The plastics recycling industry is urging regulatory reform to reverse its contraction across Europe and the US. Over the past few years there’s been a steady stream of closures, all rooted in what’s being described as market failure.

While there are different policy impacts in different jurisdictions, recyclers say they’re caught in a perfect storm: large capacity expansion in China means an influx of virgin plastic that’s much cheaper than recycled material. That price differential has lowered demand for recycled materials, which has also been impacted by policy uncertainty as the sector moves from voluntary to mandated targets.

In Europe, high energy prices have pushed up the costs of recycling. The industry worries that there will not be enough capacity to meet new targets now being set by governments. The contraction comes against the backdrop of the failure to agree a global plastics treaty that could have put a cap on virgin polymer production.

In 2024, for the first time, both the total volume of plastics entering recycling streams and recycled output decreased in Europe. Some 300,000 tonnes/year of mechanical recycling capacity closed – half of that in the UK and the Netherlands alone, according to Plastics Recyclers Europe. It predicts that at least as much again has been lost in 2025. Some planned investments in chemical recycling plants have also been cancelled or postponed.

Recyclers have long argued that they need long-term contracts that don’t fluctuate with the price of virgin plastic (similar to those agreed with the energy-from-waste sector), to attract investment. The lack of contract certainty has been exacerbated by repeated delays in implementing policies intended to drive recycling demand.

Driving recycling

The EU’s Packaging and Packaging Waste Regulation (PPWR) aims to make all packaging reusable or recyclable by 2030, albeit with different grades of recyclability. It sets a trajectory for recycled content of 10–35% depending on the polymer and application, growing to 25–65% by 2040. Member states must introduce penalties for non-compliance, which could be fines or market access restrictions.

The rules cover imported packaging materials too, so they have the potential for wider impact. Imported recycled polymers will also have to be produced under the same standards as domestic products.

‘They’ll create a very significant amount of demand,’ says Ian Temperton, chief executive of chemical recycler Plastic Energy, which should help stimulate the huge amount of investment that will be needed to meet that demand, across all kinds of recycling. ‘But they don’t kick in until 2030, and we’re still missing a few rules,’ he adds. ‘And the industries that would naturally react to them are not awash with cash.’

The targets are important, says Katharina Schlegel Thummer, circularity director at industry body Plastics Europe, ‘but you need to invest in your sorting, in your recycling. At the same time, it is important to consider design for recycling as well, to make sure the materials that are entering the recycling streams are actually designed in a way that they can economically be recycled. It’s a whole value chain approach, and it takes everybody to jointly be on board for this change.’

In the US too, extended producer responsibility (EPR) rules (which commit manufacturers to contribute to the cost of managing their products’ waste) are gradually spreading across states, but with different scopes and timescales. Brands that previously made commitments to use recycled materials in their packaging – such as drinks giants Coca-Cola and PepsiCo – have been pulling back from their targets as they take stock of new regulations, says Steve Alexander, chief executive of the Association of Plastic Recyclers. ‘Unless those [EPR] fees are high enough, we’re going to struggle to create markets. That’s just the reality.’ Alexander argues both recyclers and brands need incentives, rather than penalties alone.

At the same time, BloombergNEF’s 2024 Circular Economy Company ranking suggested an under-supply of some high-grade recycled plastic is hampering brands’ ability to reach their targets, with companies such as Unilever revising its goal to halve virgin plastic consumption by 2025. It now aims to cut consumption by 30% by 2026 and 40% by 2028.

Libby Peake, head of resource policy at the environment think tank Green Alliance, observes that the UK has some particular problems. ‘Contamination is really quite high in the UK, and that isn’t helped by the release valve that we’ve got for relatively easy exports, which other countries are moving to change.’

The UK exports half its plastic waste, with growing shipments to non-OECD countries such as Indonesia. The EU now has a ban on exports to non-OECD countries, and the French government plans to introduce a system that will reward producers that use domestically recycled post-consumer plastic in their packaging.

Peake, a member of the UK government’s Circular Economy Taskforce charged with designing a circular economy strategy in England, notes that an export ban must form part of a longer-term strategy. Without it, there’s the risk of locking in the use of plastics in energy-from-waste plants, because the UK doesn’t have enough recycling capacity to cope with keeping its waste within its borders.

Recyclers argue that exports are incentivised by Packaging Export Recovery Notes (PERNs) – certificates bought by packaging producers from accredited processors to prove their waste has been recycled. PERNs assume processed waste contains 100% recyclable content and that the material will actually be recycled. ‘But we know that’s not true, because there will be contamination, there will be losses and those aren’t accounted for,’ says Peake. The government says it will tighten up evidence requirements for PERNs from January 2026 and work with regulators to improve enforcement.

Contamination – for example with food residues, labels, inks and other incompatible materials – increases the cost of recycling and reduces yields. Some aspects of the issue should be reduced by England’s Simpler Recycling scheme, which comes in to force in 2026 and aims to standardise the ways different recyclable wastes are separated and collected across the country. A similar scheme is already in force in Scotland. Recyclers are most keen to have deposit return systems, which deliver the highest purity of material. A UK-wide scheme, which will include polyethylene terephthalate (PET) bottles, will start in 2027 – almost a decade after it was first planned.

