100% 0% 0%
Verallia VRLAFP 9% 91% 0% 0% 0% 0% 100%
WRKCO Inc WRK 93% 0% 6% 0% 100% 0% 0%
* Americas includes North, Central & South America
Source: Barclays Research, Company reports
5 January 2022 15
2. BEYOND PET: MORE POLYMERS UNDER SCRUTINY
Upcoming packaging taxes indicate that PET will no longer be the sole packaging polymer in
focus. We assess the sustainability of all polymers (Figure 14) and, in our view, high-density
polyethylene (‘HDPE’), polypropylene (‘PP’), and low-density polyethylene (‘LDPE’) will join
PET as priority polymers. This should push plastics up the sustainability agenda for many
more sectors, including pharmaceuticals, consumer, fashion, personal care, consumer
goods and construction, in addition to beverages.
In this section we look at the recycling landscape for key polymers, highlighting that
capacity has been disproportionately skewed to PET. As more sectors compete for recycled
polymers, 2022 is likely to be the year where low recycling capacity and scarcity of recycled
plastic becomes more acute. We see particular pressure on food-grade recycled resins, given
the additional regulatory requirements for food safe packaging, and we are already seeing
food retailers such as Tesco and Morrison integrating recycling capacity into their operations
to shore up supply.
Revisiting the plastic packaging universe: scrutiny will

extend beyond PET
With packaging accounting for almost 40% of plastics used, it is unsurprising that efforts to
reduce plastic waste often focus on packaging. Upcoming packaging taxes are not exclusively
limited to PET - a wide range of packing types will be subject to new legislation. In Figure 14 we
summarise the main types of plastics, their status from a regulatory perspective, their
recyclability and risk of substitutions.
We also rank the sustainability of each of the different resins as single-use packaging materials
based on their recyclability, uses and the existing recycling infrastructure. The resins are ranked
from A to D, ‘A’ being the most sustainable and ‘D’ being the least sustainable. It is worth noting
that regulators have been starting to phase out plastic packaging deemed not to be sustainable
– primarily those that are hard, if not impossible, to recycle, such as PVC and Polystyrene. In our
view, high-density polyethylene (‘HDPE’), polypropylene (‘PP’), and low-density polyethylene
(‘LDPE’) will join PET as priority polymers.
5 January 2022 16
FIGURE 14. Single-use plastic packaging outlook
Sustainability A B B C D D Varies
ranking
Symbol 1 2 5 4 3 6 7
PET HDPE PP LDPE PVC PS OTHER
Polyethylene High-density Low-density Polyvinyl

Polymer Polypropylene Polystyrene Other plastics*
terephthalate polyethylene polyethylene chloride
Common uses Plastic bottles Milk containers Bottle lids Plastic bags Cling film Food takeaway Baby cups
Shampoo bottles Food tubs Food wrapping Food trays Plastic cutlery Fiberglass
Medical blister Egg tray Water cooler
packs bottles
Properties Clear Stiff Tough Lightweight Can be rigid Lightweight Diverse

Strong Hardwearing Resistant Low-cost or so via Structurally in nature
plasticizers weak
Lightweight Versatile
Recyclable Commonly Commonly Commonly Sometimes Almost never Almost never Almost never
% global
packaging 23% 21% 18% 30% 2% 5% <1%
Regulatory Packaging tax Packaging tax Packaging tax Packaging tax Packaging tax Packaging tax Packaging tax
focus Consumer Carrier bag charges Candidate Increasing bans Candidate
deposit schemes Candidate for bans for bans for bans
Non-plastic Glass Glass Glass Glass Glass Metal Numerous,

substitutes Aluminium/ Aluminium/ Aluminium/ Waxed paper Paperboard depends on
Steel Steel Steel use-case
Waxed paper
Paper carton Paper carton
*
acrylic, nylon, polycarbonate
Resins are ranked from A to D, ‘A’ being the most sustainable and ‘D’ being the least sustainable.
Source: Barclays Research, Our World in Data (2018), Geyer et al Production, use, and fate of all plastics ever made (2017)
Packaging taxes will subject more sectors to closer scrutiny

Historically, beverages, particularly soft drinks, have been targeted by plastic management
policy. Given the breadth of polymers covered by the upcoming packaging taxes, the focus on
plastic packaging will extend to more sectors. Sectors using plastic packaging include food,
beverages, pharmaceuticals, consumer, fashion, personal care, consumer goods and
construction. However, plastic packaging has not been a sustainability priority for many
industries, meaning that this tax and the expanded scrutiny on the use of plastics may come as
a surprise. A survey by waste management company Veolia in August 2021 found that 83% of
businesses were unaware of the UK’s Plastic Packaging Tax (which is due to be implemented in
April 2022).
Given how punitive some plastic taxes are, it is likely that many companies will start looking to
source recycled packaging. We may see more companies introducing recycled content pledges,
similar those we have seen from the beverage companies. For example, L’Oréal has committed
that by 2025, 50% of the plastics used in its packaging will be of recycled origin or bio-sourced.
As we illustrate below, recycled polymer capacity is very low, relative to demand – which may
5 January 2022 17
put further pressure on pricing and therefore encourage substitution to non-plastic packaging
substrates where suitable alternatives exist. These upcoming taxes, and the potential impact on
pricing, may explain the growing number of HPC companies, such as Reckitt and P&G,
introducing refillable plastic packaging.
Mechanical recycling picks up post lockdowns

