Chemical recycling: EU approach will define pyrolysis oil sector

Alongside access to sufficient high-quality waste, legislation is the most commonly cited potential barrier to growth in the chemical recycling sector, particularly given the ongoing uncertainty over the acceptance of chemical recycling under EU legislative targets, and the EU’s approach to mass balance.

• Greater legislative certainty could unlock further investment in sector
• Legislation might encourage increased uptake from fuel sector
• Concerns fuel sector use could spark renewed NGO criticism

by Mark Victory, Senior Editor of Recycling at ICIS

Chemical recycling and the definition of recycling

Directive 2008/98/EC forms the basis of the majority of EU recycling legislation definitions, defines recycling as “any recovery operation by which waste materials are reprocessed into products, materials or substances whether for the original or other purposes. It includes the reprocessing of organic material but does not include energy recovery and the reprocessing into materials that are to be used as fuels or for backfilling operations.”

This has left the legal status of chemical recycling uncertain, particularly for pyrolysis – the dominant form of chemical recycling in Europe – where mixed plastic waste is commonly converted to pyrolysis oil – a naphtha substitute – before being reprocessed into recycled materials.

The EU Commission stated in late 2020 that it would take a decision in 2021 on the legal status of chemical recycling based on its cradle-to-grave life-cycle impact. This decision remains yet to emerge.

Nevertheless, the proposed redraft of the Packaging and Packaging Waste Directive – which would replace transform the directive into a regulation, uses a different definition of recycling, which would clear up the ambiguity in directive 2008/98/EC

The draft legislation states that “the amount of packaging waste materials that have ceased to be waste as a result of a preparatory operation before being reprocessed may be counted as recycled provided that such materials are destined for subsequent reprocessing into products, materials or substances to be used for the original or other purposes. However, end-of-waste materials to be used as fuels or other means to generate energy, or to be incinerated, backfilled or landfilled, shall not be counted as recycled.”

This would seem to suggest that material can count towards targets if it’s been converted to pyrolysis oil as long as it has then been used to produce recycled plastics. The amended wording, though, would only apply to the Packaging and Packaging Waste Regulation – if adopted. Coupled with this, the EU Commission does not currently recognise the mass balance approach.

Mass balance

In mass balance, a certified volume of renewable or recycled material is input across a production run but may not be evenly distributed across each individual product. For example, a plant may use 30% recycled material overall, but one piece of produced packaging could contain 100% recycled material, and the next 100% virgin material, or any mix between those two extremes.

Via this method, market players are able to state that they use a certain percentage of recycled or renewable material in their products, without having to prove that percentage in each individual product produced.

Given that pyrolysis oil is used as a naphtha substitute in a cracker, many see acceptance of mass balance as an essential enabler or chemical recycling to count towards recycling targets, aside from any decision on the status of chemical recycling itself.

Confusing the issue, in mechanical recycling, the term ‘mass-balance approach’ also refers to the process of using a credit system to substitute the use of recycled material in one end-use for another in order to meet sustainability targets.

For example, recycled material were used in the bin bag sector (where sustainability and regulatory targets are relatively low), the bin bag producer would be able to sell the credit for producing this recycled material to a player in the food packaging sector that was unable to source food-grade recyclate, in order for the food-packaging producer to meet its target.

Advocates for this approach argue that because of technical limitations, such as tensile strength weakening, and regulatory requirements for food-grade material, this is the only way to reach mass-scale for mechanically recycled food-grade recycling, outside of recycled polyethylene terephthalate (R-PET).

Critics of the scheme argue that it does little to encourage high-quality recycling, or the underlying growth of the sector. Advocates of the mass balance approach, though, have often sought acceptance for both definitions of the term.

Impact on investment

There are individual pieces of legislation in individual countries in Europe that do accept chemical recycling unambiguously – both the UK and Spain’s plastic packaging taxes treat chemical recycled material equally to mechanical recycling in their exemption criteria for the tax. Nevertheless, the regulatory approach across Europe remains inconsistent and uncertain.

While investment in chemical recycling remains high, there has been talk in the market that there are players holding back from entering the sector while this uncertainty persists.

If legislation goes against the acceptance of chemical recycling, it is unlikely to mean the sector will not expand, since brand targets are currently broadly above regulatory targets (driven by consumer pressure) and chemical recycling could still be used to bridge that gap

This is particularly true since it is unlikely that the average consumer draws a significant distinction between mechanical and chemical recycling.

The adoption of mass balance and the unambiguous acceptance of chemical recycling as counting towards regulatory targets, though, could unlock further investment and boost the growth of the sector.

It isn’t only through regulatory uncertainty, though, that legislation is shaping the potential future structure of the market.

Legislation could encourage use of pyrolysis oil be fuel sector

There remain concerns that the fuel sector’s share of pyrolysis oil could increase in the coming years at the expense of material into petrochemicals, following revisions under the EU’s ‘fit for 55’ legislative package earlier this year, which would appear to allow the use of pyrolysis oil to meet renewable fuel obligations, particularly for tyre derived pyrolysis oil.

Among measures brought in, the new ReFuelEU aviation rules include recycled jet fuels produce from waste plastic under it classification of ‘green’ aviation fuels.

Nevertheless, some players question the viability of this, given requirements under the legislation for a 70% emissions reduction compared with traditional fossil fuels.

Coupled with this, the purity of tyre derived pyrolysis oil (which is typically the lowest of the three commonly traded grades and with the widest variations) remains a challenge for both sectors, with high sulphur content a particularly challenge for the fuel sector.

Beyond potentially increasing demand in a structurally tight market – with shortages already resulting in significant premiums compared with virgin naphtha – chemical recyclers and petrochemical buyers are concerned that increased use by the fuel sector could reignite previous opposition to chemical recycling from NGOs.

Bringing things full-circle, the concern among players is that this would place pressure on regulators not to take an unfavourable view of chemical recycling and influence their decision on the definition of chemical recycling under recycling target obligations.

The introduction of three new pyrolysis oil spot price quotes in to its recently renamed Mixed Plastic Waste Europe and Pyrolysis Oil Europe pricing service has made ICIS the first market information service to price chemical recycling outputs. With our pre-existing mechanical recycling, waste bales, and virgin price coverage, ICIS gives you the complete picture across the value chain.

For more information on the new prices please contact Mark Victory at mark.victory@icis.com