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Middle East and North Africa
BOX 4.4
The petrochemical industry is an important economic sector in Middle East and North Africa economies, especially in the Middle East. To shield themselves from the volatility of oil prices and diversify their industry away from their heavy dependence on oil and gas exports, several of the region’s economies have made large investments in the petrochemical industry, with plastic production being the dominant part (GPCA 2014). The sector has seen immense growth in recent decades and continues to attract major investments, with almost US$100 billion of planned projects for 2020–24. The Arab Republic of Egypt leads the list of committed investments in petrochemicals, followed by the Islamic Republic of Iran and Saudi Arabia (Benali and Al-Ashmawy 2020).
In the Gulf Cooperation Council (GCC) countries, the polymer industry alone supported over 150,000 jobs in 2016, with 40,000 employees directly employed in the sector (GPCA 2016). Polymer production in the GCC grew by a compounded annual growth rate of 11 percent between 2006 and 2016 and is expected to grow in the future by around 5 percent (GPCA 2016, 2019). Within the GCC, Saudi Arabia is by far the largest producer of plastic resins, capturing around two-thirds of the GCC’s overall production (APICORP 2016). Globally, the petrochemical industry is expected to account for most of the growth in oil demand by the end of the current decade (Benali and Al-Ashmawy 2020).
In the GCC, the consumer packaging industry accounts for a major part of the demand for polymers. Around 44 percent of polymers produced in the GCC were used in the packaging industry (GPCA 2016). The low costs of plastics and plastics’ high preservation abilities make plastics widely used in the packaging industry. Environmentally less harmful packaging materials, such as biodegradable and biobased plastics, could serve as alternatives in this industry segment. However, considering only their prices on a weight basis, fossilbased plastics again emerge as a clear winner, costing between one-third and one-tenth of their biodegradable alternatives (van den Oever et al. 2017).
These alternatives’ significant additional expenses relative to customary plastics are a major detriment to their broader adoption in the Middle East and North Africa, based on economic incentives alone (Market Data Forecast 2021). Nevertheless, several of the region’s economies, especially in the GCC—following increased public awareness about the problem of single-use plastics (SUPs)—have banned businesses’ use and production of common plastic bags, mandating their replacement with bags made of these alternative materials. Such moves can also enhance a country’s reputation for environmental friendliness. And an enhanced “green reputation” acts as an additional incentive for purchases by environmentally aware consumers.
Foreign consumers’ increased demand for environmentally friendly options will affect plastic-producing companies in the short term. The advent of more and more initiatives to phase out SUPs in some major export markets of the plastic industry
BOX 4.4
(including China, India, Italy, and Turkey) could have severe repercussions on the demand for the GCC’s plastics, and exports may be reduced substantially (Al Sarihi 2019). This will in turn hamper future sales revenues and put pressure on the sector’s profitability. To meet these domestic and international shifts in demand, plastic producers and the packaging industry have been active in developing and producing greener alternatives to their traditional products and making their products more efficient in terms of their life cycles and ultimate disposition (GPCA 2018, 2019).
With momentum gaining for the EU’s circular-economy legislation,a the need for adaptation by GCC’s petrochemical sector—for which Europe represents a major export market—has already been acknowledged by the Gulf Petrochemicals & Chemicals Association (GPCA) as necessitating innovation in product development and consideration of products’ life cycle and ultimate disposition (Al-Sadoun 2019). For highincome countries such as those in the GCC, fostering further innovation in these sectors is crucial for reducing plastic waste, which could also be driven by removing subsidies and by pressing petrochemical companies to invest more in research and development (R&D) for alternative products that are less harmful to the environment. Here again, the principles and practices of a circular-economy approach would beneficially serve multiple purposes for producers, consumers, and their local and national economies.
a. “First Circular Economy Action Plan,” European Commission: https://ec.europa.eu/environment /topics/circular-economy/first-circular-economy-action-plan_en.
Second, these subsidies also favor plastics because the petrochemical industry and plastic production are highly electricity-intensive (and simultaneously energy-inefficient) industries (Schlüter and Rosano 2016). The production of electricity uses fossil fuels to a large degree; consequently, the electricity industry is a main beneficiary of subsidized fossil fuel prices, and those cost benefits transfer to plastic producers (El-Katiri and Fattouh 2017).
Hence, subsidies for fossil fuels favor plastic production by reducing the prices of its inputs and lowering their production costs (Moerenhout and Irschlinger 2020). In 2015, around three-fourths of plastic consumption in the Middle East was of items produced in that region, which indicates that low input prices are passed on to end products and hence end users (EUROMAP 2016).16
In many Middle East and North Africa economies, large subsidies benefit the petrochemical sector by keeping its input prices fixed at
artificially low levels. A prime example for the practice of input subsidization is the Saudi Arabian petrochemical giant Saudi Basic Industries Corporation (SABIC), one of the world’s largest producers of plastic raw materials. Despite some reforms, SABIC has still been able to buy its main inputs at large discounts from Saudi Aramco in recent years, paying a fixed price of US$1.75 per million Btu (British thermal unit) for ethane, US$1.25 per million Btu for natural gas, and propane for only 80 percent of its market value.17 Saudi Aramco in turn receives large subsidies from the Saudi government for supplying these and other products such as gasoline at lower prices to the domestic market—subsidies that totalled over US$40 billion in 2018. In 2020, Aramco acquired a 70 percent stake in SABIC, and the payment of equalization fees to Aramco for supplying cheaper feedstock to SABIC came under scrutiny (Bakr 2020). Ethane represents the main input for petrochemicals and hence plastic production in the Middle East and North Africa, while naphtha is the main input for Asian plastic producers. Artificially depressing input prices for plastic production in this way contributes heavily to the low prices of virgin plastic and in turn to the discrepancies between plastic products and their greener alternatives. Additionally, the high subsidization of petrochemicals and the plastic production put strains on public budgets, which are already under pressure.
