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Tax on plastic could rock these six stocks
Updated on: 12/11/2018

That's one possible conclusion from a fascinating and frankly frightening report by Credit Suisse looking at impending "plasticide" threatening Australia and the world.

The team behind the report, led by Phineas Glover, argues the incredible build-up of plastic in the economy is reaching such a critical level that societal pressure will force the Australian government to act, potentially as soon as the next two financial years.

The measures Credit Suisse see as likely to be examined would include bans on single-use plastics, tax incentives to boost plastic recycling, tariffs on imported plastics packaging and, perhaps most dramatically, a possible tax on resins.

 "The plastic waste crisis deepens: there is too much plastic waste domestically with no at-scale export markets. The combination of a build-up of illegally dumped or landfilled waste, with much stronger consumer awareness, is likely to result in a more reactionary federal response by [2019-20]," Glover and his team argue.

The sheer numbers around plastic are staggering.

Plastic is the fastest growing commodity in the globe, with global production rising from 2 million tonnes in 1950 to 380 million tonnes in 2015; half the plastic ever produced on the planet was made in the last 13 years.

On this trajectory, 34,000 million tonnes of plastic will have been produced by 2050. But assuming consistent use patterns and global waste management trends to that point, 9,000 million tonnes of plastic waste will have been recycled, with 12,000 million tonnes incinerated, and 12,000 million tonnes discarded in landfills or the natural environment.

National Waste Strategy

The trend in Western nations has been to make that plastic someone else's problem – and typically a poorer someone else. Around 70 per cent of plastic was exported form higher-income countries in the OECD to lower-income nations in Asia and the Pacific.

For Australia, China has been our main dumping ground, with as much as 93 per cent of our plastic waste exported there; the average over the last decade has been 81 per cent.

But that jig is up. In the run up to the outright bans in Chinese plastic imports in 2018, China went from importing 77 per of all Australian plastic exports in December 2016, to 8 per cent in January 2018. Malaysia and Indonesia have become much larger destinations for our waste, but that's likely to be short lived too.

Australia's policy response started in April with the release of a National Waste Strategy.

It calls for a reduction in total waste generated in Australia per capita by 10 per cent by 2030, for 70 per cent of plastic packaging to be recycled or composted by 2025 and for 30 per cent recycled-content across all goods and infrastructure procurement by 2025.

Policy measures will be needed. Glover argues in his report that "reactionary" policy responses – such as a taxes or incentives – aren't far away.

Coca-Cola Amatil, which sells huge amounts of single-use plastic, would obviously be hit hard by a tax on resin, and even changes to higher recycled content in plastic packaging.

How much of these higher costs could be pushed on to consumers already unimpressed by the company's reliance on plastic is an open question.

Packaging companies would clearly be under pressure too; Glover and his team believe Amcor, with its global diversification, might be better placed than Pact Group. Orora, which sells relatively little plastic packaging, could be even better placed if consumers force a push towards paper packaging.

Tax winners

Another sector that will be hit by more costly packaging would be the grocery giants; again, the question is how much of their higher costs could be passed through? Credit Suisse believes Coles is further down the recycled packaging path than Woolworths.

The big winner? Waste management group Cleanaway would be boosted by demand for more landfill facilities for increased recycling as the country strives to meet that 30 per cent target of goods to be made of recycled materials by 2025.

Credit Suisse says the waste management sector will be the "clear beneficiaries of the overall National Waste Strategy, which implies a large increase in waste management infrastructure and a supportive policy framework, particularly in relation to demand for recycled plastic. Some market consolidation is likely in the short run, given impact of China, which will benefit larger incumbents with scale."