UNLOCKING FINANCING TO COMBAT THE PLASTICS CRISIS Opportunities, Risks, and Recommendations for Plastic Credits June 2024 © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy, completeness, or currency of the data included in this work and does not assume responsibility for any errors, omissions, or discrepancies in the information, or liability with respect to the use of or failure to use the information, methods, processes, or conclusions set forth. 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Photo credits: p. xii © Chanchai phetdikhai / Shutterstock; p. xxvi © Lewis Burnett / Shutterstock; p. 2 © BTWImages / Shutterstock; p. 4 © V.stock / Shutterstock; p. 6 © Augustine Bin Jumat / Shutterstock; p. 14 © ImagineStock / Shutterstock; p. 20 © Augustine Bin Jumat / Shutterstock; p. 44 © Mazur Travel / Shutterstock; p. 50 © junpinzon / Shutterstock; p. 76 © aldomurillo / iStockphoto; p. 76 © aleksejplatonov / iStockphoto; p. 76 © aleksejplatonov / Nikita Burdenkov; p. 77 © Gigira / Shutterstock. Cover photo: © Maryshot / Shutterstock. Further permission required for reuse. Design: Ricardo Echecopar UNLOCKING FINANCING TO COMBAT THE PLASTICS CRISIS Opportunities, Risks, and Recommendations for Plastic Credits June 2024 iv Analytical Study of Plastic Crediting Report TABLE OF CONTENTS ACRONYMS AND ABBREVIATIONS VIII FOREWARD X ACKNOWLEDGMENTS XI EXECUTIVE SUMMARY XIII Recommendations xx How to read this report xxiii 1. INTRODUCTION 1 2. HOW DO PLASTIC CREDITS WORK? 7 2.1. Definition of a plastic credit 7 2.2 Types of plastic credit 8 2.3 How are plastic credits issued and purchased? 9 2.4 Key stakeholder groups 10 2.5 Plastic Credit Market Governance and Best Practices 11 Best-practice principles for plastic crediting programs 12 Best-practice principles for plastic credit purchases 13 3. OVERVIEW OF THE PLASTIC CREDIT MARKET 15 3.1. State of the current plastic credit market 15 Existing plastic crediting programs 15 Geographical distribution of plastic crediting programs 20 Geographical distribution of plastic credit projects 20 Types of plastic credits offered by crediting programs 22 Claims associated with plastic credits 26 3.2 Trends in the plastic credit market 27 Majority of projects in developing countries 27 Emphasis on the involvement of the informal sector 28 A dominant voluntary market 28 Plastic credit prices can vary widely in the absence of a pricing structure 29 v The demand trajectory is uncertain 29 The role of plastic credits as a mitigation option versus contribution 29 Plastic crediting is being explored as a regulatory instrument 30 3.3 Extended producer responsibility schemes and plastic crediting 30 The interaction of EPR and plastic crediting 31 How can plastic crediting be used within EPR schemes? 33 Case studies – EPR schemes and crediting mechanisms 35 Case Study 1: A crediting mechanism to increase recycling in the UK 35 Case Study 2: EPR crediting as a tool for compliance in India 36 Key considerations for plastic crediting as a regulatory instrument 36 3.4 Benefits, risks, and challenges 39 Benefits of plastic crediting 39 Key benefits 39 Risks and challenges of plastic crediting 44 Challenges and risks 45 4. RECOMMENDATIONS 51 4.1 General recommendations for plastic crediting 51 4.2 Proposed actions 59 REFERENCES 63 ANNEX I 69 Key components of a crediting standard 69 ANNEX II 71 Incentivizing private sector investment through the pilot auction facility 71 ANNEX III 72 The Paris Agreement and Article 6 72 ANNEX IV 73 Methodological considerations for upstream plastic credits 73 ANNEX V 76 Landscape of plastic crediting in Southeast Asian countries 76 Deep dive on plastic crediting in the Philippines 78 LIST OF TABLES TABLE 1: Proposed mitigation measures to address identified challenges and risks xx TABLE 2: Overview of plastic credit types 8 TABLE 3: Plastic crediting program categories 17 TABLE 4: Credit types across plastic crediting programs 23 TABLE 5: Summary of claims and associated results 26 TABLE 6: Developing national crediting standards versus adopting existing standards 33 TABLE 7: Examples of sustainable development goal attributes from plastic pollution reduction 43 TABLE 8: Proposed mitigation measures to address identified challenges and risks 51 TABLE 9: Summary of recommended actions for key stakeholders 63 TABLE AIV: Examples of upstream plastic project activities 76 TABLE AV: Overview of plastic credit projects and EPR in ASEAN nations 78 LIST OF BOXES BOX 1: Financing Waste Collection and Recycling in Thailand through Waste Credits 10 BOX 2: Plastic credits for upstream activities 24 BOX 3: Moving toward standardization for plastic crediting: The relevance of the INC process for plastic crediting 52 BOX 4: Enabling action through a Plastic Waste Reduction-Linked Bond 56 LIST OF FIGURES FIGURE 1: Distribution of Registered and Listed Plastic Credit Projects across Programs and Regions xvi FIGURE 2: Overview of plastic credit projects listed and registered per year xvii FIGURE 3: Overview of plastic credits issued or verified by year xviii FIGURE 4: Key stakeholders involved in plastic credit process 11 FIGURE 5: Best practices for certification programs to ensure impact 12 FIGURE 6: Key principles for plastic credits 13 FIGURE 7: Distribution of registered and listed plastic credit projects across programs and regions 21 FIGURE 8: Distribution of plastic credit projects with verified or issued credits across programs and regions 22 FIGURE 9: Overview of extended producer responsibility schemes with / without a crediting mechanism 31 FIGURE 10: Overview of possible interactions between EPR and plastic crediting 32 ACRONYMS AND ABBREVIATIONS 3RI 3R Initiative AEPW Alliance to End Plastic Waste ARC Attribute of Recycled Content ASEAN Association of Southeast Asian Nations BAU Business As Usual CAH Circular Action Hub CCM Circular Credits Mechanism CDM Clean Development Mechanism CPCB Central Pollution Control Board CSR Corporate Social Responsibility EMF Ellen MacArthur Foundation EPR Extended Producer Responsibility FMCG Fast-Moving Consumer Goods GHG Greenhouse Gas GHG Protocol Greenhouse Gas Protocol HDPE High-Density Polyethylene ICVCM Integrity Council for the Voluntary Carbon Market INC Intergovernmental Negotiating Committee ISEAL International Social and Environmental Accreditation and Labeling Alliance ITMO Internationally Transferred Mitigation Outcome kg Kilogram MoEF Ministry of Environment and Forestry Indonesia MRV Measurement, Reporting, and Verification NDC Nationally Determined Contribution NGO Non-Governmental Organization OBP Ocean-Bound Plastic OECD Organization for Economic Cooperation and Development PAF Pilot Auction Facility for Methane and Climate Change Mitigation PCX Plastic Credit Exchange PERN Packaging Waste Export Recycling Note PET Polyethylene Terephthalate PIBO Producers,Iimporters, and Brand Owners PPRS Plastic Pollution Reduction Standard PRN Packaging Waste Recycling Note PWRS Plastic Waste Reduction Standard RMS Recycled Material Standard SBTi Science Based Targets initiative SDG Sustainable Development Goal SMEs Small- and Medium-Sized Enterprises t Metric ton UNEA United Nations Environment Assembly UNFCCC United Nations Framework Convention on Climate Change USD United States Dollar VCM Voluntary Carbon Market VCMI Voluntary Carbon Markets Integrity Initiative VVB Validation/Verification Body WBCSD World Business Council for Sustainable Development WEF World Economic Forum WWF World Wildlife Fund ZPO Zero Plastic Ocean x Analytical Study of Plastic Crediting Report FOREWARD Plastic pollution has become a global crisis, with significant negative environmental, social, and economic implications. The crisis has become acute as exponential growth in plastic production and consumption has not been met with the necessary investments to address the corresponding waste. There is significant and growing momentum globally towards addressing this crisis, most notably seen through the ongoing International Negotiating Committee (INC) process which aims to develop a legally binding agreement on plastic pollution by the end of 2024. Regardless of the outcomes of the INC process and the final agreement, a significant scaling of plastic policies, investment, innovations, and tools will be needed to tackle the crisis. This publication, Unlocking Financing to Combat Plastic Crisis: Opportunities, Risks, and Recommendations for Plastic Credits, aims to provide a comprehensive analysis of one of these potential tools, plastic crediting. This report is intended for a range of stakeholders, including policymakers, plastic crediting programs, multilateral organizations, private sector, and civil society organizations. Plastic pollution is a global challenge that requires coordinated actions and innovative solutions. Plastic crediting offers a results-based mechanism to connect public and private sector finance with specific activities that address plastic pollution. By quantifying and certifying the results of plastic pollution reduction initiatives, plastic credits provide a means for organizations to financially support these projects and contribute to the transition to a circular economy. The report highlights the potential benefits of plastic crediting, such as increased funding for plastic waste management projects, enhanced accountability and transparency, and the promotion of sustainable practices. However, it also acknowledges the challenges and risks associated with plastic crediting, including the lack of a common definition and standards, the potential for greenwashing, and the need for robust governance and enforcement. The report also recognizes the need for plastic credits to supplement, not replace, comprehensive waste management investments and policies. To address these challenges and fully realize the potential benefits of plastic crediting, the report provides a set of recommendations for key stakeholders. These recommendations include the development of a centralized, independent, and neutral governance framework, the establishment of clear guidelines for plastic crediting programs and associated claims, and the fostering of market development through pre-purchase facilities and clear pricing guidelines. The World Bank Group is committed to supporting environmentally sustainable investments and working with countries to mobilize investments in low-carbon and resilient activities. We are pleased to share this report with the hope that it will contribute to the global efforts to address plastic pollution and promote the responsible use of plastic crediting as a tool for positive change. Mona Sur Practice Manager Environment, Natural Resources and Blue Economy Southeast Asia, Vietnam, Malaysia, Philippines, and Thailand xi ACKNOWLEDGMENTS This publication, Analytical Report on Plastic Crediting, was prepared for the World Bank Group by South Pole Carbon Asset Management Ltd. (South Pole). The World Bank technical team was led by Tao Wang and Rohan Bhargava, under strategic guidance of Mona Sur, Anna Wellenstein, Benoit Bosquet, and Ndiame Diop. The report benefitted from the following reviewers: Milagros Cecilia Aime, Oznur Oguz Kuntasal, Jonathan Coony, Mira Nahouli, Daniel Mira‑Salama, Anjali Acharya, Kate Almora Philp, and Rieko Kubota and valuable inputs from the following institutions: Verra, Zero Plastic Ocean, PCX Solutions, rePurpose Global, UNDP Cambodia, The Waste and Resources Action Program, United Kingdom, World Wildlife Fund, Alliance to End Plastic Waste, Zero Waste Lao, Heng Hiap Industries, Yunus Environment Hub, International Solid Waste Association, Waste4Change, Zero Waste Laos , ClimeCo, Parley, BVRio, and GreenBlue. We thank them all. Executive summary xiii EXECUTIVE SUMMARY Plastic pollution has become an urgent global mechanisms, such as taxes, levies, and market-based issue (OECD 2022). Policymakers, business leaders, crediting schemes can be applied within a suite of and communities are advancing solutions to solutions to accelerate plastic pollution reduction address the problem, but a significant financing activities. Among these solutions, plastic crediting gap remains for a circular plastics economy. This is an emerging mechanism that has the potential to report explores the viability of plastic crediting as mobilize financing to address plastic pollution during a potential mechanism to finance plastic pollution the transition to a circular economy. Plastic pollution interventions. presents unique challenges; the potential role of a crediting mechanism requires further exploration. To The rapid increase in plastic production and consumption examine its potential impacts and risks, this report: has far outpaced available waste management systems introduces the concept of plastic crediting; provides globally, with only nine percent of plastic waste ever an overview of the current state of the plastic crediting produced has been recycled (OECD 2022). According to system; analyzes the associated challenges, risks, and the OECD (2022), plastic waste generation more than benefits; and puts forward some recommendations. doubled to 353 million tons between 2000 and 2019. The For the purposes of this report, the term ‘plastic credit’ transboundary movement of plastic pollution (Galaiduk is used to refer to the credit itself, while the term et al. 2020) and international transport of plastic waste ‘plastic crediting’ is used to refer to the concept and complicate efforts to address the challenge (Lebreton mechanism of plastic crediting. et al. 2012). Approximately 81 percent of plastic waste that enters the ocean comes from waterways in Asia Plastic crediting is an emerging results-based (Meijer et al. 2021). Meanwhile, there is a significant mechanism that aims to connect public and private finance gap to achieve a circular economy, ranging sector finance with specific activities that address from USD 426 billion to USD 1.2 trillion by 2040 globally, plastic pollution. and an estimated USD 28-40 per ton for plastic waste collection in five Southeast Asian countries (Kaplan There is no common definition of ‘plastic credit’. A 2022; Circulate Initiative 2021; 3RI 2021; Lewis 2019). plastic credit can be understood as an environmental certificate that represents the result of collecting and A range of solutions are needed to end plastic pollution, managing plastic waste from the environment, recycling starting with a reduction in plastic production, plastic waste, or avoiding plastic use. Plastic credits are market transformation, and solutions to address issued per metric ton or per kilogram and are primarily legacy plastics (UNEP 2023b). Regulatory frameworks issued under a plastic crediting program. Programs are are in development to support the transition to a initiatives run by standard setting organizations that circular economy. This includes extended producer provide the rules, standards, procedures and methods responsibility (EPR) schemes, whereby producers are to measure, monitor, and verify the results of plastic required to take responsibility for waste from their pollution interventions. Different types of plastic products or packaging through upstream design credits reflect different activities (e.g., avoidance credit, and downstream waste management. Financial xiv Analytical Study of Plastic Crediting Report collection credit1 or recycling credit) or origin (e.g., The plastic credit market is at a very early stage ocean bound plastic credit). There is no distinction in of development, with significant variation in credit types based on plastic polymer. Most programs methodologies, credit types, and transparency require that projects monitor their results by plastic type, across crediting programs. however all polymers are currently weighted equally in the estimation of plastic credits. The introduction of a The concept of payment for waste management services conversion factor to assign a plastic waste reduction through certificates first developed between 2013 and impact per polymer type is under consideration. 2015.2 Many programs have since emerged, including highly simplified schemes and highly structured crediting The plastic crediting mechanism enables a results- approaches. based approach where projects can issue credits only after their plastic pollution reduction is quantified and Plastic crediting programs vary widely. Definitions, eligible confirmed. The more successful the project is in reducing project types, calculation methods, and processes are plastic pollution, the more credits it can generate. These set by each crediting program. Several program owners credits can be sold to interested buyers. In some cases, adopt multiple roles—including project implementation, prepayments are made for plastic credits (e.g., when standard development, and sales of plastic credits. upfront investment is needed to finance the credited This has led to concerns around transparency and activities). As a result of this process, projects are conflict of interest. A few programs include specific incentivized to deliver results efficiently and at scale. crediting standards, host public registries, and operate Plastic crediting can act as an additional tool for financing independently of project implementation and sales. plastic pollution reduction activities. And it should not displace the long-term efforts and commitments of To better understand the landscape of plastic crediting national governments and private sector in this regard. programs, this study classifies them into three categories:3 Plastic credits can be purchased by compliance buyers 1. Fully independent and transparent programs; to fulfill their obligations under specific policies (e.g., EPR), or by voluntary buyers to claim a contribution 2. Programs with a public standard and multiple roles in to reduce plastic pollution. The revenue from the sale the value chain; and of plastic credits is used to support plastic pollution reduction efforts. This helps to make the efforts more 3. Other programs financing plastic pollution reduction financially viable and scalable and generates additional that do not fit into the first two categories. environmental and social benefits. Category 1 crediting programs publicize standards and methodologies, and their projects require third-party verification. These programs were developed through a multistakeholder development process involving public and expert consultation, and the programs align with International Social and Environmental Accreditation 1 Collection credits require project actors to demonstrate that the collected plastic waste has been managed before any credits can be issued. Standards set definitions and requirements to define adequate or appropriate management. 2 For example, the Reverse Logistics Credit created by BVRio in 2013 and piloted in 2014-2015 in Brazil (more information here). 3 The categorization is based on criteria relating to the independence and transparency of crediting programs and does not reflect the ambition or level of integrity of crediting standards or methods used by programs. Executive summary xv and Labeling Alliance (ISEAL)4 best practices. Programs This study identified two programs under Category 2:9 are open to applications from any project that meets the eligibility criteria. Projects are listed on public registries • PCX Solutions Plastic Pollution Reduction Standard displaying project identification (ID) and name, quantity (PPRS) of credits issued, serial numbers per credit, quantity of credits retired, retirement date, and reference period. • BVRio Circular Credits Mechanism (CCM) The programs in category 1 and affiliate organizations are fully independent from the project development and There are several other programs that offer financing implementation purchase and sales of plastic credits. solutions marketed as a ‘credit’ or under an alternative name (e.g., offsets, certificates, contributions, verified This study identified three fully independent plastic units), but apply a different approach to plastic crediting crediting programs under category 1:5 (category 3). For example, the quantified results of a plastics reduction activity (e.g., weight of plastic waste • Verra Plastic Waste Reduction Standard (PWRS);6 managed) are measured according to internal guidelines and sold to a buyer as a results-based purchase. • GreenBlue Recycled Material Standard (RMS);7 and Programs in this category follow internal guidelines and methodologies that are not typically publicly available. • Zero Plastic Oceans Ocean-Bound Plastic (OBP) Program owners select projects to work with (i.e., the Neutralization Certification.8 program is not open to any project owner). Projects are managed through a registry that is not available to the Category 2 programs also apply a publicized crediting public (e.g., blockchain-enabled platforms only available standard and methodology, require third- party to the program or buyers). Requirements for third-party verification and follow ISEAL best practices. Any project verification vary among programs in this category. owner may apply to these programs. Programs in this Programs may be involved in project development category list projects on public registries. However, and implementation, sales of credits, and provide information may be limited (e.g., not all information on certifications for buyers (e.g., Plastic Neutral). project ID, project name, credit serial number, issuance and retirement transaction details, and crediting As of December 2023, 160 plastic crediting projects were period is available). Also, standard setters may not identified of which 61 projects were under category  1.10 be fully independent and could get involved in the Approximately 11,584 plastic credits (equivalent to 11,584 implementation of projects, purchase and sales of plastic metric tons of plastic waste) were verified by third‑party credits or provision of paid certificates for buyers. 4 International Social and Environmental Accreditation and Labeling Alliance (ISEAL) Codes of Good Practice provide a globally recognized framework for effective and credible sustainability systems. They are considered ‚best practice’ for programs seeking to make a positive impact. See https://www.isealalliance.org. 5 This categorization is based on publicly available data in January 2024. Programs given here are examples of this category. As programs develop this categorization may change. 6 Verra PWRS (available here). 7 RMS (available here). 8 OBP Certification Program (available here). 9 This categorization is based on publicly available data in January 2024. Programs given here are examples of this category. As programs develop this categorization may change. 10 For the purposes of this analysis, programs under category 3 are not considered typical plastic crediting programs. As a result, the statistics shown in the report only include category 1 and category 2 programs, unless otherwise specified. This includes projects listed on the public registries pending registration and those registered. xvi Analytical Study of Plastic Crediting Report auditors and issued under programs in category 1.11 figure 1). With current pricing estimates, plastic crediting Geographically, the majority of the 160 projects are could bring approximately 10 million USD of financing to in South and East Asia (53 percent), Latin America plastic pollution interventions from the sale of existing (25 percent), and Africa (11 percent). This reflects the plastic credits and could grow to approximately 30 million development of multiple crediting programs in response USD annually within the next five years.12 to the plastic waste challenge in these regions (See FIGURE 1: Distribution of Registered and Listed Plastic Credit Projects across Programs and Regions Latin America & Caribbean Middle East and North America Africa Europe and Central Asia REGION Western Europe South Asia East Asia and Pacific US & Canada 0 10 20 30 40 50 Number of listed or registered projects CATEGORY 1 PROGRAMS CATEGORY 2 PROGRAMS OBP PWRS RMS PPRS CCM Source: Verra n.d.; OBP, n.d.; BVRio n.d.; PCX n.d.; RMS n.d.13 Plastic crediting standards currently focus on Plastic credits for upstream activities (e.g., avoidance downstream plastic waste reduction activities, of plastic, substitution for alternative materials), are including plastic collection and management (e.g., being explored. One pilot project was conducted by environmental clean-ups and waste disposal in landfill), rePurpose Global to trial the “Upstream Innovation” diversion of plastic waste from landfill (e.g., plastic is credit for a project using natural fibers to displace plastic incinerated with energy recovery), and plastic recycling. materials. Another program (PCX  Solutions) includes 11 Verra registry, RMS registry, and OBP registry. 12 Estimation made using average price and number of plastic credits available on the market in 2023. Projection with triple of current market size. 13 Figure includes listed and registered projects from programs in categories 1 and 2 as of December 2023. Executive summary xvii an “Avoidance” credit for upstream activities that avoid by the Circulate Initiative and the 3RI, which could the use of plastic products and plastic waste generation serve as potential references for programs and buyers and is exploring a plastic innovation credit and plastic respectively (Circulate Initiative 2021; 3RI 2021). To avoidance credit. These credit types are under review improve their effectiveness, plastic crediting programs as both programs cite the need for proper mechanisms should consider the specific challenges presented by and methodologies for upstream credits.14 Significant plastic pollution, such as the permanence of plastic testing and stakeholder alignment is needed before a pollution, local dynamics, and range of polymer types plastic crediting system with robust methodologies for and applications. upstream activities can be properly established and developed. Moreover, plastic credit standards currently The first two programs (category 2) were launched in target macro‑plastic waste (larger than 5mm) and not 2020 with an initial surge of projects listed in the registry yet involve micro‑plastic pollution (smaller than 5mm). in the same year. In 2021, three category 1 programs were launched. The number of listed and registered projects The level of accountability and transparency varies has increased ever since (see figure 2). among plastic crediting programs. Programs in category 1 with publicly available standards and methodologies, The uptake of plastic credits is growing as the awareness and third-party audits often include more stringent of the plastic crediting mechanism increases. While the requirements on demonstration of additionality, robust number of plastic credits continues to grow (see figure 3), monitoring frameworks, open disclosure, and public the lack of a common framework, definition, and registries. Further work is needed to achieve alignment requirements for the use of plastic credits is inhibiting on common definitions and best practices of plastic further adoption. crediting. Existing guidelines, such as those developed FIGURE 2: Overview of plastic credit projects listed and registered per year15 2020 2021 YEAR 2022 2023 0 10 20 30 40 50 60 70 Number of projects listed or registered per year Source: OBP, n.d.; RMS n.d.; Verra n.d.; PCX Solutions, n.d.; BVRio16 n.d. 14 For example, see “Guidance note: avoidance” by PCX Solutions in the PPRS version 7 (available here). 15 Data is provided for category 1 and 2 programs as data is not publicly available for programs under category 3. 16 Projects listed on Circular Action Hub for pre-payment or performance credits under the CCM. xviii Analytical Study of Plastic Crediting Report FIGURE 3: Overview of plastic credits issued or verified by year17 2020 2021 YEAR 2022 2023 0 5,000 10,000 25,000 20,000 25,000 Number of credits issued or verified per year Source: BVRio n.d.; OBP, n.d.; PCX n.d.; RMS n.d; Verra n.d. The majority of plastic credits are used for voluntary a plastic footprint.18 There is limited data available on purposes. Examples of compliance mechanisms are plastic credit transactions and the level of demand for emerging. compensation compared with general contributions. Early buyers of plastic credits include national branches The plastic credit market is predominantly voluntary. of fast-moving consumer goods (FMCG) companies, The main motivation for voluntary buyers of plastic pharmaceutical organizations, personal care brands, credits is to finance waste management projects as a travel companies, and social enterprises. Corporate Social Responsibility activity in response to consumer demand for greater action to address plastic There are a few emerging examples of using plastic waste. Several voluntary corporate plastic reporting crediting as a regulatory instrument. One example is initiatives exist (e.g., Ellen MacArthur Foundation, CDP the integration of plastic crediting within EPR schemes. plastic questionnaire). There is currently no global Crediting mechanisms are included in producer requirement or target-setting initiative (i.e., equivalent responsibility schemes in the United Kingdom (UK), to the Science Based Targets Initiative) that requires India, Brazil, and the Philippines as a way for obligated companies to reduce plastic pollution. Plastic credits can parties to meet their waste management commitments. be purchased as a compensation tool for a plastic waste In 2023, 33 percent of the plastic credit retirements footprint with corresponding environmental claims to under the PPRS standard were made for compliance communicate to consumers, such as Net Zero Plastic to under the Philippines EPR scheme (PCX Markets, n.d.). Nature or Plastic Neutral. There is growing consensus Wider compliance schemes for plastic crediting like the to move away from ‘neutrality’ claims (WWF 2021). regulated carbon markets do not yet exist. The utility Plastic credits are also purchased as a general financial of plastic crediting as a compliance tool is case specific contribution by the public and private sectors to address and will need to be further developed. plastic pollution, without claiming compensation of 17 Annual data is provided for CAH, OBP, PWRS, PWRS crediting programs by 31 December 2023. Credits issued under PPRS obtained in May 2023. Data is not publicly available for programs under category 3. 