Mixing fossil- and bio-polymers for internalisation of environmental damage: An evidence-based model-theoretical economic analysis

Highlights

• A normative model for internalisation through bioplastics in products was developed.

• The substitution rate and willingness-to-pay was determined by a consumer study.

• The market can theoretically be recovered to 80% of its original size.

• The market equilibrium would then be allocatively efficient with maximum substitution gains.

• The optimum bioplastics content in mass products, e.g. clothing, would then be 75%.

Abstract

Environmental problems resulting from the use of plastics in mass products are becoming increasingly serious, and the exploitation of scarce oil resources also poses unimagined long-term risks. Economic models attempt to demonstrate the effectiveness of regulatory measures, but instead of retaining polluting technologies and reducing market volume, petroplastics in products could be gradually replaced by compensating biopolymers. This study investigates how much of the original market volume is recovered by plastics substitution while maintaining market-related efficiency criteria. To this end, an economic market model is developed and information on estimated damage potential and willingness-to-pay is supplemented by means of a consumer study. The static analyses show that, depending on the estimates, the optimal and most efficient market volume after substitution is between 79.5% and 84.7% of the former market volume in petrochemical goods. The higher the damage estimate, the lower the most efficient bioplastics share, but at least 50% and at most 90.7%. Complete substitution is inefficient and requires consumers to perceive a much higher utility from biopolymers compared to the estimated avoidance of damage. All in all, the biopolymer treatment of synthetic products, such as clothing, is proving to be a promising internalisation technology, but requires further market analysis.

Introduction

The problems resulting from excessive use of plastics are not only placing an increasing burden on our nature, but also on human beings. In 2019, 350 million tonnes of plastic material were produced in Europe alone (PlasticsEurope, 2019). 47 million tonnes went into the production of textiles and 146 million into packaging. This is also due to the fact that plastics offer very good price/performance, and therefore 70% of all textile fibres used worldwide are already synthetic, so the biobased share is becoming increasingly smaller (Buschmann and Freund, 2019). This further exacerbates the waste problem from polymer-based packaging and products. Added to this is extensive consumption, known as fast fashion. In 2019, Germans bought clothes worth 64 billion Euros (StatistischesBundesamt, 2019). 60% ends up in waste, from which EU-wide 80% is either incinerated or disposed of in landfills (Buschmann and Freund, 2019). This results in two problems: firstly, our finite oil resources are becoming scarcer, and secondly, climate-damaging greenhouse gases are emitted (Steenis et al., 2017). Textiles already account for a significant share of the latter at 3% (CarbonTrust, 2020). In the environment, the natural decomposition of plastics takes a long time and pollutes the ecosystems with microparticles (Heidbreder et al., 2019).

This environmental damage represents undesirable externalities of production and consumption and leads to welfare losses (Bithas, 2011). One solution could be biopolymers refined from plants (Klein et al., 2019). Although they have a high substitution potential for petrochemical plastics, their market share is relatively small (Scherer et al., 2018). In 2019, the global consumption of bioplastics for manufactured textiles was just 239,000 t, and only a minor proportion of this was biodegradable at all (Buschmann and Freund, 2019). How the market is changing under such sustainability technologies is often normatively analysed by models which use the oligopoly, whereby a brown and a green company compete and match for volumes or prices. The effect of introducing green technologies is then assessed by indicators, such as social welfare or profit (Mason, 2012; Kotani and Kakinaka, 2017). Green production or product labelling is then usually applied as a vertical product differentiation tool (Amacher et al., 2004; Bonroy and Constantatos, 2014; Brécard, 2014). The distance between the two groups of producers usually increases consequently and reduces the intensity of competition, but still yielding high prices. In theory, quantities of green products grow as a result, but it still remains too low in terms of effective environmental protection (Friedrich, 2018). Thus, the real allocative output is mostly more profit-driven and therefore not necessarily optimal for nature and consumers. Other studies focus on the behaviour of the latter and try to find out, how the market changes if they were given complete information on the damage potential of the good (Laitala et al., 2013; Shen et al., 2017; Martinho et al., 2015). Finally, Pal and Gander (2018) take a holistic perspective according to the Triple-Bottom-Line principle. The authors assume that the environment also generates profit, namely as the difference between the marginal utility of a sustainability measure and the marginal costs incurred. As a result, there is an increase in environmental profit from the reduction of output, and also consumer utility grows. Such model-based market analyses cannot represent reality in all its facets and are based on simplifications, like the assumption of rational behaviour and free market access likewise used in the well-known Bertrand model.

Under such simplifications, the environment-relieving effects can be proven using static model assumptions. They then show that efficient internalisation takes places if the volume of goods, which are produced under dirty technology, is being reduced. In this context, the question arises whether bioplastics in textiles and packaging are in principle an efficient substitution technology. Further, it is to be clarified whether, after internalisation-related reduction, the output volume can be increased again to the higher and profit-maximizing level without driving down the efficiency criteria according to model theory and still keeping the environment relieved. This Paper is to bring in an additional view to the model-theoretical approach. It will be demonstrated, how internalisation by means of biopolymers initially helps to win back lost market volume. The basic model assumptions were verified by means of an empirical market study to demonstrate reliability. In concrete terms, model theory should answer the following: (1) Is the prevention of environmental damage from petrochemical plastics by using biopolymers allocatively efficient? (2) How does the output volume and the environmental impact change economically with increasing bio-content in the mass products (3) What product utility do consumers see with increasing bio-content in the goods? (4) Is it efficient, e.g. to modify mass clothing completely with bioplastics in order to return to the old market volume? and (5) Does allocative efficiency from bioplastics generally differ when this material is used in different categories of everyday consumer mass products?

The structure of the Paper is as follows: the next section discusses the theoretical foundations of market allocation and internalisation using relevant static economic model theory. Section 3 presents the empiric market study as a consumer survey on the internalisation effects from biopolymers used in apparel or technics mass products. Section 4 summarises the results, reports on findings from sensitivity analyses on the model and discusses the allocation effects to be expected if the market actually followed the model. Section 5 concludes how the theoretical findings can also be given practical relevance, and the final section highlights the limitations and indicates the need for further research.