Although regulations that scaled the renewable energy market share some conceptual similarities with post-consumer resin mandates, one longtime plastics recycling stakeholder argues there are key differences creating unique challenges for plastics recycling.
A state recycling association meeting in Oregon recently highlighted lessons the plastics recycling sector can take from renewable energy. To learn more about this comparison, Plastics Recycling Update spoke with Alex Delnik of Circularix, an emerging PET recycling firm with a facility in Hatfield, Pennsylvania.
Delnik was previously involved with major PET reclaimer CarbonLite – which closed in 2021 – and advocated for California’s Assembly Bill 793, the recycled content mandate legislation that was signed into law in 2020. The bill established minimum post-consumer resin use requirements for plastic beverage containers covered by the state’s deposit return system. The first requirements took hold in 2022, mandating 15% PCR in plastic beverage containers. That will increase to 25% in January 2025 and 50% in January 2030.
Delnik recalled talking with Leon Farahnik, at the time CEO of CarbonLite, about recycled content mandates back in 2014. They, too, saw a similarity between PCR mandates and the scaling of renewable power in California through the high-profile Renewables Portfolio Standard program.
RPS was approved by California lawmakers in 2002, setting renewable energy requirements. It required that, by 2017, 20% of retail electricity sales – or the sale of electricity from a utility to a consumer – come from renewable energy sources, and has had subsequent revisions.
But Delnik said he has concluded that inherent differences set the plastics recycling sector apart from the renewable energy industry, and without accounting for these differences, he couldn’t see recycled content mandates scaling the industry in the same way.
This interview has been edited for clarity and brevity.
When did you first draw a comparison between the renewable energy sector and how plastics recycling could pursue similar scaling?
When Leon and I first got together and decided to pursue this minimum mandatory recycled content, it was probably around 2013-2014. We talked about it, and I said, “We have a perfect California blueprint: RPS, Renewables Portfolio Standard.”
The way it was structured at the time was, we need to mandate to separate commodities, to separate virgin from recycled, because those cannot compete purely on price. So the same thing as in renewable energy.
The RPS mandate was introduced and immediately had a tremendous impact in that industry, tremendous. I spent a lot of time in Sacramento when we were working on minimum mandatory recycled content, and I mentioned RPS as a blueprint. And I said, “Look, it’s working.” It has proven to deliver, and it did exactly what it’s supposed to do: To separate two different commodities in terms of commodity definition, which is something that differs only by price.
How has your thinking about the parallels between plastics recycling and renewable energy changed over time?
I have to confess one thing I didn’t think about at the time: There are two attributes that differentiate the recycled plastic market from the renewable energy market.
The first is, in RPS, companies have to buy renewable energy. Really, it’s a decision that is made for them. They’re not deciding whether to procure or not, it’s a decision made by the utilities. It’s not brands who decide whether to buy or not to buy, and whether they can basically transfer those prices on their customers, it’s utilities. And for the utilities, the only real customer is the Public Utilities Commission that approves their rates.
So that is a difference. Those are not brands that have to decide to buy or not to buy RPET. It’s not to their discretion: The utilities have to buy. That’s No. 1.
No. 2, unlike recycled plastics, energy cannot be imported, not in any meaningful economic way. Definitely not from overseas.
Those are two major differences that greatly separate the AB 793 implementation from RPS. And the implications of that are dramatic. While both want a certain amount of environmentally friendly commodity – electricity or recycled plastic – to be brought into California and into the U.S., the impact is completely different.
So why has that arrangement not translated into the plastics recycling space? Buyers saying, yes, we will give you that purchase agreement to finance your facility, therefore spurring development of additional domestic infrastructure – in the plastics recycling space we don’t see that scale of agreement.
Long-term, committed volume, is not a standard in the industry yet. And because of that, it’s very hard to find private money to invest into recycling, because there is no guarantee. People who invest money, they want return. They can take operational risk, but they cannot take commodity price risk.
