WEBVTT - Big Oil's Bad Bet on Plastic

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<v Speaker 1>Hadrid listeners. We are getting close to being able to

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<v Speaker 1>release this next season, I swear. Today I want to

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<v Speaker 1>talk to you about a new report that's been released

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<v Speaker 1>from Carbon Tracker. The title is quite clever, The future

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<v Speaker 1>is not in plastics, well graduate reference there. The report

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<v Speaker 1>is looking at how the oil and gas industry has

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<v Speaker 1>for quite a while now been pointing to petrochemicals and

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<v Speaker 1>specifically plastics as its way out when demand for oil

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<v Speaker 1>and gas related to transportation and various other sectors declines.

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<v Speaker 1>They've been hanging a lot of their hopes on petrochemicals

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<v Speaker 1>and plastics, and what this new report tells us is

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<v Speaker 1>that the demand is just not there. The oil industry

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<v Speaker 1>is predicting that plastic use will just continue to grow

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<v Speaker 1>at four percent a year for several years, and they

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<v Speaker 1>are basing a ton of investments on that. They're also

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<v Speaker 1>getting a ton of investment dollars based on those projections.

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<v Speaker 1>But what Carbon Tracker found is that in fact, demand

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<v Speaker 1>will be decreasing four percent. That's quite a gap. On

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<v Speaker 1>top of being a bad investment financially. Of course, plastic

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<v Speaker 1>is quite bad for the planet, and not just on

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<v Speaker 1>the waste side. CO two is emitted in the production

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<v Speaker 1>of plastic. Plastic is often burned, emitting more emissions. For

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<v Speaker 1>the most part. Right now, plastic is being made with

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<v Speaker 1>the emissions of fracking and being sold as sort of

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<v Speaker 1>some closed loop way to deal with the emissions from

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<v Speaker 1>that process. So again, it's one of these things that

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<v Speaker 1>doesn't make sense from an environmental perspective, that doesn't make

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<v Speaker 1>sense from a climate perspective, doesn't make sense from an

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<v Speaker 1>environmental perspective, and that no one really wants. The oil

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<v Speaker 1>and gas industry has for a very long time used

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<v Speaker 1>the we're just fulfilling a demand defense for oil, gas, coal, plastic,

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<v Speaker 1>you name it. They very much use that argument on plastic,

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<v Speaker 1>but the data just doesn't back it up. Here to

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<v Speaker 1>explain all of that is this report's author, Kingsmill Bond

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<v Speaker 1>that conversation coming up in just a moment after this

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<v Speaker 1>quick message from today's sponsor, what initially brought you to

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<v Speaker 1>wanting to look into this issue and you know, spend

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<v Speaker 1>enough time on it to put out a report.

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<v Speaker 2>So Carbon Track is focused for many years has been

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<v Speaker 2>on the implications of the energy transition for financial markets,

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<v Speaker 2>and one of the primary implications in many sectors has

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<v Speaker 2>been stranded assets, which I believe is a term coined

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<v Speaker 2>or certainly popularized by Carbon Tracker. So we wanted to

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<v Speaker 2>look at plastics because it seems to be the epitome

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<v Speaker 2>of a sector where there's an enormous disconnect between what

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<v Speaker 2>the the sector is planning and what is more likely.

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<v Speaker 2>And in that disconnect you see a very large amount

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<v Speaker 2>of stranded assets.

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<v Speaker 1>I assume that you went into this knowing a certain

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<v Speaker 1>amount already. Was what were sort of the surprising discoveries

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<v Speaker 1>as you dug into it a little more deeply, Well,

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<v Speaker 1>a very good question.

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<v Speaker 2>The most surprising initial discovery was that everyone had different

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<v Speaker 2>numbers and how hard it was to get all of

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<v Speaker 2>the numbers to reconcile. So, of course, you know Common Tracker,

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<v Speaker 2>we're very much focused on data and numbers and analysis

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<v Speaker 2>and getting it completely accurate, and and we just found

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<v Speaker 2>it surprisingly difficult. I mean, fortunately, an extremely clear story

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<v Speaker 2>manifested itself, which meant that the discontinuity is between certain

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<v Speaker 2>different databases didn't really matter that much, but it was.