18 A plastic footprint is defined by the Plastic Footprint Network as “the assessment of the effect that plastic leakage associated with a product / company / activity / country has on the environment and human health” (available here). Executive summary xix Several benefits and risks of plastic crediting were • Challenge/risk 2: In the absence of alignment identified. These must be carefully considered and between programs and clear governance to ensure addressed before a plastic crediting system can be market integrity, the results of some plastic pollution used to effectively address plastic pollution. activities may be double counted and not result in a net increase of plastic pollution management. • Challenge/risk 3: While the supply of projects is KEY BENEFITS increasing, the current market demand for plastic credits is mostly voluntary and ad-hoc. Lack of • Benefit 1: Provide financing for plastic pollution sufficient, sustained, and predictable demand, and reduction initiatives, waste management, increase a risk of low prices for plastic credits could start to recycled content, and address legacy plastic pollution. hinder project uptake. The plastic crediting mechanism can be used by public and private sector organizations to make solutions • Challenge/risk 4: Plastic credits purchased for economically viable and scalable. corporate offsetting purposes may be misused as a tool for greenwashing and misleading claims, and/ • Benefit 2: Place a price or value on plastic waste or as a disincentive to reduce plastic pollution given reduction or reduction of plastic consumption the absence of clear rules around plastic credit usage (including environmental externalities). and claims. • Benefit 3: The standards and methodologies used • Challenge/risk 5: Technical complexity, transaction for plastic crediting can provide a framework for times, and costs associated with the plastic crediting traceable results-based accounting that can enhance process (e.g., project validation and registration, monitoring and evaluation of plastic pollution credit verification and issuance) may deter project initiatives and increase the accountability and developers, particularly marginalized informal transparency of impact reporting. workers, and small businesses, from directly accessing • Benefit 4: Marginalized groups, including the informal the mechanism. sector, can be recognized as an important stakeholder • Challenge/risk 6: Plastic crediting programs’ in waste management, opening the door to benefit current  focus on downstream solutions risks sharing among actors. Specific requirements and overshadowing upstream plastic reduction measures safeguards to improve social and environmental if not considered equally. conditions of plastic pollution reduction initiatives, and links with the Sustainable Development Goals Recommendations (SDGs) are integrated into some crediting programs. CHALLENGES AND RISKS To address the identified risks and challenges and fully realize the potential benefits, the following mitigation • Challenge/risk 1: Plastic credits are in the early stages measures (Table 1) are proposed and recommendations of adoption. Programs vary greatly in terms of quality are put forward for consideration. and robustness, lack common definitions, and are not aligned on key principles. xx Analytical Study of Plastic Crediting Report TABLE 1: Proposed mitigation measures to address identified challenges and risks Challenges/risks Mitigation measures Challenge/risk 1: Plastic credits Establish minimum requirements and common principles for plastic are in the early stages of adoption. crediting programs and protocols for the use of plastic credits. Programs vary greatly in terms In the interim, plastic credit programs should ensure that robust calculation of quality and robustness, lack methodologies and environmental and social safeguards are in place. common definitions, and are not See Recommendation 1 aligned on key principles. Challenge/risk 2: In the absence of Robust measures to ensure additionality, a net increase in plastic waste alignment between programs and management and avoid double counting should be applied across crediting clear governance to ensure market programs (e.g., thresholds per activity, material, or location thresholds, integrity, the results of some assigning unique serial numbers, requiring responsible management of plastic plastic pollution activities may be waste in all cases19, and disclosing credit transactions on public registries). double counted and not result in Some plastic credit programs require projects to demonstrate that plastic a net increase of plastic pollution waste has been properly disposed or treated permanently before credits can management. Plastic waste be issued. Such measures that ensure end-to-end management of plastic collected are not properly disposed waste from collection to final disposal or recycling should be applied to or treated. all programs (e.g., specific requirements for disposal sites and measures to demonstrate permanence of waste management). A strong governance framework is needed to monitor effective implementation and ensure independent verification. In the absence of a common governance framework, credit buyers should review project documentation and crediting programs to understand measures to avoid double counting and ensure additionality. See Recommendation 1 Challenge/risk 3: While the supply A fund or pre-purchase facility could address some of the challenges of projects is increasing, the current of plastic crediting (e.g., provide technical assistance for marginalized market demand for plastic credits groups, further developing methodologies), and offer financial security to is mostly voluntary and ad-hoc. prospective projects. Lack of sufficient, sustained, and Establish pricing guidelines and categories to reflect activity type, location, predictable demand, and a risk of material type and co-benefits. low prices for plastic credits could See Recommendation 2 start to hinder project uptake 19 In locations where plastic is at risk of re-entering the environment after collection, alternative management options should be supported (e.g., establishing a new recycling center, or transporting to the nearest managed landfill). Executive summary xxi Challenges/risks Mitigation measures Challenge/risk 4: Plastic credits Develop best practices to promote the responsible use of plastic credits purchased for corporate offsetting to fund specific activities during a transition period within a wider plastic purposes may be misused as a tool action framework. for greenwashing and misleading Alignment is needed on the distinction between plastic credits, a tool claims, and/or as a disincentive to finance activities beyond a company’s value chain, and activities that to reduce plastic pollution given directly reduce plastic use within a company’s value chain. Guidance is also the absence of clear rules around needed on suitable claims surrounding credit purchases. plastic credit usage and claims. A public disclosure platform where buyers report plastic use, mitigation activities Plastic credits may be misused to within their own supply chain and use of plastic credits will enable monitoring. displace efforts from governments or private sector actors to establish Plastic crediting can be utilized as an additional financing tool and should extended producer responsibility not displace the long-term sustained efforts and commitments from public systems and/or proper waste and private sector actors. collection systems. See Recommendations 1 and 3 Challenge/risk 5: Technical Provide technical assistance for early-stage and projects with informal complexity, transaction times, and marginalized workers. This may include exploring options to simplify data- costs associated with the plastic collation, and benefit sharing mechanisms for marginalized workers. crediting process (e.g., project See Recommendation 4 validation and registration, credit verification and issuance) may deter project developers, particularly marginalized informal workers, and small businesses, from directly accessing the mechanism. Challenge/risk 6: Plastic If robust protocols for plastic crediting are established, explore crediting for crediting programs’ current upstream solutions through extensive piloting and stakeholder engagement. focus on downstream solutions See Recommendation 5 risks overshadowing upstream plastic reduction measures if not considered equally. 1. Strengthen the governance system of plastic It is imperative to establish minimum requirements crediting, including the potential creation of a and common protocols for plastic crediting including neutral governance body. Principles for plastic alignment on fundamental principles, definitions, and crediting programs and guidelines for plastic credit validation and verification protocols for plastic crediting purchases and claims are needed. programs. Enforceable rules are needed for robust xxii Analytical Study of Plastic Crediting Report plastic waste standards and accounting methodologies. The ongoing Intergovernmental Negotiating Committee Alignment on the possible role of crediting to finance (INC) process provides an important opportunity plastic pollution interventions, accounting methods and to collectively consider these risks and challenges. associated claims for buyers is also needed. Measures The INC Options Paper (April 2023)20 calls for “new, to incentivize the collection and management of legacy additional, stable, accessible, adequate, timely, and plastics, as well as plastic types that have a low value predictable flows of financial resources to support the after use or are hard to recycle should be explored. implementation of the instrument,” including “using Positioning the role of plastic crediting in the context credit schemes to finance initiatives that reduce plastic of a broader range of actions on reducing plastic waste.” Core obligations include strengthening waste pollution would help to foster trust and avoid plastic management; eliminating the release and emissions of credits becoming a perverse incentive or a greenwashing plastics to water, soil, and air; addressing existing plastic tool. Nongovernmental organizations (NGOs) like the pollution; and facilitating a just and inclusive transition. World Wildlife Fund (WWF) (WWF 2021) have highlighted If deemed suitable and appropriate, negotiators could key considerations that provide a guide for such consider plastic crediting as one possible tool to support a framework. the financing of core obligations. To do so, an accepted definition of a plastic credit and agreement on the For this to occur, an independent and neutral governance role that plastic crediting could play in fulfilling core entity could help align a set of common core principles obligations need to be established. In the interim, actors and protocols that can be integrated across crediting seeking to use the plastic credit system should carefully programs. Measures to ensure additionality and assess plastic crediting programs to understand their avoid double counting should be adopted across all standards, methods and procedures particularly around programs (e.g., activity, material, or location specific additionality, double counting, environmental and thresholds, understanding project funding sources and social safeguards. historic waste management, serial numbers for issued credits, publicly available credit registries with detailed 2. Address market dynamics and uncertainties in the project information etc.). Requirements for projects to plastic credit market. demonstrate responsible and permanent management of plastic waste should be applied across crediting To address market uncertainties, a dedicated fund or programs, when not already in place, to develop a prepurchase facility could be established to send a high integrity crediting system (e.g., through robust positive signal and give confidence to market practitioners requirements on waste management practices and about prospective demand and pricing. A fund could permanence). Long-term reliance on a crediting system be utilized for piloting a specific activity, use case (e.g., can be avoided by setting eligibility requirements that plastic credits in EPR), or methodology development. include new or capacity expansion projects, as well as Outcome bonds, such as the Plastic Waste Reduction- time bound restrictions (e.g., registration within a certain Linked Bond could provide up-front financing where the date or limited renewals). A knowledge-sharing platform return on investment is linked to the future plastic credit could help to raise awareness, increase understanding, issuance and sales.21 and address the potential risks. 20 Potential options for elements towards an international legally binding instrument, UNEP/PP/INC.2/4, April 13, 2023 21 https://www.worldbank.org/en/news/feature/2024/01/25/tackling-the-plastics-pollution-crisis-by-channeling-private-capital-to-projects​-that- reduce-plastic-waste Executive summary xxiii Establishing guidelines for plastic credit pricing with others require sustained investment from national clear categories including factors for price determination governments and private sector actors to cover the and possibly a floor price could steer prices in this early ongoing operations and maintenance costs over the market and help avoid prices falling below sustainable long-term (e.g., payment for the waste collection thresholds. Reasonable pricing of plastic credits should and treatment). properly reflect the true cost of reducing consumption and waste generation, and realize the social changes In countries where EPR schemes are in development, required in the transition to a circular economy. existing voluntary plastic crediting systems may provide Further, establishing plastic crediting as a transition an interim measure that prepares companies for mechanism (as plastic pollution reduces over time and compliance. Close coordination with existing crediting waste management systems are established) will help programs and projects is critical to develop high-quality to set the right mindset for adoption and can prevent crediting systems and align pricing expectations. a situation where credit purchases facilitate the status Voluntary plastic credit programs do not displace the quo. Civil society and private sector actors, including EPR schemes under development, which can provide a waste management operators, recyclers, and potential holistic set of measures. EPR requirements can include buyers, should inform the development of pricing annual plastic footprint reporting, reduction targets, categories and guidelines. and an obligation for organizations to finance pollution reduction measures at a level that is proportional to 3. Develop guidelines to inform the interaction of EPR their plastic footprint. Guidelines could be developed and plastic crediting. for EPR schemes to provide rules around the use of plastic credits from existing crediting programs for national compliance. Guidelines are needed to support the development of EPR schemes against a background of existing voluntary plastic crediting programs and their standards. This 4. Provide technical assistance for early-stage and may include the use of a plastic crediting mechanism for informal projects. compliance within the EPR scheme, or the coexistence of a mandatory EPR scheme and a voluntary plastic The technical complexity, transaction time and credit market (e.g., for obligated parties to go beyond costs to go through project validation, registration, regulatory requirements). verification, monitoring and reporting to plastic credit issuance, sales and receipt of revenue can Plastic crediting can provide a measurable and be obstacles for potential project developers, in transparent tool to account for results under EPR particular small businesses, and marginalized actors. schemes. Government agencies can choose to enable Provision of technical and financial assistance to these the use of plastic credits from specific external crediting actors is essential for raising awareness, enhancing programs or establish basic criteria for eligible knowledge, and expanding accessibility to plastic standards. Key stakeholders should be engaged early credit opportunities. A benefit‑sharing mechanism for in the design process if a plastic crediting mechanism marginalized and informal workers (e.g., where certain is integrated into EPR schemes. Plastic crediting can actors could receive a certain percentage of revenue) be utilized as an additional financing tool but should established through plastic crediting programs could not displace the long-term sustained efforts and also enable these groups to directly benefit from plastic commitments from public and private sector actors. For credit financing. Standard-setting organizations can example, some projects require short term financing review options to streamline processes or reduce fees to scale (e.g., private sector recycling activities), while for small projects. Governments and investors can play xxiv Analytical Study of Plastic Crediting Report a pivotal role in providing upfront capital for project (e.g., eligible activities, project types, and accounting implementation and plastic credit certification through methods) and establish a solid plastic crediting system forward transactions to secure a stable future supply or that promotes upstream solutions. Further piloting structured deals over multiple years. could be beneficial once the current plastic credit market is well established. Private sector actors implementing 5. Future prospect: pilot plastic credits upstream upstream solutions should be engaged early in the solutions. consideration of plastic credits for upstream activities. In addition, the use of plastic crediting to address microplastic pollution may warrant further exploration. Recognizing that most plastic crediting programs currently focus on downstream activities, there is a promising opportunity to transform a plastic credit In conclusion, plastic crediting is a tool that could standard into a circular mechanism by expanding be used to channel results-based finance to projects its scope to include upstream solutions. Upstream within a wider suite of solutions addressing plastic activities, such as reuse and refill schemes, are pollution. Addressing the current uncertainties essential to reducing plastic use and waste generation. around plastic crediting and strengthening the The concept of a plastic credit for upstream activities governance system are critical to ensure the is at a very early stage of consideration. Initial piloting responsible use and adoption of this emerging by rePurpose Global revealed that a significant level mechanism in conjunction with other efforts to of effort is needed to develop robust methodologies reduce pollution at source. Executive summary xxv How to read this report SECTION 1. Summarizes the plastic pollution challenge and establishes the concept of plastic crediting within a wider framework of action. INTRODUCTION SECTION 2. Section two introduces a definition of plastic credits, explains how they work, and identifies key stakeholders involved in the HOW DO PLASTIC plastic credit landscape. CREDITS WORK? SECTION 3. Explores the current state and trends of the plastic credit market, together with the associated risks and opportunities presented OVERVIEW OF THE by plastics. Potential links between EPR and plastic crediting are PLASTIC CREDIT also considered. MARKET SECTION 4. Presents ways to mitigate the risks associated with plastic crediting and to realize opportunities for addressing plastic RECOMMENDATIONS pollution. The report concludes with proposed actions for key stakeholders. Introduction 1 1. INTRODUCTION The plastic pollution challenge Hygienic, lightweight, strong, durable, cost-effective, the fifth session of the United Nations Environment and corrosion-resistant: these are just some of the Assembly (UNEA-5.2) adopted a resolution to develop benefits provided by the plastics that facilitate modern an international, legally binding agreement on lives (Napper and Thompson 2019; Rhein and Schmid plastic pollution under the INC (UNEP  2022) (See 2020). Annual plastic production grew from 1.5 million box 3). In addition, the private sector participates in metric tons (t) to 367 million t throughout 1950–2020 voluntary public initiatives such as the Ellen MacArthur (World Economic Forum [WEF], 2022). This growth Foundation’s (EMF) New Plastic Economy Global in plastic-based products far outpaced available Commitment, WWF’s ReSource Footprint Tracker, the waste management systems, causing plastic waste World Business Council for Sustainable Development’s generation to more than double between 2020 to (WBCSD) Circular Plastics and Packaging project 2019 alone (Organization for Economic Cooperation and Plastics & Packaging Working Group, and the and Development [OECD] 2022). Plastic pollution now Carbon Disclosure Project’s environmental disclosure threatens the environmental, social, and economic questionnaire (EMF, n.d.; WWF n.d.; WBCSD n.d.; aspects of sustainable development globally. To date, CDP 2022). Community initiatives are also springing up an estimated 140 million t of plastic is estimated to have to address the immediate effects of plastic pollution accumulated in the environment, with approximately through clean-up, awareness-raising, and plastic 8 million t entering the environment each year pollution reduction programs. (OECD  2022). At the current rate of plastic production, the amount of plastic waste polluting nature is expected Plastic pollution presents significant challenges as it to almost triple by 2060 (OECD 2022). The largest market can persist in the environment for decades to hundreds use of plastic is in packaging, accounting for nearly half of years, unless it is directly removed (Chamas et al., of all plastic waste generated (Defruyt 2019; MacArthur 2020). After removal (i.e., collection), plastic waste must et al. 2017; Walther et al. 2020). Single-use, takeaway be well-managed to ensure that it will not reenter the plastic packaging represents 44 percent of the plastic environment in the future. Further, the level of waste waste entering the ocean (Morales-Caselles et al. 2021). generated, the possible waste management options Meanwhile, the life cycle of single-use plastic packaging and their relative cost, will be influenced by the polymer remains predominantly linear, relying on economic type (e.g., PET, LDPE, PVC etc.), product or packaging models that ignore the externalities of waste (Phelan et application (e.g., tubs, bags, bottles, toys etc.) and al. 2022; Geyer et al. 2017; Lebreton and Andrady 2019). location (e.g., existence of waste collection services and suitable disposal methods, extent of plastic waste To counteract this surge in plastic pollution, regulatory, in the environment). A significant amount of financing private sector, and community initiatives are evolving. is required to address the 140 million t of plastic waste Public sector efforts are characterized by an array estimated to be present in the environment. The of national policies (Karasik et al. 2022). In 2022, international trade of plastic complicates matters; building upon extensive public awareness campaigns, approximately 50 percent of plastic polymers are traded 2 Analytical Study of Plastic Crediting Report internationally, while more than a third of plastic Asian nations (World Bank 2022). Estimates show packaging moves across borders (Charles 2021). The that 51 percent of global production comes from Asia export of plastic waste from high-income countries (Plastics Europe 2020). Meanwhile, 81 percent of ocean to middle- and low-income countries amounted to plastics are emitted from countries in Asia, which is also 3.5 million t in 2016 (Pew 2020). home to 60 percent of the world’s population (Meijer 2021; UN 2022). Annually, 31 million t of plastic waste Plastic pollution is pervasive in Southeast and East is generated in Southeast Asia (WEF  2022). Without Asian countries (Mathis et al. 2022). The global waste radical and transformative changes, such as introducing trade results in waste being imported from Europe reduction policies, investing in local collection, and and the United States into Southeast and East Asia. recycling infrastructure, and implementing material Coupled with rapid population growth, increasing rates substitution, it will be difficult to alleviate the problem. of urbanization, high levels of plastic consumption, and Complementary solutions need to be developed in insufficient waste management infrastructure for the parallel to transform Southeast Asian nations from scale of the challenge, these factors have increased the linear to circular economies. urgency of addressing plastic pollution within Southeast Introduction 3 Measures and priorities to address plastic pollution in Southeast Asia While there are technologies and solutions to reduce decrease in their consumption by 70 percent in Wales annual plastic pollution flows into the ocean by within the first three years of adoption (OECD  2020). 80 percent by 2040, they require supporting regulatory In Spain, the introduction of a 450-euro tax per ton frameworks, business models, and funding mechanisms on non-recycled plastic packaging from January (Pew 2020). Measures to address plastic pollution are 2023 (EY  Global 2023) transposes the European Union being introduced at local, regional, and transnational Directives (2018/851) on Waste Framework and Single levels across Southeast Asia. Prominent regulatory Use Plastics (2019/904) into Spanish law. It aims to frameworks include the introduction of bans and levies internalize the environmental costs related to the on plastic as well as the development of EPR systems. manufacturing and consumption of plastic packaging These are being adopted at different rates across in the price of the final product. These policy initiatives the region, with Indonesia and Vietnam leading the can create an enabling environment to encourage the introduction of an EPR system for packaging. Indonesia, adoption of alternative measures, such as reuse or refill via its Ministry of Environment and Forestry (MoEF) schemes, and redistribute finance towards them. regulation No. 75/2019, sets a target for a broad range of producers to reduce their packaging waste by 30 percent Nonetheless, there is still a significant finance gap in by 2029 through direct reduction, use of biodegradable efforts to achieve a circular economy, with estimates of substitutes, and reuse or recycling of packaging. this investment gap ranging from USD 426–544 billion to Meanwhile, Vietnam established and enacted Decree USD 1.2 trillion by 2040 (Kaplan 2022; Circulate Initiative No. 08/2022/ND-CD, providing a detailed rule for 2022). There is an estimated financing gap of USD 28–40 EPR (Kenji 2022). The Philippines soon followed suit, per t for plastic waste collection services and a gap of passing an EPR scheme into law in July 2022 (3E 2022). USD 24–40 per t across plastic recycling value chains in EPR frameworks are currently under consideration in Indonesia, the Philippines, Thailand, Vietnam, and China Malaysia and Thailand, while Cambodia and Laos are in (Lewis 2019). Indonesia alone estimates that a total of the process of formulating a comprehensive regulatory USD 5.1 billion in investment is required to achieve the framework to combat plastic pollution. national target of reducing ocean plastic leakage by 70 percent between 2017 and 2025 (Ocean Conservancy A range of new funds, taxes, and levies have emerged 2021). The scale of finance and level of impact requires in the past decade globally to target plastic pollution. access to a range of fiscal and financing instruments. Grant, debt, and equity financing opportunities can provide 1 to 5 years of financing to waste management Financing for the circular economy is needed for projects and activities for a circular plastics economy.22 upstream initiatives (such as product redesign, Taxes, levies, and compulsory financial charges have and models for material innovation and reuse) and proved successful in discouraging unwanted behavior downstream activities that close the loop on plastic at or use of products, such as single-use plastic items. its end-of-life phase, including collection, recycling, and For example, taxes on single use plastic bags led to a disposal infrastructure. Most of the finance pledged for 22 Examples include the Circulate Capital Ocean Fund, by the IFC and Circulate Capital, the Closed Loop Circular Plastics Fund by Closed Loop Partners, Plastics Innovation Fund by the Ministry for the Environment New Zealand) and the Circular Plastics Fund by Infinity Recycling. 