Addressing the challenges of plastic waste: Circularity and leakage

Global demand for plastics is high and rising, spurred by the material’s barrier properties, lightweight nature, malleability, and favorable production economics. For these reasons, we expect that plastics will continue to play an important role in supply chains globally despite efforts to move away from single-use plastics. But with rising demand comes a significant amount of plastic waste. This creates two related challenges, along with opportunities for businesses to help address them:

• The need to reduce plastic-waste pollution. When plastic waste is not properly managed, it can leak into the environment—most notably, into the ocean near coastal cities.
• The need to increase plastic circularity. Many brand owners have committed to using recycled plastic content in packaging, but the supply has been constrained. Unlocking circular plastics will require addressing collection and building out recycling capacity.

Several global public- and private-sector alliances have formed to act on these goals. One such alliance is the United Nations Environment Assembly, which resolves to forge an international, legally binding agreement to end plastics pollution. In this article, we look at what stakeholders could do to best manage the increasing volumes of plastic waste. Our research has found that the answer is twofold: first, emerging economies could prioritize investing in modern waste management systems to eliminate waste leakage; and second, value chain participants could invest in new business models that span collection, sortation, and recycling capacity to increase plastic circularity.

The need to reduce plastic waste

In 2018, about 80 million metric tons of plastic waste were not managed to international standards, including via open dumping, open burning, and substandard landfills. Five million to ten million metric tons of waste also ended up in the ocean, according to McKinsey research (Exhibit 1), much of which came from Indonesia, the Philippines, Sri Lanka, and Vietnam.

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Indeed, Asian countries, including China, India, Indonesia, Thailand, and Vietnam, account for about 85 percent of mismanaged plastic waste globally. Overall, about 15 countries contribute about 80 percent of total global plastic waste, which amounts to 270 million metric tons each year.

For these countries, the problem goes beyond plastic-waste pollution. The real issue is that they lack complete waste management systems. And building a comprehensive waste management system would require significant government, intergovernmental, and private-sector funding.

We envision one integrated solution rather than piecemeal approaches that are unlikely to integrate at scale. Ultimately, fully functioning waste management systems are part of economic development, supporting both improved hygiene and quality of life. We also see an opportunity for emerging economies to leapfrog current approaches by designing waste management systems that can enable more efficient recycling and help emerging economies avoid some of the challenges facing developed economies today.

Building out a fully functional waste management system in emerging economies, together with a broad profile of supporting infrastructure, could cost $560 billion to $680 billion over ten years. This investment includes roads, landfills, waste-to-energy facilities, trucks, trash points, and recycling. Changes such as these would strengthen economic development by enabling transportation and commerce, and it would also support quality of life by improving health, hygiene, sanitation, and cleanliness. Such a system would aim to manage about 850 million metric tons a year of projected waste, including—but not limited to—plastic waste (Exhibit 2). This is a significant investment for budget-constrained emerging economies, where governments must balance priorities such as education, healthcare, energy, and public safety.

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To accelerate progress, governments will need to make waste management a priority—potentially with the aid of external support. Public funding will be required for non-revenue-producing infrastructure such as roads. Private capital might be attracted to infrastructure investments that could be part of an ongoing business, including transportation, landfills, recycling, and waste-to-energy plants. Public–private partnerships could also provide a platform for more creative collaboration models as well as additional sources of funding (for example, output-focused contracts for municipal solid-waste collection).

In addition to the large financial investment required, there are many operational challenges—particularly in emerging economies—including ambiguous land-use rights, the need for significant coordination with different government layers, diversion of funds, and challenges to foreign investment. As a result, large-scale infrastructure projects and program rollouts are often delayed and require longer execution timelines (see sidebar “Recycling challenges in emerging markets”).

The need to increase plastic circularity

Market signals for recycled plastics and plastic circularity have been accelerating. More than 80 global consumer packaged goods, packaging, and retail companies have committed to achieving 15 to 50 percent recycled content in their packaging by 2025.¹Zhou Peng, Theo Jan Simons, Jeremy Wallach, and Adam Youngman, “Advanced recycling: Opportunities for growth,” McKinsey, May 16, 2022. Some companies have even made public commitments to premiums that they are willing to pay for recycled content.²“Nestlé creates market for food-grade recycled plastics, launches fund to boost packaging innovation,” Nestlé, January 16, 2020. In the United States alone, we expect the amount of recycled plastic waste to double or triple by 2030 to meet the commitments set out by individual brand owners and industry alliances. In addition to customer demand, we are seeing growing regulatory action around the world, with policies specifically targeting single-use plastics, extended producer responsibility (EPR) regulations, and recycled-content requirements (see sidebar “The role of extended producer responsibility”).

