The Brazilian Bioplastics RevolutionPublished: April 20, 2009 in Knowledge@Wharton
The production of plastics from renewable sources constitutes the next frontier in the search for ways to mitigate our dependency on oil and reduce our environmental footprint. The country at the forefront of these tantalizing developments, however, is not commonly perceived as being a technology powerhouse. Brazil is leading the way in this industry after decades of research and commitment to a technology based on sugarcane ethanol. The technology has proven to be environmentally sustainable and potentially capable of changing the way we manufacture everything, from personal care products to automobiles.
Since plastics are a fundamental material in modern life, making their production more sustainable can have an important positive impact on the environment. Annual plastics consumption worldwide has increased twentyfold since the 1950s, reaching around 150 million tons. It has been estimated that producing 1 kg of the most common plastics requires the equivalent of 2 kg of petroleum for energy and raw material, and releases approximately 6 kg of carbon dioxide. Green plastics could hold great potential for alleviating these negative impacts. As noted by officials at Braskem, the leading petrochemical and plastics producer in Latin America, the development of bioplastics will not just contribute to the prevention of global warming and the depletion of petroleum resources; its recyclable nature will also impact on waste management in urban areas and unlock the potential to revolutionize the cycle of energy production and usage in all aspects, creating a self re-enforcing cycle of producing, recycling and reusing.
Green plastics, also referred to as bioplastics, are made from 100% renewable feedstock (such as plant-based ethanol), have the same specifications of petrochemical plastics and are completely recyclable. Bioplastics do not necessarily have to be biodegradable. As Jeffrey Wooster, senior value chain manager at Dow Chemical, the largest producer of plastics in the world, observes: "It really is about carbon emissions," and plastics produced from renewable sources have a net positive carbon footprint. Compared to the production of plastics derived from petroleum, which emits carbon dioxide (CO2) into the atmosphere, the production of green plastics actually absorbs CO2 during sugarcane field photosynthesis. Between 2.1 to 2.5 kg of CO2 are removed from the atmosphere for each 1 kg of green plastics manufactured.
Leading manufacturers Braskem and Dow agree that recyclable green plastics generally perform better than biodegradable alternatives in sustainability analyses. Biodegradable green plastics are less durable, cannot be easily disposed of because of the need to separate them from conventional recyclable material, and emit methane (a powerful greenhouse gas) when decomposing in landfills. On the other hand, green plastics effectively store the CO2 absorbed during photosynthesis for extended periods of time as it is recycled and used in different ways. At the end of their useful life, green plastics can be burned to recover their energy content.
According to officials at Braskem, the revolutionary aspect of these products is that they are renewable as opposed to biodegradable. In other words, they can be recycled without threatening the process, as would polylactic acid, for example, the most common biodegradable plastic produced from corn-based ethanol. At the end of its usable life, non-biodegradable bioplastics can be incinerated together with other urban waste to generate electricity or other types of energy. Considering the quickly dwindling sites for landfills in urban areas such as São Paulo and parts of Europe, the ability to sustainably incinerate waste and generate energy is also highly coveted.
The technology currently used in Brazil to manufacture green plastics is very efficient. Ethane, the raw material to make plastics, can be manufactured by simply removing one water molecule (H2O) from sugarcane ethanol through a dehydration process. In the end, the plastics produced have the same characteristics as conventional plastics derived from fossil feedstocks, such as naphtha or natural gas. Due to their characteristics, sugarcane ethanol-based plastics can compete favorably with conventional petroleum-based plastics and can even be sold at a premium to eco-minded consumers. Although no industry certification yet exists, carbon dating laboratories have been used to certify that the plastics produced are derived completely from renewable sources.
Plastics from Cornstarch
Brazil is not the only country where bioplastics are currently manufactured. In the United States, the technology has been around for more than a decade, with corn as the most commonly used feedstock. NatureWorks, a joint venture between Cargill and Toijin, already has a plant that can produce 140,000 tons of biodegradable plastics from cornstarch in Blair, Neb. Metabolix, of Cambridge, Mass., is in the process of developing a plant to produce biodegradable plastics made from cornstarch. Also, following its $8 billion strategy to double revenues from renewable sources by 2015, Dupont partnered with Australia's Plantic Technologies to produce plastics from cornstarch. At the same time, several projects have also flourished in Europe. Innova Films of Britain is building a new plant to produce 28,000 tons of plastic film made out of wood cellulose, while Novamont of Italy has been manufacturing plastics from cornstarch and biodegradable polyester for more than 10 years.
However, production in these countries is less competitive in terms of cost and concentrated mainly on small-scale projects sponsored by specialized biotech companies. The recent increase in the price of oil has improved the cost competitiveness of renewable plant-based feedstock, particularly in Brazil, and encouraged large traditional petrochemical companies to embark on sizeable green plastics projects.