French firm Veolia aims to take advantage of the introduction of Simpler Recycling through a £70 million investment into a new ‘closed loop’ facility to recycle PET trays. However, it also plans to shut two plants in Germany, recycling PET and high-density polyethylene (HDPE).

Paying premium prices

In 2022, the UK government brought in a plastic packaging tax, which is paid by all companies that make or import more than 10 tonnes of plastic packaging each year – unless the packaging contains at least 30% recycled material.

The fee, which increases with inflation, goes to the Treasury rather than directly supporting recyclers. However, at £223 per tonne in 2025 it represented less than half of the differential between some recycled and virgin plastics. S&P Global recorded recycled HDPE pellets trading at a premium of €478 (£418) over virgin HDPE; with food grade recycled PET spot prices over £580 higher than their virgin equivalent in April 2025.

‘The plastic packaging tax hasn’t been agile enough to deal with market volatility, so it means that it [is cheaper] to pay the tax and not put recycled content in new products,’ observes Torik Holmes from the Sustainable Consumption Institute at the University of Manchester, UK.

By the end of 2023, recycled content levels averaged 24%, and a 3% fall in packaging tax receipts in 2024 suggests more packaging is meeting the 30% target. However, many in the industry believe material is being placed on European markets that purports to be recycled but isn’t. ‘There’s a suspicion of quite a high level of fraud,’ says one UK recycler. In November, the UK government announced plans to consult on mandatory certification for mechanically recycled content.

The plastics packaging tax may also have had perverse incentives: one industry source told Chemistry World, ‘we saw some companies drop from 100% recycled content to 30% overnight. And then we’ve also seen some companies just walk away entirely because it’s cheaper to pay the tax.’

To stimulate demand, the recycling industry wants to see an escalator on the packaging tax, as well as on the recycled content threshold to avoid it. Peake suggests recycled HDPE and PET content could be higher, but achieving a higher rate for polypropylene (PP) would be more challenging. However, ‘if you put a trajectory on it, that would [create] the business case to figure out how to increase recycled content and to get those supply chains in place’.

Under new UK EPR legislation, businesses that handle over 25 tonnes of packaging or packaging materials must now pay the cost of collecting and managing household packaging waste incurred by local authorities. The last government calculated that some £1.2 billion of costs would shift from local authorities to packaging producers. From 2026, the fees will be adjusted depending on how recyclable packaging is. The scheme also sets packaging recycling targets for businesses, growing from 55% in 2025 to 59% in 2027.

‘We’re not seeing growth in reprocessing infrastructure, and as I see it, the design of policy isn’t necessarily going to directly spur that growth,’ says Holmes. ‘There is some suggestion that PackUK – the organisation set up to administer EPR – may incentivise local authorities to put the money into recycling, but it’s not ring-fenced.’

Analysis by Hybrid Economics, carried out for waste management group Biffa, suggests the UK could eventually process all its recyclable plastic packaging waste. That target would require £800 million of private sector investment and generate over 5000 new jobs. A range of policy measures would be needed, including phasing out plastic waste exports, raising the plastic packaging tax threshold to 50% and introducing third party certification of imported recycled plastic.

While the EPR system is being introduced, companies will continue to pay for Packaging Recovery Notes (PRNs) and PERNs that certify recycling of waste. These fees cover part of the cost of recycling but have proved to be highly volatile. In 2024, revenues fell by more than half, compared with large increases in 2022 and 2023, meaning less investment went into recycling infrastructure.

Further demand for recycling looms in 2028, when municipal waste incineration will come under the UK’s Energy Trading System (ETS). ‘That will massively reduce the incentive to incinerate plastic waste,’ suggests Peake, although the concern will be building enough recycling capacity to handle it.

Closing the loop

Research by chemicals intelligence firm ICIS suggests that the EU’s PPWR will drive substantial demand for recycled PET, PE and PP, expected to be 5.4 million tonnes a year by 2030 and 11.5 million tonnes by 2040 once proposed legislation comes into force, for example on recycled plastics in the automotive sector. However, that is still significantly below the total plastic packaging waste generated across the EU, which in 2023 was almost 16 million tonnes. The report says chemical recycling will be essential to meet demand, especially for food grade applications.

One of the challenges for chemical recyclers will be providing evidence of recycled content. The UK government has said it will introduce a mass balance approach to account for chemically recycled plastic (in which total inputs and outputs are tracked, rather than requiring a complete chain-of-custody for recycled materials), under the Plastics Packaging Tax. In the EU, the PPWR will also allow a mass balance approach.

This has been welcomed by chemical recyclers, as there’s no way to identify which molecule of polymer came from a recycling plant and which from a petrochemical plant. ‘We need these accounting rules,’ says Plastic Energy’s Temperton. ‘We also need the penalties for non-compliance. Those are the two things that will stimulate investment and get the market going again’.

Plastic Energy’s joint venture with Sabic in the Netherlands is in the process of commissioning its 20,000 tonne/year chemical recycling plant that takes mixed contaminated streams of polyolefins (that might usually be incinerated) to make food grade packaging, for example.

The question is whether all the regulation coming down the track will create the right environment for a circular economy and spur the new investment needed to keep recyclers in business.