While there are methods to reduce CO2 emissions from fossil fuel-based plastics, such as carbon capture and storage (CCS) and recycling, the industry still relies heavily on fossil fuels as a feedstock. We view these measures as an evolution, not a revolution.
A more radical transformation involves producing plastics without fossil fuels, using alternatives like sugars. Also methanol, an important component in the production of plastics, synthetic fibers and adhesives, can be made from renewable biomass and green hydrogen. But at what cost for plastic producers?
In this article, we focus on the business case for methanol-based plastics and provide insights on how to transition to plastics that are both greener (less CO2) and not made from fossil fuels.
"}},{"componentType":"sectionTitle","title":"The economic reality: oil and gas-based plastics are the cheapest options"},{"componentType":"paragraph","richBody":{"value":"Currently, plastics made from natural gas and oil are the cheapest options, costing respectively around €800 and €1400 per ton of High Value Chemicals (HVC). In contrast, methanol-based plastics from biomass and hydrogen are significantly more expensive, with bio-based plastics costing up to one and a half times more and green hydrogen-based being up to four times more expensive.
So while there are ways to produce plastics without the use of fossil fuels, there is still a sizeable price gap that needs to be bridged to make fossil-free plastics cost competitive – which is a prerequisite for scaling up and making them mainstream. That will require, for example, subsidies, clients willing to pay a green premium, mandatory production targets for fossil-free plastics or taxing current plastic production from oil or gas.
"}},{"componentType":"paragraph","title":"Plastics from oil and gas are the cheapest, fossil-free bio-based and green hydrogen-based plastics are costliest","richBody":{"value":"Indicative unsubsidised costs for different methanol-based plastics compared to gas and oil-based plastics (in € per ton High Value Chemicals). Source: ING Research, based on IEA, BNEF, Dechema, TNO, PBL, CE Delft and McKinsey
"},"alignedImage":{"position":"bottom","transformBaseUrl":"https://assets.ing.com/transform/b67f8b11-b94d-4bfa-bb90-0db7eb7955dc/Plastics_from_oil_and_gas_are_the_cheapest","original":"https://assets.ing.com/m/4d236e37ffaa5305/original/Plastics_from_oil_and_gas_are_the_cheapest.png","extension":"png"}},{"componentType":"sectionTitle","title":"The challenge of making fossil-free plastics cost competitive"},{"componentType":"paragraph","richBody":{"value":"Achieving cost competitiveness for fossil-free methanol-based plastics is a challenging task. Bio-based plastics would need a 70% cost reduction, while hydrogen-based plastics would require even more drastic measures. Even if power prices were to hover around €40/MWh (the long-term average before the energy crisis) and there was a 90% reduction in the technology costs to manufacture e-methanol, these plastics would still cost about €2000 to €3000 per ton HVC.
To get fossil-based plastic production in that price range, CO2 prices would need to be between €1,000 and €1,600 per ton. This significantly exceeds most estimates for the European carbon price by 2030, which generally do not surpass €250 per ton. Additionally, the use of oil and gas as feedstock for plastic production is largely exempt from carbon pricing, and gas used for high-temperature processes partly receives emission rights without charge (free allowances).
"}},{"componentType":"paragraph","title":"Bio-based plastics and plastics from green hydrogen can lower emissions","richBody":{"value":"Indicative emissions for different methanol-based plastics (in ton CO2 per ton HVC). Source: ING Research, based on IEA, BNEF, Dechema, TNO, PBL, CE Delft and McKinsey
"},"alignedImage":{"position":"bottom","transformBaseUrl":"https://assets.ing.com/transform/9e802d62-c11a-4407-a663-e2910c7064b1/Bio-based_plastics_and_plastics_from_green_hydrogen","original":"https://assets.ing.com/m/f26d5d15e28e084/original/Bio-based_plastics_and_plastics_from_green_hydrogen.png","extension":"png"}},{"componentType":"sectionTitle","title":"The paradox of fossil-free plastics"},{"componentType":"paragraph","richBody":{"value":"Plastic is an incredibly affordable material, with its cost per kilogram roughly equivalent to a litre of milk thanks to fossil-based technology. Switching to fossil-free plastics would raise production costs, but have minimal impact on consumer prices. For example, using bio or hydrogen-based plastics would only increase the price of a soda by 2-3%.
"}},{"componentType":"paragraph","title":"Impact of a switch from current plastics to fossil free plastics on consumer prices","richBody":{"value":"Source: ING Research
"},"alignedImage":{"position":"bottom","transformBaseUrl":"https://assets.ing.com/transform/a3e97285-dee2-4249-ac0a-8d917ecea5ec/VISUAL_4_-_consumer_prices","original":"https://assets.ing.com/m/523de6066f4603e6/original/VISUAL_4_-_consumer_prices.jpg","extension":"jpg"}},{"componentType":"sectionTitle","title":"The current state of methanol production"},{"componentType":"paragraph","richBody":{"value":"Methanol is rarely used for plastic production today, but there are global initiatives to produce green methanol. As of August 2024, the Methanol Institute tracks 174 renewable methanol projects globally. In many cases, renewable methanol is used to produce more sustainable fuels for aeroplanes and ships, as companies in these sectors need to meet mandatory targets for these fuels.
Examples for green methanol use in plastic production are scarcer. In Norway, Carbon Recycling International is developing an e-methanol plant using CO2 from a steel plant and renewable hydrogen and in Denmark, LEGO and Novo Nordisk are investing in e-methanol for manufacturing toys and medical devices, using green hydrogen from wind and solar energy.
Regrettably, the journey towards increased methanol feedstock for plastic production is fraught with challenges. Plans to construct an e-methanol plant in the Port of Antwerp were recently scrapped due to economic difficulties and high energy costs.
"}},{"componentType":"sectionTitle","title":"The journey towards fossil-free plastics has only just begun"},{"componentType":"paragraph","richBody":{"value":"The journey towards fossil-free plastics is just beginning. New technologies and methodologies are being trialled, but these come with significant costs, a major drawback in an industry that is heavily cost-competitive.
A shift in the plastic production paradigm is therefore required. But there is limited progress in fundamentally transforming the industry, such as significantly increasing the cost of producing virgin plastic from oil and gas or mandating the use of green plastics.
Governments can spearhead this change – similarly to how the European Commission banned plastic straws and implemented a deposit scheme for plastic bottles to promote recycling. Such regulations could give early adopters a competitive edge that others would be keen to replicate.
In the medium term, the environment would arguably benefit more from greening the production process of oil and gas-based plastics. In particular, through increased plastic recycling as this addresses both carbon emissions and the plastic waste issue, even if the majority of these plastics remain fossil-based.
"}}]}}}