4 Analytical Study of Plastic Crediting Report circularity currently supports investments for improved or social security (Velis 2017). The development of waste waste management.23 management solutions provides an opportunity to support informal-sector workers access to safe working Marginalized groups, including informal workers, play conditions and secure incomes (UNEP 2022). Both mid- a significant role in the waste management sector, and late-stage small- and medium-sized enterprises contributing to between 50 and 100 percent of waste (SMEs) in the plastic recycling value chain also struggle management activities within many Global South cities to access finance (Ocean Conservancy 2021). SMEs may (OECD 2023). However, informal workers are typically benefit from a combination of derisked financing and underpaid (Kwakwa and Garcia Mora 2021), exposed to technical assistance to scale (Circulate Initiative 2022). unsafe working conditions, and lack access to healthcare Plastic crediting as an emerging market mechanism Among the solutions for counteracting plastic pollution, plastic crediting is an emerging results-based financing solution. Plastic credits are environmental certificates representing a defined unit of impact (e.g., plastic collection and management, recycling, or plastic avoidance).24 The plastic crediting mechanism adopts a results-based approach where activities receive financing after delivering specific results. Plastic crediting provides a system for identifying and certifying the results of plastic pollution avoidance and reduction solutions (e.g., reducing consumption, increasing waste management, and recycling). Plastic credits can be purchased by organizations to financially support these initiatives. The revenue from the sale of plastic credits can be used by projects as an additional income stream that can help to make projects financially viable. This new market enables funding to support previously unfeasible plastic collection and recycling projects with quantifiable results (Bryce 2022). Plastic crediting provides an additional financing mechanism that could be used in the transition to a circular economy in conjunction with taxes, levies, and grants. 23 For instance, the Alliance to End Plastic Waste (AEPW), one of the largest corporate-backed initiatives, has committed USD 1.5 billion over the next five years from 2019 to prevent and recover plastic waste (AEPW 2019). 24 For the purposes of this report, the term ‘plastic credit’ is used to refer to the credit itself, while the term ‘plastic crediting’ is used to refer to the concept and mechanism of plastic crediting. Introduction 5 Given the early development of plastic crediting, This report aims to explore the potential of a approaches, standards, and definitions vary. Knowledge results‑based plastic crediting mechanism in financing of the potential risks, challenges, transparency, and reductions in plastic pollution and the use of virgin credibility issues associated with plastic crediting is plastics, while addressing plastic waste management. limited. There is a need to review existing approaches The report reviews the opportunities and risks associated and identify pathways to build robust governance with plastic crediting and explores the emerging link frameworks. The characteristics of plastic pollution between plastic crediting and EPR schemes. Finally, the are diverse to the challenges addressed with existing report provides recommendations on how to tackle the environmental markets (e.g., carbon credits, biodiversity challenges, mitigate the risks, and consequently harness credits). The suitability of crediting approaches to address the plastic crediting mechanism to promote plastic plastic pollution specifically also require attention. In reduction solutions. particular, the relevance of plastic crediting to developing regulatory frameworks such as EPR  schemes requires further assessment. How do plastic credits work? 7 2. HOW DO PLASTIC CREDITS WORK? Plastic credits are a form of results-based finance. The a potential catalyst for facilitating the scaling up of, plastic crediting mechanism provides methods for and filling the gaps in, necessary infrastructure for the identifying and certifying plastic avoidance and reduction circular economy, while also supporting community activities. These activities can be financially supported development. This section presents a working definition by the public and private sectors through the purchase of plastic credits, explains how plastic crediting works, of a plastic credit. The plastic crediting mechanism is and identifies key stakeholder groups involved. 2.1. Definition of a plastic credit There is no universally accepted definition of a plastic credit. Current definitions vary in scope, terminology, “A plastic credit is a transferable unit and units of measurement between plastic crediting representing a specific quantity of plastic that programs. The following definition from the WWF is avoided from use, collected and managed, or provides a starting point: recycled.” “Conceptually, a plastic credit is a transferable A ‘transferable unit’ refers to the result of a project unit representing a specific quantity of plastic activity (e.g., plastic collection and management, that has been collected and possibly recycled recycling, or avoidance) captured in a predetermined from the environment.” (WWF 2021) metric (e.g., kilograms (kg) or t). This transferable unit encapsulates the environmental benefit of the project activity and can be issued by one party and attributed Theoretically, plastic credits can also be applied to to another through a transaction chain. Each time upstream interventions (see table 2). For the purposes of the unit passes from one party to another, the right to this report, the following working definition of a plastic claim the specific result passes with it. Through this credit is applied: transferable unit, projects can sell the right to claim the environmental benefit to third parties. 8 Analytical Study of Plastic Crediting Report 2.2 Types of plastic credit There are two main types of plastic credit based on the the environment (e.g., coastal cleanups), or avoid plastic targeted underlying plastic reduction activities: plastic entering the environment through collection programs credits targeting upstream activities and those targeting (e.g., household collections). This activity type must downstream activities of the plastic value chain (see demonstrate that the plastic waste is managed in a way table 2). Plastic credits for upstream activities that that it will not reenter the environment (e.g., in a managed reduce the use of virgin plastics are still in the early landfill, through coprocessing or recycling). The second conceptual stage. One pilot has been carried out by subtype of downstream credit represents activities that rePurpose Global in India (see box 2). The majority of the divert plastic waste from landfill to either coprocessing plastic credits that exist are for downstream activities. or incineration with energy recovery. The second subtype They can be further classified under three subtypes: reflects a change in the end-of-life disposal and does i) reducing plastic in nature; ii) landfill diversion; and not represent increased plastic waste collection and iii) recycling. The first subtype of downstream credit management or recycling. The third subtype targets represents activities that directly remove plastic from activities that increase plastic waste recycling. TABLE 2: Overview of plastic credit types Main type Upstream Downstream Sub-type Avoidance / Collection and Landfill diversion Recycling Innovation management Goal Reduce plastic use Reduce plastic Reduce plastic Increase waste in nature waste in landfill recycling of plastic waste Possible Eliminate or Environmental Recovery of plastic Mechanical activities redesign packaging, cleanup waste from waste or chemical reuse/refill systems, activities, dumps or landfills recycling (e.g., alternative materials household and management processing (box 2) collection and through plastic waste management of coprocessing or into secondary collected plastic recycling raw material) Stage Conceptual Operational Source: South Pole, 2022 How do plastic credits work? 9 All plastic credits currently consider all plastic types polymer type (e.g., PET, PP etc.), while others provide (e.g., PET, HDPE, PVC etc.) and applications (e.g., films, specific subcategories (e.g., flexible or rigid plastics, tubs, bottles etc.) to have equal weight when estimating ‘shoreline’ or ‘potential’ ocean bound plastic waste). the number of plastic credits from a project. However, the impact of plastic waste, and the cost to address it, Plastic credits currently target at the management varies with polymer type, application and location.25 of macro-plastics. There is no plastic credit type that The introduction of a conversion factor that enables specifically addresses micro-plastics (i.e., removal, weighting per polymer type or application is under reduction, or prevention of microplastics from the consideration. Plastic crediting programs currently environment) due to absence of methodologies and monitor the specific features of plastic waste differently. high costs. For example, some programs require monitoring by 2.3 How are plastic credits issued and purchased? Projects that address plastic waste avoidance or reduction benefit financed through the credit. In some cases, may choose to issue plastic credits as an additional prepayments can be made for plastic credits (e.g., when finance stream. Plastic credits are issued on plastic upfront investment is needed to finance the credited waste avoidance or reduction activities that have already activities), or demand is confirmed before the credit is occurred. Plastic credits can currently be issued directly issued and sold. by a plastic project (i.e., self-issued credits) or under third-party crediting standards. Projects that use third- Plastic credits act as an additional form of revenue for party standards undergo a certification process to issue projects that address plastic pollution. To avoid double the plastic credit (see section 3.1). Third-party standards counting of the same result, any claims on the results of typically set a time limit known as the ‘crediting period,’ the credited activity (e.g., the volume of plastic reduced, during which projects registered under the standard are collected, and managed, or recycled) are separated from eligible to issue plastic credits (e.g., one year, seven years). the physical plastic material. For example, a project This process is considered to have greater transparency collecting and managing plastic waste could sell the and credibility than self-issued plastic credits. right to claim the volumes collected through a credit and sell the physical plastic material without any such The plastic credit is then available for purchase by third claim to another buyer. A clear distinction between parties. Public or private organizations can purchase the environmental claim and the physical material is plastic credits to financially support activities that reduce needed to ensure that the same impact is not sold twice. or avoid plastic waste and are outside their direct control. The revenue from the credit sale is then channeled to The credit buyer can choose to either resell the plastic the project, either directly by the buyer or through an credit or ‘retire’26 it from further use. After retiring a plastic intermediary, such as the crediting standard setter or credit, the buyer can make a claim on the environmental credit seller (see section 2.4 on stakeholder groups). 25 For example, rigid PET bottles may have a higher value in some recycling markets, and therefore the level of investment and finance required per ton may be low. Comparatively, the level of investment and effort required to collect and recycle flexible LDPE films will be significantly higher due to its lightweight, low value, and lack of recycling infrastructure. 26 ‘Retiring’ a credit refers to the action of permanently removing a credit from use. Plastic credits can only be retired once. After being retired, a plastic credit can no longer be transferred to other parties. 10 Analytical Study of Plastic Crediting Report Buyers of plastic credits can include private sector relating to the amount of plastic collected, recycled, organizations, foundations, and philanthropists that or avoided being used (see section 3.1, table 4 on wish to finance the plastic waste reduction activity and example claims). See box 1 for an example of a plastic contribute to pollution reduction. The buyer may also crediting program. choose to make specific claims around the activity, e.g., BOX 1: Financing Waste Collection and Recycling in Thailand through Waste Credits Second Life is a social enterprise in Thailand. The project seeks to remove plastic waste from the environment and invest in the development of recycling solutions. Plastic credits are based on the results of the plastic waste collection and recycling activities it undertakes. The credited activities involve plastic waste collection from multiple sources and locations in Thailand, such as Ranong, Krabi and Chiang Mai. The plastic waste is collected by both informal marginalized and formal waste workers who receive above-market rates for removing waste that would otherwise remain in the environment. Second Life was the first plastic project to complete registration under the Verra Plastic Waste Reduction Standard, in 2022. Second Life acted as the Project Developer. The project has issued 4,195 plastic credits as of January 2024 (Verra Registry). Plastic credit retirements are visible on the Verra registry. By purchasing plastic credits, producers can contribute to plastic waste collection and recycling in Thailand. Plastic credits can also be used as a voluntary tool to support brand marketing. 2.4 Key stakeholder groups Currently, six key stakeholder groups are involved in the standard setters are simultaneously involved in project issuance, sale, and use of environmental credits: project development, certification, validation, and verification, implementers, crediting standard setters, validation/ as well as credit sales. Overlapping roles have created verification bodies (VVBs), advisory service providers, confusion in the operation of the plastic credit market. sellers, and buyers. These key stakeholder groups should be engaged At this early stage of the plastic credit market, throughout the future development of plastic credits. The several actors are adopting multiple roles in parallel key stakeholders and their interaction with the plastic (Circulate  Initiative 2021). For example, some crediting crediting cycle are demonstrated in figure 4. How do plastic credits work? 11 FIGURE 4: Key Stakeholders Involved in the Plastic Credit Process Key Stage 1. Pollution reduction 2. Plastic credit 3. Plastic credit sale and Main actors project implementation certification process retirement or transfer Continues throughout the Projects undergo Plastic credits can crediting cycle. Revenue from certification against a be purchased by plastic credit sales financially plastic crediting compliance or supports the project standard voluntary buyers Project validation Brokers / traders Acquire plastic credits to resell Project owners Sellers Carry out plastic Project registration Transfer plastic pollution credits to traders / reduction brokers or final Verification Final buyers activities buyers Acquire plastic credits for their own use and retire plastic credits Credit issuance (e.g. FMCG companies) Standard setters Validation / Advisory Service Providers Design the plastic credit certification Verification bodies Support crediting projects process, carry out registration and credit Carry out audits through registration, issuance processes (e.g. Verra, ZPO) (e.g. control union) monitoring, and credit sales Source: South Pole 2022. 2.5 Plastic Credit Market Governance and Best Practices There is currently no universal governance system crediting standards and methods, while others provide or regulatory body to oversee the development of end-to-end services (see section 3.1). Countries with plastic crediting programs, standards, or the use of national policies that include plastic crediting as a plastic credits. Several plastic crediting programs exist, tool for compliance may set their own rules around each with its own approaches, definitions, rules, and eligible project activities and the crediting process (see processes. Some programs include only independent section 3.3 on EPR and plastic crediting). 12 Analytical Study of Plastic Crediting Report Best-practice principles for plastic crediting programs Given the variation in current approaches to plastic programs to follow ISEAL Codes of Good Practice27 and crediting, civil society organizations, such as the Circulate integrate transparency into their crediting programs Initiative, have developed ‘Best Practices to Ensure in order to establish a reliable plastic crediting system Impact’ for certification programs, including crediting (Circulate Initiative 2021). programs (figure 5). The Circulate Initiative calls for FIGURE 5: Best Practices for Certification Programs to Ensure Impact Circulate initiative 1 2 3 DEVELOPMENT PROJECT Harmonization Multi-stakeholder process ISEAL best practices With others’ claims, Developed with external Are explicitly followed programs, & standards stakeholders and public consultation 4 5 CONTRIBUTION TO IMPACT Co-benefits Additionality Programs focus on Relevant and consistent oceans, livelihoods, methodology to measure infrastructure & climate impact beyond baseline e orts 6 7 8 PROGRAM Third-party Clear governance Continuous IMPACT validation Transparent decision-making improvement From an independent and dispute resolution process. Programs include a auditing body Results are publicly available process for updates 9 10 11 ADOPTION PROGRAM Global relevance Commercial adoption Policy Influence Global or multi-regional Programs are adopted Informing new (3+ continents) coverage by >3 leading brands policy or explicitly adopted into policy Source: Circulate Initiative 2021. 27 ISEAL Codes of Good Practice provide a globally recognized framework for effective and credible sustainability systems. It is considered best practice for programs seeking to make a positive impact. How do plastic credits work? 13 Best-practice principles for plastic credit purchases The 3R Initiative has also developed best-practice recommend that claims around the use of plastic credits guidelines on how companies should seek to purchase are based on the credit type and the project activity and account for plastic credits (figure 6). The guidelines supported. FIGURE 6: Key Principles for Plastic Credits 3R Initiative Real Unique Project activities and plastic Each plastic credit must be unique and waste managed must be proven assigned to one activity. No double to have genuinely existed counting of results or double claiming Measurable results Transparent Quantifiable activity using Public disclosure of information recognised measurement tools related to the project activity against credible baseline for informed decision-making Independently audited Conservative Project activity must be Conservative assumptions, values verified by an accredited and procedures must be used to body with relevant expertise ensure results are not overestimated Source: 3RI 2021. How do plastic credits work? 15 3. OVERVIEW OF THE PLASTIC CREDIT MARKET The concept of connecting private sector finance to Solutions plastic neutrality program, Waste4Change) in waste management services through the exchange of the Asia-Pacific region from 2015, creating a mechanism certificates first emerged in Brazil in 2013 in the form of for organizations to fund solutions to plastic pollution. a reverse logistics mechanism. The mechanism enabled In 2020 and 2021, the first official plastic crediting private sector companies to meet their compliance programs emerged (e.g., PCX Solutions PPRS, Verra requirements for waste management by financing Plastic Waste Reduction Program, Zero Plastic Oceans’ independent waste pickers known as Catadores to Ocean Bound Plastic Neutralization Program) to provide manage the ‘reverse logistics’ (e.g., collection and rules and accounting methodologies for plastic waste management or recycling) of their products.28 The management projects to issue plastic credits. This concept of plastic crediting progressed with the section explores the current level of use of plastic credits establishment of voluntary plastic crediting programs and areas of development. (e.g., rePurpose Global plastic neutral program, PCX 3.1. State of the current plastic credit market Existing plastic crediting programs The plastic credit market currently includes a range For the purposes of this study, programs are classified of crediting programs and credit-style initiatives that under three main categories: 1) independent programs enable voluntary buyers to finance plastic pollution with independent standards and methods, 2) programs solutions. These level of transparency and approach that include standards and may take the role of multiple to accounting varies among programs, from highly stakeholder groups, and 3) other programs financing independent plastic credit programs that provide plastic pollution reduction that do not fall under standards and crediting registries only, to credit-style categories 1 or 2. This classification seeks to highlight initiatives that operate without project standards and criteria for the development and governance of the are involved in multiple parts of the plastic crediting plastic crediting programs. Table3 presents an overview cycle (e.g., project implementation, project certification, of existing programs within these categories based on and sales). The differences between programs are not publicly available information in January 2024.29 widely understood and most credit programs likely appear the same to end-buyers. 28 The reverse logistics system operates as an instrument for companies to finance waste collection, also known as ‘reverse logistics services’ through payments per metric ton of waste collected. The system was developed to facilitate compliance with an obligation of reverse logistics which required producers or importers in certain sectors to ensure the products they sold were collected and disposed of responsibly. More information available here. 29 This categorization does not reflect the ambition of programs, or integrity of the specific standards and methods developed by each program. The plastic credit market continues to evolve quickly, and programs are likely to continuously improve and adjust their operational procedures. 16 Analytical Study of Plastic Crediting Report The first category, independent programs with public in category 1. For example, programs in this category standards and methods, includes plastic crediting may host credit retirements on a public registry programs that provide standards that are consistently without displaying credit issuances and retirements available to the public and that provide clear accounting per projects, or they may be directly involved in project methodologies through which plastic credits are implementation, or credit sale transactions within calculated. The programs in this group are fully the last three fiscal years. The standards in this group independent from the implementation, development, are developed with public and expert consultation, and sales of plastic credits; they are not engaged in align with ISEAL principles, and strive for continuous project auditing, footprint measurement, or credit improvement.30 marketplaces. Such programs are considered to have the highest level of transparency because they have publicly The third group refers to programs that enable third available standards, methodologies, and project parties to finance plastic pollution reduction activities registries and require projects to undergo third‑party through alternative methods that set a price per kg verification at defined periods. These programs host or t of plastic waste managed. These programs offer credit registries that are open to the public and display credit-like alternatives, such as direct payments for project ID and serial number; quantity of credits issued waste management services or blockchain-enabled and retired, retirement date, and reference period (e.g., transactions. The results of the activity are sold to a month or year) at minimum. The standards in this group buyer as a results-based purchase (e.g., sponsorship are developed with public and expert consultation, align for a defined weight (kg) of plastic waste collection with ISEAL best practices, and strive for continuous and management). These solutions may be marketed improvement. These programs often operate on a as a ‘credit’ to buyers or given an alternative name specific project cycle (e.g., one, seven, or 10 years), (e.g., offsets, certificates, contributions, verified units). requiring projects to be reassessed at specific intervals. These programs are likely to set their own guidelines The GreenBlue Recycled Material Standard (RMS), Verra without a crediting standard or methodology. They Plastic Waste Reduction Standard (PWRS) and Zero also apply their own monitoring methods (e.g., through Plastic Oceans Ocean-Bound Plastic Neutralization traceability platforms), can hold multiple roles (e.g., Certification (OBP CN) (see table 3 for examples of project implementation, result measurement and programs in this  category. verification, and sales transactions), and follow their own payment processes. Programs in this category act The second category refers to plastic crediting as project developers for their own projects, applying programs  with public standards or methodologies and either their own guidelines, or standards from programs cover multiple roles in the value chain. The programs in under category 1 or 2. These programs tend to focus on this category require third-party verification of plastic specific project types (e.g., collection and management credits as standard practice. They do not meet the same of multilayer plastics, or indigenous community level of independence and transparency as programs projects) or on locations where they are based. 30 For example, at the time of writing PCX solutions is reviewing its PPRS (version 8) and developing its own public project registry. How do plastic credits work? 17 TABLE 3: Plastic Crediting Program Categories Program Categories Characteristics 1. Fully independent 2. Programs with public 3. Other programs and transparent standard or methodology financing plastic crediting programs and multiple roles in pollution reduction value chain Program applies a crediting  Yes  Yes  Varies by program standard and methodology. Crediting standard and methodology are publicly  Yes  Yes  No available. Projects are listed on a public registry, including at minimum project ID or name; quantity of credits issued; serial number;  Yes  Varies by program31  No quantity of credits retired; retirement date; and reference period (e.g., vintage month or year). The program standard can be applied by third party  Yes  Yes  No project developers Third-party verification is  Yes  Yes  No standard practice. Crediting program aligns  Yes  Yes  Varies by program with ISEAL principles. 31 The OBP and CAH host a project registry that includes credit project name, serial number, quantity of credits issued, issuance date, and supporting documents. Projects applying the PPRS are hosted on PCX Markets (a marketplace managed separately since 2022) and are listed without details on credit issuance, volumes, or vintage periods. Credit purchases and retirements for these programs are listed on a separate purchase or retirement registry displaying purchaser name, project name, serial number, project standard applied, and option to view supporting documents. The OBP registry refers to ‘retirement blocks’ instead of specific volumes retired. 18 Analytical Study of Plastic Crediting Report Program Categories Characteristics 1. Fully independent 2. Programs with public 3. Other programs and transparent standard or methodology financing plastic crediting programs and multiple roles in pollution reduction value chain The program is independent from project  Yes  Varies by program32  Varies by program implementation for at least five fiscal years. The program is independent from the sales of credits (incl.  Yes  Varies by program33  Varies by program financially, legally, and operationally) for at least five fiscal years. The program or affiliated organizations are independent from project  Yes  Yes  Varies by program developers and/or auditors. Program owners provide advisory support for buyers  Varies by program34  Varies by program35  Varies by program (e.g., footprint calculation and claims). Programs are developed with multistakeholder  Yes  Yes  Varies by program input, including expert and public consultation. 32 As of January 2024, BVRio co-implements projects with informal workers. 33 PCX Solutions, a not-for-profit organization that manages the PPRS, operates as a separate financial and legal entity to PCX Markets, which handles plastic credit sales. The two organizations share an origin story and separated financially and legally from 2020-2021. 34 ZPO operates a Producers and Users Standard for buyers of OBP credits. Buyers can apply to a OBP Neutralization certificate, which must be audited by an independent third party. 35 As of January 2024, PCX Solutions offers advisory services (e.g., footprint measurement) to buyers and acts as a Producer Responsibility Organization (PRO) under EPR law in the Philippines (e.g., providing guidance to obligated entities on footprint measurement and strategies to achieve compliance targets). How do plastic credits work? 19 Program Categories Characteristics 1. Fully independent 2. Programs with public 3. Other programs and transparent standard or methodology financing plastic crediting programs and multiple roles in pollution reduction value chain Examples Recycled Material BVRio Circular Action CleanHub,41 Standard (RMS),36 Hub (CAH) CCM,39 Plastic Bank42 Verra Plastic Waste PCX Solutions PPRS40 Plastics for Change43 Reduction Program37 rePurpose Global OBP Neutralization Verified Plastic Certification38 Recovery Protocol,44 Waste4Change45 Source: South Pole 2024. All crediting programs include credits from plastic waste. credit. In addition to project standards, some crediting One program (BVRio’s CAH) can also be applied to other programs provide certification standards for buyers material types (e.g., cardboard, glass). The RMS and the seeking to make compensation claims. For example, OBP Neutralization Certification apply only to specific two programs (Verra and OBP) refer to the Corporate project activities involving recycling and collection Guidelines from the 3R Initiative (see figure 3). Other from “ocean-bound”46 areas. Two programs specifically programs provide advice on possible claims, including address environmental and social aspects (Verra PWRS footprint measurement and confirmation of achieving and OBP Neutralization Certification), while all include claims. Some plastic credit programs enable small some form of environmental and social safeguards projects to be grouped within the same country to (ValudCred 2021b). Crediting programs currently adopt generate credits together. either kg or t as the unit of measurement for a plastic 36 RMS (available here). 