The Hidden Costs of Plastic

The Hidden Costs of Plastic

Reducing plastic pollution requires multiple policy instruments to correct multiple market and policy failures throughout the entire plastic life cycle. Markets fail to include external costs of damages in the market prices of plastic products. Most common policy failures are different forms of subsidies that encourage the use of polluting plastic products.

External costs of plastics are present not only in the production phase but also in the postconsumption phase when plastic products become waste. This is different from more traditional pollution problems, such as GHG emissions, where external cost is generated mainly in production and emissions of combustion processes represent a single entry point for regulations or pricing. Steel and aluminum products, for example, cause little damage to the environment once they are produced (although paints and coatings are often harmful) because they are mostly recovered and recycled. Plastic products create environmental damage when they are produced and when they are dumped or disposed of, so corrective policies must target upstream and downstream externalities. Failure to reflect the true costs of plastics from their production trickles down throughout the plastic value chain as follows:

• Producers of virgin plastics often fail to pay the full cost of GHG emissions and local air pollution associated with the extraction and processing of oil and gas and the production of virgin plastics. In addition, several countries add policy distortion by subsidizing the oil and gas feedstock to the petrochemical industry (Ollero et al. 2019). These market and policy failures hide the true costs of virgin plastic, making it look cheap for firms further down in the value chain. • Plastic converters and manufacturers buy virgin plastics below their true cost to society. Their products are therefore unfairly cost competitive with products made from recycled plastic, which is associated with much lower GHG emissions but much higher market costs of labor and materials. Furthermore, converters and manufacturers emit additional unpriced GHG emissions and locally harmful air and water pollutants from their plants. They also add multiple chemical substances to virgin plastics to increase their functionality and make them more attractive to consumer goods companies and retail traders. These additives increase the downstream environmental harm that these products cause when they are processed or disposed of. They also make sorting and recycling more costly and make recycled material less valuable on the market. • Consumer goods companies, brand owners, and retailers buy plastic materials that, in the absence of environmental regulations, are artificially cheap because they do not include pollution costs. Retail prices do not inform consumers about the downstream environmental costs of waste. Firms at this stage often add

external cost by designing products and packaging that are disposable after a single use and consist of many layers and materials. This customization increases products’ visual attractiveness, differentiates brands, and improves functionality to consumers while dramatically increasing the cost of waste management systems, especially recycling. In the absence of upstream product fees or extended producer responsibility mechanisms, all these inflated waste management system costs must be covered by public budgets—that is, households as taxpayers. • When all these environmental costs go unpriced, consumers have incentives to choose disposable plastic products (most of them single use) that are most environmentally harmful and most difficult to recycle, because somebody else is paying the associated external costs. Households have no incentives to minimize waste, to search and pay more for environmentally friendly alternatives, or to bear transaction costs of reusing plastic products and sorting plastic waste at home for recycling. Without social and cultural norms or regulations, households would dump plastic waste directly into the environment or burn it rather than trying to dispose of it through a managed collection system. • If free dumping is possible, households and businesses are less inclined to pay for the services of waste collectors and sorters, who on the other hand face increasing costs as upstream market and policy failures exponentially increase the volumes of plastic waste. The cost of sorting also rises with the increased variety of materials and larger share of multimaterial, flexible plastic products that have low value for recyclers. In addition, formal collection and sorting companies face unfair competition from informal sorters who underpay their workers, put them in unsafe working environments, and pick the most valuable plastic products (for example, polyethylene terephthalate bottles) from the waste stream, leaving less valuable plastic to formal firms that face higher labor costs. All this squeezes the profit margins of collectors and sorters, making it hard for them to cover basic costs.

Unless governments can afford to step up public funding, the level and quality of waste collection, sorting, and landfilling services will crumble. • Recyclers’ profits are also compressed. Recyclers, like collectors and sorters, create much lower environmental externalities than virgin plastic producers but face higher internal costs for labor, capital, and materials. Despite a higher demand from consumers and private companies’ willingness to meet their commitments, there is still volatility in the prices of recycled products. • At the end of the plastic value chain, landfill operators must compete with the costs of illegal dumping. Their clients may be willing to pay for waste removal but not necessarily to maintain strict sanitary conditions of waste, because those who dispose of waste live far from landfills and do not pay for the costs of odor, methane and dust emissions, or toxic leakage to groundwater.