Global recycling rates vary but don’t tell the full picture
Recycling rates for plastic vary widely by region, with Japan and India appearing to perform
very well based on reported figures (Figure 15). However, upon closer inspection, definitions of
‘recycling’ vary significantly by country. For instance, Japan reports 84% recycling rates,
however the country counts waste-to-energy (i.e. incineration) as a form of recycling (56%),
while mechanical and chemical recycling account for c27% of waste management. Whereas, the
EU and the UK would not classify incineration as recycling, meaning that its recycling rates are
actually better than those for Japan.
FIGURE 15. International plastic recycling rates, 2018
84%
33%
60%
Japan India EU
9%
32% 30%
UK China US
Source: Barclays Research, Plastic Waste Management Institute, Government of India, Eurostat, British Plastics Federation,
Reuters, EPA
Countries prioritise recycling packaging…

Recycling rates for plastic packaging are higher than recycling rates for all plastics. In Europe,
overall recycling rates in 2018 for plastics were 33%, but rose to over 40% when looking solely at
plastic packaging recycling rates over the same period. The same pattern is also repeated in the
US (Figures 16 and 17). This can be attributed to the fact that packaging generates more plastic
waste and is therefore subject to the closest regulatory scrutiny. Higher recycling rates for
packaging may also reflect the demand for recycled materials from many consumer companies
in their drive to reach sustainability targets.
5 January 2022 18
FIGURE 16. Overall plastic recycling rates in the US FIGURE 17. Plastic packaging recycling rates in the US
10% 16% 14.6%

9.0%
8.5% 8.7% 13.5% 13.6%
9% 13.0%
8.0% 14%
8%
12%
7% 10.3%
5.8% 6.1%
10% 9.2%
6%
5% 8%
4%
6%
3% 2.2% 3.8%
4%
2%
1% 0.3% 2%
0.3%
0% 0%
1980 1990 2000 2005 2010 2015 2017 2018 1980 1990 2000 2005 2010 2015 2017 2018
Source: Barclays Research, EPA Source: Barclays Research, EPA
Recycling rates for packaging are particularly high in Europe and have risen steadily over the
past 15 years (Figure 18). Part of this increase has been in response to standards set at the EU
level, requiring member states to achieve recycling rates of 55% for plastic packaging by 2030.
To meet these targets, investment will be required to both expand capacity, in addition to
improving collection and logistics infrastructure, given that current installed recycling capacity
remains underutilised (per Figure 19).
FIGURE 18. Plastic packaging recycling rates in Europe
60%
55%
50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
European Union (excl. UK) UK EU 2030 Target
Source: Barclays Research, Eurostat
Recycling rates are even higher for PET, compared to other packaging polymers. Installed
recycling capacity is generally highest for PET (Figure 21), which is reflected in PET’s high
recycling rates across most countries. For example, in 2020 PET recycling rates reached 26.6% in
the US and 46% in Europe.
5 January 2022 19
Recycling capacity has prioritised PET to the

detriment of other polymers
Many companies likely to be subject to packaging taxes as capacity falls
short
With early waste management focused on PET, it is unsurprising that global recycling capacity is
skewed to rPET. However, the upcoming plastic taxes will be applied indiscriminately to all
packaging types, which suggests that sourcing sufficient recycled polymers to cover all
packaging use cases will be impossible.
Honing in on Europe, where packaging taxes are most advanced, there is a combined installed
capacity of 8.5MT for recycled plastics as of December 2019 (Report on Plastics Recycling
Statistics 2020 by Plastics Recyclers Europe). Given that packaging production was c.17.6MT
(European Environment Agency) and consumption of plastic packaging in Europe was 15.4MT
(Eurostat) in 2019 – it will be impossible to achieve 100% recycled content in plastic packaging,
which implies that companies will be hit by the upcoming taxes (Figure 19).
FIGURE 19. European plastics landscape shows low recycling capacity in 2019
million tonnes
20
17.6
18
15.4
16
14
12
10 8.5
8
6
4
2
0
Plastic packaging generated Plastic packaging consumed Installed recycling capacity
Source: Barclays Research, European Environment Agency, Eurostat, Plastics Recyclers Europe
Meanwhile, in the US, where packaging taxes are also being considered, installed mechanical
recycling capacity was 6.717m tonnes in 2020, according to ICIS. This covers PET, LDPE, HDPE,
PP, PS and PVC. This was c.20% of the 32.722m of plastic waste generated that year, however in
reality only 12% of plastic waste was actually recycled (Figure 20). Similar to Europe, there is a
scarcity of rPET in the US. Research by the Recycling Partnership (The Bridge to Circularity,
October 2019) found a 1billion lb gap between the supply of rPET (as of 2019) and projected
demand for rPET to meet ambitious 2025 sustainability goals.
5 January 2022 20
FIGURE 20. Recycling capacity is also very low in the US
million tonnes
35 32.7
30
25
20
15
10 6.7
3.9
5
0
Plastic waste generated Installed recycling capacity Recycling output
Source: Barclays Research, ICIS (Data from 2020)
Supply of recycled HDPE and PP particularly under strain

