Exploring Advance Market Commitments for Recycled Plastics

Background

In a May 2023 article for Forbes, Rob Kaplan, Founder and CEO of Circulate Capital, and founder and board member of The Circulate Initiative, wrote about the potential for advance market commitments (AMCs) to help address the plastic pollution crisis. Referencing Frontier, an AMC platform that aims to accelerate the development of carbon removal technologies by guaranteeing future demand for the tons removed, Rob suggested that the AMC construct could help address the supply / demand gap in plastics recycling. That is, a growing number of multinational companies have made commitments to increase their use of post-consumer recycled content (PCR), yet there is not enough supply of the quality PCR plastic they need. By one estimate, we would need to build at least 1,800 new recycling plants globally with an average output of 25,000 tons per year to achieve 2025 recycled PET targets set by companies.

Recyclers of PCR are hesitant to build new capacity based on commitments alone – they want to see firm financial commitments from customers. Similarly, investors in recycling need to see financial commitments to ensure that their investments will achieve acceptable returns. An AMC for PCR could help bridge this demand / supply gap and significantly increase the amount of plastic that gets recycled.

How an AMC for Plastics Could Work

To our knowledge, the AMC construct has been deployed seldomly – examples include Frontier (carbon removal), Symbiosis (nature-based carbon removal), and the LEAF Coalition (tropical deforestation). A recycled plastics AMC could work in a similar fashion to Frontier:

• Companies that need PCR for their packaging and products would make binding financial commitments to purchase PCR for a defined period of time.
• As part of these commitments, companies would indicate specifications such as resin type, geographic source, and quality. Companies could also place other requirements, for example on robust human rights practices for informal waste workers or whether the recycled plastic comes from ocean-bound sources.
• The financial commitments of these companies would be aggregated to set a total annual demand pool.
• With input from the committed companies, a third party (similar to Frontier) would develop criteria for evaluating potential suppliers of PCR. This third party would issue a request for supply from PCR suppliers, and then evaluate them based on the agreed criteria.
• It would then act as a broker between the committed companies and PCR suppliers, matching tons with funds invested. If a supplier meets the agreed specifications and pricing, companies would contract with the suppliers and take delivery of actual tons from the suppliers.
• The third party would set up a system for tracking transactions and ensuring that the PCR volumes are legitimate.

An AMC could complement other sources of investment, for example Circulate Capital’s debt and equity investments in recycling infrastructure and companies. An AMC would be different from plastic credits, which are intended to incentivize infrastructure development, though the buyer does not take physical delivery of the plastic. An AMC would also be different from direct company procurement of recycled plastic, as this occurs only if there is material that is readily available.

Could an AMC for Recycled Plastics Work?

Given the limited track record of AMCs in other areas, we have questions about how this could work for recycled plastic. For example:

• Carbon removals are fundamentally different from recycled plastic, for example carbon removal technologies are relatively nascent and the market is relatively illiquid, and so participants are investing to build a market to meet future demand (several years out). For recycled plastic, the technology (i.e., mechanical recycling) is proven and there is a liquid market. Given the dynamics of the recycled plastic market, would an AMC help increase demand? If so, how?
• What specifications would buyers of PCR need to include?
• To what extent are companies looking for specific resin types in specific source countries?
• How do we avoid a scenario in which a company submits a price that is too low for the recycler to trade? How do we do this in a way that does not violate any antitrust and competition laws? How does this platform ensure consistent and transparent pricing?
• Should other solutions for plastic be part of the AMC, for example chemical recycling or alternative materials (e.g., fiber, bio-based plastic)?

The Circulate Initiative is exploring setting up an AMC for recycled plastic, and we would welcome your feedback. How would you answer the above questions? What other questions do you have? To share your feedback, please email me at msadowski@thecirculateinitiative.org.