37 Verra PWRS (available here). 38 OBP Certification Program (available here). 39 CAH (available here). The Circular Credits Mechanism covers all recyclable materials, not only plastics. 40 PCX Solutions PPRS (available here). PCX Solutions governs the Program’s Standard (PPRS) only. PCX Markets hosts the credit registry for projects under the PPRS. The Marketplace also hosts projects from other credit standards and provides a plastic footprint calculator with third-party auditing services for plastic credit buyers. PCX Solutions and PCX Markets share a common origin; however, both organizations are managed separately since 2021. 41 CleanHub (available here). 42 Plastic Bank (available here). 43 Plastics for Change (available here) 44 rePurpose Global (available here). 45 Waste4Change (available here). 46 “Ocean-bound” areas are defined as being within 50 km of the nearest coastline (see full definitions here). 20 Analytical Study of Plastic Crediting Report Geographical distribution of plastic crediting programs Plastic crediting programs are spread around the ecosystems and lack of public waste management world; Australia (Plastic Collective), the Philippines infrastructure, sparked the first voluntary plastic (PCX Solutions), France (OBP), Brazil (BVRio), and the crediting programs in the region. Plastic crediting USA (Verra, GreenBlue, and rePurpose Global). Early programs were developed in India, Indonesia, the development of certificates for waste management Philippines, and Australia by organizations seeking services emerged in 2013 with the reverse logistics access to private sector financing for waste management crediting mechanism in Brazil. The increasing visibility from both national and international buyers. of plastic waste in Asia, coupled with innovation Geographical distribution of plastic credit projects Plastic crediting programs do not place limits on the geographical region of plastic crediting projects; projects that meet defined eligibility criteria in the program’s standards can apply. Some programs that historically focused on the country where they were headquartered (e.g., PCX Solutions PPRS in the Philippines) now include projects from other countries. Two out of the five crediting programs (PPRS and CCM) were launched in 2020 and three programs (RMS, OBP and PWRS) were launched in 2021. Approximately 160 projects are listed on project registries under category 1 and 2 programs (registered and preregistration, see figure 7); 61 are listed under category 1 only. The PWRS is the crediting standard under category 1 with the most listed projects. The CCM is the crediting standard with the most listed projects across programs in categories 1 and 2. Together, East Asia and the Pacific and South Asia host the highest number of projects (85 projects, 53 percent), followed by Latin America (41 projects, 25 percent) and Africa (18 projects, 11 percent). How do plastic credits work? 21 FIGURE 7: Distribution of Registered and Listed Plastic Credit Projects across Programs and Regions Latin America & Caribbean Middle East and North America Africa Europe and Central Asia REGION Western Europe South Asia East Asia and Pacific US & Canada 0 10 20 30 40 50 Number of listed or registered projects CATEGORY 1 PROGRAMS CATEGORY 2 PROGRAMS OBP PWRS RMS PPRS CCM Source: Verra n.d.; OBP, n.d.; BVRio n.d.; PCX n.d.; RMS n.d.47 The presence of plastic credit projects in East Asia and of plastic leakage (Jambeck et al. 2015). See annex V the Pacific and South Asia reflects increasing global for more information on plastic crediting in Southeast awareness of the region’s plastic waste challenge and Asian countries. an increasing level of financing needed by projects led by diverse private actors. For example, a series of The plastic credit projects are concentrated in developing studies in 2015–2021 identified rivers and coastal areas countries. It may reflect the project actors’ motivation to in Asian countries to be major entry points for marine access alternative financing mechanisms and the plastic plastics globally, with an estimated 81 percent of marine pollution. Plastic credit projects with issued credits plastics being emitted from Asian countries (Jambeck are predominantly located in East Asia and the Pacific et al. 2015; Lebreton 2017; Schmidt 2017; Meijer 2021). (see  figure 8). This reflects the early development of Among these, Indonesia, India, and the Philippines plastic crediting programs in the region. are considered high-priority countries with a high risk 47 This includes the projects pending registration or registered that are listed on the public plastic credit registries until December 2023. 22 Analytical Study of Plastic Crediting Report FIGURE 8: Distribution of Plastic Credit Projects with Verified or Issued Credits across Programs and Regions Latin America & Caribbean Middle East and North America Africa Europe and Central Asia REGION Western Europe South Asia East Asia and Pacific US & Canada Number of projects with 0 5 10 15 20 25 verified or issued credits CATEGORY 1 PROGRAMS CATEGORY 2 PROGRAMS OBP PWRS RMS PPRS CCM Source: Verra n.d.; OBP, n.d.; BVRio n.d.; PCX n.d.; RMS n.d.48 As of December 2023, 11,584 credits have been issued under category 1 programs, and 64,081 credits under category 2 programs (75,665 credits in total)”. Types of plastic credits offered by crediting programs Plastic credits are currently targeted at downstream (OBP), collection credit (PPRS), Circular Credit (CCM) and plastic waste reduction activities and can be categorized Plastic waste removal credit are examples of this credit into three types: 1) reduce plastic pollution in nature, type. For collection credits, the crediting standards under 2) divert plastic waste from landfill, and 3) recycle categories 1 and 2 set specific requirements for projects plastic waste (see table 4). The most common plastic to demonstrate that the collected plastic waste should be credit type is for activities that reduce plastic waste in delivered to an appropriate end destination and properly nature and ensure the plastic waste will not reenter the managed. The landfill diversion credit (PPRS) is currently environment. Waste Collection Credit (PWRS), OBP credit the only example of a credit type for activities that divert 48 Data included from crediting programs OBP, PWRS, RMS, CCM from December 2023. Data included from the crediting program PPRS from May 2023. Credits that have been verified and/or issued are included due to different processes (e.g., not all programs use ‘issuance’ language). How do plastic credits work? 23 plastic waste from mismanaged landfill to an energy plastic credit type applying to activities that increase recovery process. The Waste Recycling Credit (PWRS) and plastic waste recycling. Attribute of Recycled Content (ARC) represent the third TABLE 4: Credit Types across Plastic Crediting Programs Credit type Plastic crediting Upstream Downstream program Avoidance / Innovation Reduce plastic Landfill Plastic waste in nature diversion recycling ARC (BlueGreen) – – – Attribute of recycled content Circular Credit – Circular Credit49 – – Mechanism (BVRio) OBP (ZPO) – Ocean Bound – – Plastic Credit PPRS (PCX Avoidance credit (under Collection Credit Landfill Recycling Solutions) review); Innovation credit diversion Credit (early design); Alternative credit (early design) PWRS (Verra) – Waste collection – Recycling credit Credit Source: South Pole 2022. Together, these credit types cover a range of benefits, the informal sector,50 establishing household collection including the collection and management of plastic waste, services, and increasing sorting for recycling. formalization, and improvement of working conditions for 49 The Circular Credit can be applicable to all recyclable material, not only plastic. 50 The Circular Credit includes automatic additionality for projects run by informal workers. The number of plastic credits is measured by the weight of plastic collected and managed without a baseline assessment. 24 Analytical Study of Plastic Crediting Report Plastic crediting for upstream activities is still at an 2021 for a project using alternative materials like natural early conceptual stage. Two programs started exploring banana fibers to replace plastic materials (see details in plastic crediting for upstream measures to reduce box 2). No plastic credits have been issued for upstream plastic use and pollution. The “Avoidance” credit is activities. Significant work is required to develop robust included in the PPRS by PCX Solutions. The “Upstream methodologies for upstream activities. Innovation” credit was piloted by rePurpose Global in BOX 2: Plastic Credits for Upstream Activities Upstream solutions can include activities that avoid or reduce the use of plastic through alternative materials, the elimination of plastic packaging, or the introduction of reuse and refill systems. Many upstream solutions operate in niche markets and cannot compete with plastics in price. Upstream solutions rely on markets with a lower price sensitivity. Furthermore, most avoidance project activities that aim to reduce plastic consumption require separate infrastructure, such as the segregation of biodegradable materials, composting schemes, and logistics for reuse and refilling. Introducing a crediting system for such project types could help to overcome financial barriers to their adoption through increased diffusion in the market. Plastic crediting could provide a new mechanism to financially support these initiatives. However, the concept of plastic crediting for upstream activities that reduce plastic use and pollution remains theoretical. To date, only one concept pilot has been conducted (see below). Upstream activities are based on the estimated avoidance of plastic use. Both crediting programs that include an upstream credit type noted challenges in calculating the expected results of an upstream project. Accordingly, significant piloting and testing is required to enable the development of a robust methodology for upstream activities. PLASTIC INNOVATION CREDITS (REPURPOSE GLOBAL) In 2020-2021, rePurpose Global conducted a pilot program in peri-urban India to test the concept of an upstream innovation credit from a project that substitutes petroleum-based plastic in sanitary pads with natural banana fibers. The project collaborated with Saathi Eco Innovations, sponsored by Dalberg Advisors, to address challenges related to menstrual waste and the limited financial support for biodegradable substitutes. The pilot program focused on menstrual hygiene management programs, providing education on safe menstrual practices, along with subsidized biodegradable sanitary pads made from banana- and bamboo-based materials. The upstream innovation credit aimed to provide a new revenue stream for projects using alternative materials to reduce virgin plastic, thus reducing the price of these alternative solutions. A total of 472 kg of plastic was avoided by replacing synthetic plastic-based female sanitary pads with biodegradable and plastic-free sanitary napkins during the pilot. The pilot project applied a mass-based calculation methodology and identified the need for further piloting to support the development of methodologies that can reliably calculate the results of a range of possible upstream interventions. The pilot also highlighted the potential for reuse/refill models with sound traceability compared to substitution models, which are more challenging to track and trace (rePurpose 2023). rePurpose Global acts as the project developer for projects, applying their internal guidelines (the Verified Plastic Recovery Protocol), supporting documentation preparation, and assisting with reviews. The pilot concluded that standards and frameworks are needed for this credit type, and that future pilots should explore reuse and refill models, leading to the launch of the Reuse Outcomes Fund.51 PLASTIC AVOIDANCE CREDIT (PCX SOLUTIONS) Version 7 of the PPRS by PCX Solutions introduced the framework for a new credit type: the Plastic Avoidance Credit. This credit is designed for projects that provide a solution for consumers to ‘opt out’ of plastics through refill services. Plastic avoidance credits under the PPRS are measured in metric tons and are calculated using the direct output of the project. For example, an avoidance credit from a water refilling station is quantified based on the total volume of water delivered to the market. The corresponding credit is calculated based on the weight and type of plastic that would be used without the refill service (e.g., the weight of polyethylene terephthalate [PET] plastic bottles needed to provide an equivalent amount of water). This conversion rate is referred to as the “plastic avoidance conversion factor.” This factor must follow the national packaging standards in the country of operation and is mutually agreed upon at the accreditation stage, providing an opportunity for the plastic program to review the methods and calculations used by the project (PCX 2022). PCX Solutions has not had a project that applies this credit type. The organization paused application of the Avoidance credit until proper mechanisms are in place to design and govern this credit type.52 PCX Solutions is exploring two new credit types that will undergo a peer review process in 2024; a plastic innovation credit for the research and development of solutions that reduce virgin and single‑use plastic production and improve recyclability, and a plastic alternative credit, to incentivize the use of market ready plastic alternatives. 51 https://repurpose.global/reuse-outcomes-fund 52 See for example, “Guidance note: avoidance” in the PPRS version 7 (available here). 26 Analytical Study of Plastic Crediting Report Claims associated with plastic credits Buyers of plastic credits are currently able to apply a of purchasing plastic credits.53 Claims are often made in range of claims when purchasing and using plastic credits relation to the use of plastic credits for compensation of (see table 5). The perceived credibility of claims varies, a plastic footprint.54 creating uncertainty among buyers around the benefits TABLE 5: Summary of Claims and Associated Results Claim Requirement Associated results Plastic neutral Plastic credits equivalent to the total plastic The impact of plastic use is considered footprint in a given year are purchased. neutralized. OBP neutral OBP plastic credits equivalent to the total The impact of plastic waste entering the plastic footprint in a given year are purchased. ocean is considered neutralized. ‘Net Zero Plastic Plastic collection credits equivalent to the The use of ‘net’ implies that the impact to Nature’ portion of the footprint not currently collected of plastic entering the environment is and well managed in a given year are purchased. mitigated, not canceled. Net 100% Plastic recycling credits equivalent to the The use of ‘net’ implies that the impact Recycled at End portion of the footprint not currently collected of plastic not being recycled is mitigated, of Life and recycled in a year are purchased. not canceled. Source: WWF 2021; Zero Plastic Oceans n.d.; 3RI 2021. The most popular claim to date is ‘plastic neutral,’ presents unique challenges that are not comparable to implying that the impact of using plastic is neutralized the management of greenhouse gasses. For example, through the purchase of plastic credits. Plastic neutrality the impact and cost to remedy plastic pollution varies by is based on the concept of carbon neutrality. Plastic plastic type, application and location of the pollution. credits are often used interchangeably with the term Given the physical presence of plastic, removing 1 t from ‘plastic offsets,’ perpetuating the idea that it is possible one location does not remove the same plastic items to neutralize a plastic footprint. Plastic pollution that the buyer used from the environment. Therefore, 53 Insights from interviews and Focus Group Discussions with Project Owners, Crediting Standards, Sellers and prospective Buyers. 54 A plastic footprint is defined by the Plastic Footprint Network as “the assessment of the effect that plastic leakage associated with a product / company / activity / country has on the environment and human health” (available here). How do plastic credits work? 27 the plastic used by the credit buyer may remain in Drawing on lessons learned from carbon markets as the environment, even when an equivalent weight the most mature environmental commodity market, is addressed through a purchase of plastic credits. developing clear claims that accurately reflect the There is now general agreement among stakeholders, outcomes achieved will be fundamental to the particularly NGOs, that plastic neutrality can be responsible use of plastic credits. Within carbon misleading to consumers and the concept of ‘offsetting’, markets, the existence of standards that define specific where an impact is considered to be neutralized through claims, carbon neutrality (i.e., PAS 2060), and net zero purchase of certificates, may not be applicable for (i.e., Science Based Targets initiative (SBTi)) provide plastic pollution.55 clarity on the actions required to achieve each claim and a means to increase the ambition of claims over Other claims such as ‘Net Zero Plastic to Nature’ are time. Guidance on credible claims focuses on being more specific and focus on a specific part of a footprint. transparent, accessible, true, and able to substantiate Claims including the word “net” imply that an equivalent with evidence to shareholders (WWF 2021). The result was achieved, rather than suggesting that the 3R  Guidelines for Corporate Accounting provide good plastic was eliminated. Similarly, there is growing practices for plastic accounting for specific claims of emphasis on the potential for use of plastic credits for Net Zero Plastic to Nature and Net 100% Recycled at compensation or mitigation of a plastic footprint, in place End- of-Life (3RI 2021).57 These include requirements of offsetting.56 It is important that claims used around around plastic credit types and quantities used for each plastic credits accurately reflect the impact achieved and claim, and recommendations to match the plastic credit do not oversimplify key concepts such as additionality in project to the location of the plastic footprint as far wider communication. as possible. 3.2 Trends in the plastic credit market Majority of projects in developing countries The study finds that the number of plastic credit projects go beyond ‘business-as-usual’ (BAU) and demonstrate has been increasing significantly over the past few additionality (see annex I). Projects in states where the years (see section 3.1). This trend is likely to continue as collection and recycling of plastic is not widespread are project actors and private sector organizations become more likely to meet the additionality criteria as there is increasingly aware of the plastic crediting mechanism. more readily available evidence to demonstrate that these activities would not occur without the financing The majority of plastic credit projects are located in from plastic credits. For example, specific legislation to developing countries. The geographical spread is linked address plastic waste is often absent or in the early stages to the availability of criteria pertaining to crediting of development; projects in these locations can easily standards for projects to demonstrate that their activities demonstrate that their activities are not required by law. 55 For example, https://www.euronews.com/green/2023/11/11/plastic-solution-or-greenwashing-risk-how-giving-plastic-credits-for-crisp​-bags- could-save; https://time.com/collection/time-co2-futures/6691961/companies-offsetting-plastic-waste/ 56 Insights from interviews and focus group discussions with experts including NGOs, plastic credit standard setters, and advisory groups. 57 The 3R Guidelines were adopted by the Plastic Footprint Network and are currently under revision. 28 Analytical Study of Plastic Crediting Report If plastic collection and recycling rates are known to be Developed Countries, or Small Island Developing States), low in a country, projects are more likely to demonstrate or the involvement of informal workers. In countries that their activity is not common practice. In some where collection and recycling rates are typically high, cases, projects that meet specific characteristics can be only specific project types are likely to pass these criteria. considered additional, e.g., noncommercially recyclable plastics (e.g., OBP), the location of activities (e.g., Least Emphasis on the involvement of the informal sector Plastic crediting programs often emphasize approach for the informal sector by including projects the importance of the informal sector in waste with informal waste workers on a positive list to management and as a valuable stakeholder in plastic demonstrate additionality.58 Many crediting programs crediting programs. Several crediting programs include specific requirements and safeguards to follow a  simplified credit issuance to facilitate the improve working conditions for all waste workers, involvement  of informal workers and small-scale avoid child or forced labor, implement health and safety projects. For example, the CAH provides a simplified measures, and provide additional social benefits. A dominant voluntary market The plastic credit market is predominantly voluntary. care brands looking to compensate for their plastic Plastic credits are purchased by private sector footprint. Small- and medium-sized businesses also companies seeking to demonstrate their commitment purchase plastic credits to achieve neutrality claims or to addressing plastic waste as a Corporate Social link product purchases to a specific amount of waste Responsibility (CSR) activity in response to growing collection and management (e.g., for every product consumer demand for greater action to address plastic purchased, a kg of plastic waste is removed from the pollution. In many cases, credits are used to compensate environment). Travel companies, recruitment agencies, for an organization’s plastic footprint and make specific and social enterprises are among credit buyers. Plastic claims, the most common claim being plastic neutrality. credit buyers with traceable locations are geographically Buyers of plastic credits are predominantly national distributed in North America (57  percent), Western branches of large, fast-moving consumer goods (FMCG) Europe (36 percent), East Asia and the Pacific (5 percent), companies, pharmaceutical organizations, and personal and South America (2 percent).59 58 Additionality and Positive Lists, Guidance Note, Circular Credits Mechanism (Available here). 59 Data taken from public plastic credit registries for programs in category 1 and 2. Percentages indicate the number of plastic credit buyers and does not reflect the size of credit purchases by buyers in these locations. This data does not include buyers from undisclosed locations (which represent 43 percent of all recorded plastic credit buyers) . How do plastic credits work? 29 Plastic credit prices can vary widely in the absence of a pricing structure There is no set price or pricing structure for a plastic existing environmental markets, price volatility can credit. Prices are currently set by project owners, plastic create significant problems in the early development credit sellers and buyers. Prices can vary between of the market (e.g., as seen with carbon credits). A clear plastic credit types, across geographies and crediting pricing structure for plastic credits should be established programs. Plastic credit pricing has ranged from USD to ensure pricing is fair, transparent, and sufficient to 140 USD / t to USD 670 / t.60 Drawing on lessons from address plastic pollution. The demand trajectory is uncertain While the supply of plastic credits is increasing, data on To date, the size of plastic credit purchases varies the demand for plastic credits is limited. In Southeast widely. Purchases vary from equivalents to 1 t of Asia, there is an estimated financing gap of USD 28–40 plastic waste, ranging to 100s to 1,000s of plastic waste per t for plastic waste collection services and a gap of credits (t  equivalents). Approximately 11,584  plastic USD 24–40 per t across plastic recycling value chains credits were  retired on all public registries since 2021.61 in Indonesia, the Philippines, Thailand, Vietnam, and Approximately 23,445 credits were verified or issued China (Lewis 2019). Plastic credits could play a role in since 2021.62 This figure is likely to increase as the number filling the financing gap if interested buyers emerge. of projects completing registration or issuing credits increases. The demand is very uncertain due to the novelty of the plastic credit market. The role of plastic credits as a mitigation option versus contribution Uncertainties around the perceived credibility of plastic outlining the potential use of plastic credits within crediting are preventing buyers from openly purchasing a holistic reduction strategy (for example, like the them. Several voluntary corporate plastic reporting Science Based Targets Initiative (SBTis) for the use of initiatives exist (e.g., Ellen MacArthur Foundation Global carbon credits). Credibility has been further affected Commitment, CDP plastic questionnaire). However, by the recent backlash from NGOs and civil society there is no target setting framework for plastic waste around the legitimacy of claims using plastic credits, 60 Price range shown for projects listed under plastic crediting program categories 1 and 2. 61 This figure was calculated using the total number of projects and credits listed on plastic credit registries under categories 1 and 2 in August 2023 (credit numbers are shown in equivalence to t of plastic waste). This includes issued plastic credits under the RMS, Verra PWRS, and OBP programs, as well as plastic credits available for sale on PCX Marketplace and CAH. 62 This figure was calculated using the total number of projects and credits listed on plastic credit registries under categories 1 and 2 in August 2023. Projects under category 1 standards had issued 10,023 credits, while projects under category 2 standards had issued 17,086 credits (credit numbers are shown in equivalence to t of plastic waste). This includes issued plastic credits under the RMS, Verra PWRS, and OBP programs, as well as plastic credits available for sale on PCX Marketplace and CAH. 30 Analytical Study of Plastic Crediting Report such as plastic neutrality.63 Plastic credits are currently pollution reduction initiatives beyond a company’s referred to interchangeably as plastic offsets, a term own value chain is accepted by a range of stakeholders. that perpetuates the misunderstanding that plastic In the absence of uniform agreement on the role of credits can neutralize a plastic footprint. There is also plastic crediting and associated claims, the divergence discussion among stakeholders around the validity in the type of credits, and uncertainties around the of accounting for plastic credits as compensation for credibility of each program, further hinder uptake by an organization’s plastic footprint. The use of plastic potential buyers. crediting as a method to financially contribute to plastic Plastic crediting is being explored as a regulatory instrument Legislative measures for addressing plastic pollution were purchased to meet waste management obligations are being introduced at local, regional, and transnational under the Philippines EPR scheme (PCX Markets, n.d.). levels. Amid this backdrop, plastic crediting systems Crediting mechanisms were also used as the compliance are being explored as a potential measure to support mechanism within EPR schemes in the UK and Poland. compliance with EPR schemes. Ensuring compliance by In addition, if deemed suitable and appropriate, plastic obligated organizations is currently a challenge for both crediting may be considered as a potential mechanism voluntary and regulatory EPR schemes. Plastic crediting to mobilize financing in the context of the INC on plastic mechanisms have been introduced as a tool to support pollution (See box 3). Section 3.3 provides a more compliance with EPR in Brazil, India, and the Philippines. In detailed analysis of the interaction between EPR schemes 2023, 33 percent of plastic credits retired under the PPRS and plastic credits as an example of compliance. 