Bioplastics today
The first plant-based plastics entered the market in the eighties. Four decades on and only one percent of the world’s annual plastic output is made from biological sources. Despite mounting pressure on corporations to decarbonise, high market prices are still inhibiting widescale adoption of biomaterials and biofuels.
Commentators have long resigned themselves to the fact that green chemicals will remain a market niche until petrochemicals undergo prolonged price rises. Now, favourable market conditions for biomaterial mainstreaming may be on the horizon. Oil supply disruptions caused by the pandemic, the outbreak of war in Ukraine, and 5 years of reduced OPEC production have pushed fuel prices to historic highs. In May 2022, Brent crude oil spot prices averaged $113 per barrel while in June, average prices for gasoline in the US reached an unprecedented peak of $5 per gallon.
Rising costs for fossil fuels may mean that biomaterials could soon strike price parity with petrochemical equivalents. This is crucial if biomaterials are to rival the market share of oil derivatives. A 2019 study by market intelligence provider Toluna suggests there are hard limits on how much consumers will pay for sustainable substitutes. 37 percent of their sample were willing to pay only 5 percent extra for a greener product and most biomaterials on the market have struggled to stay within this range. In Europe, popular bio-based alternatives PHA and PLA cost on average €3 and €2.1 per kilo to make respectively. For conventional plastics, the figure is €1.2. The ‘green premium’ on biomaterials results from the complex processing methods needed to convert plant biomass into high-performance substances.
Achieving cheaper bio-products will depend on scaled green chemicals manufacturing that can spread production costs over more units. While scaling has been the overriding objective for all biomaterial sectors over the last decade, three things are limiting its progress. First is access to investment. Second is the raft of technical challenges specific to high-volume production. In a conundrum that will be familiar across the emerging tech sectors, these technical obstacles will often only become apparent once scale-up has been trialled, something that requires an initial injection of funding. Finally, some biomaterial classes still need R&D to achieve mechanical qualities that are on par with those offered by oil-derivatives. By contrast, fossil derivatives boast decades of optimisation, both in manufacturing efficiency and mechanical performance across a vast range of applications.
A crossroads for the green transition?
Oil price rises of the magnitude we are seeing could bode well for the biomaterials sector. According to US energy policy expert Jason Bordoff, the current crisis has the potential to match the 1970s oil shock for its severity. Back then, seismic geopolitical shifts incentivised Western governments to develop alternative fuels, prompting massive public spending on clean energy R&D, covering nuclear, hydrogen, solar power, and automobile fuel efficiency. Optimists say that the current supply disruptions may finally tip four decades-worth of R&D, investor interest, and innovations within sustainable manufacture into the scaling stage.
Yet things may well swing the other way. While oil disruptions are a serious blow to the global economy, they may not become severe enough to motivate active strengthening of the biomaterial sector. The IEA notes that reduced oil demand from China and the possibility of increasing production in Norway, Algeria, and the US will likely avert the worst oil deficit scenarios. US lobbying has already resulted in OPEC agreeing to a 50 percent production increase. These alternative oil sources may sustain global petrochemical supply just above the critical point that would threaten paralysing shortages and force governments and companies towards a biomaterial pivot.
Government policy responses so far prompt further checks on optimism. Already, nations are pushing renewable policy down their agenda, instead focusing on national self-sufficiency (in the form of export bans, for example) and trading realignments rather than any concerted attempt to redefine sovereign security around sustainability. In response to Ukraine’s economic fallout, the British government plans to sustain coal mines that had been earmarked for closure while green-lighting new North Sea oil drilling projects. Countries in Latin America, Asia, and Europe are already freezing previous mandates to blend fossil fuels with biofuels considering shortage concerns.
The problem of feedstock
Even if new sources of petroleum do not make up the shortfall entirely, rising oil prices alone will not be enough for biomaterials to become immediately competitive with petrochemicals. Bio-feedstocks must also remain cheap and readily accessible. This where the supply chain shock may test the green chemical industry’s ability to capitalise on soaring fossil fuel prices.
The biomaterials sector is not immune to the price hikes being faced by the oil-based sector. Much of the bioeconomy relies on agriculture, which has been particularly hard hit due to a tight relationship between petrochemicals, fossil energy, and fertiliser production. Virgin vegetables oils like rapeseed, palm oil, and soy made up 80 percent of EU biofuel feedstock and European ethanol production depends on corn, wheat, and sugar beet. Aside from costlier agricultural inputs, EU restrictions on the types of biofuel feedstock that can be used are tightening supply for European producers. The European Parliament voted in 2018 that only 7 percent of biofuels may be made from food crops with a complete ban on palm oil feedstock from 2021. Even in late 2021, before the Ukraine war, companies were already struggling to obtain the feedstock required.
At the same time, oil feedstock for plastic is displaying resilience. In 2021, Russia supplied 44 percent of Europe’s naphtha, a popular plastic feedstock choice. Although Russian naphtha exports have dipped to a 6 six-year low, Mediterranean imports are now making up the shortfall. Combined with low demand, the injection of Mediterranean naphtha means European prices for the product are hitting 13-year lows. While Europe’s bio-based naphtha production is growing, its 100, 000 metric tonnes per year are a drop in the ocean compared to global volumes of the oil-based product. Although plastics producers will undoubtedly see margins narrow, it is not certain that this will translate into higher consumer costs immediately or to levels that would see biomaterials rivalling petrochemical derivatives on price.
The Ukraine war may have been the definitive catalyst for the biomaterials industry had it already undergone some measure of scaling. In the absence of a more mature industry, the constraints that have so far held back biomaterial scaling will likely persist over the short term.
The road to scaling
All this indicates that while rising petrochemical prices offer minimum conditions for a generalised shift to renewables, biomaterial mainstreaming will not automatically flow from an oil shock. Market scaling rarely happens organically and scaling biomaterials will depend on concerted efforts by both the private and public sectors.
The fossil market contractions we are seeing today may be the first of many over the coming decades. Several factors must be in place for future energy shocks to tip the scales towards a green chemicals transition. Starting now, governments must simultaneously increase the cost of fossil fuel use and lower the cost of bioplastics. This means that regulations capping fossil fuels use must be accompanied by subsidies for the scale-up of alternative materials. Without the latter, any post-regulation surge in demand may push up green premiums for low-volume biomaterials even further. Additional public and private support for R&D into optimising the physical properties of bioplastics is also critical. Only by developing plastics capable of replacing oil plastics in major application segments can companies and consumers comfortably switch to environmentally friendly materials.
Economic uncertainty tends to generate the political and fiscal conservatism that undermine the long termism needed by the sustainability transition. However, one counterweight to a petrochemical retreat is the momentum already gained by established green transition programmes. Prime among them is the EU’s Green Deal which emphasises the massive contributions that bio-based materials could make towards net zero targets, including transportation biofuels and the circular use of agricultural waste. In March 2020 the EC adopted the European Climate law that obliges member states to adopt emissions reduction target of at least 55% by 2030. Further, the EU’s RED II law requires EU member states to make fuel suppliers ensure transport energy is at least 14 percent renewable by 2040. In response to the Ukraine war, the European Commission announced that will use clean energy to make up the loss from Russian fossil imports, which will be cut by the end of 2022. These pre-existing laws and commitments will mitigate any rash redoubling of petrochemical outputs over the next year.
The turmoil in world oil markets may not be the final nail in the coffin for petrochemical products. However, the ongoing crisis is making biomaterials scale-up appear more like a pressing necessity than a desirable target to be endlessly deferred.
