Chemical conversion or chemical recycling is a diverse sector that encompasses dozens of technologies that utilise chemical process to purify or break down plastic waste into polymers, monomers, oligomers or hydrocarbon fuels.

The sector is characterised by its ability to process a wide range of plastic waste, addressing overlooked plastics that do not have end-of-use recovery solutions. This is achieved through a range of technologies, including:

• Purification technologies, which process single-stream or mixed plastic waste by separating and extracting unwanted chemicals (e.g. colour, additives) from the target polymer by using solvents.

• Depolymerization technologies, which process single-stream plastic waste, and chemically alter the structure of the polymer by breaking bonds in the main polymer chain (primarily applicable to PET, but not to PE and PP). Depolymerization has potential to be used for pre-consumer textile recycling, providing a clean stream of polyester with known polyester purity level.

• Conversion technologies usually refer to pyrolysis and gasification technologies. Both types of technologies differentiate themselves from other technology categories by being able to process mixed plastics or mixed solid waste with plastics to produce hydrocarbon products like naphtha and methanol.

Chemical conversion technologies differ from mechanical recycling by their ability to remove chemical additives and colour from plastic waste, producing like-new plastic polymers that can go into high-value cosmetic or food-grade applications.

The chemical conversion sector is at varying stages of market readiness, with purification and depolymerization technologies in the early stages of commercialization (in the US and Europe), while conversion technologies are the most mature. This new and growing market currently has very low penetration in EMDEs but in the future can play a bigger role in those regions. If developed with the right principles, chemical recycling can play a key complementary role to mechanical recycling. Commitment to principles for good chemical recycling is crucial.

To scale effectively, chemical conversion (and mechanical recycling) relies on three key elements: feedstock security, offtake security, and a supportive regulatory environment. Feedstock security involves design for recycling and scale-up in collection and sortation, including advancements in sortation technology. Offtake security can be ensured through offtake agreements. The regulatory framework needs to be ambitious, supportive of a complementary system that aligns with the principles of good chemical recycling, and provide clarity.

Key claims for chemical recycling technologies

Source: Hann S., Connock, T., "Chemical Recycling: State of Play," Eunomia (2020)

Two main concerns have been raised regarding the potential negative impact of chemical recycling on human health: first, the emissions and discharge from chemical recycling processes contain hazardous chemicals; and second, substances of concern from feedstock waste can be reintroduced into output recyclates. Further research on both issues is needed.

Costs and revenue model

Chemical conversion technology companies need to be well capitalized as they navigate from pilot stage to commercialization stage, because piloting feedstock and outputs is lengthy and capital intensive. Capex requirements are lowest for depolymerization technologies -- some examples from Europe suggest average cost of ~EUR 6.5 million kt. The absolute capex amounts for conversion technologies tend to be higher as their more mature technologies require relatively bigger facilities. Conversion technologies typically have lower operating costs due to their ability to accept mixed-stream waste.

Revenue streams vary depending on the technology, with purification technologies generating revenue from the sale of high-quality recycled plastic and depolymerization technologies earning revenue from the sale of monomers, both of which can be used for high-value application outputs such as food packaging. Conversion technologies generally produce lower-value outputs, such as methanol, but in some regions can benefit from tax credits and subsidies for renewable fuels. Technologies which can accept mixed and contaminated materials can also receive tipping fees for avoided landfill costs.

Chemical recycling technology providers operating at pilot and early stage technology providers who produce predominantly plastic polymers are on average an attractive opportunity for earlier stage investors or strategic companies such as large petrochemical companies who can finance their investment through internal revenue without requiring external financing. Investors and strategic partners are leveraging a mix of financial instruments and strategies to capture this market opportunity. Among private capital providers involved in this sector are:

• Petrochemical and plastic industry actors such as Dow, Indorama, TOTAL and others

• Brands and their venture funds, across categories including: consumer goods, airlines, cosmetics, fashion and apparel

• Impact investors and VC funds including Breakthrough Energy Venture, Closed Loop Partners, Cycle Capital Management, Kleiner Perkins

Some development capital providers and philanthropies also provide capital to the sector. Among those are national and local government agencies, quasi-governmental capital providers, research institutions, and support organizations, including in North America NASA, NREL (the National Renewable Energy Lab), REMADE Institute, state economic development agencies. Notable examples outside of North America can be found in the EU and UK, e.g., Ellen MacArthur Foundation.

Public funding is critical to bridge investment gap for earlier-stage chemical conversion technologies as they go through proof-of-concept demonstration stages. Public funding can also support later-stage technologies with financing products that de-risk projects; for example, loan guarantees, capital exemptions and incentives that encourage investment into key areas of system change.

The most suitable de-risking instruments for chemical conversion are grants for early-stage initiatives, and guarantees or offtake agreements for operational projects.

Other enabling conditions

• Develop a solid business case: While advances in the technologies have been made, the business case for chemical recycling technologies is still in its infancy. To scale up, further innovation, demonstration, and policy frameworks are needed.

• Risk-sharing approach: The chemical industry continues to invest in research but require support from public and concessionary funds to share the risk in crossing the innovation's "valley of death" and make sure chemical recycling technologies can be successfully commercialized

• Policies that support circular downstream material management such as recycled content mandates for products and packaging; and incorporating chemical recycling into extended producer responsibility legislation

• Provide financial incentives like tax credits that encourage upstream collaboration, investment into feedstock pre-processing, and investments in best performing chemical conversion operations

• Capacity building: The chemical transition has significant implications for employment and the labour market. As the industry evolves, countries need to meet the rising demand for skilled workers capable of developing, implementing, and maintaining new technologies and processes.

• Collection and logistics: CR plants need large volumes of consistent, economically feasible feedstock to be viable. To process the difficult-to-recycle materials, those items must be segregated and sent to the chemical recycler at relatively low cost and high quality, in turn necessitating widespread logistical planning and growth in local and regional collection networks.

• New feedstock collection and cleaning: Successful collection and aggregation of quality feedstocks will be critical to providing the scale needed to run CR facilities. In addition, CR will need to process both postindustrial and postconsumer materials to fully realize a circular economy for packaging. Additional investment will be needed to ensure the full suite of materials to feed CR is collected at a level to support a capital investment (i.e., post-consumer film collection needs more scale).

• Investment system dependence: Investment in chemical recycling depends on vastly improving upstream waste collection through consumer behaviour campaigns, and infrastructure development. The cost of managing all waste streams is significant and the chemicals industry may not be able to finance this transition alone.

• Feedstock constraints: Similar to mechanical recycling investment projects, as chemical recycling technologies are deployed, there may be additional feedstock constraints given the relatively low recovery rate of plastic waste. While the chemical recycling technologies can accept lower quality feedstock compared to mechanical recycling technologies, the uptake in demand may lead to increasing costs of supply sector wide, applying further pressure on investment returns.

• R&D needed to scale-up: Chemical recycling currently exists predominantly at an early stage level and requires further innovation efforts before being rolled out for subsequent commercialisation. To scale up, further research and development of the business case for chemical recycling is needed

• High upfront investment: Investment in advanced chemical recycling technologies requires high upfront investment