3.3 Extended producer responsibility schemes and plastic crediting Prominent regulatory frameworks addressing schemes. Indonesia and Vietnam led the introduction plastic pollution include EPR systems designed to of EPR systems for packaging (Kenji 2022), while the hold producers accountable for their products post- Philippines passed an EPR scheme into law in July 2022 consumption (Johannes HP et al. 2021). EPR schemes (3E 2022). EPR frameworks are under consideration in provide a means for governments to set regulatory Malaysia and Thailand, while Cambodia and Laos are frameworks and targets for companies to address waste developing a comprehensive regulatory framework to from the plastic they distribute. EPR systems exist in combat plastic pollution. EPR schemes can apply a range Europe since 1994, leading to a 42 percent increase in of methods for companies to meet their obligations. the recycling rate in 2017 (EU 2020). Several Southeast Asian states are exploring and/or implementing EPR 63 For example, WWF Position Plastic Crediting and Plastic Neutrality (2021), and media articles such as: https://www.eco-business.com/news/plastic-neutrality-claims-face-greenwashing-scrutiny-in-india/; https://grist.org/accountability/companies-are-claiming-to-be-plastic-neutral-is-it-greenwashing/; https://www.greenpeace.org/southeastasia/ press/45221/activists-send-plastic-waste-back-to-nestle-call-out-company-for‑greenwashing/;  https://www.forbes.com/sites/jamiehailstone/2022/01/13/are-plastic-offset-schemes-the-next-big-thing-in-sustainability/. How do plastic credits work? 31 Early examples of crediting as a method to support (e.g., France). Voluntary plastic crediting initiatives compliance for waste management obligations come are also developed by private organizations and are from the UK and Brazil. Figure 9 provides an overview separate from the government agencies that develop of EPR development and schemes with plastic crediting the EPR legislation. This section presents an overview mechanisms. As plastic crediting is a relatively new of how EPR schemes and plastic crediting schemes concept, there are limited examples of its adoption for may interact. It presents two case studies and lessons compliance. In some cases, plastic crediting initiatives learned for the potential use of plastic crediting as a were developed after the producer responsibility regulatory instrument. initiatives were established to facilitate compliance FIGURE 9: Overview of Extended Producer Responsibility Schemes with / without a Crediting Mechanism Source: Resource Recycling 2019; WWF 2019; Lorax EPI n.d.; OECD n.d. The interaction of EPR and plastic crediting EPR schemes and plastic crediting schemes may to prepare obligated parties for compliance during the interact during EPR development and implementation. transition to EPR. A plastic crediting mechanism may A voluntary crediting scheme can be complementary be applied as one regulatory tool under the EPR scheme to EPR legislation and exist in parallel to national EPR (see figure 10). schemes. A voluntary crediting scheme may be used 32 Analytical Study of Plastic Crediting Report FIGURE 10: Overview of Possible Interactions between EPR and Plastic Crediting Interaction of EPR and plastic credits Plastic credits as a Voluntary plastic EPR status compliance instrument credit market No compliance legislation in place No Yes EPR in A voluntary plastic credit mechanism No can be used to help obligated parties development prepare for compliance. Compliance Plastic credits can be A voluntary market can continue to legislation in place adopted as a compliance exist to complement EPR legislation. instrument under the EPR. For example, obligated organizations Specific rules are needed to can purchase plastic credits on the govern the use of plastic voluntary market to go beyond credits for compliance. compliance requirements. Source: South Pole 2023. In countries without EPR, a voluntary plastic crediting coordination between the voluntary crediting program scheme can allow businesses to finance plastic and the government agency developing the EPR scheme collection and recycling activities worldwide. Plastic would be needed to align crediting processes and prices crediting schemes provide a method for companies to expected EPR requirements. to finance these activities before obligations are implemented. The existence of a voluntary crediting In countries where an EPR scheme exists, a plastic mechanism does not displace the need for an crediting mechanism can be used as a regulatory all‑encompassing EPR scheme. instrument for EPR compliance. The use of plastic crediting as a method for compliance should be carefully In countries where EPR is expected or under considered and assessed for adoption. discussion, an existing voluntary plastic crediting scheme can be used as a temporary measure during In countries where an EPR scheme exists, a voluntary the transition to EPR. Early engagement through plastic credit can be purchased when the company plastic crediting can allow businesses to prepare for wants to exceed the legislative requirement (e.g., their obligations and accelerate the development of supporting a plastic type or activity that is not required infrastructure needed to reach EPR targets. Businesses under the EPR). In this scenario, the plastic credits do that engage with plastic crediting in the transition to EPR not contribute to the EPR requirements. Voluntary should see benefits from early voluntary adoption. Close crediting initiatives that cover an additional scope How do plastic credits work? 33 (e.g., different plastic types) may exist in parallel to EPR purchase plastic credits to support plastic projects. This schemes, enabling obligated entities to purchase plastic may not be required if the EPR scheme is all encompassing credits from the voluntary market and go beyond EPR and well implemented. requirements. Nonobligated entities may also choose to How can plastic crediting be used within EPR schemes? A plastic crediting mechanism can be integrated into EPR achieve an effective crediting system within the EPR schemes as one instrument for obligated entities to meet scheme. The rules and requirements can be developed compliance requirements. Depending on the country’s by the government body tasked with EPR design for context, the use of a crediting mechanism within EPR the purpose of the EPR scheme. Alternatively, existing schemes may aid compliance by providing a system to crediting standards can be used to meet compliance connect obligated organizations with a ready pool of requirements. If a country decides to use plastic crediting projects requiring finance. as a compliance method within the EPR scheme, there are two approaches: they may choose to develop a The success of integrating a plastic crediting mechanism national crediting standard specific to the EPR scheme, to support EPR compliance and address plastic pollution or they can adopt existing crediting standards into EPR will rely on a well-designed and enforced EPR scheme at rules. Table 6 outlines the benefits and challenges of its core. Rules and requirements for a plastic crediting developing a national crediting standard compared to scheme that aligns with good practices are needed to adopting existing crediting standards. TABLE 6: Developing National Crediting Standards Versus Adopting Existing Standards Approach Develop a national crediting Adopt existing crediting standards standard into EPR rules Description The government body tasked with The government body tasked with EPR design EPR design also establishes rules and selects one or more of the existing crediting requirements for the crediting mechanism. programs under category 1 for the purpose of crediting under the EPR scheme. Obligated entities can then purchase plastic credits issued under these programs to meet their compliance requirements. Eligible programs and standards should be clearly outlined in national EPR guidelines. 34 Analytical Study of Plastic Crediting Report Approach Develop a national crediting Adopt existing crediting standards standard into EPR rules Benefits The body designing the standard has the Category 1 crediting programs have flexibility to establish standards that reflect established crediting standards that include the national context (e.g., focusing on robust calculation, and validation methods, as specific activities or affected groups). well as safeguards to avoid double counting. The use of robust standards allows for consistent measurement approaches, enabling regional and global comparability. This approach will avoid the development of a multitude of national crediting standards. Challenges The government body tasked with EPR Requires a specific arrangement between the must establish rules and requirements EPR scheme and the existing crediting program for crediting and have the resources to to manage credit transfers and avoid double oversee their implementation. This includes counting. defining eligible project type, credit type, and standards and processes (e.g., third- party audit). There is a risk that national standards and data collected will not be comparable across regions. Examples UK examples of national crediting One related example is the use of carbon standards come include packaging waste credits within South Africa’s carbon recycling notes (PRNs) and packaging waste tax scheme: projects registered under export recycling notes (PERNs) system; international carbon credit standards that India also has a crediting mechanism. meet specific principles can be purchased by national stakeholders to meet their requirements and reduce applicable taxes (Government Gazette 2019). Source: South Pole 2023. Case studies – EPR schemes and crediting mechanisms Early examples of crediting as a method to support included in the UK Producer Responsibility Obligations compliance for waste management obligations come (Packaging Waste) Regulations in 1997 to facilitate from the UK and Brazil. A crediting mechanism was compliance. A voluntary reverse logistics system How do plastic credits work? 35 emerged in Brazil in response to lack of compliance with India’s EPR scheme following extensive feedback from the national EPR scheme. The introduction of this reverse national stakeholders that the measure would facilitate logistics system that enabled the sale of certificates compliance. This crediting program is in the first year of by waste management providers is considered to have its implementation and is being monitored by the Central increased the compliance rate by providing a clear and Pollution Control Board (CPCB). In the Philippines, plastic straightforward method for obligated parties to meet credits (referred to as offsets) have been included in the their EPR obligations, although it is not officially included nation’s EPR scheme published in 2022. This section dives in the EPR scheme (CAH n.d.). In 2021, plastic crediting was into the crediting mechanisms in the UK and India. included as an optional method for compliance within Case Study 1: A crediting mechanism to increase recycling in the UK The UK Producer Responsibility Obligations (Packaging of PRNs and PERNs was considered by recyclers to be Waste) Regulations of 1997 included a crediting significantly less than the cost of waste management, mechanism as a method to facilitate compliance. The presenting a challenge to fully fund needed infrastructure mechanism was introduced to bridge the gap between (DEFRA, 2022). Furthermore, the recent development of producers who struggled with operationalizing waste a national deposit return scheme, due to be managed management and stakeholders operating collection by the same stakeholders responsible for issuing PRN/ and recycling. Obligated businesses were required PERNs, will require measures to avoid double counting. to pay an annual fee for recycling based on their This highlights the importance of implementing clear packaging volume. This payment could occur through monitoring measures for waste flows through processing the purchase of Plastic Recycling Notes (PRNs) and facilities and establishing eligibility criteria that prevent Plastic Export Recycling Notes (PERNs). Obligated one entity participating in multiple programs. industries could purchase PRNs/PERNs solely from accredited re‑processors and exporters. The system is In the absence of an alternative financial mechanism, a credited with facilitating an increase in recycling since set of reforms for the PRN/PERN system will be adopted its introduction. and the scheme itself reviewed by the UK government again in 2026/2027 (House of Commons n.d.; DEFRA The design and role of the crediting mechanism system 2022). The PRN/PERN scheme will be applied as a have recently been subject to a high degree of criticism. temporary compliance scheme as the UK moves toward a Concerns over price volatility, transparency, potential system of payments to local authorities based on the cost for fraud, and risk of enhanced waste exports through requirements of handling waste in each authority under PERNs led to a review of the crediting system. Pricing a new EPR scheme.64 64 An Extended Producer Responsibility Scheme is being developed as a key part of the UK’s 25 Year Environment Plan (2018) and Resources and Waste Strategy for England (2018) (HM Government 2018). 36 Analytical Study of Plastic Crediting Report Case Study 2: EPR crediting as a tool for compliance in India The Indian government introduced an EPR system for The crediting model allows PIBOs to purchase electronic waste in 2012. The scope of the EPR was certificates for plastic waste recycled by accredited extended to include plastic waste management in third-party processors or exporters. Every PIBO must 2016 and wider packaging categories in 2019, before purchase certificates equivalent to its total plastic being updated in 2021. The EPR legislation now sets footprint. All transactions take place on an EPR portal out minimum recycling targets of 30–50 percent by managed by the CPCB, enabling a central entity to 2024–2025, increasing each year to reach 60–80 percent monitor compliance. Since it first launched in April by 2027–2028. The EPR packaging framework targets 2022, approximately 5,000  brands and 2,000 waste producers, importers, and brand owners (PIBOs). processors have registered. Each industry and packaging type has its own targets, including compostable plastic packaging. India’s EPR legislation provides an example of an integrated waste management system, where credits The EPR system includes credits as a compliance option, provide one method of compliance in addressing following extensive feedback from national stakeholders plastic packaging waste. The scheme is only in the first that the measure would help to improve compliance by year of its implementation and more time is required reducing the complexity of participation. The crediting to determine its success. Initial feedback indicates model also enables waste management projects across positive participation from companies obligated to India to access financing; both Indian urban local comply with the EPR scheme via the plastic crediting bodies and producer responsibility organizations are model. Further advancements may include increasingly limited and geographically concentrated (Pani and stringent monitoring and evaluation of plastic credit Pathak 2021). projects to ensure waste reduction has taken place. In the development process, multi-stakeholder dialog was key to identify challenges from diverse perspectives. Key considerations for plastic crediting as a regulatory instrument The following section presents the key considerations work less effectively compared to plastic taxes which for the use of plastic crediting as a regulatory instrument are designed to disincentivize plastic use and waste within EPR schemes. generation (Packaging Insights, 2022). However, there is a risk that organizations will continue business-as-usual 1. Benefits are highly context specific once taxes are paid. Plastic crediting can play a distinct role, enabling finance to be directed toward specific activities through a transparent accounting framework. The benefits of crediting mechanisms for compliance As a results-based financing mechanism, plastic depend on the goals of the EPR scheme, availability of crediting allows producers to fulfill producer obligations projects, the capacity of the governing entity to monitor with a verified unit of impact. This can reduce the such a scheme, and the willingness of stakeholders to implementation burden on the responsible government participate. Some argue that a compulsory credit will agency and provide additional proof of results. How do plastic credits work? 37 There are still several potential limitations. Plastic Current methodologies of plastic crediting allow for projects will require financial and technical assistance to monitoring by plastic type. In EPR schemes that include participate in the scheme. A plastic crediting mechanism several material types (e.g., paper, glass, and plastic), may displace current financing (e.g., from a previous plastic crediting would only be applicable to the plastic responsibility scheme) if alternative funding is also component (e.g., plastic packaging). Clear requirements stopped. Stringent additionality checks are needed around the credit types, location, and polymer types of to demonstrate that all projects under both EPR and projects that can be supported through plastic credits crediting schemes contribute to a net increase in plastic are key to ensuring the projects financed align with the waste management activities. objectives of the EPR scheme. Crediting mechanisms within EPR schemes may have a greater impact when 2. The scope of EPR may be wider than plastic they require companies to match the polymer and the crediting location of projects to their plastic footprint. Plastic crediting mechanisms can be integrated into 3. Standards and methodologies need to be robust EPR schemes for compliance as one component of the wider scheme. Plastic credits are not designed to be all- The concept of a plastic crediting should be well defined, encompassing nor cover the full scope of an EPR scheme. with standards and methodologies introduced to A crediting mechanism may help to facilitate compliance confidently measure results, and safeguards to avoid with the right conditions; the crediting mechanism will double counting. Third-party audits and public registries need to be well designed and regulated, and directly will be essential to enable transparency and confidence in relate to the EPR objectives. A crediting mechanism can the system. EPR schemes that integrate a plastic crediting be utilized when EPR schemes require companies to mechanism for compliance should align with the good finance plastic waste management activities for a specific practices adopted by crediting programs in category timeframe. Plastic crediting schemes provide a system 1. The current use of crediting schemes in EPR follows for organizations to increase the availability of recycled crediting programs under categories 2 and 3. material by financing recycling projects to scale recycling capacity; however, crediting will not be a substitute for a The safeguards that exist within voluntary plastic credit direct reduction in plastic waste generation. Additional programs under category 1 avoid double counting taxes or levies could be applied to disincentivize the and the registration of non-additional projects.65 Such use of virgin content and set targets to increase the use safeguards would help to ensure that activities financed of recycled content in products and packaging. Plastic through EPR schemes enable action beyond a BAU crediting is not designed to displace existing funding or scenario. The monitoring, accounting, and reporting future commitments to fund waste management. EPR framework provided by these programs can also help to schemes that include plastic crediting should consider it increase the accuracy and transparency of results within a tool to achieve a specific, time bound financing goal, in EPR requirements. As seen in the UK, it is important to addition to existing commitments by central or regional integrate review mechanisms into the crediting scheme governments to cover the operational and maintenance to enable evaluation of the effectiveness of the tool as the costs of waste management services. scheme is implemented and policy objectives change. 65 For example, projects can be required to demonstrate that the activity is not common practice (i.e., extended beyond the existing norm of implementation in the region or country). To do so, a predefined criterion, like a positive list (a shortlist of project activities or technologies that are considered automatically additional), could be established to determine activities or technologies that can be considered automatically to be additional in the region. 38 Analytical Study of Plastic Crediting Report 4. Early stakeholder engagement is critical purchase plastic credits issued under an independent crediting program to finance more activity that the National stakeholders and crediting experts should be EPR requires, or a different type of plastic pollution engaged early in the process to inform the development mitigation. A non-obligated party may also purchase of an effective crediting mechanism that supports the plastic credits for voluntary purposes. Several plastic EPR goals. Multistakeholder dialogue during the design crediting programs already include regulatory surplus of the EPR system enables the development of stronger requirements to avoid a scenario where the same legislation and compliance methods that respond to local project is financed by both EPR fees and plastic credits. circumstances, are economically viable, and increase the This means that only activities which fall outside of level of compliance. Government agencies responsible the scope of the EPR, or instances of widespread non- for EPR should engage with stakeholders from plastic compliance with the EPR, are eligible to issue plastic crediting programs under category 1 for guidance when credits under existing independent standards. This is developing their own crediting standards or assessing the not an explicit requirement in all crediting programs. integration of existing crediting programs into the EPR. Such requirements may require revision once EPR schemes are in place. 5. The role of independent standards in compliance schemes needs to be clear 7. Financial impacts on the public sector should be considered In countries where legally required EPR schemes are in place, the interaction with existing independent plastic In a typical EPR fee model, finance flows to national crediting standards should be considered. If there is a or municipal agencies that can then use the funding crediting option, the EPR scheme should explicitly state for waste management or other purposes of public whether plastic credits from independent standards value. A plastic crediting mechanism enables dedicated can be used for compliance purposes. The rules around finance for public or private plastic pollution reduction the use of credits from independent standards should activities. Depending on the EPR model adopted, the be clear to all stakeholders (e.g., applicable crediting introduction of plastic credits for compliance could programs, additionality requirements, measures to avoid potentially reduce EPR fees collected, and redirect double counting, and credit retirement procedures). capital directly towards plastic credits project owners. A central fund could be established to enable regional or municipal authorities to collect credit fees before 6. Voluntary initiatives can exist in parallel to redistributing this among priority projects in the area. EPR schemes In this scenario, it is essential to ensure full transparency on the methodology used to calculate the financial In countries where there is a legally required EPR contributions as well as the distribution of funds to scheme, plastic credits issued under existing plastic the projects. credit schemes may still be purchased for voluntary use. For example, an entity obligated under the EPR may How do plastic credits work? 39 3.4 Benefits, risks, and challenges This section lays out the main benefits, risks, and challenges of plastic crediting that are identified through the study. Benefits of plastic crediting Plastic crediting can channel additional finance to that can be applied to increase the transparency and initiatives that address plastic pollution. Additional accuracy of financial reporting. The standards applied to finance is particularly important for activities that are plastic credits also present an opportunity to integrate not commercially viable or attractive for current public requirements and safeguards to improve social and or private sector finance. The price-per-unit model environmental conditions, incorporate SDGs, and link puts a value on pollution reduction. Several crediting with other environmental attributes. To  summarize, standards provide results-based accounting methods plastic crediting offers four main benefits. Key benefits • Benefit 1: Provides financing for plastic pollution 1. Provides financing for plastic pollution reduction reduction initiatives and makes solutions initiatives and make solutions economically viable economically viable and scalable. and scalable. • Benefit 2: Place a price or value on plastic waste One of the greatest benefits of a plastic crediting reduction or reduction of plastic consumption system is in providing an alternative mechanism to (including environmental externalities). finance solutions for a circular economy. To reduce • Benefit 3: Provides a framework for traceable results- plastic pollution, plastic waste generation needs to be based accounting that can enhance monitoring avoided and existing waste needs to be managed in an of evaluation of plastic pollution initiatives and environmentally sound manner. Alongside upstream increase the accountability and transparency of solutions that directly reduce plastic production and impact reporting. waste generation, downstream initiatives play a critical role in capturing and responsibly managing plastics • Benefit 4: Marginalized groups, including the currently leaking into the environment. To achieve informal sector, can be recognized as an important a fully circular economy, activities that recirculate stakeholder in waste management, opening the materials back into the economy for production must door to benefit sharing among actors and improving also be incentivized. Plastic credits can be applied to social and environmental conditions. initiatives that facilitate the collection and management, sorting, and recycling of plastic waste that escape waste management systems. The finance directed through plastic credits can be used to address this waste management gap and increase the availability 40 Analytical Study of Plastic Crediting Report of recycled plastics, enhancing plastics circularity. with policy objectives. Plastic crediting mechanisms A plastic crediting mechanism could be adopted as adopt a results-based approach, where projects a short- to medium-term financing tool to stimulate receive finance after achieving specific results. The investments in local waste management systems, responsibility of achieving pollution reduction results is helping to bridge the current funding gap to expand or transferred to the project actor, rather than the funder. introduce new infrastructure until EPR systems are put In some cases, plastic credits could be used as an in place (PREVENT Waste Alliance 2022; UNEP 2022). alternative to grant funding and to de-risk investments For example, financing from plastic crediting could be for traditional investors who may be more willing to channeled to initiatives that address the international take on the potential risk with a potential return on transport of plastic waste and legacy plastic pollution investment through the tradable asset. For example, (see section 2.6). In some cases, plastic crediting schemes the World Bank has launched a new outcome bond, the may provide a complementary role to EPR schemes, Plastic Waste Reduction-Linked Bond, that will channel providing additional finance to activities not covered up-front financing from private sector investors where under the scheme. Plastic credits should be designed the financial return is linked to the plastic and carbon and used in a complementary way to future EPR. credits issued from two plastic projects (see Box 4)67. Enabling international payments through plastic The revenue channeled through the crediting system crediting could expand the possibilities for financing can be used by plastic projects to overcome the projects that address the 140 million t of plastic waste financial barriers to operating and scaling up. For the estimated to be present in the environment. Furthermore, participating projects, credit financing can act as a form plastic crediting may enable finance to follow the of grant financing: there are no repayment requirements international trade of plastic polymers, packaging, and or interest charges, no expectations of a financial waste. Approximately 50 percent of plastic polymers return, and no dilution of ownership. This is particularly are traded internationally, while more than a third of relevant for activities that do not have a direct return on plastic packaging moves across borders (Charles 2021). investment (e.g., collection and management of low- The export of plastic waste from high-income countries value plastics or historical pollution), technologies that to middle- and low-income countries amounted to 3.5 are not yet commercially viable, or activities that are million metric tons in 2016 (Pew 2020). Plastic crediting cost prohibitive compared to existing solutions (e.g., could bring approximately 10 million USD of financing to access to reusable containers). The plastic crediting plastic pollution interventions from the sale of existing mechanism can also provide a means for initiatives to plastic credits and could grow to approximately 30 million receive finance from multiple actors, across geographies, USD annually within the next two years.66 and over multiple years (e.g., crediting periods may be one, seven, or 10 years). The plastic crediting mechanism The scale of financing needed to create a circular provides a ready pool of projects to help financiers easily economy requires access to a range of fiscal instruments. identify projects that address plastic pollution. The Plastic crediting operates with a tradable asset that