When looking specifically at recycling in Europe, it is clear that there is a skew to PET and LDPE
which account for 30% and 29% of all recycling capacity respectively (Figure 21). When
extending this to include the most recyclable polymers (PET, LDPE, HDPE and PP), we see a
notable gap between installed recycling capacity and actual recycling capacity (Figure 22) –
which further explains the low supply.
FIGURE 21. Installed recycling capacity in Europe (2019) FIGURE 22. European recycling installed capacity vs output (2019)
6% 4.5% 0.5%
million tonnes
30% 3.0 2.6
10%
2.4
2.5
2.0 1.8 1.7
1.5 1.3 1.2
1.0
20%
0.5
0.0
29% PET LDPE HDPE/PP
PET LDPE HDPE/PP PVC Mixed Plastics Technical Plastics PS Installed recycling capacity Recycling output
Source: Plastics Recyclers Europe Source: Plastics Recyclers Europe
Food grade recycled plastics in even tighter supply: Spotlight on

supermarkets
Recycled plastics in food-contact packaging are subject to further requirements from a health
and safety perspective. This means that the vast majority of recycled plastic is not suitable for
food-contact packaging. As of October 2021 food-grade polymers make up only 10% of global
recycled plastic capacity produced, according to ICIS Mechanical Recycling Supply Tracker. This
suggests that the food industry will find sourcing sufficient plastic recyclate particularly
challenging; 20% of rPET capacity is food grade whilst only 3% of recycled HDPE, PP and LDPE
is food grade.
This will put pressure on food producers and supermarkets, many of whom have to ensure that
recycled plastic is approved by local regulators (e.g. FDA in the US and EFSA in Europe) for use in
food contact packaging. Demand for food-safe recycled plastic is likely to increase in 2022. In
November 2021 South Korea updated its guidance, permitting the use of recycled plastic in food
5 January 2022 21
packaging, subject to rules set by the Ministry of Food and Drug Safety. This may result in more
Asian countries following suit. In general, countries in Asia do not permit the use of recycled
plastics in food packaging.
EQUITY RESEARCH Tesco introduces closed-loop recycling scheme

European Food Retail Tesco has taken steps to source food-safe packaging while also increasing the company’s
James Anstead recycling rates. Last year, the retailer introduced the first recycled food-grade soft plastic
+44 (0)20 3134 6166 packaging produced from plastic packaging returned in-store by customers (Figure 23). In our
Barclays, UK view, it is particularly notable that Tesco (in partnership with Sabic, Sealed Air and Plastic
Energy) focused on creating a food-grade recycled polymer that is not rPET from other soft
plastics (e.g. the plastics used to package salads, meats, bread, that are not typically recyclable
using traditional mechanical recycling methods). Instead, pyrolysis was used - see Section 4 for
more about this technology - highlighting the potential for alternative recycling to support
closed-loop recycling for food packaging.
FIGURE 23. Mechanism of food packaging recycling scheme launched by Tesco
Customers return
so -plastic packaging
to Tesco store
Bradburys Plastic Energy

uses recycled converts waste
packaging in into recycled oils
cheese products (TACOIL)
Sealed Air makes Sabic converts

so food-safe TACOIL into
packaging with 30% plastic pellets
recycled content
Source: Barclays Research, Tesco
Morrisons acquires stake in a soft plastic recycling facility

In November 2021, Morrisons announced that it will become the first supermarket to own its
recycling operations, following the acquisition of a stake in a new recycling site in Fife, Scotland.
The plant will take all low grade, ‘hard to recycle’ plastics, including sweet wrappers, crisp
packets, salad bags, and non PET food film. The output will be a combination of ‘closed loop’
resin and Ecosheets (described by Morrisons as an environmentally friendly alternative to
plywood, that lasts 10 times longer and is fully recyclable at end-of-life). According to the
company, the plant will initially recycle 15,000 tonnes per annum.
5 January 2022 22
3. RECYCLING TRENDS: IS TIME UP FOR ADVANCED RECYCLING TECH?

Mechanical recycling rates have risen steadily over time, and are now recovering after
dipping during the pandemic as lockdowns forced the temporary closure of many waste
management facilities. Plastic recycling rates are still around 40% in Europe (Eurostat, 2018)
and 14% in the US (EPA, 2018), which suggests that there is a lot of room for improvement.
In our view, to achieve circularity, mechanical recycling will need to be supplemented with
advanced recycling technologies.
Innovative emerging recycling technologies have long been touted as being a silver bullet
for tackling plastic waste, given the potential to break down contaminated and
‘unrecyclable’ plastic into virgin plastic feedstock. However, several years on, despite
promising demonstrations, capacity is low and many companies are yet to scale up their
demo plants to a commercial/ industrial scale. 2022 will be a key year for the industry to
restore confidence in the technology, especially as alternative options, such as waste-to-
energy treatments, are being given more attention. In this section we assess the status of
traditional recycling infrastructure, discuss advanced recycling technologies and introduce
possible waste management disruptors.
Mechanical recycling in 2022: year of rebound and

investment
Single-use plastic consumption has soared during the pandemic, as societies prioritised health,
hygiene and safety. A lot of the additional waste generated was not recyclable (e.g. face masks
and gloves) and many recycling facilities were forced to shut during lockdowns, making it
impossible to process collected waste. As a result, recycling rates suffered – however, regulators
have now turned their attention back to tackling plastic waste. Although we are encouraged by
recent announcements of increased recycling capacity (detailed below), we believe other
solutions will need to work in tandem with mechanical recycling to make material
improvements to current waste management infrastructure.
AMI, a specialist plastics industry intelligence company, projects in its 2020 report that global
mechanical plastic recyclers will produce 77 million tons of recycled plastics by 2030. The
projections account for Covid-related slowdowns and imply that production volumes will more
than double from 2018 levels. We note that recent company announcements of expanding
recycling capacity appear to support the industry-wide growth forecast by AMI:
• Biffa (BIFF: LON - not covered) May 2021 - Waste management company Biffa has pledged to
quadruple its plastic recycling capacity by 2030. To support this target, in May 2021 Biffa
announced that it would be doubling the capacity of its multifunctional Aldridge facility to
80kt per year.
• TotalEnergies (TTE:LON) October 2021 - In 2019 the company acquired Synova to increase
its mechanical recycling capacity. TotalEnergies aims to produce 30% recycled and
renewable polymers by 2030. To help reach that goal, in October 2021, TotalEnergies
announced that Synova would double its mechanical recycling capacity by installing new
production lines in Normandy. After the expansion Synova should produce almost 45,000
tons of recycled polypropylene per year using mechanical recycling.
5 January 2022 23
Revisiting advanced recycling technologies

