Paper or plastic? Instead ask which companies are innovating recycling

Paper or plastic? If you’re looking to invest in the packaging that's best for the environment, the answer is… it's complicated.

At a time when more states and municipalities are banning plastic shopping bags and a growing number of shareholder proposals aim to eradicate all plastic packaging, many investors understandably assume that the best choice is paper.

In fact, the opposite is true. That is, right up to the point at which a container has finished the task it was built to do.

Plastic packaging is much cheaper to manufacture, which is why it remains a popular method. Many studies conclude that using a plastic package also emits less greenhouse gas CL00, +1.00% because it requires so much less material than paper and paperboard packages for the same amount of protection. It's stronger and lighter than paper products, which mean emissions from transporting plastic packages is also lower.

Of course, that's only half the story. Once you’ve opened your new toaster, installed the replacement garage door opener or put away the groceries, there's still the matter of disposing of the shopping bag, boxes and shrink wrap. And that's where paper products today put the hurt on plastics.

According to the Environmental Protection Agency, more than 80% of paper and paperboard packaging is recycled in the U.S., compared to less than 9% for plastic. Globally, the plastics recycling rate is even lower.

Read: Here's the tiny percentage of plastic that's recycled despite single-use bans, taxes and incentives

Plastics not recycled or incinerated can find their way into the ocean where their damage to the ecosystem is well-documented. To make matters worse, recycling rates are among the lowest for environment-terrorizing items like plastic shopping bags and straws, as few recyclers accept them because they are hard to separate from other recyclables. Bags can also gum up sorting machines.

But that doesn't mean we should give up on plastic packaging altogether. For all the disposal hurdles, plastic's superior structure will almost always make it the more efficient delivery option.

Instead of just propping up paper, investors might consider companies that are exploring ways to advance plastics’ disposal game, especially in three broad areas: making plastics easier to recycle and reuse; extending the number of times plastic packages can be recycled; and shortening the time it takes for plastics to biodegrade.

The globe spends $35 billion a year on plastic waste management. And with more than 20% annual growth, sustainable plastic innovation is a key market driver, according to business consultancy McKinsey.

Thus far, it appears that the swell of state and local bans is stoking growth in all three areas: innovative use, repeat recycling and breaking down faster. With an economy larger than all but four countries, California will undoubtedly influence other states and countries with its aggressive new mandate to limit single-use plastics and boost recycling rates.

In addition to the regulatory sticks, there are plenty of public- and private-sector carrots to induce investment. Last year, for example, the global Alliance to End Plastic Waste and Lombard Odier Investment Managers announced a $500 million circular plastics fund. In the U.S., the EPA and other agencies offer a host of incentives to invest in sustainable plastics.

In 2022, the Department of Energy created a $13.4 million sustainable plastics fund. And the National Renewable Energy Lab, the DoE's point for plastic waste relief efforts, is launching new programs to foster investment in better plastics disposal. Earlier this year, NREL proposed a new framework for assessing recycling methods. Its efforts have included partnering with Amazon.com AMZN, -4.25% to develop new ways to break down plastics so they can be recycled or disposed of safely and rapidly.

Several companies are focusing on making it easier for consumers to recycle, like Texas-based startup Clear Drop, which is readying a kitchen appliance for market that molds plastic bags into bricks that sorters can easily handle. The Soft Plastic Compressor, or SPC, will only be available in areas where recyclers have been trained to identify and process the bricks.

NREL and others are developing recycling processes to separate packaging building blocks and restoring them to their original state. The resulting materials are as strong and pure as when they were first used so they can be reused with little or no degradation.

A French startup called Carbios has developed a process to separate PET — short for polyethylene terephthalate, the primary plastic used in water bottles, soda bottles and a host of other household food containers – from other materials. The company says the process could result in limitless recycling capability.

Honeywell HON, +1.04% has another approach. The company has developed a chemical process that can convert multiple single-use plastics into virgin-quality materials. In addition to slashing plastics waste, the process, which could potentially enable plastics to be recycled hundreds of times, emits much less greenhouse gas than petroleum-based plastics production.

And at Berkeley Lab, researchers have created a new plastic designed to be infinitely recycled. The recipe for the new material is available for licensing.

Despite all the new bans, incentives and innovations, some single-use plastic packaging inevitably will make its way into landfills and oceans. That's why it's imperative to ensure that plastics improperly disposed of will break down as soon as possible after use.

Read: Plastic was found in human blood for the first time. Is this a public health risk?

London-based NotPla (the name is shorthand for not plastic) has developed seaweed-based plastics replacements that decompose in as little as four weeks. Nature-Tec of Minnesota and Toronto's Genecis are also developing bioplastics, or plastics made from plants, bacteria and other organic materials, which they argue have durability and are biodegradable.

Government-mandated bans are an important catalyst for change. Companies like Walmart WMT, +0.15% are racing to exorcise plastic packaging from their stores ahead of bans in California, Colorado and elsewhere.

To abide by the bans, retailers, packaging producers and logistics companies in the short term must turn to paper and paperboard packaging. But investors also need to understand that investment in new materials and processes is critical to produce plastics that are both better at their job and are more environmentally friendly than paper.

If those inventions prove to be successful, then one day the answer to "paper or plastic?" won't be nearly so complicated.

Mike Feibus is president and principal analyst of FeibusTech, a market research and consulting firm. Reach him at [email protected]. Follow him on Twitter @MikeFeibus. He does not directly own shares of any companies mentioned in this column.

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