UK to accept fuel-exempt mass balanced chemical recycling in UK plastic packaging tax

LONDON (ICIS)—The UK government will support the use of mass balance for chemical recycling under the UK plastic packaging tax using a fuel-exempt accounting approach at site-level, it published in a consultation response late on Wednesday.

The original consultation on “Plastic Packaging Tax – chemical recycling and adoption of a mass balance approach” was conducted from 18 July-10 October 2023.

“Chemical recycling can complement the use of mechanical recycling technologies by enabling more types of plastic to be recycled and by producing a higher grade of recycled plastic, which can be used in regulated sectors such as food contact packaging. Chemical recycling therefore has the potential to help increase rates of plastic recycling,” the UK government said in its consultation response.

As part of the consultation response, the government also announced that it will phase out the use of pre-consumer material as contributing towards recycled content thresholds in tax calculations.

Under the UK Plastic Packaging tax, any packaging which is predominantly plastic by weight, and that does not contain at least 30% recycled material is subject to a charge of £217.85/tonne on the total weight of the packaging.

When the tax was introduced, both chemical and mechanical recycling were accepted as contributing toward the target, but there was no decision on the acceptance of mass balance.

In mass-balance, a certified volume of renewable or recycled material is input across a production run but may not be evenly distributed across each individual product.

For example, a plant may use 30% recycled material overall, but one piece of produced packaging could contain 100% recycled material, and the next 100% virgin material, or any mix between those two extremes.

Via this method, market players are able to state that they use a certain percentage of recycled or renewable material in their products, without having to prove that percentage in each individual product produced.

Mass-balance is widely used in a number of industries and is not exclusive to either mechanical or chemical recycling.

There have been different proposed accounting rules for mass-balance, all of which alter the possible recycled polymer output allocations, and therefore profitability throughout the chain, pyrolysis oil’s competitive position against mechanical recycling, and the sector’s attractiveness to investors.

Under fuel exempt mass balance accounting rules, volumes used in fuel applications would not be attributable as recycled material, but material not ending up in fuels would be freely attributable across the value chain.

Given that pyrolysis oil  – the dominant form of chemical recycling in Europe – is used as a naphtha substitute in a cracker, many see acceptance of mass-balance as an essential enabler for chemical recycling to count towards recycling content thresholds.

The UK government will not adopt definitions of chemical recycling under ISO standard 15270:2008, arguing that definitions of chemical recycling must be process and technology neutral.

“The government intends to introduce a definition of chemical recycling in line with the proposed definition by the European Coalition for Chemical Recycling, for the purpose of the tax. This will enable businesses to use a mass balance approach to account for recycled material produced from any technology or process that meets the definition of chemical recycling,” the government stated.

The government also said that differing units of measurement may be used at different parts of the supply chain. For example, mass being used at polymer and packaging level, and a Lower Heating Value approach used at refinery level.

The government further stated that accredited certification schemes will be necessary to audit and certify the mass balance volumes, and it intends to accredit multiple certification schemes.

The government also signaled that while it is not currently making changes to medical exemptions under the tax at present it intends to remove this exemption once more chemically recycled plastic is available.

“Producers and importers of medical packaging are encouraged to start considering how to include more recycled plastic in their packaging as chemical recycling capacity, feedstock levels, recyclate availability increase, and advancements in technology are developed,” it stated.

There was no timeframe announced for when these changes would take place.

Clarity on the UKs approach to mass balance will be welcomed by the market. Despite structural tightness of pyrolysis oil in Europe, buying interest in 2024 to date has been lower than that seen in 2023 largely due to ongoing legal uncertainty over approaches to mass balance accounting.  Legal uncertainty was one of the factors cited by Quantafuel in August for the cancellation of its 100,000 tonne/year pyrolysis-based chemical recycling project in Sunderland.

On 16 July the British Plastics Federation (BPF) submitted a joint letter it had coordinated to the incoming Exchequer Secretary James Murray MP, calling for an urgent response to the previous government’s mass balance consultation.

ICIS covers 3 grades of pyrolysis oil in its Mixed Plastic Waste and Pyrolysis Oil Europe pricing service . ICIS also offers mechanical recycling, waste bale, biodiesel, hydrogen, and virgin price coverage, giving you the complete picture across the sustainability value chain. For more information, please contact Mark Victory at mark.victory@icis.com.