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<v Speaker 2>It's quite hard because you're dealing with lots of different industries.

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<v Speaker 2>So you've got the plastics industry, you've got the petro

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<v Speaker 2>chemical industry or the oil industry, you've got the recycling industry,

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<v Speaker 2>and interestingly enough, Feman even across countries, in between countries

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<v Speaker 2>that there's not complete agreement on on what the on

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<v Speaker 2>what the what the data is. That was for me

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<v Speaker 2>the biggest surprise.

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<v Speaker 1>It seems to me just in reading you know, oil

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<v Speaker 1>companies annual reports over the last few years, that plastic

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<v Speaker 1>has really been the thing that they claim is going

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<v Speaker 1>to save them when demand for transport fuels drops. Does

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<v Speaker 1>that seem to be you know, still the way that

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<v Speaker 1>a lot of them are at least talking about this

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<v Speaker 1>or planning in their in their financial plans.

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<v Speaker 2>Yeah, you put it very well. It's it's quite interesting

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<v Speaker 2>because it's not as if plastics was always like something

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<v Speaker 2>that you did on the with your all on the side.

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<v Speaker 2>Once you once you use the primary use of oil

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<v Speaker 2>in transportation and other areas, so it's quite surprising that

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<v Speaker 2>it's it's shot up the agenda and pretty much as

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<v Speaker 2>you say, what's happened over the last few years is

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<v Speaker 2>that all of the other growth drivers of oil have

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<v Speaker 2>kind of fallen by the wayside. So cars used to

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<v Speaker 2>be one of the four big growth vectors and and

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<v Speaker 2>and and as cars gone more efficient and electric vehicles

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<v Speaker 2>come into the mix, people and now said, well, you know,

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<v Speaker 2>even the IA is now saying, actually, we've probably reached

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<v Speaker 2>pete demand for oil from cars, and then the same

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<v Speaker 2>things starting to happen with trucks. And obviously, you know,

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<v Speaker 2>in recent months, the COVID crisis has taken the steam

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<v Speaker 2>out of the you know, the third big pillar, which

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<v Speaker 2>was airlines and air travel and and like petrochemicals has

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<v Speaker 2>become a kind of mantra for the oil industry that

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<v Speaker 2>thank goodness for petro chemicals because you know, that's where

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<v Speaker 2>all the growth lies. And it's quite interesting if you

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<v Speaker 2>if you take the data now from BP and the

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<v Speaker 2>i A, probably the two leading forecasters of the entire system,

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<v Speaker 2>then from our calculations, about half the growth of oil

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<v Speaker 2>demand in the next twenty years in the i A

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<v Speaker 2>numbers is actually from plastics. And suppressingly enough, it's basically

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<v Speaker 2>all of the growth in oil demand is coming from

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<v Speaker 2>plastics in the in our adaptation of the BP numbers.

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<v Speaker 2>So it has become really significant because everything else has

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<v Speaker 2>fallen fallen away.

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<v Speaker 1>Right.

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<v Speaker 2>To be clear, that's not a commentary on BP itself.

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<v Speaker 2>I mean, that's mainly the data forecast that they're talking about.

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<v Speaker 2>And interestingly, as you know, BP itself is putting out

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<v Speaker 2>of the petrochemical sector, possibly because they've looked at the

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<v Speaker 2>numbers the same way we've done.

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<v Speaker 1>Can you talk a little bit about the link between

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<v Speaker 1>the natural gas boom and the plastic boom.

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<v Speaker 2>With the fracking of gas, you've got a lot of energy,

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<v Speaker 2>E get a lot of ethane and propane, and they're

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<v Speaker 2>considerably cheaper, or they were considerably cheaper as a feedstock

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<v Speaker 2>than oil. And you know, all these companies had the

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<v Speaker 2>bright idea, well, let's turn this ethane into plastic and

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<v Speaker 2>then we can undercut our competitors and we can we

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<v Speaker 2>can make very high superprofits. That's basically was the idea.