Disappointing progress for advanced recycling technology in 2021
Advanced recycling technologies Lockdowns forced the closure of traditional recycling facilities across the globe, providing an
use chemical catalysts or opportunity for novel recycling technologies to take market share. Innovation is rife, however,
biological enzymes to break down many companies were unable to seize this opportunity as many plants are still at the demo
polymers into monomer stage and companies blamed supply chain challenges delaying the commercialisation of their
components. This technology can recycling facilities. That being said there were some notable developments from listed
be used on contaminated plastics advanced recycling companies including Loop Industries and Carbios, which we set out below.
that would otherwise not be
recyclable. The output can be • Loop Industries: (LOOP:NASDAQ - not covered) - In pursuit of a new expansion strategy
used to produce polymers, hence
In 2021 the company underwent a change in management, and although the technology
making the technology a closed-
has remained the same over the last few years, the execution strategy has pivoted. Loop
loop recycling solution. Many of
uses chemical methanolysis technology to break down PET into monomer parts (DMT and
these technologies claim to be
MEG) at low temperature and at low pressure. Last year there were questions over the
more sustainable than producing
efficacy of the company’s technology, however the company allayed concerns in September
plastics from virgin materials and
2021 when Evian unveiled 100% rPET bottled water using Loop’s rPET.
mechanically recycled polymers,
from a carbon emission, water- Unlike many operators in this space, the company already produces DMT and MEG from its
use and energy expenditure production facility in Terrebonne, Quebec. The facility can produce 100kg an hour of PMT
perspective. and 35kg an hour of MEG. Loop’s initial strategy to ramp up production was via its
partnership with one of the world’s largest PET producers, Indorama, to retrofit existing
PET production plants with Loop’s recycling technology. The company has since pivoted
strategy and is prioritising expansion through the construction of three freestanding
recycling facilities. One in Terrebonne, Canada near the company’s demo plant, one in
Europe (via a partnership with Suez to provide feedstock), one in Asia (in collaboration with
SK Innovation). Each facility has a planned capacity of 70kt per year and the company
expects to break ground on the Canadian site early this year. There is an estimated two-year
build time and the JV retrofit facility in the US with Indorama is still being pursued, however
the other three projects have been prioritised.
• Carbios: (ALCEB:EPA not covered) – Set to commence construction of full size plant in late
2022
Carbios has also undergone a change in management, with a new CEO appointed in
December 2021. Unlike Loop, which uses chemical recycling, Carbios uses biological
enzymes to break down PET into PTA and MEG. In June 2021 the company presented
sample enzyme recycled PET bottles for companies including L’Oréal, PepsiCo and Nestlé
Waters. Other notable milestones include Carbios moving from lab to opening a fully
operational demonstration plant in September 2021. The company is still in the very early
stages of scaling up capacity.
Over the course of 2022, the company will generate data from the running of the demo plant
that will be used to plan and design a commercial-scale recycling facility. This commercial
facility is expected to have annual production capacity of 40kt per year, with construction
expected to commence in late 2022 and completion targeted for the end of 2024.
5 January 2022 24
Reassessing the company landscape for 2022

Loop and Carbios are the early adopters and listed pure plays, however there are also many
companies offering advanced recycling solutions using different technologies. The solutions can
broadly be categorised as chemical (Loop), biological (Carbios) and thermal conversion (Figure
24).
FIGURE 24. Advanced recycling technologies
Thermal Conversion Biological Chemical

Enzymatic
Process Gasification Pyrolysis Methanolysis Glycolysis Hydrolysis Purification
depolymerisation
Heat with low Heat without Chemical Chemical Water at high

Main Agent Enzyme Solvent
oxygen levels oxygen catalyst catalyst temperature
PE, PP, PS and
Applicable PET and PET and PVC, PS, PE
All plastics more PET PET, nylon
Polymers Polyamides Polyamides and PP
(not PET)
Syngas (e.g. H2,
Hydrocarbons/ Plastic Plastic Synthetic
Output CO, CO2,CH4 Plastic monomers Polymers
Oil monomers monomers crude oil
and N2)

We note that there are other methods being explored, such as acidolysis. However, the
examples in Figure 24 include the most established technologies. In our view, given the focus on
recycling plastics other than just PET, it is even more important to consider recycling
technologies that can process a wider range of polymers. In our view, it is therefore important to
expand the landscape of advanced recycling companies (Figure 25). We note the growing
investor interest in this space, evidenced by the recent SPAC listing of PureCycle Technologies
(PCT: NASDAQ - not covered) in March 2021.
FIGURE 25. Advanced plastic recycling landscape
Thermal Conversion Chemical

Gasification Pyrolysis Methanolysis Glycolysis Purification
Eastman (CRT) Agilyx Eastman (PRT) Eastman (PRT) Ioniqa*
Enerkem* BASF Loop Industries Ioniqa* PolyClean Tech*

Poseidon
INEOS* Brightmark* Polystyvert*
Plastics *
LyondellBasell Maire Tecnimont Hydrolysis PureCycle Tech
New Hope Energy* Gr3n* Mura*
Plastic Energy* Biological
Pyrowave* Enzymatic depolymerisation Carbios
Eastman (PRT) = Eastman polyester renewal technology | Eastman (CRT) = Eastman carbon renewal technology
* denotes private company