In June 2007, Braskem announced the successful production of the first internationally certified plastics made from sugarcane ethanol. One month later, Dow entered into a joint venture with Crystalsev, the leading Brazilian ethanol producer, to also produce bioplastics. Both companies have moved quickly to achieve commercial production. Braskem is now building a $300 million plant at its existing Triunfo complex with the capacity to produce 200,000 tons of green plastics per year. Expected to come online between 2010 and 2011, this will be the first facility of its kind to enter commercial operation. At the same time, Dow and Crystalsev are developing the first integrated facility (sugar cane plantation and ethanol mill along with a plastics manufacturing plant) to produce bioplastics. This facility will produce 350,000 metric tons of plastics and is expected to start production in 2011, becoming a key part of Dow's growth strategy in Brazil.
Although the integrated facility will take longer to become operational, it will allow Dow and Crystalsev to take advantage of important synergies in the production process, such as the use of water that results from the conversion of ethanol into ethane and the co-generation of electricity using the byproducts of sugar cane production. Initially, Braskem will invest only in a plant to produce ethane from market-bought ethanol using this material as an input at one of its existing manufacturing plants. "We are pursuing this strategy in order to have first mover advantage in a booming market for environmentally friendly products," says Manoel Carnauba, Braskem's vice president of basic raw materials. Braskem's second bioplastics plant, scheduled to start production between 2012 and 2014, will be a totally integrated facility in order to exploit production synergies.
As a domestic player, Braskem has knowledge of the local ethanol market and good relationships with suppliers. For Dow, entering into a joint venture with Crystalsev was the best way to take advantage of local ethanol production technology and access feedstock in high quantities. "Crystalsev has a leading edge in this business, a similar culture and compatible objectives, minimizing the risk associated in such a new thing," says Alberto Ulriksen, polyethylene product director for Dow Latin America.
For Dow, the project first emerged as a way to build a plastics asset base in Brazil and ensure access to competitively priced feedstock. "We did not have access to feedstock: We had to buy the ethylene. That's not the Dow model, really. The only way that we found out that we could actually set up in Brazil was via this ethanol feedstock. That was the main reason [for the project]," says Ulriksen. Nonetheless, sustainability goals also played a role in Dow's entry decision. "One of the things that has attracted us very much is the sustainability part because it is breakthrough in terms of carbon footprint and has a high value in the market," Ulriksen adds.
Braskem's venture into bioplastics was not driven by the need to access competitively priced raw materials, but by the opportunity to capitalize on the increased demand for green products. Having achieved cost competitive production of sugarcane-based plastics, Braskem is seeking to achieve product differentiation and to create a niche market for its product. "Braskem is positioning its bioplastic as a premium product that will command a higher price than conventional plastic. This strategy has nothing to do with cost. It has to do with the additional value that the product will bring in capturing CO2 from the atmosphere and reducing the green house effect," says Luiz Nitschke, Braskem's biopolymer project director based in São Paulo. "Braskem expects its biopolymer [bioplastic] to sell for 50% more than the conventional petrochemical product."
Dow will market its green plastics product under the same brand it uses for its fossil fuel-based plastic resins, Dowlex. Although this brand enjoys high recognition among industrial customers, it is not well known by end consumers. On the other hand, Braskem is working with the marketing departments of companies in the automotive, food packaging, cosmetics and personal-hygiene industries, which can use green plastics applications to profit from the increasing demand for sustainable products. "If Braskem and its partners are able to create marketing value and to communicate it correctly, the product will be profitable regardless of the evolution of oil prices," argues Nitschke. In September 2008, the company signed a distribution agreement with Toyota Tsusho, the trading arm of the automobile manufacturer, for the sale of its future green plastics production to Asian clients. Braskem also recently announced the certification of another type of green plastics that can be used in the automotive industry.
Braskem has been producing small product quantities at its testing facilities and is already marketing the product using high visibility consumer goods and sporting events. In June 2008, in partnership with Brinquedos Estrela, a leading toy manufacturer in Brazil, Braskem started producing the game pieces for "Sustainable Monopoly," an environmentally conscious version of the popular board game that is being sold in local Wal-Mart stores with great success. In November 2008, the Formula 1 Brazilian Grand Prix winner Felipe Massa received the first bioplastics trophy in the world made with Braskem's green plastics.
As an emerging-market multinational company, Braskem sees green plastics as a way to achieve global leadership. The company's ultimate goal is to become the leading green plastics producer in the world by leveraging its strong production base in Brazil, its first-mover advantage, and a technological edge built over more than 10 years of experience and important investments in R&D. Braskem sees a niche market in developed economies, particularly Europe and Japan, where studies have shown that consumers are willing to pay a premium for sustainable products and environmental regulations mandate the use of plastics made from renewable sources. According to company executives, Braskem has received solicitations for three times the volume it will be producing in 2010, or 600,000 tons. Still, this amount represents only 1% of the global plastics market.
