Brand owners are continuing to introduce new packaging formats and establish innovative ways to boost product recyclability and levels of recycled content to meet their sustainable-packaging commitments, address consumer concerns, and adapt to rapidly rising regulatory pressure.1 However, these companies face the very real risk that they cannot achieve their goals because of an anticipated shortage of recycled materials2: collection levels of high-quality recycled material look set to remain almost flat, creating supply challenges for brand owners and packaging companies. If brands with public recycled-content commitments follow through on their plans, the US demand for recycled polyethylene terephthalate (rPET) in 2030 would outpace supply by about three times. Consequently, as the supply-and-demand imbalance widens, the price premium between rPET and virgin PET has the potential to rise significantly over the next decade. The challenge for the industry moving forward will be to unlock additional rPET supply. To address this issue, we suggest three potential approaches, centered on boosting supply, ensuring access, and designing for circularity, that could also be applicable to other packaging substrates.
Accelerating demand for recycled materials
Packaging is a ubiquitous part of our daily lives. It minimizes food waste and adds convenience at low cost, but it also imposes a heavy environmental burden, given the United States’ low recycling rates.3 This has not gone unnoticed. In recent years, consumers globally have become increasingly concerned about packaging waste and leakage into environment, and governments have begun responding to public sentiment with robust action along accelerated timelines.4 In parallel, brand owners and the packaging industry have made bold commitments to improve the sustainability of their packaging portfolios through boosting recyclability and levels of recycled content.5
This has increased demand for recycled materials—often at a green price premium, given the scarcity of supply. Here, we explore the rPET value chain to understand the underlying causes of an anticipated supply-and-demand imbalance. We put forward several approaches to mitigate this issue—approaches that we believe can also be applied to other packaging substrates (such as glass, metal, paper, and flexibles) that are facing similar market pressures.
The supply-driven gap in the rPET market
A diverse set of end-use applications currently relies on the PET waste stream—textiles, plastic films, strapping, and food and beverage bottles, among others—with PET bottles as the primary feedstock for rPET. Yet today, only about 27 percent of PET bottles and some 18 percent of all recyclable PET plastic waste are collected, with the remainder going to landfills (Exhibit 1). Over the past few years, there has been no step-change increase in PET collection or sorting. As a consequence, rPET supply has only grown at approximately 1 percent per annum over the 2012–22 period in North America.6 While there have been some new entrants in the reclamation and reprocessing section of the value chain, there have been no significant corresponding reductions in process losses. This means that approximately 4.6 billion pounds of PET end up in landfills every year.7 Collecting this unrecycled plastic represents a significant untapped opportunity to close the loop on food-grade PET.
Importantly, rapidly growing demand, combined with stagnant supply, is expected to result in a significant future supply-and-demand imbalance for rPET (Exhibit 2):
- Historically, over the 2012–22 period, we have seen rPET supply grow at only about 1 percent per annum, while consumption has increased by approximately 4 percent per annum over the same period.
- If brands move ahead to fully meet their stated recycled-content commitments for 2030, demand for rPET will rise by some 15 percent per annum between 2022 and 2030; over the same period, supply is expected to continue growing at only around 1 percent, resulting in demand being three times the level of available supply by 2030.
Moving ahead, ESG-driven rPET usage will expand its share of the market, potentially leading to increasing price premiums as demand for rPET grows. Additionally, many brand owners are considering switching away from other plastic resins—such as high-density polyethylene (HDPE), polyvinyl chloride (PVC), and polystyrene—in favor of rPET because of its higher recyclability and its perceived accessibility compared with other resins. This could impose further supply pressures.
Enablers to improve availability of recycled materials
Future rPET availability will be determined by a combination of supply, demand, and regulatory factors (Exhibit 3), with plateaued supply being of greatest concern. With this in mind, packaging industry leaders can consider three meaningful ways to increase rPET availability:
- Boost supply. With more than 80 percent of PET waste going unused, opportunities exist across the value chain to boost PET recovery, from collection through to sorting and processing. Given that recycling programs are often organized at the local level, there are opportunities to form public‒private partnerships to increase local collection rates in areas with underfunded or nonexistent curbside recycling. The Recycling Partnership, for example, is an organization that makes private investments in public recycling programs, with the aim of increasing the supply of recycled plastics. At the same time, investments in advanced sortation equipment at material recovery facilities are an additional avenue to increasing rPET supply. We also note that in some countries (such as the Nordic countries), national and state-level policies such as extended producer responsibility or deposit-return schemes are having a measurable influence on rPET supply.8
- Ensure access. As rPET becomes increasingly scarce, securing access to this substrate will become critical for brands hoping to meet their recycled-content commitments. The range of strategic options for companies will vary depending on the local policy and the location of their manufacturing plants and sources of rPET supply. For example, vertical integration with a recycler and long-term strategic partnerships or contracts with suppliers or competitors are viable models that we have seen work in the plastic-packaging industry and also for other substrates: for instance, several large paper manufacturers have their own integrated recycling operations. Moreover, there have also been several small-scale efforts by brands to directly recover their own bottles from consumers. Although currently uneconomic, this approach may become viable if the value of recycled materials continues to climb and access to supply becomes more difficult.
- Design for circularity. Brands can accelerate their path to reaching circularity commitments by assessing what ways to improve packaging design to ensure material is recovered from the waste stream. Solutions here could range from moving away from colored PET to improving labeling and product design to encourage higher rates of consumer recycling.9 For instance, in July 2022, Coca-Cola announced that its Sprite brand would no longer use green-colored PET plastic, which has historically been harder to recycle into future food-grade bottle uses. This change improves the circularity of the bottles by avoiding them being converted into products such as carpeting or clothing, which generally cannot be recycled today.
Importantly, we anticipate that these three enablers will also be applicable to other substrates across the broader packaging market, such as the following:
- Paper packaging. Currently, there is a well-developed recycling regimen for old corrugated containers used in paperboard packaging. However, a large volume of mixed papers still goes to landfills. As such, this represents a major unused resource for packaging companies to tap into to raise the recycled content in various categories of paper packaging.
- Metal packaging. Securing access to used beverage cans and scrap metal has become a strategic issue for beverage packaging companies, with only about 45 percent of aluminum currently recycled by consumers in the United States.10 Metal producers have been investing in recycling infrastructure and sortation technology to access and consume more recycled materials.
- Glass packaging. Only 25 percent of glass is currently collected in the US due to high labor and sorting costs, along with the significant cost of transportation.11 While regulation in this area has been limited, most cullet12 supply comes from bottle-bill states.13 Finding ways to reduce recycling costs alongside light-weighting initiatives could improve cullet use in new glass production.
- Flexible packaging. The most significant challenge today is that not all recycling systems are equipped to collect and recycle this type of packaging, resulting in low recycling rates.14 Designing for higher recyclability via new materials (for example, fully recyclable films) and structural redesigns (which make components easy to separate for consumers) could be two routes to improving circularity.
Sustainability in packaging is a time-sensitive priority for leaders in the packaging industry. Achieving true circularity through higher concentrations of recycled materials is a critical enabler. However, the significant challenge will be for the supply side to keep pace with demand during the remaining years of this decade. There is no time to waste, with multiple ambitious sustainability commitments scheduled for 2025 fast approaching.