Unwrapping the Plastic Waste Problem — A Plastic Recycling Deep Dive
At Hitachi Ventures, we’ve spent the past 12 months exploring plastic waste solutions, focusing on direct recycling. We acknowledge the need for upcycling and bio alternatives as well. This deep dive isn’t exhaustive. If you have insights or different perspectives, please reach out anytime — we’re always eager to learn.
Unwrapping the Plastic Waste Problem
In 1938, Dow introduced “Ethocel,” a milestone in material science & packaging: a colorless, odorless, flexible and stable material with seemingly “no end to the useful application”. This marked the anticipated trajectory of global plastic production.
Plastic was originally created with good intentions, hailed as a solution to ivory poaching and deforestation, and praised for its durability and reusability. Back in the day, society was conditioned to reuse plastic. However, this changed drastically due to one pivotal moment. In the mid-1950s, just a few years after DuPont first synthesized PET, a man spoke to a group of industry leaders and made a statement that changed the fate of plastic forever:
“Stop thinking about ‘reuse’ packages and concentrate on single use. If the plastics industry wants to drive sales it must teach customer how to waste.”
— Lloyed Stouffer, Editor of Modern Packaging, 1956 —
Ever since, plastic has quickly become a major raw material with global production reaching >400 million tons and totaling a global plastic market size of >700 billions USD in 2023 annually.
With that, Dow’s 1938 prediction that “[…] the world seems destined soon to be all wrapped up in Ethocel — figuratively and almost literally, too” has unequivocally come true. However, their vision of a “bright future molded in plastic” has turned into a massive climate and waste disaster. Within an average human lifespan, plastic has become one of the most pervasive environmental challenges facing Earth today.
This grim reality is evident in several alarming facts: Every year, 12 million tons of plastic enter our oceans, equivalent to dumping a garbage truck full of plastic into the sea every minute. Microplastics have now been found in human blood and placentae, with the average person consuming 39,000–52,000 microplastic particles annually through food and water. The production of plastic is carbon-intensive, with 2.5 tons of CO2 generated for every ton of plastic produced, contributing significantly to climate change. In our current recycling system, less than 10% of plastic is recycled according to OECD — and when it does get recycled it only gets a few turns before it is sent to landfill. This system perpetuates the need for more virgin plastic.
Why do we have all this mess? Simply put, there is no other material that has such superior performance in terms of its application flexibility and material durability at an unbeatable cost structure. At Hitachi Ventures, we believe the most pragmatic solution for an industry shift is to use the existing value chain infrastructure and close the loop with direct recycling methods.
No “Easy-Goer” for Recycling
Once introduced to consumers as an “All New Easy-Goer” material by Coca-Cola, dealing with plastic presents significant end-of-life challenges today. The problem landscape is complex and manifold. However, there are two main categories of problems that have blocked large-scale adoption of direct recycling methods.
1) Prohibitive (Energy) Costs
Plastics such as PET are commodities derived from byproducts of the Oil & Gas industry. This makes it particularly challenging to recycle material at price parity. Prevailing recycling methods often introduce neck-breaking energy cost through long heat & pressure cycles. While those prohibitive unit economics drag profitability, the need for capital-intensive specialty equipment turns recycling plants into unattractive assets for infrastructure investors.
2) Up- & Downstream Value Chain Risks
When talking to stakeholders in the industry, the complexity of supply chains risks becomes immediately apparent.
In many countries, plastic waste management is either not implemented, or plastic isn’t collected effectively. This makes it hard to get access to post-consumer waste at scale — without overcoming costly distances. Even if access is established, the waste products are still infiltrated with contamination that disrupt the recycling process or require expensive pre-processing steps (washing, filtering, sorting …) to avoid toxic impurities, coloring or malodor. These issues are directly related to the downstream risks faced by recyclers.
Recycled materials often face hurdles when re-entering the market. Primarily, this is because material quality is as important as price in this industry. The mechanical/thermal forces from shredding or induced by heat and pressure often damage the material integrity of recycled plastics. This is a significant problem with traditional recycling, which generates low-quality recycled plastics that require virgin-plastic supplementation to restore original performance. Additionally, introducing plastic recycling requires navigating through a complex and old industry which hasn’t changed significantly over the past decades. The value-chains are ultimately still driven by a few major plastic compounders. Whenever a Fast-Moving Consumer Goods (FMCG) company wants to introduce recycled materials to market (e.g. the textile industry when bringing a recycled nylon garment), it must engage its supply chain to evaluate and process the materials in the quality required. Those suppliers use old, depreciated assets designed to handle massive volumes of plastics, which makes it hard for startups with kilogram scale to break into.
It might seem logical that the plastic industry could build out the recycling infrastructure, as they are integrating recycled resins into the direct production & potentially tapping into post-industrial waste of plastic. However, the reality is more challenging. Although compounders own recycling facilities and start to engage into joint ventures with innovative players (e.g., Indorama & Carbios JV), the incentive structure is flawed. The prevailing recycling facilities operate on razor-thin margins, and FMCGs have been reluctant to pay the premium necessary to sustain and scale these capacities in the past.