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<v Speaker 2>And therefore that's where you've had this massive build up

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<v Speaker 2>of the petrochemical sector in the US based on apparently

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<v Speaker 2>cheap ethane. What they didn't factor on into the equation

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<v Speaker 2>was the fact that actually the price of oil has

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<v Speaker 2>now fallen so far that the price differential is not

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<v Speaker 2>nearly so big as they've thought. And then, of course,

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<v Speaker 2>much more importantly, because there's so much overbuild, the price

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<v Speaker 2>that they thought they were going to get. They're not

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<v Speaker 2>going to get because there's so much overcapacity that ethylene

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<v Speaker 2>prices have collapsed. So it's it's just been a very

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<v Speaker 2>poor strategy.

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<v Speaker 1>Yeah.

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<v Speaker 3>Yeah, I have seen some some data around the COVID

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<v Speaker 3>crisis actually helping to you know, booy some of the

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<v Speaker 3>plastic demand is that accounted for in this report.

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<v Speaker 2>It is, in fact, we tend to see COVID, as

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<v Speaker 2>as in so many other areas, as as a factor

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<v Speaker 2>which speeds up change. So probably the best data on

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<v Speaker 2>the expected impact on plastic demand this year comes from

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<v Speaker 2>Wood McKenzie and they to they add it all up.

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<v Speaker 2>What's the impact on plastic demand of increasing demand for

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<v Speaker 2>medical plastic for ppeus and gloves and stuff. And then

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<v Speaker 2>what's the impact of lower demand because of the economic shocks.

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<v Speaker 2>So we're buying less cars and we come go to

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<v Speaker 2>the shops that we're buying less less clothes, and they

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<v Speaker 2>add it all up, and actually, the the because you

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<v Speaker 2>use a thousand times or more plastic in a car

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<v Speaker 2>to use in a mask, the actual impact is to

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<v Speaker 2>have a four percent decline they estimate in plastics demand

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<v Speaker 2>this year. And that kind of if you haven't to

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<v Speaker 2>state the obvious. If you have four percent decline in

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<v Speaker 2>demand and a four percent increase in capacity, increased capacity,

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<v Speaker 2>you know, things looking quite quite ugly. But actually in

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<v Speaker 2>this report, we wanted to focus also on some of

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<v Speaker 2>the longer term impediments to the demand growth.

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<v Speaker 1>Right, could you talk a little bit about those longer

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<v Speaker 1>term impediments and what you're seeing in you know, beyond COVID. Yeah,

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<v Speaker 1>I think you know.

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<v Speaker 2>There were three impediments we wanted to put on which

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<v Speaker 2>we focus. I mean, the first is just thinking about society.

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<v Speaker 2>People always sneer at me as a finance guy when

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<v Speaker 2>I talk about society, but it's you can't completely ignore

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<v Speaker 2>the wishes and aspirations of the world's populations because you

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<v Speaker 2>have these two really unsurmounted problems at the plastics industry

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<v Speaker 2>is not being able to address. The first is that

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<v Speaker 2>they're a very large carbon footprint. It slightly depends how

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<v Speaker 2>you're calculated, but the points of me years, they have

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<v Speaker 2>a large carbon footprint that's planning to double over the

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<v Speaker 2>next twenty years when the rest of the world is

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<v Speaker 2>trying to get to zero, So that doesn't really compute.

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<v Speaker 2>And at the same time, you've got this massive amount

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<v Speaker 2>of plastic ending up in the ocean, and in the

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<v Speaker 2>Breaking Breaking the Plastic Wave reports, systemic estimates that at

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<v Speaker 2>eleven million times a year a plastic going into the ocean,

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<v Speaker 2>and they say, look, by twenty forty, that's going to

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<v Speaker 2>be as much plastic in the ocean as fish. And

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<v Speaker 2>the point simply is that therefore there's a lot of pressure,

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<v Speaker 2>from a lot of societal pressure to do something. So

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<v Speaker 2>so far, so good, and that's very much appreciated. I

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<v Speaker 2>think the two additional factors that we really drew attention