transferability of plastic credits enables projects to sell can provide a return on investment. Distinct from taxes to intermediaries that can resell plastic credits, instead and levies, which are effective at prohibiting specific of selling to multiple buyers. The sale of plastic credits activities and changing behaviors, credit financing can to intermediaries allows the project to access financing. help to mobilize financing for specific activities aligned 66 Estimation made using average price and number of plastic credits available on the market in 2023. Projection with triple of current market size. 67 https://www.worldbank.org/en/news/press-release/2024/01/24/world-bank-s-new-outcome-bond-helps-communities-remove-and-recycle- plastic-waste How do plastic credits work? 41 2. Place a price or value on plastic waste reduction 3. The standards and methodologies used for plastic or reduction of plastic consumption (including crediting can provide a framework for traceable environmental externalities). results-based accounting that can enhance monitoring and evaluation of plastic pollution Following the ‘polluter pays’ principle, plastic crediting initiatives and increase the accountability and provides the opportunity to assign a value to plastic transparency of impact reporting. pollution avoidance and reduction activities. The cost of plastic pollution has largely been externalized to society. The emergence of accounting methods within plastic Placing a price on plastic credit activities that reduce or crediting standards provides an opportunity for a avoid plastic waste provides a means to acknowledge robust and consistent approach to measuring plastic the environmental and social cost of plastic use and pollution. For example, several crediting standards waste. Private and public organizations can choose to provide accounting methods to calculate the number address this externality by purchasing plastic credits. of plastic credits based on the plastic waste managed. In doing so, they create an internal price on plastic use Under the Verra PWRS, it is already possible for projects and waste generation, as well as an internal incentive to to apply the methodologies for accounting purposes reduce plastic use and associated pollution. only. This methodology was applied to a project in Indonesia in 2022 to measure and monitor the project’s To realize this benefit, the price of plastic credits must plastic waste reduction results. The adoption of these reflect the true cost of addressing plastic waste. This methods for project accounting could help to increase includes fair remuneration and safe working conditions the quality and transparency of results from financing for all workers, especially marginalized groups. Pricing for plastic pollution reduction initiatives. Taken together of plastic credits is likely to be market driven, creating with existing national data, the information gathered the possibility for higher quality credit projects (i.e., through crediting programs could address current data environmental integrity, co-benefits, SDG impacts) gaps in the value chain, from collection to end disposal receiving higher prices. However, there is also a risk that or recycling. pricing will be not sufficiently high to reflect the costs of pollution, and, without guidance or requirements, A robust monitoring system will help to increase the buyers may seek the cheapest credits instead of the credibility of plastic credits. Nonetheless, this goal is best quality. Establishing floor prices and alignment not easily obtained as there is wide variation in the with expected EPR fees will be especially relevant when accounting methods and level of transparency among plastic crediting systems are applied as a compliance tool current crediting programs. Alignment is needed to to avoid the generation of low-quality credits (i.e., a ‘race include third-party audits, public registries, and regular to the bottom’.). High plastic credit prices could help to monitoring as minimum requirements. The associated address the historically low price of virgin plastic that has monitoring and reporting requirements could present often benefited from subsidies and rendered the use of a capacity-building opportunity, particularly around alternative materials or recycled plastic too expensive data collection and digital literacy, and support the in comparison. collectivization of marginalized informal workers (Araiza 2022; UNEP 2022). However, these data requirements may present an additional burden for project actors, particularly marginalized workers and microenterprises. Further, a common unit of a credit is needed to create a common accounting language and obtain comparable datasets globally. 42 Analytical Study of Plastic Crediting Report 4. Marginalized groups, including the informal sector, likely to require capacity-building programs to be able can be recognized as an important stakeholder in to participate in crediting programs. Fair remuneration waste management, opening the door to improving in line with living wages could be supported by plastic social and environmental conditions. credit pricing based on the number of hours worked to achieve a targeted volume (see ValueCred 2021a; A significant opportunity presented by a plastic crediting UNEP 2022). Finance from a crediting system can also mechanism is the ability to improve wages, working be used to provide health and safety equipment and conditions, and social benefits for waste workers, training, women-only toilets, and daycare facilities especially marginalized groups (UNEP 2022). Informal for mothers. and marginalized waste workers play an important role in waste management1 and can be supported to Most existing crediting standards and programs access the potential revenue from the plastic credits. recognize the importance of marginalized workers and The informal sector contributes to the collection of of improving working conditions. Many include specific 27.4 million t of plastic waste globally (Velis et al. safeguards to avoid the marginalization of vulnerable 2022))—a contribution that often goes unrecognized. groups and their displacement. Safeguards still vary Sitting outside of formalized structures, waste workers among programs, with some addressing child or forced are more likely to be underpaid and exposed to unsafe labor, requiring projects to meet international health working conditions (WEF 2020). Informal marginalized and safety requirements, implementing grievance actors can include waste collectors, scrap shop owners, mechanisms for key stakeholders, and encouraging and aggregators. Women are another marginalized additional social benefits for workers (e.g., healthcare group within the waste management sector, often and daycare support). These safeguards can be built involved in specific tasks, such as collection and sorting upon to include specific program requirements around only. Women typically receive lower wages than men, working conditions, and transparent and fair benefit- are typically absent in leadership roles, and can be sharing among project actors. The active monitoring of prevented from work due to childcare responsibilities or these requirements could help improve the livelihoods lack of access to safe facilities such as gender-segregated of marginalized waste workers. toilets (UNEP 2019a). Plastic projects can also bring several positive Enabling informal and marginalized groups to benefit environmental benefits, including a) pollution from plastic crediting systems could provide greater reduction (soil, water, air); b) climate change mitigation visibility around their role in waste management and and adaptation; and c) biodiversity. Some crediting support a just transition. This benefit is still largely standards include safeguards that encourage projects theoretical and will require further piloting and to reduce adverse impacts on GHG emissions and development to realize its full potential. Increasing biodiversity, and to use water efficiently. Taking this one project revenues may help to address some of the step further, projects could be encouraged to measure challenges faced by marginalized groups. It is critical related impacts to better understand and report that marginalized groups can directly access credit their environmental benefits. While circular economy finance, for example by acting as project implementers solutions will not always equal a direct reduction in or collaborators, and that financial flows among GHG emissions, understanding their relative impact project actors are transparent. For example, enabling is important. At present, there are only three plastic the distribution of funds to women may help improve crediting programs that explicitly recognize the link their overall independence and support their families between plastics and climate change. There is also an more widely (UNEP 2019a). Marginalized groups are opportunity to include the monitoring and verification How do plastic credits work? 43 of projects’ contributions to the UN SDGs (see table 7) attributes within crediting systems and enable within crediting standards. Appropriate methodologies effective monitoring. need to be developed to accurately measure these TABLE 7: Examples of Sustainable Development Goal Attributes from Plastic Pollution Reduction Project attribute Associated SDG Explanation Improved working SDG 1: No poverty Improving worker wages can help lift conditions and workers out of poverty. Particularly wages relevant for marginalized workers. Plastic waste SDG 14: Conserve and sustainably use Avoiding the use of plastic prevents avoidance, the oceans, seas, and marine resources it from being at risk of entering the reduction, and for sustainable development environment. waste management SDG 12: Responsible consumption and Avoiding the use of plastic is an production important step in achieving responsible consumption. Improved plastic SDG 11: Sustainable cities and The project may establish improved waste management communities waste management services, contributing and recycling to sustainably managed cities and communities. Plastic waste SDG 13: Climate action Recycling plastic can result in lower GHG recycling emissions compared to virgin materials, depending on the technology. Source: South Pole 2023 44 Analytical Study of Plastic Crediting Report Risks and challenges of plastic crediting Plastic crediting is in the early stage of development. downstream plastic waste management activities. The lack of a common definition and wide variety of Further consideration is required to determine how to approaches taken by existing standards and programs overcome the technical barriers that may prohibit the causes public and private sector stakeholders to involvement of the informal sector and the risk that highlight the risks and challenges in adopting plastic informal sector workers may not benefit directly from crediting. Without careful design, there is a risk that crediting systems. The following section summarizes plastic credits may be used for greenwashing or as a these risks and challenges and considers how they may disincentive action to reduce plastic use. Additionally, be addressed. there is a risk that plastic crediting will only focus on How do plastic credits work? 45 Challenges and risks • Challenge/risk 1: Plastic crediting programs vary 1. Plastic crediting programs vary greatly in terms greatly in terms of quality and robustness and lack of quality and robustness, and lack common common definitions and alignment on key principles. definitions, principles, and alignment on key principles. • Challenge/risk 2: In the absence of alignment between programs and clear governance to ensure There are concerns around the validity of plastic credits market integrity, the results of some plastic pollution and the results they represent. To address this challenge, activities may be double counted and not result in a it is critical that common principles and definitions for net increase in plastic pollution management. plastic crediting are agreed upon and adopted. • Challenge/risk 3: While the supply of projects is increasing, the current market demand for plastic The plastic credit market developed through voluntary credits is mostly voluntary and ad-hoc. Lack of initiatives and is fragmented. Plastic crediting approaches sufficient, sustained, and predictable demand, as well vary widely, with each standard or program offering as a risk of low prices for plastic credits, could start to its own definition of a plastic credit; type of credits; hinder project uptake. accounting units and methodologies; environmental and social criteria; and certification processes. For example, • Challenge/risk 4: Plastic credits purchased for key design features of accounting methodologies such corporate offsetting purposes may disincentivize as project boundaries, measures to prevent double ultimate plastic reduction and be misused as a tool for counting, demonstrating additionality, and third-party greenwashing and misleading claims in the absence auditing measures for transparency vary or are absent of clear rules around credit usage and claims. (see annex I). Several crediting programs also cover • Challenge/risk 5: Technical complexity, transaction multiple stakeholder roles, from project implementation times, and costs associated with the plastic crediting to certification and sales, raising concerns over the process may deter project developers, particularly impartiality and credibility of these programs. Only a few marginalized informal workers and small businesses, plastic crediting programs are developed and managed from directly accessing the mechanism. independently (see table 3). • Challenge/risk 6: Plastic crediting programs’ current The differences between programs are not reflected in focus on downstream solutions risks overshadowing the plastic credit terminology. The term ‘plastic credit’ upstream plastic reduction measures if the latter are can encompass a wide range of scenarios. This variety not considered equally. drives mistrust in the plastic credit market and concern that credits will be issued from activities that would have occurred anyway (i.e., not meet additionality requirements).68 As it is not possible to directly compare each credit type between the various programs, communications associated with a purchase of plastic credits are also scrutinized. 68 Insights from interviews with Project Owners, prospective Buyers and NGOs. 46 Analytical Study of Plastic Crediting Report 2. In the absence of alignment between programs and There is also a risk that project owners may ‘play clear governance to ensure market integrity, the the system’ to be eligible for plastic credits, without results of some plastic pollution activities may be delivering a net increase in measures to address plastic double counted and not result in a net increase in pollution. For example, a project could choose to close plastic pollution management. their activities for a set time or move their activities from one area to another to register as a new project without Plastic crediting programs will also need to be well necessarily increasing the project capacity. Specific enforced and monitored to create a high-integrity system. checks are required by some crediting programs (e.g., Without alignment between crediting programs, there is specific definitions of ‘well-managed,’ checking the a risk that some plastic credit projects do not result in a history of the project owner, understanding historic waste net increase in solutions to address plastic pollution. Any management in the project area etc.) and will need to be crediting system has the challenge to demonstrate that expanded to other programs. Addressing these significant the desired result has occurred. For plastic credits, this differences is integral to building a high-integrity plastic means demonstrating that the credit has resulted in a credit market that provides credible and reliable results. net increase in plastic waste collection and management, or recycling. First, there is a risk that projects receiving Waste management projects that do not implement finance from multiple sources may be double counted health and safety measures and provide protective across programs or by funders. Some plastic crediting equipment can pose a health and safety risk to individuals, programs include specific measures to avoid double particularly informal and marginalized workers. Robust counting of activities across crediting programs (e.g., Measurement, Reporting, and Verification (MRV) systems assigning a unique serial number to issued credits, will be needed to monitor safeguards and enforce requiring disclosure of funding sources), however these requirements around occupational health and safety, should be standardized and uniformly applied. Plastic as well as the avoidance of child labor, forced labor, credit registries should be publicly available and include and provision of equal pay, and social inclusion. These information on project scope (e.g., activity type, polymer measures along with grievance redress mechanisms will type), location, project owner, and methodology (e.g., need to be adopted by all crediting programs to avoid additionality, baseline), as well as credit issuances, creating social risks. Over time, it may be appropriate vintages and retirements. for crediting programs to encourage projects to follow the waste management hierarchy and prioritize the most For the credibility of the plastic credit market, it is also effective waste management solution for each plastic necessary to demonstrate that permanent removal or type addressed. avoidance has occurred for every credit issued. Thus, as far as possible, credits should be attributed to results 3. While the supply of projects is increasing, the lack of that have already occurred, i.e., the weight of plastic sufficient, sustained, and predictable demand, and waste removed from the environment and responsibly a risk of low prices for plastic credits could start to managed can be proven. Downstream projects follow hinder project uptake. this approach.69 69 Plastic credits from downstream projects are calculated based on the amount of actual plastic waste collected and managed, diverted from landfill, or recycled over a specific monitoring period. Projects must provide evidence to demonstrate that the results have occurred. This approach may not be possible for all projects, such as upstream innovation projects, which avoid plastic use and require a theoretical calculation. Methods to calculate results should be specific to the project activity, tested, and monitored to ensure they represent accurate results. All methods and forecasted results should be reviewed periodically. How do plastic credits work? 47 Insufficient demand, partly driven by mistrust of the finance activities that were typically underfunded. current market, prevents plastic credits from serving Moving forward, it is critical that plastic credits develop their function of harnessing capital to stimulate plastic with an emphasis on securing high-quality results for pollution reduction efforts. The potential for demand a range of plastic pollution reduction activities that in plastic credits to fluctuate will mean that they will support a just transition, rather than the cheapest not present a stable or reliable income stream and options. At present, there is no transparency around limit the benefits for project actors. If plastic credits how plastic credit projects are priced. Free market are undervalued or priced down in the credit market, it competition without clear distinction between project will insufficiently cover the true cost of action on plastic types or standards may enable a ‘race to the bottom’ pollution reduction. where the cheapest plastic credits are prioritized over high-quality results. The tradable nature of a plastic There are uncertainties around the level of demand for credit also means that projects can choose to sell plastic plastic credits. The market is still predominantly voluntary. credits directly or through intermediaries such as project Consumer-facing brands, seeking to demonstrate developers, crediting programs, traders, and brokers. their contribution to address plastic pollution to end- The involvement of intermediaries may also increase the consumers, are a predominant type of buyer. Public and price of the final plastic credit without a corresponding private sector buyers may also purchase plastic credits increase in the benefit to the project. as a method to finance pollution solutions. However, the perceived value of purchasing plastic credits is linked to 4. Plastic credits purchased for compensation may the general perception of whether plastic credits are a disincentivize ultimate plastic reduction and be credible method to finance plastic action. Accordingly, misused as a tool for greenwashing and misleading the discrepancies in current crediting approaches, claims, in the absence of clear rules around credit standards, and programs are perpetuating questions usage and claims. around the legitimacy of plastic crediting as a financing mechanism and restricting potential buyer interest. There is a risk that voluntary buyers may misuse plastic Addressing the fragmented variations in the plastic credit credits as a tool for greenwashing and carry on BAU. market could serve to build confidence in crediting as a There are currently no global limitations on virgin plastic viable financing tool and consequently build demand. production or universal reduction targets to ‘turn off Without alignment on crediting approaches, there is the plastic tap.’ In this context, there is an inherent risk a risk that challenges will continue to prevent wider that companies will choose to finance solutions beyond uptake of plastic credits as a method to certify project their value chain through plastic crediting without results and finance plastic pollution solutions. If credit taking steps to reduce plastic waste within their own financing is uncertain and cannot be sustained, it creates value chain. A plastic credit may represent a reduction an additional risk for projects and may prevent more in plastic waste, but it does not represent a reduction in from participating in a credit system. The temporary or plastic waste generation, nor provide a right to generate potentially unsustained nature of plastic crediting is an equivalent amount of plastic waste. Plastic crediting concerning for marginalized informal groups that want alone will not solve the plastic pollution crisis. to access the credit system as a regular income stream to balance fluctuating prices for recyclables. The impact of using plastic and generating waste is felt most strongly in the location where it is disposed of, There is also a risk that prices of plastic credits will be and will vary by polymer type (e.g., PET, LDPE, PVC etc.) too low to achieve meaningful results. The concept and product or packaging application (e.g. tubs, bags, of plastic credits stems from the need to adequately 48 Analytical Study of Plastic Crediting Report bottles, toys etc.).70 There are no requirements for buyers plastic credits are utilized within EPR schemes (e.g., as a that aim to make compensation claims to purchase compliance tool), the EPR framework itself can provide plastic credits that address the plastic types they use rules on the potential use of plastic credits. For example, in the locations where this plastic becomes waste. This limits can be set on the number and type of plastic credits creates a risk that buyers could achieve a compensation that an organization can use for compliance purposes claim without addressing the challenges specific to their each year, and guidance provided on eligible claims. own value chain.71 Placing geographical and polymer- Ensuring the price of plastic credits is sufficiently high to matching stipulations on all credit purchases will require reflect the true cost of pollution may prevent them from a highly complex plastic credit market. This may prevent being seen as an easy solution and potentially act as an adoption by buyers and projects in the early stages as incentive for companies to reduce their own footprint. credit projects are not yet available in all geographical A clear governance framework and universal alignment regions (see section 3.2 for geographical distribution of on the responsible use of plastic credits are needed. credit projects). 5. Technical complexity, transaction times, and costs In the absence of universally agreed rules and supporting of the plastic crediting process may prohibit project frameworks, there is a risk that buyers could see the developers, particularly marginalized informal purchase of plastic credits to be sufficient to claim that workers and small businesses, from benefiting. their impact was ‘offset.’ NGOs highlight that plastic credits are not suitable for offsetting purposes; the A robust and transparent plastic crediting system physical plastic waste generated by the credit buyer relies on robust and credible standards, methods, and will remain unmanaged with its own environmental and monitoring systems. Small and informal actors will social impacts, even with the purchase of plastic credits require support to access and benefit from a plastic (e.g., WWF 2021). Buyers can apply a range of claims, some crediting system. There is a risk that the crediting system of which are not well-defined and are openly questioned. increases dependencies on marginalized workers For example, experts consider plastic neutrality to be without bringing direct benefits. misleading; it implies that there is no remaining harm from plastic waste generated after companies invest in The technical complexity required to establish a robust plastic waste collection and management equivalent to crediting system may act as a barrier preventing smaller their plastic footprint. However, the specific waste items or informal organizations from benefiting directly. generated by the buyer could still be in the environment Taking a project through the registration and credit (see section 3.1 on claims). Plastic pollution can persist in issuance process requires significant resources and the environment for decades to hundreds of years unless extensive technical knowledge, creating a barrier to it is directly removed (Chamas et al. 2020). entry for smaller or less experienced project actors. Plastic pollution reduction initiatives are often run by No organization is tasked with monitoring the use of poor communities and marginalized informal groups plastic credits or associated claims, creating further that usually operate on a small scale and have limited mistrust in their use. Concerns could be addressed capacity to achieve the level of transparency and with governance frameworks and universal agreement monitoring requirements needed to generate a credit on the responsible use of credits and claims. When 70 For example, polymers such as PET used in rigid bottles have a higher economic value and are considered recyclable in most markets. By comparison, LDPE and flexible packaging (e.g., films) have a low economic value, are challenging to recycle, and may leak into the environment 71 The Guidelines for Corporate Plastic Stewardship recommend plastic credit buyers to match the purchase of plastic credits to the plastic that needs to be mitigated. This includes a material type match, a regional match. More information here. How do plastic credits work? 49 under robust standards. These projects may choose to At present, downstream activities, including the work with third-party service providers to participate in collection, sorting, and management of plastic waste, the crediting scheme, whereby service providers lead the are the focus of plastic crediting initiatives. This reflects work for the project in exchange for a fee or choose not to the need for capital to fund the removal of plastic from participate at all. Some crediting programs (e.g., BVRio) the environment and infrastructure, to collect and operate a simplified crediting process to facilitate access manage plastic waste going forward, and to direct to marginalized informal groups. reduction in total plastic use. However, if a company chooses to purchase plastic credits, it will only be able to Furthermore, the high costs associated with certification finance downstream activities. There is concern among may limit the scope of projects that can benefit from NGOs that this emphasis on downstream activities by the system. There is a risk that projects which require crediting programs may be reflected in wider policies high investment or operational costs may not be able to without corresponding upstream measures. Financing of recover their costs through a plastic credit mechanism. downstream activities is necessary but does not displace Projects that address specific plastic types, such as the need for upstream measures to reduce plastic waste microplastic removal from the environment, or removal generation. This could be addressed by establishing clear of plastic from remote environments (e.g., open ocean) guidance and rules (see also challenge/risk 3 above). are likely to have a high cost per kg or ton of plastic avoided or removed. This may result in prices that are Plastic credits for upstream solutions are being too high to be attractive to buyers, or not high enough explored. However, robust methodologies need to be to cover the project costs. codeveloped, tested, and approved by key stakeholders. The main challenge in developing an upstream credit For the credit system to be available to a wide range is establishing methods and metrics that are reliable, of stakeholders, marginalized stakeholders will need achievable, and comparable. Upstream projects could to be supported to access crediting programs without issue credits based on the plastic that will be avoided reducing the level of integrity and quality. and will require a more theoretical approach to the calculation of the credit. Calculating this ‘avoidance’ 6. Plastic crediting programs currently focus on figure will require estimation of the type and weight of downstream solutions, which risks overshadowing plastic used in the alternative scenario, the expected upstream plastic reduction measures if not project lifetime, and the number of uses. Additional considered equally. considerations, such as the project boundary and safeguards to ensure the alternative solution can be managed or recirculated after use, also need to be Downstream activities are still the focus of crediting explored. It is important that stakeholders first align on systems. Design challenges need to be overcome the definition of an upstream credit and the principles before plastic credits can be used effectively to support behind accounting methods. Further piloting and upstream initiatives to reduce plastic use and waste multistakeholder input are required to support the generation. More pilot initiatives are required to test effective design of plastic credits for upstream activities. and develop upstream methodologies before rolling out this solution. How do plastic credits work? 51 4. RECOMMENDATIONS Plastic crediting provides one possible tool to direct the potential benefits of a plastic crediting scheme. public and private sector finance into plastic pollution Proposed mitigation measures are provided in Table 7. interventions, particularly downstream solutions. The following section presents recommendations to However, the ability of a plastic crediting system address the identified challenges and risks associated to help address plastic pollution and realize the with a plastic crediting system, and to realize the benefits identified in section 3.3 depends on effective identified benefits. Recommendations are first provided implementation of the system. Further work is required to for the plastic crediting system in general, followed by address the identified risks and challenges. Establishing specific recommendations for plastic crediting within a clear governance framework will be key to realizing ASEAN countries. TABLE 8: Proposed mitigation measures to address identified challenges and risks Challenges/risks Mitigation measures Challenge/risk 1: Plastic credits are in Establish minimum requirements and common principles for plastic the early stages of adoption. Programs crediting programs and protocols for the use of plastic credits. Further vary greatly in terms of quality and work is required to establish such a framework and ensure adoption across robustness, lack common definitions, crediting programs. and are not aligned on key principles. In the interim, plastic credit programs should ensure that robust calculation methodologies and environmental and social safeguards are in place. See Recommendation 1 Challenge/risk 2: In the absence of Robust measures to ensure additionality, a net increase in plastic waste alignment between programs and clear management and avoid double counting should be applied across crediting governance to ensure market integrity, programs (e.g., thresholds per activity, material, or location thresholds, the results of some plastic pollution assigning unique serial numbers, requiring responsible management of activities may be double counted and plastic waste in all cases72Robust measures to ensure additionality, a net not result in a net increase of plastic increase in plastic waste management and avoid double counting should be pollution management. Plastic waste applied across crediting programs (e.g., thresholds per activity, material, or collected are not properly disposed or location thresholds, assigning unique serial numbers, requiring responsible treated. management of plastic waste in all cases , and disclosing credit transactions on public registries). 