For its part, Dow views its green plastics project in Brazil as one of the many innovative renewable strategies it is implementing around the globe. "This is like a drop in the ocean, but this drop has a greenish bluish color," states Ulriksen, who suggests that green plastics production cannot possibly replace all of Dow's fossil-based production, but it can certainly allow the company to enter the Brazilian polyethylene market. Nonetheless, Dow does not downplay the possibility of using Brazil as an export platform. According to Wooster, "Dow's global distribution channels will always be available to take advantage of foreign markets."
'Brazil Chose Us'
Brazil offers an exciting proposition for Dow and Braskem to explore plastics production from renewable resources, as it has a competitive advantage over other countries where it costs more than twice to make the same amount of ethanol. "We didn't choose Brazil, Brazil chose us," adds Ulriksen as a way to describe the attractiveness of Brazil as a platform for the production of plastics made from renewable sources. "Brazilian sugar cane production is a much more efficient way to produce ethanol than growing corn in the United States would be," says Wooster.
Brazil is, indeed, the leading and most efficient sugarcane producer in the world. Sugarcane in Brazil is used as the basic input towards a diverse range of value-added products such as food, biofuels, bioelectricity and, now plastics. Brazil began using ethanol as a fuel as early as the 1920s, gaining momentum during the 1970s oil crisis when the government introduced the ProAlcool Program. By providing tax breaks and subsidies to sugarcane farmers, investment flocked to the industry and large distilleries developed to convert the crop to ethanol, especially in the state of São Paulo. In the 1990s, the government withdrew its subsidies and lifted price controls on ethanol, creating the world's first self-sustaining market. Brazilian ethanol is competitive with gasoline, assuming the price of oil is at least $40 per barrel.
Ethanol production is often criticized due to its alleged negative impacts on the food supply and the environment. However, these criticisms have no grounding in the case of Brazil. For starters, land is plentiful in Brazil, with ethanol production occupying only 1% of the country's arable land. In addition, approximately 65% of recent sugarcane expansion has taken place in mostly degraded pasturelands. Finally, there is still significant room to increase the productivity of land used for cattle grazing, reducing pressures on land availability for other agricultural uses.
Ethanol production is also far from threatening the Amazon rainforest. Not only has the growth in plantation focused on South Central Brazil, approximately 1,555 miles from the Amazon, but also the climate and land conditions in the Amazon region make the production of sugarcane economically unviable. Contrary to conventional wisdom, ethanol production from sugarcane does not have a negative impact on the production of other agricultural goods. In fact, the production of both sugarcane and foodstuffs has increased steadily in Brazil in recent years. Brazil's emphasis on transforming sugarcane production into a high-performing and sustainable agribusiness has resulted in the highest ethanol production yields in the world and enabled a parallel increase in the production of other agricultural crops, such as cereals and soybean. On average, the ethanol yield of Brazilian sugarcane is 6.8 thousand liters per hectare, compared to 5.5 thousand for European beet, and 3.8 thousand for U.S. corn. Furthermore, new technologies are expected to significantly increase sugarcane yields in coming years.
The use of leading-edge technology and highly efficient operations at distilleries also means that Brazilian sugarcane ethanol delivers a clear cost advantage. Production efficiencies keep costs low at $.23 per liter, compared to $.39 per liter for corn-based ethanol in the U.S. and $.52 per liter for wheat-based ethanol in Europe. These cost and resource advantages are attracting investor interest in the industry as well as increasing efforts by companies towards using ethanol to create products beyond fuel.
The country currently produces 487 million tons of sugarcane and 22 billion liters of ethanol. In the 2007-2008 sugarcane harvest, Brazilian ethanol production is expected to reach 22 billion liters. Throughout 2008, some 29 new distilleries are expected to come online, while investment in the industry is expected to total $33 billion through 2012. Dow and Braskem both plan to use around 300 liters of ethanol by 2012 to produce green plastics in Brazil.
As stated by Bruno Pereira, plastic product development manager at Dow, "there is nowhere else in the world where a renewable feedstock, available on this scale, is produced so responsibly," thus confirming Brazil's tremendous potential to become the leading global producer, not only of ethanol, but also of bioplastics. Even with the recent decrease in oil prices, bioplastics production in Brazil remains very attractive due to its cost competitiveness and positive demand drivers, such as increased consumer interest in environmentally friendly packaging and a greater emphasis on sustainability on the part of product manufacturers worldwide.
In the future, consumers will be able to drive cars that not only run on ethanol, but also are partially made from it; consumers will be able to buy alcoholic beverages in bottles made from alcohol and enjoy sugar candies wrapped in sugarcane plastics. However, there is still a long way to go. It is estimated that the annual global production of green plastics will increase to around one million metric tons by 2011, which represents only about 0.7% of the plastics used today. In fact, the 550 thousand metric tons of bioplastics that will be produced in Brazil by 2012 will meet less than 1% of world plastics demand.
This paper was written by Rosalía Morales, Daniel Pulido, Summer Ticas, and María Trigo, members of the Lauder Class of 2010.