In short, bringing novel recycling approaches to life will likely require collaboration across the entire value chain, from waste management to raw material producers. The most effective go-to-market strategy, as proven today, is direct partnerships with customer-facing brands. These brands have the power to dictate and ultimately fund material production initially.
The window for novel recycling is opening
As the adverse effects of plastic waste begin to accrue, regulators across the world have begun to see the need to accelerate policy development to tackle this issue. It has become an imperative for product companies to shift their linear material flows to circular loops. For instance, a directive issued by the EU sets a target of at least 25% recycled plastic, leading all major FMCGs (L’Oreal, Henkel, Carrefour, Coca-Cola …) to set circularity-specific targets.
In light of regulatory changes, the demand-supply imbalance is becoming a serious risk to FMCGs. While the demand will increase going forward, the supply side is projected to lag behind this development. This is why FMCGs are currently securing any high-quality recycled resin they can find. If you have the right quality and a price efficient approach, securing offtake agreements — which we have seen recently with Ambercycle’s USD 70 million agreement with Inditex & Syre’s USD 600 million offtake with H&M — is not an issue. This is an unprecedented dynamic in the plastic industry which is opening the window for better recycling methods.
Consequently, at Hitachi Ventures we have built the thesis that novel plastic recycling plants are slowly turning into “bankable assets” that will unlock an unprecedented amount of equity/debt financing and drive the adoption of novelty recycling.
Recycling =/= Recycling
The landscape of plastic recycling methods is complex. There are many different approaches & multiple plastic classes plus the variation of chemicals structure thereof making it hard to navigate. For simplicity, we have categorized them in three buckets:
- Traditional Mechanical Recycling
- Chemical Recycling
- Enzymatic Recycling
The prevailing recycling method, mechanical recycling, introduces cost-prohibitive energy needs due to heat, pressure and intensive pre-processing needs. The mechanical & thermal forces often damage the material integrity of plastic bringing it to mechanical failure after 3–5 cycles. As the market is moving towards higher recycling rate, we have to find ways to deal with feedstock infinitely.
Mechanical Recycling
… involves physically breaking down plastic waste into smaller pieces, such as flakes or pellets. Mechanical recycling relies on physical processes like shredding, washing, & melting/extrusion (heating up flakes to melting point) to transform plastic waste into usable raw materials.
- Pros: most mature and scaled approach
- Cons: damaged material integrity; low flexibility for input & impurity
Chemical Recycling
… involves breaking down plastic waste through chemical reactions to obtain monomers or other useful chemicals that can be used to create new plastics or other materials. Chem. recycling uses various chemical processes (to break down the polymer chains and convert the plastic waste into its chemical building blocks.
- Pros: higher input flexibility, closed loop recycling (textile-to-textile)
- Cons: requires specialty equipment leading to high capital cost; long heat & pressure cycles that could lead to degradation issues
Enzymatic Recycling
… involves breaking down plastic waste utilizing enzymes. Enzymes are biological catalysts that can selectively target and break specific bonds in plastic polymers, allowing for the recovery of valuable monomers. Naturally occurring or engineered enzymes can facilitate the breakdown of plastics, offering potential advantages in terms of specificity, efficiency, and environmental impact.
- Pros: Low energy requirement & virgin-like performance
- Cons: Scalability & stability of enzyme processes still to be proven at massive scale
The market opportunity is massive. That’s why a “winner-takes-it-all” dynamic does not apply to this industry — in fact, those approaches do not necessarily compete but could also enhance each via co-locations or directly target completely new plastic types that were considered “unrecyclable”.
What makes companies win?
To summarize and distill the key insights from the discussion above, the plastic recycling market is ripe for disruption. Regulatory support, increasing consumer awareness, and pressure on FMCGs have already spurred initial adoption. We believe that recycling players with the following characteristics have a right to win and become a relevant recycler:
- Platform technology that is not just “purpose-built” for one plastic type but can expand into a range of plastics with higher margin profiles
- A fast (minutes vs. hours), low-energy consuming process with relatively low capital cost
- Clear scalability & pathway to move into volumes of interest (20kT+)
- Focus on post-industrial feedstock (e.g. unused plastic dust from existing production facilities; textile industry which often do not utilize 10% + of their materials)
- Establishing industry partnerships with incumbents & FMCGs that are willing to test and expose startups to their value-chain
About Hitachi Ventures
Hitachi Ventures is the corporate venture capital arm of Hitachi Ltd. With $600M assets under management, they focus on investing in early-stage and growth-stage technology companies with strategic relevance to Hitachi. With a global network and extensive experience across various industries, Hitachi Ventures supports innovative startups in their journey to disrupt markets and transform industries. The firm’s investment areas span from environmental tech & energy, artificial intelligence, digital technologies, industrial automation and life sciences.
To learn more, please reach out to Jan Marchewski & Tobias Jahn.