72 In locations where plastic is at risk of re-entering the environment after collection, alternative management options should be supported (e.g., establishing a new recycling center, or transporting to the nearest managed landfill). 52 Analytical Study of Plastic Crediting Report Challenges/risks Mitigation measures Some plastic credit programs require projects to demonstrate that plastic waste has been properly disposed or treated permanently before credits can be issued. Such measures that ensure end-to-end management of plastic waste from collection to final disposal or recycling should be applied to all programs (e.g., specific requirements for disposal sites and measures to demonstrate permanence of waste management). A strong governance framework is needed to monitor effective implementation and ensure independent verification. In the absence of a common governance framework, credit buyers should review project documentation and crediting programs to understand measures to avoid double counting and ensure additionality. See Recommendation 1 Challenge/risk 3: While the supply A fund or pre-purchase facility could address some of the challenges of projects is increasing, the current of plastic crediting (e.g., provide technical assistance for marginalized market demand for plastic credits is groups, further developing methodologies), and offer financial security to mostly voluntary and ad-hoc. Lack of prospective projects. sufficient, sustained, and predictable Establish pricing guidelines and categories to reflect activity type, location, demand, and a risk of low prices for material type and co-benefits. plastic credits could start to hinder See Recommendation 2 project uptake Challenge/risk 4: Plastic credits Develop best practices to promote the responsible use of plastic credits purchased for corporate offsetting to fund specific activities during a transition period within a wider plastic purposes may be misused as a tool action framework. for greenwashing and misleading Alignment is needed on the distinction between plastic credits, a tool claims, and/or as a disincentive to to finance activities beyond a company’s value chain, and activities that reduce plastic pollution given the directly reduce plastic use within a company’s value chain. Guidance is also absence of clear rules around plastic needed on suitable claims surrounding credit purchases. credit usage and claims. Plastic credits A public disclosure platform where buyers report plastic use, mitigation may be misused to displace efforts activities within their own supply chain and use of plastic credits will from governments or private sector enable monitoring. actors to establish extended producer responsibility systems and/or proper Plastic crediting can be utilized as an additional financing tool and should waste collection systems. not displace the long-term sustained efforts and commitments from public and private sector actors. See Recommendation 1 Challenges/risks Mitigation measures Challenge/risk 5: Technical complexity, Provide technical assistance for early-stage and projects with informal transaction times, and costs associated marginalized workers. This may include exploring options to simplify with the plastic crediting process (e.g., data‑collation, and benefit sharing mechanisms for marginalized workers. project validation and registration, See Recommendation 4 credit verification and issuance) may deter project developers, particularly marginalized informal workers, and small businesses, from directly accessing the mechanism. Challenge/risk 6: Plastic crediting If robust protocols for plastic crediting are established, explore crediting programs’ current focus on downstream for upstream solutions through extensive piloting and stakeholder solutions risks overshadowing upstream engagement. plastic reduction measures if not See Recommendation 5 considered equally. 4.1 General recommendations for plastic crediting 1. Develop centralized, independent, and neutral and (v) the emphasis placed on plastic types and legacy governance plastics. Guidelines on the components needed for robust calculation methodologies, the use of plastic The diversity and inconsistencies within the current crediting as a beyond-value-chain mitigation mechanism plastic credit market indicate the need for consistency, for buyers, and associated communications and claims, minimum standards, and common principles to address would increase trust in the market. These guidelines and the challenges and risks and consequently enable protocols could be grouped under a common governance the realization of potential benefits. Multistakeholder framework for plastic crediting. The WWF Position Paper initiatives have emerged to address some of the highlights several areas to be considered by such a challenges associated with plastic crediting (e.g., framework (WWF 2021). PREVENT Waste Alliance,73 Plastic Footprint Network,74 3R Initiative75). However, alignment is needed on: (i) a A cross-section of key stakeholders can be engaged to common definition of a plastic credit; (ii) credit units achieve high-level alignment and consensus globally and project types; (iii) core principles; (iv) protocols for a governance framework. The implementation of and minimum requirements for crediting standards; international best practice can be supported by regional 73 https://prevent-waste.net/our-topics/ 74 https://www.plasticfootprint.earth/ 75 https://www.3rinitiative.org/ 54 Analytical Study of Plastic Crediting Report frameworks to contextualize global guidelines to Moving toward a set of common principles and protocols regional needs. An independent governance body could will require substantial collaboration between crediting be established to monitor standards, the involvement standard setters, project implementers (both formal and of third‑party auditors, and the use of credits, in order informal), NGOs, and academic institutions, as well as to address concerns around transparency and build local governments and industries. In the near term, the confidence in a plastic credit market. Continuous INC on Plastic Pollution process may provide a necessary monitoring of ongoing pilots and funding for new arena for such discussion (see box 3). Once a global pilots to apply the lessons learned is needed before policy objective and target are set, plastic crediting can scaling of a plastic crediting system. Looking at existing operate as one mechanism to finance plastic pollution environmental markets, the Integrity Council for the solutions complementary to measures that reduce Voluntary Carbon Market (ICVCM) prepared the Core plastic waste generation, regulated by an independent Carbon Principles and Assessment Framework to provide nonprofit organization. While a common framework is a quality standard for high-quality carbon credits in the being designed, actors seeking to use the plastic credit voluntary market (ICVCM 2023). A similar entity could system should carefully assess plastic crediting programs be developed to support the effective development of a to understand their standards, methods and procedures plastic credit market. Taken together, these actions would particularly around additionality, double counting, help address the wide variation in crediting programs, environmental and social safeguards. the risk of credits being used as a greenwashing tool, concerns around credit pricing, and risks for marginalized informal workers. Establishing a robust framework for plastic crediting, with consistency, minimum standards, and common principles would also help build trust in the credit market over time. BOX 3: Moving Toward Standardization for Plastic Crediting: The Relevance of the INC Process for Plastic Crediting The UNEP INC on Plastic Pollution is working toward establishing an international legally binding instrument for plastic waste.76 The instrument intends to provide a comprehensive approach that addresses the full life cycle of plastic. This is a significant opportunity to set the international policy direction that addresses plastic pollution and achieves a circular economy. INC negotiators are considering a range of measures to promote the sustainable production and consumption of plastics, from product design to waste management, and diverse means of implementation. Core obligations under discussion include strengthening waste management; eliminating the release and emissions of plastics to water, soil, and air; and addressing existing plastic pollution. If deemed suitable and appropriate, negotiators could consider plastic crediting as a tool to support financing of 76 Intergovernmental Negotiation Committee on Plastic Pollution here How do plastic credits work? 55 core obligations. To do so, an accepted definition of plastic credits and agreement on the role that plastic crediting could play in fulfilling core obligations are needed. With a plastic crediting system adjusted to ensure the flow of capital to informal and marginalized waste workers, a crediting system may support possible obligations to facilitate a just and inclusive transition. Under the financial assistance element, the concept of crediting could be expanded from carbon credits (UNEP 2023a) to include plastic crediting as a results-based tool. The potential of plastic crediting to support hybrid financial assistance from private and public stakeholders across global regions could be considered. The role of crediting within national policies or EPR schemes should be reviewed carefully with the support of technical experts in plastic crediting before considering their adoption, to explore measures that could effectively address potential risks (see section 3.3). Guidelines on EPR may benefit from shared guidance on plastic crediting contextualized to national requirements. Critically, the INC process brings together several key stakeholders involved in the plastic crediting value chain, including civil society representatives, policymakers, and the private sector from UN member nations. The INC process provides a much-needed space for multistakeholder discussions to review the potential role of plastic crediting to support the resulting goals and consider the establishment of an independent governance framework. This discussion could also occur under alternative forums. These additional platforms could supplement the efforts made during the INC process, providing more opportunities for comprehensive dialog and action. 1.1. Establish common core principles and protocols Carbon Principles and Assessment Framework can for plastic crediting programs serve as a starting point for plastic crediting programs (Circulate Initiative 2021). Crediting standards set the framework through which plastic pollution interventions are assessed and verified, Common principles should cover the governance, and how plastic credits are issued. As the foundation development, design, and continuous improvement of of a plastic credit system, robust standards and standards. Robust standards and methodologies should methodologies are critical to inspiring confidence within include (i) baseline measurement, (ii) demonstration a credit market. A core set of principles and minimum of additionality, (iii) monitoring parameters, (iv) social requirements for plastic crediting programs, their and environmental safeguards, (v) and measures to standards and methodologies are needed to address avoid double counting (see annex I). Additionality, the current inconsistencies around plastic crediting which requires projects to demonstrate that the project initiatives that range from independent standards to impact would not have occurred without the credit all‑encompassing crediting programs where actors finance, is critical to ensuring that finance goes beyond adopt multiple roles in the plastic crediting process. BAU activities and should be addressed by all standards. With a core set of principles, standards can be developed Specific measures already adopted by some programs to fit regional and solution-specific needs, while also can be expanded across programs, such as setting adhering to international best-practice principles. The additionality thresholds that respond to the activity, Guiding Principles by the Circulate Initiative, and Core material or location, requiring checks on project 56 Analytical Study of Plastic Crediting Report funding sources and historic waste management in the can include specific requirements when informal project area. or marginalized groups are affected and additional safeguards around fair remuneration and distribution Common definitions and requirements to achieve ‘well- of credit finance between project actors. Specific managed’ plastic waste (e.g., through managed landfill, requirements could include contractual commitments recycling etc.) and proof points are needed to ensure to proportionately distribute credit finance to informal that plastic crediting activities across all programs lead and marginalized workers, and social security nets in to the permanent results. In locations where plastic is adherence to local jurisdictions. at risk of re-entering the environment after collection (e.g., due to lack of ‘well-managed’ disposal facilities), Plastic crediting programs can also consider enhanced alternative management options should be supported measures to address low value plastic waste and legacy (e.g., establishing a new recycling center, or transporting pollution which are often unattended, for example, plastic waste to the nearest managed landfill). Limiting differentiating or placing greater weights to plastic plastic credits to new project activities or those with types and reduction activities that are more challenging expanded capacity and implementing checks on the or costly to address. The expansion of plastic credits to historical management of plastic waste in the project include other types of waste can also be considered. location and the activity history of project owners, can The development of crediting standards needs to align avoid credits being issued on pre-existing activities. with global and regional policy priorities, providing Time-bound restrictions are applied by some crediting methodologies for pollution interventions that are programs and can be expanded to others (e.g., registration considered most critical. within a certain date, limited number of renewals or registrations). Transparent processes, including publicly 1.2. Protocols for the voluntary use of plastic credits available methods, monitoring protocols, third-party and associated claims verification, and public registries that track the issuance, transfer, and retirement of a plastic credit, are needed Strict protocols are needed to mitigate risks of to ensure that one credit is issued per unit of plastic. greenwashing by credit buyers. Companies should be Clarifying the roles and responsibilities of parties required to publicly disclose plastic-use mitigation engaged in a plastic crediting system with a regional or activities within their own supply chain and any purchase global body will create accountability and instill greater of plastic credits. These disclosures are an important trust and transparency. Ensuring that standards strive for first step to monitor the use of credits and limit the continuous improvement will enable their adjustment risks of credits being used as a greenwashing tool. The based on feedback and regional needs over time. existence of best practices can promote the responsible use of credits and enable monitoring and improvement To fully realize the potential of plastic credits, it is of the market over time. Drawing on lessons learned from critical that marginalized groups benefit from crediting carbon markets, the accounting framework provided projects, particularly projects on plastic waste collection by the Greenhouse Gas Protocol (GHG Protocol n.d.), and sorting. Standardizing monitoring requirements alongside standards for claims such as carbon neutrality and enabling more frequent reporting (e.g., every three (e.g., PAS 2060) and net zero (e.g., SBTi), and a disclosure months instead of every year), alongside training, platform under CDP, provide a framework to guide the guidance, and templates, could be considered to support use of voluntary carbon credits and measure the validity informal workers to access the crediting system without of claims. In particular, the GHG Protocol sets out that reducing the integrity of reporting requirements. To the purchase of carbon credits is not equivalent to a avoid displacement of the informal sector and encourage direct reduction in GHG emissions. The Voluntary Carbon the realization of valuable social benefits, standards How do plastic credits work? 57 Markets Integrity Initiative (VCMI) has also developed potential direction of a credit market are inhibiting a Claims Code of Practice to address concerns around the effective development and implementation of the misuse of carbon credits, and provides a rulebook on financing tool. credible use of high-quality carbon credits and associated claims (VCMI 2023). Together, these initiatives provide The early stages of the carbon credit market experienced best-practice guidance for voluntary use of carbon credits. similar challenges—the mechanism was unknown to potential buyers and investments to participate were In the case of plastic credits, the launch of the Plastic considered risky. Lessons can be drawn from carbon Footprint Network to align practitioner methodologies crediting. Features unique to plastic waste, including on plastic disclosure, the expansion by the CDP to include material type and the current waste market dynamics, plastics under its Water questionnaire, and the WWF must be considered for a plastic credit market to ReSource Footprint Tracker demonstrate momentum be effective. in corporate plastic disclosure. Recent work by the WBCSD proposes convergence on plastic-related metrics 2.1. Foster market development and the foundations for enabling a global corporate accountability framework.77 Alignment is also needed In the early stages of the carbon credit market, a Prototype on the role of plastic credits as a mitigation activity Carbon Fund was developed to further test the concept to finance activities beyond a company’s own value and build awareness among stakeholders (World Bank chain, distinct to a direct reduction in its own plastic n.d.). The fund played a crucial role in both developing footprint. The 3RI Guidelines provide good practices that the first methodologies and purchase agreements and can serve as a basis for further development, including gave confidence to an emerging system. Overall, the considerations around project type, plastic type, and program enabled the implementation of pilot activities to location of financed activities (see also annex II). Requiring demonstrate the potential impact of the carbon crediting companies to substantiate communication claims with mechanism and identify lessons learned. mitigation activities would also prevent greenwashing. However, without a regulatory framework, there is still a The establishment of a fund or prepurchase facility for risk that companies will purchase and account for credits plastic credits could have a similar effect. A fund for plastic irresponsibly. Ultimately, the effectiveness of voluntary credits could focus on the piloting of a specific activity guidelines relies on their adoption and monitoring. (e.g., waste collection and management), use case (e.g., Establishing a disclosure platform and an independent the use of credits within national policies such as EPR), body to monitor participation would likewise help to or the development of new methodologies (e.g., for track and avoid the potential for greenwashing. upstream activities that avoid waste generation). A fund could also focus on supporting informal and marginalized 2. Address market dynamics and demand levers groups’ access to a crediting system, including technical assistance and testing payment models (e.g., living wages A clear signal about the potential viability of a plastic for workers, proportional income distribution, pricing as crediting system can help to address uncertainties a fee for hours worked over metric tons collected). The at this  early stage of plastic crediting. The current implementation of projects under a centralized fund discrepancies in plastic crediting standards, concerns would enable testing of methodologies, price floors, and around greenwashing, and uncertainties around the social safeguards, and offer opportunities to familiarize 77 Enabling Corporate Plastics Disclosure: opening the debate for the adoption of universal metrics, WBCSD (available here). Enabling Corporate Plastics Disclosure: building a corporate accountability system for plastic pollution (available here). 58 Analytical Study of Plastic Crediting Report buyers with prospective projects, setting the course for launched by the World Bank is an example of this. The the plastic credit market. A prepurchase facility, where Bond provides investors with a return on investment commitments are made to purchase plastic credits from through Plastic Collection and Recycling credits, as well early-stage projects, would provide financial security to as Verified Carbon Units, issued under Verra Plastic and prospective projects. Carbon Standards. The two selected projects will receive finance over a 7-year period. The projects, in Indonesia Outcomes bonds could also be utilized to provide and Ghana aim to reduce and recycle plastic waste in up‑front financing to plastic projects, in return for future vulnerable communities and expand local capacity plastic credits. The Plastic Waste Reduction-Linked Bond (see Box 4)78. BOX 4: Enabling action through a Plastic Waste Reduction-Linked Bond The Plastic Waste Reduction-Linked Bond enables capital market investors to finance plastic waste reduction and climate action, with a financial return linked to the issuance of Plastic and Carbon Credits.79 Through the Bond, investors will provide $14 million in up-front financing to one project in Indonesia and one project in Ghana. In this way, the Bond is able to provide up-front financing that enables the projects to achieve their plastic waste reduction goals. The Bond structure enables the investors to receive a return through the issuance and sale of issued and sold credits. Plastic credits act as a tradeable product, providing a means to measure results. The project in Ghana will use this finance to operate and scale a community-based project to expand the number of waste collection and recycling sites in Accra. The project enhances waste collection networks and empowers women entrepreneurs to build their own social enterprises. The project in Indonesia will use this finance to scale efforts to reduce ocean-bound plastics in Surabaya. The project empowers coastal communities by providing training, employment, and price premiums to incentivize collection of ocean plastics. The projects also contribute to reducing associated health impacts of plastic pollution and create jobs for marginalized communities. The two projects will implement the ZPO Social Plus standard to alleviate waste picker poverty, provide education on plastic circularity, and build capacity around community health and sanitation. The projects will be registered under the Verra Plastic Waste Reduction Standard and the Verra Verified Carbon Standard. Citi acted as the Lead Manager for the transaction and has purchased future carbon credits. Plastic Collective is the project developer and seller of plastic credits. Plastic credits will be sold to companies seeking to mitigate their plastic footprint. ASASE Foundation is the Project Owner in Ghana. Greencore is the Project Owner in Indonesia. 78 https://www.worldbank.org/en/news/feature/2024/01/25/tackling-the-plastics-pollution-crisis-by-channeling-private-capital-to-projects-that- reduce-plastic-waste 79 Ibid. How do plastic credits work? 59 An auction format could also support market adoption waste within an organization and serve as an incentive to and test price floors for plastic credits. An example of this reduce waste generation. There is currently no guideline format comes from the Pilot Auction Facility for Methane for plastic credit pricing. The volatility of prices for carbon and Climate Change Mitigation (see annex III), where credits serves as an example of the challenges associated price guarantees are granted to project developers who with pricing that must be overcome. Establishing pricing purchase a “put option” that gives them the right (not the guidelines including possibly a minimum price and key obligation) to sell their carbon credits at a minimum price factors for price determination. to the auction manager. An auction approach could be adapted for plastic credits to provide certainty to project Ultimately, the pricing of plastic credits will depend on: actors hesitant to start the credit process over concerns (i) the activity type (e.g., collection, sorting, recycling); about lack of demand or low prices. (ii) location (e.g., rural areas may have higher logistics and transport costs than urban centers (Mihai and Taherzadeh 2.2. Plan for plastic crediting as a transition 2017; (iii) material type (e.g., low-value and lightweight mechanism plastics may require more time per kg collected than higher value items such as rigid PET and HDPE); and (iv) co-benefits (e.g., improved working conditions, GHG Plastic credits are a financing tool designed to support emissions reductions, biodiversity benefits). Establishing the transition to a circular economy, and therefore it common project categories, including co-benefits, could is important to plan for a plastic credit system that help to standardize and increase transparency around will be time limited and reduced over time (as plastic pricing (McKinsey  2021). Developing categories for the pollution reduces over time). A planned phaseout also specific social, environmental, and economic co-benefits, corresponds to the concept of ‘additionality,’ whereby and key indicators including UN living wages and fair crediting projects must demonstrate that they go above distribution of income among actors, could enable these and beyond BAU. Utilizing plastic credits as a long-term otherwise ‘invisible’ costs and attributes to be accounted income stream, rather than a transition mechanism for (UNEP 2022). Alternative pricing models that enable to accelerate finance into waste management workers to be paid per hour worked instead of weight infrastructure, would go against this fundamental collected can also be explored (ValuCred 2021). Project concept. The specific time requirements should be actors, civil society, and the private sector (e.g., potential dictated by regional priorities and circumstances. Plastic buyers, recyclers, and waste management companies) credits can be developed as a time-bound solution, will need to be involved in the development of pricing enabling financing for a specific set of activities that categories and guidelines. align to national, regional, and global priorities around plastic pollution reduction. 