5 January 2022 25
Overcoming scale challenges: incumbent companies entering the market

As of 2021, according to ICIS, the global installed capacity for chemical recycling is under 2.5m
tonnes, which is very low given the demand for recycled polymers and the vast amount of
plastic waste. As more entrants join the advanced recycling market, many companies will be
trying to break the back of challenges associated with scaling up facilities to commercial
capacity. An interesting development has been the number of global chemical companies
entering the market, rather than small start-ups that had traditionally been linked to the
technology. Incumbent chemical companies, such as Eastman and SK Innovation (see Section
4 for more on SK) expanding into advanced chemical recycling could accelerate innovation and
scaling up of production capacity.
EQUITY RESEARCH • Eastman: (EMN:NYSE)

U.S. Chemicals & Packaging
Michael Leithead, CFA At Eastman’s investor day in early December, the company highlighted the big circularity
+1 212 526 0018 opportunity for its two molecular recycling technologies: polyester renewal technology
BCI, US (‘PRT’ or methanolysis) and carbon renewal technology (‘CRT’). In PRT, Eastman is able to
“unzip” used PET back to its building blocks, purify it, and then have pure monomers (EO +
DMT), which EMN can use to make the same polymers it already currently makes. In
addition to creating a use for waste PET, it also lowers the carbon footprint of EMN’s
polymer production by 20-30% (before any considerations regarding green energy).
Eastman believes it has a large advantage in this technology, as it is something it has done
for 30 years. The company’s first polyester material recycling facility in Kingsport, TN, is
expected to be mechanically complete by YE’22. This facility will cost ~$425m, with
projected >15% ROIC. It will consume >100 KMT of waste plastic (i.e. hard-to-recycle PET,
carpet, textiles) as a feedstock annually to produce 150-200 KMT of polymer with recycled
content across a wide variety of markets. The company also announced plans for two more
projects (one in US + one in EMEA) with start-up around 2025.
With CRT, Eastman aims to replace fossil fuels (i.e. coal, oil, natural gas) with waste plastic
(ex. PVC) as a feedstock.
Waste-to-energy: the elephant in the room

Waste-to-energy vs thermal conversion recycling
Per Figure 24 the use of chemical and biological recycling processes is typically limited to only a
few polymers. This is unlike thermal processing which can be used to break down all plastics.
Waste-to-energy – also referred to as energy recovery, waste-to-energy, combustion,
incineration – is the burning of waste to generate heat and/or electricity. This is different to
open burning where nothing is captured. Waste-to-energy processing often gets grouped with
thermal conversion recycling such as gasification and pyrolysis because heat is involved in all
the processes. However, although it is a very popular tool in waste management, we would
argue that it is not technically recycling.
Many countries are promoting waste-to-energy over thermal conversion

Despite the sustainability concerns, waste-to-energy is a common plastic disposal method used
in many regions. For example, in 2018 it was used to process: 42.6% of plastic waste in Europe;
15.8% of plastic waste in the US (75% was landfilled), 39.2% of plastic waste in South Korea
(2017).
Plastic is highly calorific and is therefore an efficient energy source, whereas the output for
polymers processed via thermal conversion is syngas and hydrocarbons which can be used as
feedstock by chemical producers. Plastics can be a highly efficient fuel, however processing
plants must be engineered in a way to ensure that toxic gases that are released when burning
5 January 2022 26
plastics are filtered and not released into the air. As advanced recycling technologies improve
and capacity increases we may see more competition between waste-to-energy and thermal
conversion for plastic waste inputs. However, given that thermal conversion capacity is
relatively low globally and will take several years to ramp up materially, it will likely be several
years before this competition manifests.
China is investing heavily in waste-to-energy plants

As many countries seek to reduce their dependence on and use of fossil fuels, waste-to-energy
processing has become an attractive proposition. We are seeing a notable uptick in investments
in waste-to-energy in Asia, most notably in China whose most recent Five-Year Plan calls for an
increase in incineration from 300kt per day in 2017 to 800kt per day by 2025.
Recycled plastics as a source of carbon credits?

Carbon credits may make recycled plastics even more valuable
Regulatory change has been the main driver for investments in recycling, increasing the
demand for recycled plastics and pushing up the price of the scarce resource. However, another
new development may act as a sustainability lever that could further accelerate investment in
plastic waste recycling infrastructure. Last year we saw carbon offsets being allocated to plastic
waste recycling facilities in Europe. This is to account for the carbon emissions saved by
recycling plastic rather than using crude oil to create more plastic.
For example, Green Tech (a Romanian recycling company) were able to issue roughly 450k
carbon credits on the voluntary carbon offset market for its recycling of PET. These credits can
be sold to companies seeking to reduce their carbon footprint in order to meet lofty net-zero
targets. Generating carbon credits through recycling is still in its infancy, however the outlook is
promising and, in our view, holds more potential than the concept of plastic credits.
Plastic credits do not look as promising

Plastic credits monetise the collection of plastic waste from the environment. Parties collecting
plastic can gain credits per unit of waste collected, which they can sell to other parties that seek
to reduce their plastic footprint. However, given that the carbon credit market is already
established and the market for carbon credits is far broader than the market for plastic credits –
we see more potential in the generation of carbon credits from plastic recycling, adding more
possible income streams to recycling companies.
5 January 2022 27
4. TIME TO LOOK EAST: ASIA IS THE BIGGEST RECYCLING MARKET

