INC-5: BRIEFING – Plastic credit market tipped to grow “with or without” UN treaty

Demand for voluntary plastic credits is slated to expand regardless of their inclusion in the UN global plastic treaty under negotiation in South Korea, major standard bodies told Carbon Pulse, amid growing concerns from environmental groups over the credibility of the nascent market.

Over Nov. 25-Dec. 1, delegates from more than 190 countries gather in Busan to negotiate the first-ever global treaty aimed at tackling plastic pollution, targeting a deal that if agreed upon could be one of the most significant environmental agreements in history.

During the fifth and last round of talks, negotiators are also set to discuss the recognition of credits as one of the financing mechanisms that could help mobilise resources against the plastic crisis.

The issue has sparked a heated debate in the lead-up to the summit, with several conservation organisations urging countries not to back plastic credits, labelling them as “false solutions” that would distract governments from implementing effective measures.

Conversely, major environmental standards like Verra and Philippine-headquartered PCX Solutions claim market-based mechanisms could help bridge the funding gap on waste collection and management, poised to reach an estimated $40 billion by 2040.

Accredited observers to the UN negotiations in Busan, Verra and PCX are also among the early movers in the plastic credit space, verifying and issuing units.

“We always feel that policy makers are generally very open to plastic credits because they know about the huge financing gap,” Stefanie Beitien, managing director of PCX Solutions, told Carbon Pulse.

“Because it’s still a nascent market and relatively new tool, there still needs to be a lot of awareness building, but the interest is definitely there.”

BEYOND THE TREATY

According to Verra, its Plastic Waste Reduction Programme (PWRP) has helped catalyse finance for projects allocated to more than 15 countries – spanning Indonesia, Thailand, India, Mexico, and Australia – with over 3 million tonnes of plastic waste to be collected or recycled.

“Irrespective of the treaty outcome, plastic credits have [played], and will continue to play a role in accessing the significant capital needed to address plastic pollution through upstream and downstream measures,” Komal Sinha, senior director of plastic and sustainable development policy and markets at Verra, told Carbon Pulse.

PCX too has developed a crediting scheme – though the company prefers to call it a “model” – to drive impact and economic investment in much-needed areas as well.

The PCX marketplace lists 37 projects across 12 countries in Southeast Asia, Africa, Australia, and South America, with prices ranging from $106 to $1,560 per unit, each representing one tonne of plastic waste recycled or collected.

Overall, 28 of the 37 projects on the marketplace are certified under the company’s recently updated Plastic Pollution Reduction Standard (PPRS), while seven use Verra’s PWRP.

In July, PCX said the impact on recycling and upcycling of credits transacted on its marketplace grew by 1,500% in 2023, claiming the sale helped fund the recycling or upcycling of 9,000 tonnes of plastic waste last year.

A new global mechanism for funding to tackle plastic pollution will take many years, Beitien predicted. “In the meantime, plastic credits offer a tangible instrument that is available now. We have over 250 mln kilos of capacity that can be deployed today.”

Colombia-based environmental standard Cercarbono is also in the process of validating its first plastic credit project, located in Bangladesh, under the company’s circular economic programme, planning to certify it within the next three months.

“If plastic credits were to be included in the text, the whole market would benefit a lot from it, but even if they’re not, I’m sure it will develop and grow anyway,” Alex Saer, CEO of Cercarbono, told Carbon Pulse.

“We’re seeing impressive interest among players,” Saer said.

Under Cercarbono’s programme, developed in partnership with certifier Global Zero Waste, each credit is equal to a tonne of plastic recycled or reduced.

According to Saer, even if plastic credits were not mentioned in the text, there would be room for market-based mechanisms to be an option for companies and countries to comply with the new targets.

“Following this treaty, many companies will start disclosing the amount of plastics they are using or producing, but, at some point, they will likely be required to report also on how they plan to reduce their impacts,” said Saer.

