Shareholders Want Decarbonization

Green chemistry and circular economy

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Decarbonization

Vincent Valk reported for ChemWeek that many investors are looking at how their investments are dealing with the energy transition from fossil fuels to renewables, environmental impact, and governance (ESG). Investors with companies in chemical sector are aware of how the broader goods economy function and are acutely aware of how chemical companies are directly related to ESG. Valk was covering the IHS Markit World Petrochemical Conference 2021 (WPC) and he reported:

decarbonization also creates opportunities, and investors are keen to put capital to work on these areas. Many of them directly involve, or are adjacent to, chemicals production, including battery materials, green hydrogen, and materials that can enable energy efficiency. “What’s interesting is the way chemicals are moving beyond traditional fare,” says Tanveer Rahman, head of chemicals, Asia, and head of oil and gas, Southeast Asia, at HSBC (London, UK), an investment bank. This includes areas such as “green hydrogen, electric-vehicle battery chemicals, and bioplastics,” Rahman adds. Asian firms have taken the lead in some of these areas, with many leaders in battery materials, for example, located in China, South Korea, and Japan, Rahman notes.

Its interesting to me that bioplastics are an area being considered for investment even at relatively low oil prices compared to two years ago. Often bioplastics and green chemicals only make economical sense when oil prices are high. This creates a favorable market for alternative raw material sources from biomass. When oil is low (as it has been for the last year) then those economics stop making sense. I don’t have a lot of insight to the bioplastics market in Asia except that from what I’ve read in the last six months there is a broad expansion of polylactide or PLA. I’ve written about PLA before, but if you are new here it’s a industrially compostable polyester made from sugar.

If we see Origin and Danimer Scientific doing well in the coming years (due to being public) and oil stays under $75/barrel consistently then these companies may have this problem figured out. I also think that because of near zero interest rates there is a lot of money chasing opportunities in the space.

The newsletter Margins has a great theory on zero interest rate policy if you are interested. To sum up the Margin’s theory there are a bunch of rich people and institutions who need to put their money somewhere and because of low interest rates they are willing to put millions into very risky companies. Holding cash if there is inflation is a bad thing to them so why not place some bets on chemical companies trying to save the world through sustainable plastics?

It is hard to know which companies in the green chemicals space will survive. I tend to believe that private companies that have been executing in the space for years without too much outside investment will succeed. I think someone like Avantium for instance will succeed whereas someone like Loop Industries will not. The fact that Avantium and Origin are licensing Eastman’s patents is a good sign to me.

Circa Group’s Process

Doris Guzman reported in Green Chemicals Blog that the Circa Group has gone public:

The transaction was led by Pareto Securities and Sparebank 1 Markets in Oslo with a post-money market valuation of around NOK 2 billion (~€194 million). The private placement reportedly attracted strong interest from high-quality and global institutional investors and was more than 15 times oversubscribed (excluding pre-allocated shares). Cornerstone investors include BNP Paribas Energy Transition Fund, Delphi Fondene, DNB Asset Management, Handelsbanken Fonder, The Fourth Swedish National Pension Fund, Robeco Asset Management and Circa’s industrial partner Norske Skog ASA.

Circa Group essentially has chemical process that they have trademarked Furacell that can turn biological waste, I’m guessing they actually want paper waste, that can be turned into Levoglucosenone or LGO. From LGO there are a host of chemistries you could get into, which I might spend some time on later this year. Circa is focused on going to cyrene and from there they want to make bioplastics. Circa could do a cyrene based acrylic, or a cyrene polyol that could go into polyesters or polyurethanes, or they could even just sell cyrene as an alternative solvent to N-methyl-2-pyrrolidone (NMP), which is a substance of very high concern in the EU. From my point of view there is a whole bunch of chemistry Circa Group could do here. The only question I want to know is if their process is cost efficient.

I think one thing that the investors have figured out is that the EU will be implementing policy that favors green chemistry and circular economies. Older chemical plants that are less efficient or utilize old processes will probably see transformation or closure. This could be a situation where public policy incentivizes these sorts of changes and provides cover for a few quarters or even years of lackluster capital return.

I do not see this model happening in the US anytime soon unless some states take the strong positions here. I’m thinking California, New York, or perhaps Maine since they have all implemented some sort of polystyrene foam food contact ban in the last few years. This could be a good opportunity for a new technology make a move and occupy the space.

Compostable Plastics

Lilli Manolis Sherman reported for Plastics Technology on Novomer’s breakthrough compostable plastic technology. Sherman reports:

The compostable material is currently being manufactured in sample quantities at Novomer’s Rochester Innovation Center. The technology’s successful demonstration will enable Novomer to begin the design and engineering of a commercial facility, allowing Novomer to commence construction of an intended 80,000-tonne facility in 2022.

I’ve written about polyhydroxyalkanoates (PHAs) before with Danimer Scientific and Yield10 Biosciences. PHAs have been around for years, but they have never quite made the jump from the lab to an actual consumer packaged good. The Novomer process is a bit different in that they are utilizing an alkylene oxide such as ethylene or propylene oxide and carbon monoxide as their carbon feedstocks. Both feedstocks in theory could be biobased, but the resulting PHA that they produce would be compostable in municipal or industrial composting facilities.

Novomer’s Process via their website

As expansion of capacity for compostable polymers increases I think we need to dramatically expand composting capacity and develop a composting waste stream with curbside garbage and recycling pickup. Composting could help save the world.

Compostable plastics will be ideal for food contact applications. One drawback that traditional recycling has on food contact applications is that the plastic has to be super clean before it can be melt reprocessed. Thus, cleaning food contact plastics of the residual food in various states of decay is required and requires large amounts of water. Ideally, you could just compost the plastic, food scraps, and yard trimmings, together to make soil rich in nutrients. We are facing a dilemma of peak phosphorous and large scale composting could help.

Polylactide has been shown to be very close to displacing polystyrene in many applications, but it suffers from brittleness and relatively longer composting times. Polyhydroxyalkanoates on the other hand could replace polyethylene or polyproplyene in many applications and have better composting or marine degradability. Further, if you want paper packaging with some water resistance then having a coating of PLA or PHA could produce a fully compostable product.

Banning something like polystyrene for food contact might make us feel good, but if a plastic coated paper option takes its place then that is even worse because that paper can neither be recycled or composted. A better substitute for single use polystyrene containers would be either a fully compostable plastic or an easily recyclable plastic. Places like state fairs or music festivals could be a great way to pilot these programs of compostable and recyclable waste streams and educate consumers.

Have you ever eaten something really messy and unhealthy at an outdoor venue and whatever it was served to you in is just covered in food? Imagine just composting whatever is left instead of having to feel guilt about landfills or something not being fit for recycling. I think we can get there soon.

Looking forward to seeing Novomer’s PHA hit the market.

Talk to you next week,

Tony

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The views here are my own and do not represent those of my employer nor should they be considered investment advice.

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