While recycling took a back seat in the West in 2021, many countries in Asia sharpened their
focus on tackling plastic waste. There had been limited action in Asia since China’s Green
Sword policy was first announced in 2017, which set off a chain reaction of countries in Asia
refusing to accept imports of international plastic waste until last year. However, flow of
plastic waste in Asia has now stabilised, and so countries in the region have been able to
take stock of their plastic waste generation and start introducing regulations to manage this
waste.
Following a similar approach to Europe, countries such as India and China have started
implementing single-use bans. Plastic waste management policy has now developed further
with India and South Korea introducing new requirements for the use of recycled content in
packaging. It remains to be seen how these rules might affect consumer companies’
sustainability goals.
In our view, 2022 will be the year of further plastic policy, focusing on driving up recycling
content. As countries implement new rules, this could change dynamics and possibly
accelerate innovation as more countries and markets need to make sure that they comply
with regulations. We see more competition between Western and local companies involved
in waste management, including advanced recycling (e.g. Loop Industries in Canada) and
reverse vending machines (e.g. Tomra in Norway and Envipco in the Netherlands).
Asia set to overtake Europe with stricter plastic waste

policies
Plastic waste was a huge sustainability priority in the East in 2021. Notable examples of policies
introduced include: China published its Five-Year Plan in September 2021, which targets
recycling and waste management; India introduced targets for minimum recycled content in
plastic packaging; and South Korea implemented a plastic packaging surcharge. The summary
of policies across China, India and South Korea (See Figure 26) is indicative of the change in
momentum in Asia. We can see that the East is catching up and, in some instances, overtaking
Europe, which had historically been the leader in plastic waste management policy.
5 January 2022 28
FIGURE 26. China, India and South Korea – a window into plastic policy in Asia
China India South Korea
Recycling technology Mechanical recycling &

Mechanical Chemical
of choice waste to energy processing
Ban on imported n/a – former net exporter

Since January 2018 Since March 2019
plastic waste of plastic waste
At least 30% from 2024

(depending on polymer) and
Recycling targets Up to 85% for certain industries 70% recycling rate by 2030
a target of a minimum of 60%
from 2026
30% cut for restaurant industry

Single-use reduction Cut plastic waste by 50%
by 2025, not quantified at 100% reduction by 2022
targets by 2030 from 2018 levels
a national level
Single-use plastic Phased bans from January From July 2022 many items Phased bans from 2019
bans 2021 concluding in 2025 will be banned – ongoing
New regulation in November

Recycled content Up to 30% from 2023 and a
No published targets 2021 permitted PCR in food
in packaging target of up to 60% from 2026
packaging, but no targets set
Encourage the use of plastic India became the first Asian

Surcharge for unrecyclable
alternatives & biodegradable country to join the Plastic Pact
Other policies packaging vs. discount for
plastics and expand extended in 2021, committing to tackle
sustainably designed packaging
producer responsibility system plastic waste
Note: PCR = Post consumer recycled-resins
Source: Barclays Research, China’s Five-Year Plan, India’s Plastic Waste Management Amendment Rules, South Korea’s Comprehensive Measures of Waste Recycling
China focusing on reducing consumption, building recycling capacity and

increasing use of waste-to-energy combustion
China published its 14th Five-Year-Plan on 15 September 2021, which provides a material
update to the country’s waste management policy since the country banned imports of plastic
waste via its green sword policy which went live in 2018. Per the country’s 14th Five-Year Plan
(2021-2025), China has prioritised the following to tackle plastic waste: reducing single-use
plastics; increasing recycling capacity; using more waste-to-energy processing.
• Reducing single-use plastics: Single-use plastic bans have been phased in from the end of
2020, key plastics targets include disposable plastic utensils, carrier bags and plastic used in
postal and courier packages. These bans start in major cities and are typically expected to
be applied nationwide by 2025. The plan is prioritising the use of alternatives such as
bamboo, wood and paper.
• Increasing recycling capacity: Commitment to construct ‘recycling systems for waste

materials in 60 large- and medium-size cities’.
• Waste-to-energy: In addition to increasing recycling and reducing single-use plastics,

incineration will be a key tool used to tackle plastic waste, which is technically not a form of
recycling. Per the Five-Year Plan the country’s capacity for waste incineration should
increase to 800k tons per day by 2025, up from 2017 levels of 300k tons per day.
5 January 2022 29
India prioritises bans, mechanical recycling and using post-consumer

recycled content
Prime Minister Modi has taken a tough stance against plastics, pledging to phase out single-use
plastics that have low utility and high littering potential by 2022. 2021 was an important year for
plastic management policy, with the implementation of the Plastic Waste Management
Amendment Rules and the signing of the India Plastics Pact being particularly notable. From a
policy perspective, the country is introducing requirements for minimum amounts of recycled
content in packaging and banning single-use plastics. For context, these requirements are
stricter than those set in Europe. The country relies heavily on informal waste collection and
there are still targets to increase mechanical recycling.
• Single-use plastic bans: In August 2021 the Plastic Waste Management Amendment Rules
were announced, banning 20 single-use plastic items including plates, cutlery, cups, stirrers,
and the plastic used in ear buds, ice-cream sticks and flags from 1st July 2022.
• India Plastic Pact: The India Plastics Pact is a joint initiative between World Wide Fund for
Nature-India and the Confederation of Indian Industry and was launched in September
2021. It is prioritising recycling and aims to achieve the following by 2030:
° 100% of plastic packaging to be reusable or recyclable;
° 50% of plastic packaging to be effectively recycled;
° 25% average recycled content across all plastic packaging.
• Extended producer responsibility (‘EPR’) obligation: Proposals requiring recycled

content in plastic packaging were first introduced in October 2021 and will take effect from
2023 – covering a far wider spectrum of plastics than that covered by similar regulations in
Europe (Figure 27). The requirements vary by type of plastic used, with easier to recycle
rigid plastic, such as PET, having higher recycled content than other plastics which are
harder to recycle. To help achieve these goals the government has set collection and
recycling targets for these materials. Companies failing to meet these obligations may need
to purchase EPR certificates.
FIGURE 27. Minimum recycled content in packaging
Plastic Packaging 2023-24 2024-25 2025-26 2026-27