One of the biggest obstacles to scaling up recycling is access to sorted plastic-waste feedstock. In 2016, only about 16 percent of plastic waste was collected for recycling globally.³“How plastics waste recycling could transform the chemical industry,” McKinsey, December 12, 2018. Increasing that amount would require changes in consumer behavior, the building out of infrastructure, and investments in recycling capacity.

The economics of recycling vary greatly (Exhibit 3), mostly depending on where the waste is generated (emerging economy or developed economy), the form of plastic waste (rigid packaging, flexible packaging, or durable plastics), and the recycling pathway (mechanical or advanced recycling). Mechanical recycling and chemical recycling each has a role to play. Mechanical recycling keeps the polymer chain intact and is a more efficient way of enabling circular plastic production, but it requires higher-quality, well-sorted waste feedstock. Chemical recycling is a superior solution for dirtier streams of hard-to-recycle and commingled plastic waste. It produces virgin-quality, high-performance recycled plastics as an output.

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Based on existing technologies and assuming there are no business model breakthroughs, recycling may be profitable for about 50 percent of plastic-waste volume today, and there will be significant value at stake as markets expand. Practical limitations to overcome include collection issues (lack of participation and rural access), processing losses (contamination problems), and resin-type limitations (markets beyond widely used PET, PE, and PP⁴Polyethylene terephthalate, polyethylene, and polypropylene. ). However, we see a few tailwinds that could help unlock more addressable volume and improve the business cases for recycling: higher committed volume of recycling offtake and higher price premiums; increasing carbon prices and more recycling mandates by governments; new models for waste collection backed by voluntary EPR schemes from leading brands; technological innovation that reduces costs and facilitates flexibility in feedstock; and large infrastructure investments that could enable and accelerate recycling scale-up.

What stakeholders can do

Stakeholders across the plastic-waste value chain could consider the following actions to address the waste challenge while scaling up new markets for circular plastics.

Take a local and regional approach

It’s important to recognize that each community has a different starting point. In particular, in emerging economies, the first priority is to get waste collected, ideally in a way that is compatible with recycling.

Given different levels of economic development, technology-enabled solutions that are successful in developed economies may not be optimal for emerging economies. Instead, more labor-intensive options may offer better near-term bridging opportunities in emerging economies (Exhibit 4). In developed economies, plastic-waste pollution is minimal (most plastics are landfilled or incinerated), and these economies have an opportunity to consider how best to divert collected waste to drive more recycling and turn waste into value. In emerging economies, costs to recover some streams are likely to be higher because there is no existing system for collection or sortation to build on.

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Secure regulatory support

In emerging economies, building out a waste management industry would require public-sector funding as well as a supportive regulatory framework to attract private capital to these large-scale infrastructure projects (potentially including the EPR approach mentioned above). Having the right waste management and collection infrastructure in place will not only help reduce waste leakage into the environment but also unlock new recycling opportunities by reducing business case risk and creating easier access to the right kinds of waste feedstock at lower cost.

Collectively define the future paradigm

Reducing plastic-waste pollution and increasing plastic circularity will require collaboration across the value chain. It could mean reimagining parts of the value chain and providing the right collaboration frameworks and incentive mechanisms. Accessing plastic-waste feedstock at scale with consistent quality and in a cost-effective way is a big challenge around the world. Addressing this issue will require an understanding of the needs and constraints of upstream and downstream partners and the identification of creative commercial offtake and partnership models. Some emerging collaboration cases include the following:

• Some chemical and waste management companies are working together to secure the right feedstock and produce high-quality recycled plastics. For example, LyondellBasell and SUEZ teamed up to create Quality Circular Polymers, a polyolefin mechanical recycler.
• Others are developing waste feedstock platforms to provide transparency and bridge stakeholders’ specific needs in waste plastics. One such platform is Cyclyx, a joint venture between ExxonMobil and Agilyx that helps aggregate supply and demand of plastic-waste materials.

The production and use of plastics around the world will likely increase in the years to come. The value chain and broader society have the dual objectives of eliminating plastic-waste leakage and increasing plastic circularity. These require the deployment and optimization of waste management infrastructure, as well as circular systems that can manage and—where possible—recycle the waste. Specific solutions vary by geography and the state of economic dev­el­opment. It is critical to find the right fit-for-purpose solutions that bring together the relevant stakeholders to collectively shape at-scale waste management infrastructure and recycling systems.