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<v Speaker 2>to in this report. The first is is technology, and

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<v Speaker 2>in a similar way to what you've seen elsewhere in

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<v Speaker 2>the energy sector, new technologies are coming along which make

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<v Speaker 2>it possible of a plastics functionality but without the same

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<v Speaker 2>amount of plastic. And that's what this report Breaking the

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<v Speaker 2>Plastic Waves done, is it's analyzed that it's it's looked

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<v Speaker 2>at the three classic areas of reduced and substitute and recycle,

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<v Speaker 2>it's costed them in in tremendous detail, and it's figured

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<v Speaker 2>out that you can have the same plastics functionality but

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<v Speaker 2>at half the amount of plastics and actually, interestingly enough,

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<v Speaker 2>at zero point seven million more jobs. So there's some

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<v Speaker 2>interesting new technologies and new ideas materializing to meet the

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<v Speaker 2>aspirations of society. And then finally you have politicians are

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<v Speaker 2>actually starting in certain areas to put these to put

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<v Speaker 2>these ideas into practice. And you know, we highlighted in

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<v Speaker 2>this report what's going on in Europe and China above all,

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<v Speaker 2>but you could talk also about some of the subs

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<v Speaker 2>going on India and in Africa. But if I highlight

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<v Speaker 2>what's happening in Europe specifically, the the the the European

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<v Speaker 2>Commission now is talking about having a at tax on

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<v Speaker 2>plastic waste, a non recycle plastic waste of of eight

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<v Speaker 2>hundred euros a time, so basically one thousand dollars a ton,

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<v Speaker 2>which is quite close incidentally to the externality costs that

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<v Speaker 2>we calculate. And they're also saying that you've got to

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<v Speaker 2>have all plastic packaging is going to have to be

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<v Speaker 2>recyclable by twenty thirty. That don't forget, it's a third

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<v Speaker 2>of all plastics, just over a third of all plastics

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<v Speaker 2>is in plastic packaging. And then they're forcing companies to

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<v Speaker 2>use more recycle material in their products.

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<v Speaker 1>So the point.

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<v Speaker 2>Simply is that in response to the demands of society

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<v Speaker 2>the opportunities made possible by technology, you're now having politicians

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<v Speaker 2>actually driving change. And the suggestion we make in this

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<v Speaker 2>report is that some of the solutions which are being

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<v Speaker 2>found in Europe and are likely to be found in

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<v Speaker 2>China are going to be rolled out across the rest

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<v Speaker 2>of the demand vectors in the world, across the rest

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<v Speaker 2>of the merging markets, and that itself, all of this

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<v Speaker 2>really starts to question the industry's assumption of a massive, continued,

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<v Speaker 2>eternal growth in plastic demand.

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<v Speaker 1>In the US, there are several fairly large, you know,

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<v Speaker 1>patrick chemical facilities being built right now that aren't even

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<v Speaker 1>online yet and already seem like they're destined to lose money.

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<v Speaker 1>Are you seeing any kind of a slowdown in like

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<v Speaker 1>project financing on these kinds of you know, the at

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<v Speaker 1>then cracker facilities, the sort of big petrochemical plants.

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<v Speaker 2>Well, of course the ones which have been finance are

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<v Speaker 2>still going ahead, but I'm absolutely convinced that behind the

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<v Speaker 2>scenes people are now already significantly trying to curtail the expansion,

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<v Speaker 2>and not sadly because of anything that we've written, or

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<v Speaker 2>because they've suddenly got religion. No, it's because of the price.

0:13:58.240 --> 0:14:01.680
<v Speaker 2>The price of intermediate chemicals like has collapsed, and as

0:14:01.720 --> 0:14:05.800
<v Speaker 2>this is obvious that that you're expanding into US into

0:14:05.920 --> 0:14:11.880
<v Speaker 2>an oversupplied market. So so I think I think we

0:14:12.040 --> 0:14:14.520
<v Speaker 2>will see many more cancelations over the course of the

0:14:14.520 --> 0:14:16.800
<v Speaker 2>next couple of years. And I think we'll also see

0:14:16.800 --> 0:14:19.720
<v Speaker 2>some big be write downs as people who've sunk a

0:14:19.760 --> 0:14:23.160
<v Speaker 2>couple of billion dollars into building a big pet camp

0:14:23.160 --> 0:14:28.600
<v Speaker 2>plant and on the anticipation of selling it selling the

0:14:28.640 --> 0:14:31.040
<v Speaker 2>material into the emerging markets, as they begin to realize

0:14:31.040 --> 0:14:32.160
<v Speaker 2>that that market's not there.

