Rick Wagner, Sustainability Manager, Chevron Phillips Chemical Company LP - October 12, 2016

Plastics and Sustainability: A Valuation of Environmental Benefits, Costs and Opportunities for Continuous Improvement

Briefing for FlexPackCon 2016

Briefing

Disclaimer

The following content is used by permission of the American Chemical Council (“ACC”). The opinions expressed in this written material are not the opinions of the presenter; any verbal opinions expressed during the presentation are that of the presenter only and are not the

opinion of Chevron Phillips Chemical Company LP (“CPChem”).

Neither CPChem, ACC, nor Trucost accepts any liability for any loss (including without limitation direct or indirect loss and any loss of profit, data, or economic loss) occasioned to

any person nor for any damage, cost, claim or expense arising from any reliance on this presentation or any of the underlying report content.

Project Scope and Objectives

Valuing Plastics quantified the environmental costs to society of the current “take-make-dispose” linear economy approach to plastic use in

consumer goods

Business as Usual Plastic Use in Consumer Products

In this study, Trucost extended the Valuing

Plastic analysis to quantify both the

environmental costs and benefits of plastic

Business as Usual vs. Plastic Alternatives

What are the relative environmental cost advantages of plastics compared to

alternative materials that serve the same function?

Business as Usual vs. More Sustainable Plastic Production &

ManagementWhat are the environmental benefits of

strategies to improve the sustainability of plastic use in consumer goods?

Project Scope

Greenhouse Gases

Water Consumption

Emissions to Air, Land and Water

External Waste Management Costs, Disamentity and Ocean Impacts

Environmental Costs

Substituting PlasticThis study models the replacement of plastic in a range of consumer goods applications with a mix of alternative materials that serve the same function.

Trucost adapted research on the substitution of plastic commissioned by the ACC (Franklin Associates, 2014) and Plastics Europe (Denkstatt, 2011) to model the replacement of most plastic used in the consumer goods sector.

Example: 500 ml Beverage Containers

25g PET per 500ml

Bottle

318g Glass per 500ml

Bottle

Trucost estimates that on average 4.1 tonnes of

alternative materials are needed to replace 1 tonne of plastic on average in the consumer goods

sectors

The Environmental cost to society of plastic use in the consumer goods sector are 3.8 times less than alternative materials

Global Environmental Costs in 2015

Business as Usual Plastic Alternatives

$139 BillionFor every million of Consumer goods

sector revenue, $4,886 of environmental costs are created

$533 BillionFor every million of Consumer goods

sector revenue, $18,773 of environmental costs are created

-$100

$0

$100

$200

$300

$400

$500

$600

BUSINESS AS USUAL PLASTIC ALTERNATIVES

Envi

ronm

enta

l Cos

t (US

$ Bi

llion)

OCEAN DAMAGE END OF LIFE MANAGEMENT TRANSPORT PRODUCTION MATERIAL AND ENERGY RECOVERY

Environmental Costs of Plastic Vs Alternatives

The higher environmental cost of plastic alternatives is a function of the increased quantity of material needed to fulfil plastic functions

Greenhouse gas and land & water emissions are the most important source of environmental costs

What are the most important impacts?

Greenhouse gas emissions are 40% less per tonne of plastic alternative, but greater in aggregate due to the quantity of material needed to replace plastic

Impacts on the Ocean

Regional Contribution to Ocean Impact Costs

ASIA NORTH AMERICA EUROPE LATIN AMERICA AND THE CARIBBEAN MIDDLE EAST AND ASIA OCEANIA

Business as Usual Plastic Alternatives$4.7 Billion

2.5 Mt Plastic Waste$56 in Ocean Costs per Tonne

$7.3 Billion8.6 Mt Alternative Waste

$21 in Ocean Costs per Tonne

Over 70% of the ocean impact of plastic is estimated to originate from mismanaged waste in Asia

The ocean cost of plastic is 2.6 times greater per tonne than

plastic alternatives

Reducing Food Waste with Plastic PackagingWhat is the net environmental impact of replacing conventional meat packaging

with improved skin packaging that reduces food waste?

Improved skin packaging for sirloin steak can increase shelf life and

reduce food waste by halfAccounting for the avoided waste of beef, net life cycle impacts are

reduced by $606 per tonne of beef sold in improved packaging

This equates to $2.2 million in environmental savings per 1%

increase in improved packaging market share in the USA

-$1,000

-$500

$0

$500

$1,000

$1,500

Packaging Food Waste Waste Treatment Full Value ChainEnvi

ronm

enta

l Cos

ts p

er T

onne

Sirl

oin

Stea

k So

ld in

the

USA

(US$

Milli

on)

Value Chain Stage

Conventional Plastic Packaging Improved Plastic PackagingNet Change in Environmental Costs

How can the environmental costs of plastics be reduced?

Increased use of low carbon electricity in plastics manufacturing

60% low carbon electricity in the global plastic manufacturing sector

More efficient packaging design for the soft drinks and food sectors

30% improvement in plastic food soft drink packaging efficiency in Europe and North America

Improving waste collection and management in Asia

Collection and management of 80% of municipal waste generated in Asia

Step-change increases in packaging recycling and energy recovery

Packaging (and product) recycling rate increased to 55% and landfill capped at 10% in Europe and North America

Improving transport fuel efficiency

20% fuel efficiency gain in plastic logistics through technology change and modal shift

$7.6 billion

$7.3 billion

$0.1 billion*

$4.8 - $7.9 billion

$10.6 billion

How can the environmental costs of plastics be reduced?

