[Contribution] Innovative financing mechanisms to drive a circular economy
More robust global recycling efforts would go a long way in integrating the plastics value chain into a circular economy where waste is managed as a valuable resource and recovered, reprocessed and ultimately used as a raw material for new plastic products. This would help the environment in several ways. First, it would mean that less fossil fuel feedstock would be used to make virgin plastic, which would significantly reduce greenhouse gas emissions. But more importantly, less plastic thrown away would build up. Significant progress has already been made in this direction, but much more is needed if the world is to reduce up to 13 million tonnes of plastic every year that leaks into the oceans.
The biggest challenge is to modernize and rationalize the waste collection and treatment systems. Currently, the collection and segregation of recyclables is highly fragmented and underdeveloped in many emerging economies – informal waste pickers scour landfills and landfills in search of salable recyclables, often operating outside municipal solid waste management systems. Estimates vary widely, but globally at least 250 million metric tonnes of plastic waste is generated each year and only about 14% is recycled.
Even in developed countries like Korea, collection can be spotty and recycling expensive. South Korea recycles more than 50% of its global waste, which is one of the highest rates in the world, but the country also has the highest rate of plastic consumption per capita. Given the high rate of plastic consumption, the government has set an ambitious goal of halving its plastic waste by 2030 while doubling its average recycling rate from 34% to 70%. For PET alone, Korea’s consumption was around 300,000 tonnes in 2019, of which 245,000 tonnes of used bottles were sorted and collected.
The paradox is that plastic waste has significant material value that is currently not fully exploited when plastics are disposed of by landfill or incineration, or sub-cycling. This represents a lost business opportunity for the private sector in particular, as the demand for recycled plastic increases globally for food and beverage applications. Plastic manufacturers and global brands, driven by environmentally conscious consumers and government regulations, are helping to create a new market for recycled materials. Many consumer goods companies such as Coca-Cola and Danone and retailers such as Walmart have made public commitments to increase the recycled plastic content of their packaging or products. In addition, the European Union has imposed a minimum of 25% recycled content in PET bottles by 2025 and 30% by 2030, creating an enabling environment for recycled PET. In January, S&P Global Platts Analytics predicted that even though higher grades of recycled PET would cost around $ 150 per metric ton more than virgin PET in the medium term, many manufacturers are willing to pay the premium because the alternative is a tax of 800 euros per metric tonne on non-recycled plastic waste as part of a new tax on plastics.
The strategy of International Finance Corp. is to help companies adopt reduce, reuse and recycle interventions by providing flexible financing to address project, technology, business model and supply chain risks associated with the circular economy.
With its first-ever blue loan focused exclusively on tackling global marine plastic pollution, a $ 225 million commitment to help Indorama Ventures expand its recycling capacity for food-grade PET, IFC has partnered with the ‘one of the world’s largest producers of virgin PET resins to fight ocean pollution. and accelerate efforts towards a more circular plastics industry where reuse and recyclability are becoming commonplace.
Blue loans are an innovative financial instrument for ocean conservation projects. Commercially viable solutions, supported by such blue finance solutions, are especially important given the scale of the problem, which cannot be solved by public investment and social initiatives alone.
The Thailand-based multinational has pledged to quadruple its PET recycling capacity and divert 750,000 tonnes of plastic per year from landfills and surface dumps and help prevent leaks into waterways.
To put the effort into context, Indorama will recycle 50 billion PET bottles each year in Brazil, India, Indonesia, the Philippines and Thailand – countries particularly vulnerable to ocean pollution due to their dense coastal populations. and their dependence on fishing and tourism. This effort alone is expected to save 3 million barrels of crude oil and eliminate 1.65 million tonnes of carbon pollution that would have been used to manufacture new bottles. The IFC-led loan package with participation from the Asian Development Bank and Deutsche Investitions-und Entwicklungsgesellschaft, complemented by a $ 75 million green loan to finance renewable energy and energy efficiency projects , will serve as a prototype to accelerate circular economy models while simultaneously encouraging companies to build bottle-to-bottle capacity cases to other recyclers and producers of PET bottles, leveraging their partnership with brands and their mobilizing power in the market.
Korea has already tightened regulations on single-use plastics, including better labeling to facilitate more efficient waste separation and recovery of clear PET bottles. However, more can be done to create a truly circular economy and a closed-loop recycling process. Korea can set an example for other countries in Asia by developing appropriate definitions, policies and standards for recycling food grade PET for possible harmonization in the region. As the Indorama example shows, the business case for bottle-to-bottle PET recycling is already viable and the support of innovative financing solutions such as blue loans can be used to promote further expansion by the private sector. . The South Korean government recently announced that it will encourage the use of recycled PET in the manufacture of food containers. The introduction of such regulations to allow and encourage food grade bottle-to-bottle recycling using mechanical recycling technology, which is already permitted in other developed markets such as the United States, the European Union and Japan will support the Korean government’s ambitious goals of reducing plastic waste and driving a transition to a circular economy.
By Hayoung Lee and Rana Karadsheh
Hayoung Lee is senior investment manager for manufacturing in Asia at the International Finance Corporation. Rana Karadsheh is the Regional Industry Director for Manufacturing, Agribusiness and Services in Asia-Pacific at IFC. –Ed.