The region’s low prices for fossil fuels make plastic feedstock prices and their contribution to overall plastic costs the lowest worldwide. Despite the reforms implemented in major producing countries such as Saudi Arabia, key input prices for petrochemicals, like those for ethane, remain significantly below international benchmarks. Feedstock costs are the most influential factor for determining regional production advantages (IEA 2018). In the Middle East and North Africa, the ethanebased petrochemicals (from which plastic products are made) account for around one-fourth to one-third of total costs, while comparable feedstock accounts for about one-half of total costs in Europe and the United States. For naphtha, another major feedstock for plastic production next to ethane, price discrepancies are not as pronounced. These feedstock prices drive the overall production costs of petrochemicals, and hence plastic production, and give petrochemicals in the Middle East and North Africa a significant cost advantage. This can also be seen in the price of ethylene (a main input for PET production) (Rubeis et al. 2016). The Middle East (which accounts for the lion’s share of petrochemicals and plastic production in the region) has a distinct price advantage, especially for ethane-based ethylene.
Plastics’ low input prices are an impediment to the broader adoption of green alternatives. These low prices, by artificially driving down the prices of plastics in the Middle East and North Africa, undermine
the potential emergence of greener alternatives to plastics. By granting the petrochemical industry such low input prices, at least partly through subsidies for feedstock, the region’s petrochemical sector can produce plastics at low costs and pass them on to the prices of plastic products. Plastic’s low prices explain, at least partly, its widespread adoption and contribute to consumers’ unwillingness to switch to environmentally less harmful alternatives.
Measures to reduce plastic consumption should include pricing as an important consideration. However, it is also important to recognize that such measures could, similarly to fossil fuel price increases, lead to affordability issues for low-income households. It is therefore necessary to accompany the pricing reforms discussed below with support measures for these households as well as communications and awareness campaigns to minimize public discontent.
Taxes on plastic material and on certain uses of plastics (such as bags and other forms of SUPs) can help reduce their unsustainable consumption. Well-designed taxes can lead to the use of alternatives that are more durable, sustainable, or both—for instance, redesigned plastic options that are more readily recyclable or compostable, or more durable plastic or nonplastic alternatives manufactured from wood, metal, or glass. The most widely used taxes for reducing plastic pollution take several forms: levies on plastic bags, taxes and charges on packaging and plastic products (such as kitchenware), and weight-based fees for plastics being part of a product (OECD 2015). Common ways of taxing consumers and producers to reduce plastic consumption are noted below.
Taxes on consumers (such as taxes on SUPs). Consumer fees on plastic bags have become a popular measure to reduce consumption. Worldwide, 30 countries charge consumers fees for plastic bags at the national level, and 27 countries tax the manufacture and production of plastic bags (UNEP 2018b). The fees vary by country, often based on the thickness and material content of the plastic bags regulated. In the Middle East and North Africa, Jordan and Tunisia tax the manufacture, production, and import of plastic bags; more recently, the United Arab Emirates imposed a consumer fee on plastic bags (UNEP 2018b).
Many cases worldwide show success in implementing plastic fees. Ireland introduced a tax per bag in 2002, resulting in a gradual 90 percent reduction in the use of plastic bags (Convery, McDonnell, and Ferreira 2007). Thus, marine-plastic litter, which had represented 5 percent of the national composition of total marine litter before the
adoption of the levy, fell by around 22 percent by 2004. The success factors were as follows:
• Setting the tax, following a willingness-to-pay survey for plastic bags, that was six times higher than the average maximum willingness to pay;
• Extensive consultation with all stakeholders (the public and retail industry); and
• Accompanying information campaigns that explained the policy objectives and tax-revenue destinations, paving the way for widespread awareness and buy-in.
In Scotland in 2014, a mandatory charge was introduced on all types of retail bags, and that charge contributed to reducing carrier bag use by about 80 percent across the main retail chains in its first year of application (McElearney and Warmington 2015). In Portugal, a plastic-bag tax was implemented in 2015 and consequently reduced consumption by 74 percent (Martinho, Balaia, and Pires 2017).
The effectiveness of taxes on plastics varies according to policy context and enforcement levels. Because most of these policies are quite recent, it is too early to draw robust conclusions about the environmental impact that taxes and levies have had. In 50 percent of cases, information is lacking partly because some countries have adopted them only recently and partially because monitoring is inadequate. In countries that do have data, about 30 percent have registered drastic drops in the consumption of plastic bags within the first year.
The remaining 20 percent of countries have reported little or no change, mainly for two reasons: a lack of enforcement and a lack of affordable alternatives. The latter has led to cases of smuggling and the rise of black markets for plastic bags or the use of thicker plastic bags that are not covered by the bans (UNEP 2018b). For example, the South African government implemented a tax on plastic bags, but the strategy failed because the levy was too low and customers ended up paying the tax, creating a steady increase in demand for plastic bags (Lam, Ramanathan, and Carbery 2018).
Although plastic shopping bags account for only a small proportion of the plastics used in packaging, research shows they are a major source of the plastic pollution that ends up in the oceans, causing high rates of animal deaths and microplastic pollution. Imposing fees on plastic items can both disincentivize their use and provide revenue for governments or funds for environmental purposes. Morocco, for example, distributes the proceeds to environmental funds (Powell 2018). In Ireland, the tax on plastic bags not only reduced their use by about 90 percent but also raised tax revenues of around €12 million to €14 million that