$41 billion per annum in potential environmental costs savings across the value chain

Key Conclusions and Recommendations

1. The environmental cost of plastics to society is high ($139 billion), equal to 20% of plastic manufacturing sector revenue, and expected to grow (to $209 billion by 2025) if current trends persist

2. The environmental cost of alternative materials is more than 3.8 times greater than that of plastic due to the greater material efficiency of plastic.

3. The plastic manufacturing sector has direct, or indirect via its supply chain, influence over the largest share of the environmental cost of plastic. Increasing low carbon energy sourcing and improved fleet fuel efficiency represent key short and medium opportunities to reduce environmental costs.

4. More efficient packaging technologies that use less plastic, but deliver superior functionality, can have a significant impact on the environmental cost of plastic.

5. Improvements in waste collection in developing countries and increased recycling and energy recovery in developed countries could significantly reduce plastic’s impact on the ocean whilst capturing environmental and economic benefits from waste.

Questions?

Contact

Project Manager & Lead AnalystRick Lord

ConsultantTrucost PlcLondon, UK

Tel: +44 (0)20 7160 2861Email: rick.lord@trucost.com

Project DirectorLibby Bernick

Senior Vice President, North AmericaTrucost Plc

Philadelphia, PA, USATel: +1 484 685 6029

Email: libby.bernick@trucost.com

Appendix

Project ObjectivesStudy Aim:To compare the environmental costs of plastic and alternative material use in the consumer goods sector, and examine how more sustainable practices could reduce the environmental costs of plastic.

Specifically, this study aims to:• Quantify the environmental cost of plastic used in the consumer goods sector and compare this with a hypothetical

scenario in which most plastic used in consumer products and packaging is replaced with a mix of alternative materials that serve the same purpose.

• Map the environmental costs of plastic and alternative material use across the value chain, geographic regions and consumer goods sub-sectors, to help target interventions to improve sustainability at key points where the greatest benefits can be achieved.

• Identify those sectors exposed to the greatest environmental risks if plastic were replaced with alternatives.• Quantify the potential environmental benefits of strategies to improve the sustainability of plastic use, such as more

efficient packaging design, improved waste collection and material and energy recovery systems, and increasing low-carbon energy use in the plastics manufacturing sector.

Research ApproachThis approach enabled the study to:

• Consider the entire consumer goods sector at a global scale.

• Consider the most material environmental impacts of plastic.

• Consider the most important stages of the plastic value chain.

• Provide a global materiality assessment of the impacts of plastic and important trade offs between plastic and alternative materials.

This chart plots changes in sector average profit margins if the consumer goods sectors were required to pay the environmental costs created by plastic and alternative material use

Profitability Risks for the Consumer Goods Sector

External environmental costs can become business costs through increased regulation, increased input costs, and consumer or market pressure to reduce external environmental impacts. Low margin and highly plastic dependent sectors are exposed to the greatest risk to

profitability if required to pay for the environmental costs they create

This chart plots changes in sector average profit margins if the consumer goods sectors were required to pay the environmental costs created by plastic and alternative material use

Profitability Risks for the Consumer Goods Sector

External environmental costs can become business costs through increased regulation, increased input costs, and consumer or market pressure to reduce external environmental impacts

Low margin and highly plastic dependent sectors are exposed to the greatest risk to profitability if required to pay for the environmental costs they create

Durable Household GoodsAverage Profit Margin: 4.5%

Average Profit Margin After Plastic Costs: 2%

Average Profit Margin After Alternative Material Costs: -7.5%

Soft Drinks and IceAverage Profit Margin: 10.5%

Average Profit Margin After Plastic Costs: 8.5%

Average Profit Margin After Alternative Material Costs: -0.2%

All Consumer Goods SectorsAverage Profit Margin: 6.4%

Average Profit Margin After Plastic Costs: 5.9%

Average Profit Margin After Alternative Material Costs: 4.5%

Lightweighting in Passenger VehiclesWhat would be the impact on fuel consumption if plastic components in passenger

vehicles sold in North America were replaced with alternative materials?

336 million additional liters of diesel and gasoline required

$176 million in environmental costs in the first year

$2.3 billion in environmental costs over the operating life of vehicles

sold in 2015

$169 per gasoline or diesel passenger car sold in North

America in 2015

Why has the cost of plastic increased?

Estimated environmental cost of plastic use in the consumer goods sectors has increased from $75 billion to $139 billion per annum

$75 BillionValuing Plastic (2014)

$139 BillionBusiness Case for More Sustainable

Plastics (2016)-13%

+17%

+12%

+83%

Improved Ocean Impact

Modelling

Improved Environmental

Valuation Methods

Consumer Goods Sector

Growth

Scope Expansion to Include Transport to

Market

The chart below illustrates the mix (by mass) of plastic alternatives modelled in each consumer goods sector

Plastic Alternative Mix per Sector

Glass is the most common plastic alternative due to its extensive use in the packaging of food, drinks, personal products andmedication.

Steel, iron and tin plate, and paper are commonly used across all sectors, as is textile in the clothing and furniture sectors.

0%10%20%30%40%50%60%70%80%90%

100%

Shar

e of

Alte

rnat

ive

Mat

eria

l by

Mas

s

STEEL, IRON AND TIN PLATE ALUMINUM GLASS PAPER RESIN TEXTILE WOOD MINERAL WOOL LEATHER