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ARCs to avoid a flood of plastic waste: the Recycled Material Standard

Ian Rinehart, Analyst
October 20, 2021

The Recycled Material Standard (RMS) is a voluntary standard that aims to incentivize the creation of additional recycling capacity and to enable a wider spectrum of companies to make claims about recycling. At present, the geographic scope is limited to North America, which lags behind Europe in recycling infrastructure. RMS could become a pathway to bridging critical gaps in the circular economy, although its success will depend partly on educating consumers about a system that is not as intuitive as typical recycled content claims. This insight draws on discussions with RMS Director Laura Thompson. See our other insights on mass balance and recycling credits for more on the circular economy.

Principles of RMS

The core RMS framework provides auditable chain of custody for recycled material claims. Initially, RMS will cover plastics, but in the future, it may expand to glass or metals. RMS allows average content claims and mass balance claims and supports tradable certificates called Attributes of Recycled Contents (ARC), which "represent the buyer's financial support for the processing of one ton of recycled plastic." For its mass balance system, RMS uses proportional allocation principles, not free allocation, and treats energy-generating fuel as a loss (see the documentation for details.) Fuel produced is treated as a loss because RMS considers it noncircular. This standard is stricter than REDcert or ISCC mass balance standards, which allow free allocation of sustainable mass and will almost certainly face opposition from petrochemical pyrolysis developers. Laura explained that the framework designers adopted proportional allocation because RMS privileges circularity over waste mitigation as a founding principle. She contended that educated consumers and forward-leaning governments will come around to this higher standard even if some industry voices are resistant. In other words, RMS would accept narrower initial adoption as the price of credibility. RMS is under the umbrella of the nonprofit organization GreenBlue and supports itself financially through certification fees.

ARCs

ARCs are claims that derive from payment to a plastic reprocessor to subsidize additional recycling. For certain types of plastic containers and products, current recycling infrastructure cannot produce enough recycled content to meet producer and consumer requirements. For example, the supply of food-grade rPET does not match demand. Although manufacturers may desire to foster sustainability by using recycled content, they simply cannot obtain it at a reasonable cost or perhaps at all. RMS allows those manufacturers to support the circularity (recycling) of the exact material they produce without being required to use recycled content in their own products, as we typically see with recycled content claims. The RMS/ARC label is a claim that says, in effect, the equivalent amount of plastic in this product was recycled. ARCs must match materials – what is being sold and what was recycled – in a 1:1 match by weight. By design, the recycled plastic that generates an ARC cannot bear a recycled content label; the ARC inherits that claim. This "unclaimable" recycled plastic can still be sold and used, however. Third-party auditors will monitor RMS compliance, and ARCs will be tracked in a digital registry.

To comply with RMS and to generate ARCs, recycling activity must meet additional requirements. In summary, those are (1) a new or refurbished facility, (2) recycling beyond what is required by law, and (3) recycling that is outside business as usual. A facility qualifies as new if it is less than 15 years old. The RMS is intended to be technology-agnostic, but the 15-year time horizon for additionality favors technologies with lower capital investment and shorter facility life spans, benefiting mechanical recycling more than chemical.

RMS and the regulatory environment

RMS is a voluntary framework that, by design, exists outside of legally mandated recycling activity. If jurisdictions in North America enact extended producer responsibility (EPR) policies, those recycling/disposal requirements would likely supplant RMS-compliant activity. RMS is positioning itself as an opt-in mechanism to achieve the same sustainability goals as EPRs in a region that has not implemented strong regulation. Laura stated that RMS is willing to support policymakers in the development of EPR policies if they want to use RMS as a model.

Outlook for RMS

Overall, RMS is a laudable effort to harness market forces in support of the circular economy and an important test case for credit-based standards. Its stricter mass balancing rules should help to overcome many of the issues we have identified with other standards. With ARCs, manufacturers and consumers will have another tool to direct their spending in a way that promotes sustainability. Clients should watch to see if RMS can overcome these challenges:

  • Value of ARCs. One downside of a market-based system is the near-term uncertainty around the value of an ARC. In effect, the ARCs monetize consumers' and manufacturers' preference for sustainability (plastic recycling) and transfer some portion of that value to the recyclers to subsidize additional recycling. As the framework is launched, companies will have to purchase the ARCs based on their own models in the absence of data on consumer perceptions. We are confident that the cost will be less than the premium for recycled materials (or else why bother), but it is unclear what the difference will be. The cost that manufacturers pay for ARCs, and thus the subsidy to recyclers, may influence consumers' reaction to the RMS label. There is potential for a self-reinforcing dynamic here: The more companies pay for ARCs, the more consumers value the claim, and vice versa.
  • Labeling. What will it mean to consumers when they see a label indicating that L'Oréal has paid to recycle the equivalent amount of plastic in their shampoo bottle? It's not clear. Thompson described ARCs as "cause marketing." A major challenge for RMS and its parent organization GreenBlue will be to educate consumers on the importance and effects of this type of credit system. There will also be an inverse challenge for the "unclaimable" plastic, as the RMS will need to ensure that participant reprocessors are not selling ARCs and also making recycled content claims on the physical output.
  • Demand for unclaimable recycled plastic. Producers of high-end consumer-facing plastics may purchase ARCs only to find that there is not enough demand for those recycled plastics that cannot bear recycled content claims. There is a downside risk of excess capacity, which could lead to low-quality plastic going to the landfill. In the long run, however, this market dynamic should encourage reprocessors to find either (1) technology to improve the quality of recycled content or (2) new markets that will pay for recycled material that cannot bear a claim.
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