0:14:33.280 --> 0:14:36.320
<v Speaker 1>Is there one part of this report that you most

0:14:36.400 --> 0:14:39.360
<v Speaker 1>hope people kind of pick up on and pay attention to.

0:14:41.520 --> 0:14:44.600
<v Speaker 2>I think the the one part of the report that

0:14:45.360 --> 0:14:49.920
<v Speaker 2>we wanted to be was our original focus, and it's still

0:14:49.920 --> 0:14:54.360
<v Speaker 2>really significant, is to think not just about the plastics industry,

0:14:54.440 --> 0:14:59.840
<v Speaker 2>but to think about the implication of low growth in

0:15:00.000 --> 0:15:04.640
<v Speaker 2>the plastics industry for the oil industry. And there's a

0:15:04.640 --> 0:15:06.480
<v Speaker 2>lot of talk at the moment about peak oil and

0:15:06.520 --> 0:15:10.680
<v Speaker 2>have we hit peak oil demand? And I don't particularly

0:15:10.680 --> 0:15:13.760
<v Speaker 2>want to focus on that, but this debate is really

0:15:13.800 --> 0:15:20.200
<v Speaker 2>significant because if between half and all of expected demand

0:15:20.200 --> 0:15:24.200
<v Speaker 2>growth from oil is actually from plastics, and if that

0:15:24.680 --> 0:15:28.560
<v Speaker 2>growth in and of itself can now be questioned, then

0:15:29.720 --> 0:15:33.840
<v Speaker 2>it just becomes considerably easier to question whether or not

0:15:35.080 --> 0:15:37.400
<v Speaker 2>oil growth itself, oil demand growth itself is going to

0:15:37.640 --> 0:15:41.520
<v Speaker 2>regain its twenty nineteen levels. So that's, I guess, the

0:15:42.040 --> 0:15:43.840
<v Speaker 2>other angle we wanted to look at in this report.

0:15:43.960 --> 0:15:47.080
<v Speaker 2>The other thing, slightly original thing that we did is

0:15:47.120 --> 0:15:51.440
<v Speaker 2>we figured out the size of the plastic externalities, and

0:15:52.360 --> 0:15:57.080
<v Speaker 2>just the points of me being that this is not

0:15:57.720 --> 0:16:02.280
<v Speaker 2>an industry which, as how do I put it mildly,

0:16:03.040 --> 0:16:07.000
<v Speaker 2>it's not an industry which has been particularly receptive to

0:16:09.400 --> 0:16:12.160
<v Speaker 2>paying for the negative consequences of what it does right.

0:16:12.320 --> 0:16:15.160
<v Speaker 2>And you know, the cost pert ton is about thousand

0:16:15.160 --> 0:16:17.160
<v Speaker 2>dollars a time, which which actually sounds like a lot,

0:16:17.200 --> 0:16:19.200
<v Speaker 2>but on a per person basis not very much. Actually

0:16:19.200 --> 0:16:22.960
<v Speaker 2>it's about it's forty six dollars per person globally. So

0:16:23.440 --> 0:16:24.960
<v Speaker 2>the point to me is that you have an industry

0:16:25.000 --> 0:16:27.920
<v Speaker 2>which is which is polluting a lot and creating a

0:16:27.960 --> 0:16:30.520
<v Speaker 2>lot of waste, and people don't like it, and actually,

0:16:30.520 --> 0:16:34.600
<v Speaker 2>therefore I think is extremely vulnerable to any attempts to

0:16:35.080 --> 0:16:38.160
<v Speaker 2>change it, and that is likely to play out over

0:16:38.160 --> 0:16:38.960
<v Speaker 2>the next few years.