So the only people who can build those facilities are people who build them out of their own money and more or less on a merchant basis. And probably not by borrowing money, because nobody’s going to give you money under these circumstances. So you can either equity finance it or build it out of your balance sheet.
That is a big difference with renewable energy. The renewable energy market is really successful because it’s fundamentally sound, it’s based on long-term deals with very transparent pricing, guaranteed pricing, so it allows both companies to be able to operate with some foresight. And on recycled plastic, specifically the RPET market, there is no long-term view, and there is no guaranteed offtake.
As a result, there is no new capacity that is being built. All of these commitments that companies are making, either by themselves or because regulation exists, they have very little choice. They can either pay a penalty for noncompliance – and that penalty may be even less than what they have to pay for recycled plastic versus virgin plastic. Or they can find all kinds of excuses – not enough volume, not enough quality, not enough that or this – and I can understand, don’t get me wrong. There is no financial benefit for companies to use recycled content other than compliance, to a certain degree, and maybe a couple articles in the magazines saying, “Kudos to you. You’re using recycled content.”
Another option for them is to go overseas, and buy imported RPET.
The renewable energy sector has the advantage of many years in effect, while PCR mandates are in the very early stages. What did the renewable energy market look like in the early days of the energy mandate?
The first procurements of renewable energy in California resulted in big multiples of renewable energy price as compared to conventional energy. Because there has to be a certain volume, and there were not that many projects, and utilities had to comply. Price was a secondary consideration. They were doing separate solicitations for conventional energy and for renewable energy. And whoever comes in for renewable energy you have to pick, because you have to comply.
Immediately, as a result, there was a tremendous amount of capital flowing. It’s a bunch of infrastructure bonds, they’re still operating. It could be different types of solar energy, wind power, and they were competing with each other on price. But they were competing with each other, not with conventional energy. So the ratio of price of renewable energy and conventional energy was tremendous, and nobody really said, “Oh I want to limit that, I want it to be on par,” like they’re saying with recycled PET.
Because the argument was never that renewable energy offers a price-competitive alternative to conventional.
Exactly right.
I have great respect for all the companies in our space – my suppliers, my customers. For the most part, almost universally, people behave rationally, so you need to establish the right objective, the right criteria.
I always give this example, which comes from a study from a few years ago. A magazine was investigating how many CEOs of companies were fired because they didn’t meet their ESG commitments. You know how many? Zero.
But if you miss your earnings per share by, you know, two pennies per share, you can get canned. So the idea here is, EBITDA (earnings before interest, taxes, depreciation and amortization) always wins. If it becomes compliance, like it is with RPS, you don’t think about it, it’s a cost of doing business. That’s a message that Hein Schumacher of Unilever says: I want to be contributing to sustainability and to a circular economy, but why should I be punished? Why should companies be punished because we’re doing good?
What are some specific measures that can help bring plastics recycling regulations closer to meeting the renewable energy comparison?
I mentioned those two elements that have to be taken into consideration. The first is use of a level playing field: You have to use recycled material, much the same way as you have to procure renewable energy, and there is no way around. You cannot substitute, and you cannot get out of it by paying a penalty.
Another side of it is, of course, imported material. Look, we can’t prohibit people from importing material other than through some elaborate punitive duties like we have on virgin resin from a few countries. But we can probably say, look, you can import as much as you want, but it’s not going to count towards your obligations under the state recycled content mandate. You can import, but it’s not going to count.
And on top of all that, don’t forget that AB 793 only covers beverage containers. You have the whole universe of other plastic products, plastic packaging that is not covered. And for that, we have SB 54, that’s supposed to create this framework, but it’s a few years away. So we are in this position where we want to develop more, companies want to use more RPET, but they don’t want to be punished for being good – meaning charge customers an unreasonable premium for packaging with recycled content – hence the need for a level playing field.