“For some organisations, it will be impossible to get rid of all the plastics across their value chains, and offsetting mechanisms could play an increasingly critical role within corporate strategies.”

Plastic credits are set to be discussed in Busan as one of the “innovative financing mechanisms” mentioned in the Annex to the treaty. These credits could “incentivise companies to shift towards sustainable practices”, as the UN plastics treaty’s expert group on financial mechanisms said recently.

In addition, the credits could be considered as a means of compliance under national Extended Producer Responsibility (EPR) schemes, which are designed to make producers pay for the management of their end-of-life packaging and products. This already happens in countries such as India, Brazil, and the Philippines.

Notably, credits could be recognised either as “transition tools” before EPR schemes kick in, or as an integral part of such national frameworks, according to Beitien.

“The combination of credits and EPR is not very well known. It doesn’t have to be either one or the other. It can be an integrated approach,” she said.

This option has been strongly opposed by a group of researchers from the Global Alliance for Incinerator Alternatives (GAIA).

In a study published two weeks ahead of the summit, researchers said that although the integration between EPR schemes and plastic credits purportedly aims to incentivise compliance, it risks creating loopholes that undermine the core objectives of EPR.

“The incompatible scope and pricing instability of plastic credits can erode regulatory impact and destabilise funding needed for effective waste management, ultimately resulting in more fragmented and uneven plastics governance,” SangCheol Moon, coauthor of the study, told Carbon Pulse.

Furthermore, according to Moon, plastic credits do not have a scientific unit similar to carbon credits, which typically represent one tonne of CO2e avoided or removed from the atmosphere.

“The composition and environmental impacts of plastics are highly diverse, and the current ‘tonne of plastics’ metric critically oversimplifies the scientific complexities involved,” she said.

Co-authors Tara Olsen and Neil Tangri also stressed that putting too much attention on credits will “dangerously” undermine public policy.

“By commodifying plastics pollution, we expand the reach of markets into aspects of life which traditionally have been governed by non-market norms,” Olsen told Carbon Pulse.

“This not only undermines the potential to implement environmentally preferable interventions, such as implementing a production cap, it also degrades the value of our environment and institutionalises exploitative practices which pose significant challenges to ending plastic pollution and to achieving a just transition.”

A HIGH-INTEGRITY FRAMEWORK

Regardless of the development of the treaty, Beitien of PCX said that the company is exploring the possibility of building a high-integrity framework for plastic credits within the Germany-led Prevent Waste Alliance platform, following in the footsteps of the biodiversity market.

During the COP16 biodiversity summit in Cali, Colombia, the International Advisory Panel on Biodiversity Credits (IAPB) presented its long-awaited framework for high-integrity biodiversity markets, underpinned by a set of principles developed together with the UN-backed Biodiversity Credit Alliance and the World Economic Forum.

“It’s still too early, but I think that a similar development could happen in plastic as well, and we would welcome it for sure,” Beitien said.

“There are some leading institutions that are driving the debate on plastic credits, like the World Bank and the Asian Development Bank.”

Verra’s Sinha agreed with the possibility of establishing such a framework, as it would be a key move to scale the market in the future.

“As the plastic credit market evolves and matures, Verra would welcome the creation of an independent oversight body that seeks to strengthen the integrity of the market.”

“Similar to what we have seen in the carbon and biodiversity credit markets, one element that will enable the market to scale is to further develop best practices for claims relevant to the responsible use of plastic credits.”

Besides resource mobilisation, the UN plastic treaty negotiations will address other key issues, including mandatory caps on virgin plastic production, toxic chemical bans, legally binding targets for reuse, and accountability measures for corporations and countries.

In the run-up to the summit, environmental groups told Carbon Pulse that the latest draft text lacks crucial actions, calling on parties to raise ambition levels.

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This article was originally published here on Carbon Pulse. By Sergio Colombo and Giada Ferraglioni in Busan.