Allocating Recycling Credits to Products in Plastics Production

Abstract

The escalating volume of plastic waste and the limited success of mechanical recycling have intensified the debate on chemical recycling, which can convert mixed and contaminated plastic waste into feedstock for new plastics, albeit at the expense of high energy consumption. Chemically recycled feedstock and virgin feedstock are chemically identical. This complicates the tracking of recycled content in a production system and raises the question of how to allocate recycled content claims to different products in a manufacturer's portfolio. Permissible allocation rules are the subject of a controversial debate between industry demands for flexibility and NGO concerns about greenwashing. We systematically analyze the economic and environmental implications of alternative allocation policies for recycled content in plastics production. By examining a manufacturer's response, we find that the policy choice varies with the cost of recycled material relative to virgin feedstock. If the cost of recycled material is low, regulators face an eco-eco tradeoff, with a stricter policy leading to better environmental performance but lower profits. However, when the cost of recycled material is high, a flexible allocation policy improves financial and environmental outcomes simultaneously, thereby opening a path to stimulate the development of early-stage technologies. Our research provides valuable insights for multiple stakeholders, including regulators, manufacturers, and NGOs, and contributes to shaping policies that balance economic viability and environmental sustainability in the evolving landscape of plastic recycling.

Keywords: Green Supply Chain Management, Green Product Line Design, Chemical Recycling, Sustainable Operations, Policy and Regulation, Mass Balance