Category I
30% 40% 50% 60%
Rigid plastic packaging
Category II
Flexible plastic packaging of single layer or multilayer (more than one layer with
different types of plastic), plastic sheets or like and covers made of plastic sheet, 20% 20% 30% 30%
carry bags (including carry bags made of compostable plastics), plastic sachet or
pouches
Category III
Multilayered plastic packaging (at least one layer of plastic and at least one layer of 5% 5% 10% 10%
material other than plastic)
Source: Barclays Research, Indian Environment Ministry
South Korea betting on sustainable design and chemical recycling

South Korea is a large consumer of plastic packaging and had formerly exported a lot of waste
to China. Following China’s Green Sword Policy of 2018, South Korea has taken steps to manage
plastic pollution such as increasing the recyclability of plastic, updating regulation to allow the
use of recycled plastics in food contact packaging and promoting chemical recycling.
5 January 2022 30
• Taxation to increase use of sustainably designed packaging: To boost recycling rates,

Korea has banned the use of difficult to recycle plastics such as PVC and coloured PET for
beverage bottles since December 2019. The government has also created standards to
increase recyclability, covering all aspects of packaging including labels, the thickness of
packaging and more.
From 2021 packaging is graded from 1 to 4 in terms of recyclability (1 being the easiest to
recycle and 4 being the hardest). Packaging manufacturers will be charged different taxes
depending on the recyclability of the material, the least recyclable having the highest taxes.
• Chemical recycling encouraged: A new law was enacted in 2021, permitting the use of
rPET and recycled polyethylene naphthalate (used in packaging film) in food contact
materials. The regulations stipulate that only chemically recycled resins can be used.
Asia is the largest plastics market and new anti-waste

policies may cause global disruption
Asia is the largest producer of plastics, responsible for producing 48% of all plastics (vs. 19% in
North America and 16% in Europe). Asia is also the largest host of plastic waste. As the region
accelerates its anti-waste policies, global markets could be disrupted. We have already seen
companies such as SK Innovation, a South Korean petrochemical company, pivoting to making
sustainable polymers derived from recycled plastics.
We see opportunities in chemical and mechanical recycling, which would support plastic waste
priorities in the West. We also note that degradable plastics have received a warmer reception
in Asia than in Europe and the Americas, where there are fears of contamination with existing
waste streams.
Companies pivoting and expanding recycling capabilities

To meet demands, investment in recycling infrastructure is required. China has committed to
building at least 60 recycling facilities, South Korea has given the green light for chemical
recycling and India has joined the international Plastic Pact. Now that recycling has been
prioritised, a number of large companies have stepped up their efforts to capture the valuable
growing market for recycled plastics.
• SK Innovation Co. (096770: KRX - not covered) - Embracing pivot to chemical recycling
One of South Korea’s largest petrochemical companies announced in 2021, that it would be
pivoting and focussing on polymer recycling via its newly rebranded subsidiary SK geo
centric. This newly named subsidiary, in its July 2021 ‘Financial Story Day’, unveiled its
commitment to to use plastic waste (described by the company as an urban oilfield) as a
feedstock, signalling a shift away from relying on crude oil. SK geo centric announced its
ambitious target of reaching a recycling capacity of 900k tons by 2025 and then up to 2.5m
tones by 2027.
° 700k tons per year via chemical recycling
° 200k tons per year via mechanical recycling
° Priority polymers will be PET, PE and PP
• Incom Recycling (Private, China) – Expanding traditional recycling capacity and installing
reverse vending machines
5 January 2022 31
Since 2006, Incom has been producing food-grade recyclable PET, with an annual
processing capacity of 50k tons of PET beverage bottles and an annual output of 30,000 tons
of recyclable PET. The company aims to triple its processing capacity over the next few
years, in line with the country’s new plastic management priorities.
We also highlight Incom for its access to the reverse vending machine market in mainland
China. Consumer deposit schemes are a key tool used to increase beverage bottle collection
and recycling rates. Incom has used its sorting and processing skills, in a partnership with
Tomra, to install over 6k reverse vending machines across mainland China.
Positive stance on degradable plastics may accelerate innovation

Including degradable plastics as a solution for sustainable packaging has been a major point of
differentiation in policy in the East vs the West. Europe has been cautious about the use of
degradable plastics, in contrast to China, which is embracing them as a solution. Europe has
expressed concern that the widespread use of degradable plastics could be problematic as
these plastics are visually indistinguishable from traditional plastics, so could contaminate
existing waste streams. However, China’s most recent Five-Year Plan actively encourages the use
of degradable plastics.
Degradable plastics include biodegradable plastics and oxo-degradable (Figure 28).