0:16:39.000 --> 0:16:42.080
<v Speaker 1>It's a lot easier to talk about the negatives of plastic.

0:16:42.320 --> 0:16:44.280
<v Speaker 1>It's harder for them to make the case that they

0:16:44.320 --> 0:16:49.560
<v Speaker 1>do with oil, that it's just a totally necessary part

0:16:49.600 --> 0:16:53.080
<v Speaker 1>of life or a central piece of the economy. You know,

0:16:53.720 --> 0:16:55.480
<v Speaker 1>I don't know. It seems to me like it should

0:16:55.480 --> 0:17:00.520
<v Speaker 1>be that much much more vulnerable to criticism.

0:17:00.640 --> 0:17:00.840
<v Speaker 3>Yeah.

0:17:00.880 --> 0:17:02.800
<v Speaker 2>No, I think the other point will as you know

0:17:02.920 --> 0:17:05.920
<v Speaker 2>very well, the industry always says, look, you know, you

0:17:06.040 --> 0:17:09.040
<v Speaker 2>desperately need plastic for ppe equipment, and you need plastic

0:17:09.160 --> 0:17:12.480
<v Speaker 2>for you know, iPhone covers, and you know, and and

0:17:12.480 --> 0:17:15.960
<v Speaker 2>and and they do the commission these wonderful studies saying

0:17:15.960 --> 0:17:18.800
<v Speaker 2>that plastic is better than glass because it's lighter weight

0:17:18.840 --> 0:17:21.080
<v Speaker 2>and all the rest of it. And and the answer

0:17:21.119 --> 0:17:23.840
<v Speaker 2>to all of this stuff is just to go, okay, guys,

0:17:23.920 --> 0:17:26.600
<v Speaker 2>that's great. I mean, we know your products great, thank

0:17:26.640 --> 0:17:29.359
<v Speaker 2>you very much, but just you know, pay for picking

0:17:29.400 --> 0:17:31.840
<v Speaker 2>the picking the stuff up after people have used it,

0:17:31.880 --> 0:17:34.240
<v Speaker 2>and pay for all of the health costs and the

0:17:34.359 --> 0:17:36.720
<v Speaker 2>and and the and the ocean costs. You know, if

0:17:36.720 --> 0:17:39.000
<v Speaker 2>it's so great, then just pay for it. It's not

0:17:39.280 --> 0:17:43.919
<v Speaker 2>not reasonable, right, And I think that's that's often lost

0:17:43.960 --> 0:17:47.359
<v Speaker 2>in the debate about you know how great plastic is

0:17:47.119 --> 0:17:48.880
<v Speaker 2>is that there are it is great, but there are

0:17:48.880 --> 0:17:50.760
<v Speaker 2>costs which are borne by other people, and you need

0:17:50.800 --> 0:17:51.240
<v Speaker 2>to pay for.

0:17:51.200 --> 0:17:57.040
<v Speaker 1>Them, right right, Yeah, yeah, thank you so much.

0:17:57.200 --> 0:17:57.560
<v Speaker 3>Very much.

0:17:58.160 --> 0:18:00.480
<v Speaker 2>Very enjoyable, very enjoyable conversation.

0:18:00.880 --> 0:18:17.280
<v Speaker 1>Yes, thank you, I appreciate it. All right, that's it

0:18:17.359 --> 0:18:21.159
<v Speaker 1>for this time. Keep your eyes on the feed for

0:18:21.320 --> 0:18:25.480
<v Speaker 1>our next season coming soon. I'll also be dropping some

0:18:25.640 --> 0:18:28.919
<v Speaker 1>special preview episodes for some of the other climate shows

0:18:28.960 --> 0:18:32.480
<v Speaker 1>coming up on the Critical Frequency Network, and we'll be

0:18:32.560 --> 0:18:35.000
<v Speaker 1>back here soon. Thanks for listening, and we'll see you

0:18:35.000 --> 0:18:35.440
<v Speaker 1>next time.