Biodegradable plastics are often made from a biomass source, such as corn, and can break
down in a home or commercial composter, without contaminating local ecosystems. Oxo-
degradable plastics are traditional plastics that contain additives that accelerate the
breakdown of plastics into small fragments and microplastics, which can contaminate local
biodiversity. For more on bio-based and biodegradable plastics, see Plastic Bottles: Reinventing
for the circular economy (02.10.19).
FIGURE 28. Bio-based vs biodegradable plastic FIGURE 29. Global production capacity of bioplastics
million tonnes
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2017 2018 2019 2020 2021 2022 2023 2024
est. est. est. est.
Bio-based/ non biodegradable Biodegradable
Source: Barclays Research Source: European Bioplastics Association
It will be very interesting to monitor whether Asia backs biodegradable or oxo-degradable

plastics – as this will determine the required investment in supporting infrastructure. We are
already seeing companies committing to producing biodegradable plastics (e.g. SK announced
it will produce 60k tons of PBAT). Meanwhile, Europe has focused on bio-based plastics – i.e
plastics that are made from a biomass source (rather than fossil fuels) and have the same
chemical properties. This means that they are not inherently biodegradable and will not
contaminate existing waste streams. With both regions focusing on different aspects of
bioplastics, this is going to be an important market to watch as we have already been seeing
steady growth over the past five years (Figure 29).
5 January 2022 32
Analyst(s) Certification(s):
We, Michael Leithead, CFA, Anushka Challawala, Hiral Patel, James Anstead, Lauren R. Lieberman, Andrew Keches, CFA, Maggie O’Neal, Edward
Brucker, CFA, Mandeep Sangha, Katherine Ogundiya, Laurence Whyatt and Laia Marin i Sola, hereby certify (1) that the views expressed in this research
report accurately reflect our personal views about any or all of the subject securities or issuers referred to in this research report and (2) no part of our
compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this research report.
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Sustainable & Thematic Investing

Anushka Challawala Laia Marin i Sola
+44 (0)20 3134 2326 + 44 (0)20 3134 2531
anushka.challawala@barclays.com laia.marin@barclays.com
Barclays, UK Barclays, UK
European Consumer Staples

Laurence Whyatt
+44 (0)20 7773 5324
laurence.whyatt@barclays.com
Barclays, UK
U.S. CHPC & Beverages

Heather Gornik
+1 212 526 9237
heather.gornik@barclays.com
BCI, US
European Food Retail

James Anstead
+44 (0)20 3134 6166
james.anstead@barclays.com
Barclays, UK
5 January 2022 38

Plastic - Outlook - For - 2022 - No - Time - To - Waste (Barclays, January 2022)

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Special Report

Sustainable & Thematic Investing

investment catalysts, with additional polymers beyond PET Hiral Patel

European Consumer Staples

U.S. CHPC & Beverages

1. 2022: THE YEAR OF THE PLASTIC TAXES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

Consumer deposit schemes: Where are we now? . . . . . . . . . . . . . . . . . . . . . . . . . . 11

2. BEYOND PET: MORE POLYMERS UNDER SCRUTINY. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Recycling capacity has prioritised PET to the detriment of other

3. RECYCLING TRENDS: IS TIME UP FOR ADVANCED RECYCLING TECH? . . . . . . . . . . . 23

Revisiting advanced recycling technologies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Recycled plastics as a source of carbon credits? . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

4. TIME TO LOOK EAST: ASIA IS THE BIGGEST RECYCLING MARKET. . . . . . . . . . . . . . . . 28

3) Recycling trends: Is time up for advanced recycling technologies? In our view,

The impact on companies is two-fold. 1) Increased international competition: Many

FIGURE 1. Four themes for 2022

Plastic outlook for 2022: No time to waste

1. 2022 is the year of plastic taxes

3. Recycling trends: Is time up for advanced recycling tech?

1 billion lbs Advanced recycling may hold the key

4. Time to look East: Asia is the biggest recycling market

FIGURE 2. Key catalysts and companies to watch

Companies & catalysts to watch

1. 2022 is the year of the plastic taxes

3. Recycling trends: Is time up for advanced recycling tech?

4. Time to look East: Asia is the biggest recycling market

1. 2022: THE YEAR OF THE PLASTIC TAXES

Packaging tax: the new regulatory tool

FIGURE 3. Pipeline of plastic packaging taxes

Company progress on recycled content threatened by

Progress slow on rPET: 11% recycled content in Europe

FIGURE 4. Progress towards recycled content targets

Source: Barclays Research, Ellen MacArthur Foundation, Company Reports

90% of company rPET pledges won’t be met by 2025

Consumer brands taking a more vertically integrated approach to meet pledges

Impact of plastic packaging taxes is wide

Source: Barclays Research, Statista

Case study: Costs in European beverages

Barclays, UK PET Glass Aluminium Foil Board

Source: Global Data, Barclays Research

PET accounts for 30% of input costs for AG Barr

FIGURE 7. PET accounts for c.30% of AG Barr’s COGS

Switching to 100% rPET could cost Britvic £74m per year

Consumer deposit schemes: Where are we now?

Country Implementation date Original go live date Materials covered Deposit

FIGURE 9. 3Y performance of RVM producers Tomra and Envipco vs ACWI

Source: Barclays Research, Bloomberg

Plastic taxes impact on packaging companies

100% billion beverage units

Plastic Metal Glass Paper PET Other plastic

Glass losing share to aluminium

Aluminum Cans Other Substrates

Source: Ardagh Metal Packaging Reports & Filings; Barclays Research

Companies have varying exposure to packaging taxes

FIGURE 13. Packaging landscape

Revenue Exposure Packaging Exposure

Issuer Ticker N.America Europe APAC Plastic Paper Aluminium Glass

Ahlstrom-Munksjo AHLMUN 42% 43% 13% 0% 100% 0% 0%

Packaging Corp of America PKG 100% 0% 0% 0% 100% 0% 0%

Progroup PROGRP 0% 100% 0% 0% 100% 0% 0%

Source: Barclays Research, Company reports

2. BEYOND PET: MORE POLYMERS UNDER SCRUTINY