3. Develop guidelines to inform the interaction of EPR and plastic crediting 2.3. Develop and strengthen mechanisms for appropriate credit pricing Guidelines are needed to support the development of EPR schemes against a background of existing voluntary Appropriate pricing of plastic credits is fundamental to plastic crediting programs and their standards. This may their successful implementation. Plastic credits need to include the use of a plastic crediting mechanism for be priced to reflect the true cost of addressing plastic compliance within the EPR scheme, or the interaction pollution and providing all workers (including informal of a voluntary plastic credit market with a mandatory and marginalized groups) with fair wages for the number EPR scheme. of hours required to collect and manage waste. The price of a plastic credit will internalize the cost of plastic 60 Analytical Study of Plastic Crediting Report Countries that are developing national policies and EPR collection and management) will require sustained schemes for plastic waste may consider a plastic crediting financing from central or municipal governments, and mechanism as one possible tool to enable compliance. the private sector to cover operational and maintenance The creation of a compliance market would serve to costs. Prices for voluntary plastic credits should be aligned stimulate demand for plastic credits, placing them with expected EPR fees. Clear rules around the interaction within a holistic framework to address plastic pollution. of voluntary and compliance schemes will be needed. The use of plastic crediting as a method for compliance For example, buyers may wish to purchase plastic credits should be carefully considered and adopted only when under voluntary crediting programs to meet or go beyond considered to bring significant benefits to the specific compliance requirements. The recent developments EPR scheme. The use of a plastic crediting mechanism with Article 6 of the Paris Agreement demonstrate can help to connect obligated parties with a ready pool of the importance of establishing clear rules around the projects requiring finance. The success of plastic crediting interaction of voluntary and compliance schemes (see as a tool to enable compliance relies on a strong EPR Annex IV). While Article 6 does not regulate voluntary framework with clear objectives, a well-defined role of action, it does provide guidance for the voluntary carbon plastic crediting, and high standards for credit-generating market (VCM) to be Paris-aligned, including key principles projects with independent assessments. Countries for crediting standards, rules preventing credits from the seeking to integrate plastic crediting into EPR schemes voluntary market being used toward national targets should follow international best practices, including (i.e., NDCs), and safeguards to reduce the risk of gaming. robust requirements for all projects to demonstrate Similar guidance could be established for the interaction additionality; clear monitoring frameworks; independent of voluntary plastic credits and EPR schemes. audits of projects; and public registries to track the issuance, transfer, and retirement of plastic credits. Plastic 4. Provide technical assistance for early-stage and crediting programs under category 1 provide an example informal projects and may be used by EPR schemes. Establishing minimum pricing and self-regulating mechanisms will be crucial The criteria and stringent protocols required to create to continuously improve over time. It is important that a robust plastic crediting standard can result in high stakeholders, including crediting experts, project actors, technical and financial barriers to entry. In their present and obligated entities are engaged early on to support pay-for-services model, plastic credits are best suited the design of effective crediting programs. Independent to projects that have sufficient capital to start and voluntary crediting standards provide a starting point in require support to scale. Small-scale projects and those the absence of a uniform guideline. involving marginalized and informal workers will require assistance to overcome technical barriers such as project In countries where EPR schemes are in development registration, monitoring, and credit issuance costs. A and voluntary plastic credit projects already exist, close range of technical assistance will be required to avoid coordination between the two will be fundamental to reducing the level of assurance provided by a plastic avoid plastic credits displacing the EPR system. It is credit. For example, data-collation options such as open- important to recognize that plastic projects will require source software, simple data-collation interfaces for financing over different timescales, and many will real-time tracking, or easy-to-use manual systems that require financing beyond plastic crediting. For example, would allow these small project actors to continuously projects that produce a marketable end-product (e.g., monitor their activities would help these project types reusable packaging, refillable solutions, recycled pellets) achieve certification under crediting standards and issue may benefit from credit financing for a short time only plastic credits. until they become financially independent. Meanwhile, activities that do not have a final product (e.g., municipal How do plastic credits work? 61 A benefit-sharing mechanism for informal and methodologies for upstream initiatives once the marginalized workers will also enable these groups to challenges and risks of the current plastic crediting directly benefit from credit financing. Governments and mechanism have been addressed. Early private sector investors can play a pivotal role in providing upfront involvement could be beneficial since upstream solutions capital for project implementation and credit certification are likely to be driven by private sector actors (e.g., small- through forward transactions to secure a stable future to-medium enterprises operating alternative delivery supply or structured credit deals with buyers over or reuse systems). The relevance of plastic crediting for multiple years (Aera 2022). The upfront capital required initiatives that address microplastics, both upstream for project implementation and credit certification can, and downstream, could also be considered for future in some cases, be secured by pre-financing in the form of development. forward transactions or guaranteed offtake agreements. The Pilot Auction Facility provides an example of how Developing methodologies for an upstream plastic this could be addressed. Priority projects that require crediting will require a thorough and credible process. technical assistance could receive a guaranteed price and Due  to the hypothetical nature of an avoidance option to sell their credits to an end-buyer and participate credit, robust piloting will be needed to test and in a coordinated technical assistance program. develop methods. Calculating ‘avoidance’ will require comprehensive data about the type and weight of 5. Future prospect: pilot upstream solutions plastic used in the alternative scenario, together with the expected project lifetime and the number of uses. Defining eligible project categories will support the Achieving a circular economy requires both upstream development of methods and best practices to capture and downstream efforts. The concept of plastic crediting a range of possible solutions. Additional considerations, could support upstream initiatives that reduce plastic such as the project boundary and safeguards that use and waste generation, although significant efforts ensure the alternative solution can be managed or are required for methodology development and pilot recirculated after use, also need to be explored. Key implementation. Methodologies for plastic credits considerations for methodologies of upstream plastic from upstream initiatives will require careful design credits are presented in annex V. Taking one step at a to consider eligible project types, project boundaries, time will ensure a solid foundation of a robust plastic project lifetimes, methods to calculate baseline rates, credit market before venturing into upstream solutions. and project results. The recommendation is to explore 4.2 Proposed actions Plastic crediting can serve as a complementary tool to of a crediting system. As national and regional legislation accelerate plastic pollution reduction efforts, alongside addressing plastic pollution develops, voluntary plastic other legal, fiscal, and voluntary measures. A robust crediting schemes will need to adapt to support policy plastic crediting model requires coordinated actions objectives and safeguards to prevent double counting or between key stakeholders, aligning on models of false claims will be needed. best practice. Several challenges must be overcome if policymakers aim to adopt a plastic crediting mechanism. The following recommendations are provided for key Careful consideration should be given to the role of actors and are summarized in table 8. plastic crediting within wider plastic action and the limits 62 Analytical Study of Plastic Crediting Report FOR POLICYMAKERS AND THE ONGOING PLASTIC CREDITING PROGRAMS AND INC PROCESS STANDARDS • Policymakers should assess the suitability and • Plastic crediting programs will need to align on readiness of plastic crediting, develop relevant policies definitions, methodologies, and minimum standards and regulations, create an enabling environment to develop a universal plastic crediting system. to promote private sector engagement, consider • Plastic crediting programs can consider measures to social impacts (especially on informal workers), and support small projects and marginalized groups to establish a central governance framework. access the crediting system. • If considering EPR, policymakers should develop clear • Programs will need to engage with multiple and well-thought guidelines to inform the interaction stakeholders to align on robust accounting of EPR and plastic crediting. methodologies for upstream plastic credits and • The INC process could facilitate stakeholder undertake pilot initiatives. discussions on accounting and disclosure frameworks, helping establish the operating environment for the responsible use of plastic credits. CIVIL-SOCIETY ORGANIZATIONS • The process could also provide and establish a much- needed space for stakeholders to align on best- • Civil society organizations have an important role practice principles, as well as monitoring, reporting, to play in defining the role of beyond-value-chain and validation and verification requirements. If such measures, including plastic credits within wider a group is established through the INC, it could hold plastic action frameworks, and align on best practices a similar role to the UNFCCC CDM Executive Board, for claims associated with plastic credits. which supervises the Kyoto Protocol’s CDM and is • To ensure plastic credit prices are high enough to accountable to the Conference of the Parties serving achieve meaningful impact, civil society organizations as the meeting of the Parties to the Kyoto Protocol. could develop guidelines on how to achieve fair pricing for plastic credits, including research on waste management fees. MULTILATERAL ORGANIZATIONS • Multilateral organizations can play an important role PRIVATE SECTOR ACTORS in building confidence in the early days of the plastic credit market through establishing prepurchase • Private sector actors can play important roles in the facilities that foster market development. plastic crediting process (e.g., project owner, seller, • Multilateral organizations could help overcome the buyer, broker, and auditor). barriers that small-scale projects and activities led • Private sector actors in the waste management value by informal marginalized groups operate through chain, including waste management operators, establishing technical assistance facilities for early- recyclers, and credit buyers, play an important stage projects. role in shaping the plastic credit market, including the development of clear pricing guidelines and addressing market uncertainties. How do plastic credits work? 63 • Private sector actors should be consulted during of upstream solutions. They should be engaged in the development of plastic credits, including the the piloting and development of plastic crediting EPR‑crediting interface. methodologies for upstream plastic reduction or avoidance activities. • The private sector, including small- and medium- sized enterprises, are likely to lead the development TABLE 9: Summary of Recommended Actions for Key Stakeholders Measures to use Risk addressed Action required Key Timeframe plastic crediting stakeholders effectively Action category 1: Centralized, independent, and neutral governance A centralized governance Mistrust in the plastic Establish a central Policymakers Priority action framework to establish best credit market governance forum of practice, and to monitor plastic credits for key and regulate plastic credit stakeholders to align on providers and users key criteria Alignment on core principles Plastic credits vary and Initiate collaborative Plastic crediting Priority action for plastic crediting programs lack validity without dialog to agree on programs and their standards common principles/ minimum requirements opportunity for results- and accounting based accounting methodologies for plastic credits Protocols for claims associated Plastic credits used Define the role of Civil society Priority action with plastic credits for greenwashing, beyond-value-chain organizations disincentive to direct measures, including reduction plastic credits within wider action frameworks and standards for claims Action category 2: Address market dynamics and uncertainties Foster market development Lack of demand and Establish a fund or Multilateral Short term through a fund or prepurchase uncertainty prepurchase facilities organizations facility with clear rules and safeguards to support projects and buyers 64 Analytical Study of Plastic Crediting Report Measures to use Risk addressed Action required Key Timeframe plastic crediting stakeholders effectively Clear pricing guidelines and Pricing will be too low to Develop guidelines Civil society Short term categories finance change on how to achieve organizations; fair pricing for plastic Private sector credits, including research on waste management fees Action category 3: Develop guidelines to inform the interaction of EPR and plastic credits Stringent rules around plastic Plastic credits used for Establish clear rules National Medium term crediting are needed when greenwashing, pricing around eligible governments they are integrated into EPR will be too low to finance standards and projects, schemes change including measures around additionality and avoiding double counting Action category 4: Technical assistance for early-stage and informal projects Mechanisms for early‑stage Address technical Establish technical Multilateral Medium term and informal project actors to barriers for early-stage assistance facility for organization be supported and integrated and informal project early-stage projects into crediting systems actors Insufficient, irregular, Establish a pilot auction Multilateral Medium term and unpredictable facility to support these organization demand project types Action category 5: Upstream interventions Development of methodologies Plastic crediting focus Undertake pilot testing Plastic crediting Long term for upstream plastic projects on end-of-pipe solutions with upstream plastic programs; Private only; opportunity for credit projects sector actors upstream Participate in Plastic crediting Long term roundtables to develop programs; Private robust methodologies sector actors Source: South Pole 2023. 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World Business Council for Sustainable Development (WBCSD). n.d. Sustainable Plastics & Packaging Zero Waste Bali. n.d. Organic Health Food Store. Value Chains. 70 Analytical Study of Plastic Crediting Report ANNEX I Key components of a crediting standard Plastic projects may apply standards and methodologies project-crediting period. This requires an understanding to validate their results and issue plastic credits. of the current situation as well as an estimate of how this Key concepts for a robust crediting standard and may change during the crediting period. Accordingly, methodology are presented here. it is vital to have and to communicate robust methods to demonstrate additionality and thereby maintain trust in any crediting system. Methods to demonstrate PROJECT CREDITING PERIOD additionality for plastic credits can be drawn from three main methods under existing carbon standards: The crediting period is a defined number of years during which the project can issue credits. Projects undergo an • Positive list: a shortlist of project activities or in-depth project certification process at the start of this technologies that are considered automatically period and issue monitoring reports during this time. additional. There is high certainty that the project This provides a set timeframe during which projects activities are not profitable without the credit finance. can plan to receive credit finance. Projects that wish to Standards are required to monitor the relevance of issue credits are required to repeat the certification and listed projects. determine whether their project is still eligible. • Common practice: project activities or technologies are not widely adopted and require additional financing to be adopted at scale. These methods PROJECT ELIGIBILITY CRITERIA typically set a threshold that requires analysis and updates based on the changing environmental Project activities that can apply to issue plastic credits situation. are defined by the crediting standard. This can include parameters around the type of activity, (e.g., collection or • Financial or investment analysis: projects are recycling), the location of the activity, or specific material required to demonstrate the financial need for types, (e.g., plastic types or ocean-bound plastic). credits, providing an overview of their expenditure and revenue. ADDITIONALITY The concept of additionality is one of the most important metrics to determine the eligibility of a plastic crediting project, yet it is one of the most complex to validate. It requires projects to demonstrate that their activities would not occur without the credit finance during the How do plastic credits work? 71 BASELINE SOCIAL AND ENVIRONMENTAL SAFEGUARDS The baseline determines the status quo scenario without the project activities and is used to calculate Safeguards can be included to ensure minimum the number of credits that a project can issue. The compliance with social and environmental laws. baseline can be determined using data from the years They provide an opportunity to improve the working preceding the project start date, or from the same year. conditions for staff and surrounding communities. Measurement of the baseline is often theoretical as Safeguards can include, for example, measures to avoid it assumes a hypothetical status quo throughout the marginalization of minorities (e.g., women or ethnic project crediting period. Baselines are reestablished if minorities), to avoid child labor, to provide health the project reapplies for plastic credits after the initial and safety training and equipment, and to include the crediting period. Self-regulating mechanisms from informal sector in benefit sharing. carbon standards can be adapted for plastic credits; the baseline must be reassessed at set periods or after the set crediting period, and future credit issuances are reduced if the baseline was estimated to be higher than actual performance. This enables projects to even out their impact over time. PROJECT RESULTS Project results refer to the amount of plastic waste that is avoided, collected, or recycled by a project. This figure is measured against the baseline to determine the number of credits that can be issued each year by a project. MONITORING Monitoring parameters are set by crediting standards to track and record the amount of plastic waste that is avoided, collected, or recycled by the project. Monitoring methods should be consistent and provide as high a level of assurance as possible. Monitoring reports are completed at set periods determined by the standard. Establishing fixed monitoring parameters and exploring digital monitoring may help to reduce the reporting burden for small-scale and informal projects. 72 Analytical Study of Plastic Crediting Report ANNEX II Incentivizing private sector investment through the pilot auction facility The Pilot Auction Facility for Methane and Climate works best when there is both a clear policy objective Change Mitigation (PAF) is a results-based mechanism setting the direction of travel toward a specific project that aims to incentivize private sector investment and type and demand from governments to achieve this. action on climate change by providing a guaranteed Risks are shared between public and private investors. floor price on emission reductions in the form of carbon The eligibility criteria are determined by the PAF and credits. The PAF auctions are supported by Germany, are based on agreed and accepted standards (e.g., Sweden, Switzerland, and the United States. Three the Clean Development Mechanism (CDM), Verified auctions were completed to date and, through these Carbon Standard, and Gold Standard). Funds are only auctions, the PAF has allocated up to USD 54 million with transferred once the credit is verified by a third party. the potential to abate 20.6 million t of carbon dioxide The PAF has held four auctions, each targeted to different equivalent (CO2e) (PAF n.d.). project types. The PAF provides price guarantees to projects and Climate auctions can help policymakers achieve project developers that purchase a “put option” that mitigation results in line with their NDCs and direct gives them the right (not the obligation) to sell their incentives to kick-start mitigation investments in key credits at a predefined minimum price to the World sectors. As they rely on limited public funding, they can Bank. The impact is transferred to the donors purchasing provide a starting point to determine minimum pricing, the credits. This enables projects to secure a minimum which can help unlock finance more widely. Moreover, return if prices in the market drop significantly and by providing price assurances, climate auctions support reduces the risk of a volatile voluntary market. Projects national policymakers in building viable project still have the option to sell their credits on the open pipelines to meet their national targets. Auctions can market if pricing has improved. also help to build private sector capacity and willingness to engage in carbon pricing schemes by providing The PAF setup includes several safeguards to ensure incentives to stimulate investments in key sectors impact. Projects can trade unused “put options” to before they are subject to mandatory pricing (World other projects. This reduces the risk of non-delivery Bank 2019). By leveraging finance into targeted projects, from projects that were not able to complete their they ultimately help strengthen market infrastructure to impact, or that sold credits on the open market. The PAF achieve reductions (World Bank 2015). How do plastic credits work? 73 ANNEX III The Paris Agreement and Article 6 The objective of the Paris Agreement is to facilitate While Article 6 does not regulate voluntary action, it does collective action toward keeping global temperatures provide guidance for the voluntary carbon market (VCM) well below an increase of 1.5°C or 2.5°C above to be aligned with the Paris Agreement. Thus, some VCM preindustrial temperatures and to aid mitigation and standards may update their standards to align with Article adaptation to climate change (Seddon et al. 2019). Each 6 principles (e.g., corresponding adjustments). Demand signatory sets their nationally determined contributions for VCM credits may also be impacted by updated national (NDCs) to cut emissions and adapt to climate change in requirements from host governments and buyers for Paris line with the Paris Agreement (United Nations Framework Agreement alignment. Convention on Climate Change [UNFCCC] n.d.(a)). The carbon market is one mechanism for funding global While projects may still choose to participate in voluntary climate action in line with the Paris Agreement. Article credit markets, credits from the voluntary market 6 of the Paris Agreement regulates the development and cannot be counted toward NDCs. This means that some trade of carbon assets in the compliance market. countries may struggle to meet their NDCs using credits, while others may be able to sell their surplus credits or Article 6 provides clarity on project development internationally transferred mitigation outcomes (ITMOs) guidelines, the use of carbon assets (i.e., carbon credits) to countries still needing to reduce their emissions. This in meeting national emissions reductions targets, and was critiqued for a risk of gaming, as countries may set the trade of carbon assets for use in emission-reduction lower or unambitious targets to be able to meet such accounting internationally. To avoid double counting, targets or to profit from an increased volume of ITMOs emission reductions achieved by projects are either sold. This is currently being addressed by including accounted for against one country’s NDCs or claimed by reporting and technical review processes under the Paris the corporate buyer or host country. Agreement’s Enhanced Transparency Framework for evaluating NDC achievement and revisions. 74 Analytical Study of Plastic Crediting Report ANNEX IV Methodological considerations for upstream plastic credits To develop a reliable upstream credit, all projects stage. The point when the material enters its use phase are required to measure the output of the project in a can be considered the main measurement point. The meaningful function unit that can be compared to the mass of plastic could be measured as a meaningful baseline. functional unit (e.g., a liter of water, a pallet wrap, or a portion of takeaway). Projects that provide a reusable alternative to single-use plastic may also need to ACTIVITY TYPES measure the number of usage cycles of their alternative reusable solution. • Avoidance: projects that opt out of using plastic or packaging without the need for replacement (e.g., refill systems or alternative delivery services) QUANTIFICATION OF PROJECT IMPACT • Reuse: projects that replace single-use plastic with a Measuring the impact of the project requires an reusable alternative (e.g., reusable cups) understanding of 1) the baseline impact, 2) the project’s • Replace: projects that decrease the use of petroleum- plastic material use to calculate, and 3) the net based plastic with the need for a plastic replacement project impact. (e.g., a packaging solution with a lighter weight) 1. Baseline • Reduce: projects that use an alternative material to displace the use of petroleum-based plastic (e.g., bio- The baseline represents the conventional amount based plastics or natural fibers) of plastic that would be used in the absence of the upstream project activity. To determine the mass of Examples of potential project activities are provided in plastic avoided, the plastic intensity per functional unit table A1V.1. needs to be established. The baseline scenario should be calculated using the plastic type and packaging or product application that the solution is replacing. For PROJECT BOUNDARY example, if a reusable bottle program intends to displace disposable PET bottles, the baseline should establish The boundaries of the crediting project may vary by the number of times that the PET plastic bottle would be project and should include, at minimum, the stage when used before disposal. This is likely to be challenging for the activity replaces the usage of plastic in the baseline. initial projects as public data may be limited. This credit In projects that focus on reducing the weight of plastic type may benefit from additional piloting to develop used, it is necessary to include the plastics’ production project-specific measurement guidelines. How do plastic credits work? 75 2. Project plastic material use ADDITIONAL SAFEGUARDS FOR CIRCULARITY The amount of plastic used by the project should be calculated. It is recommended that projects measure the Crediting programs that integrate upstream projects following: will need to consider safeguards to avoid creating a different environmental or waste problem (see table • project plastic material usage in each year (kg), AIV.1 for examples of upstream projects). In reuse, reduction, or replacement projects, the alternative • plastic intensity of the project’s product (kg plastic/ packaging solutions adopted should be able to functional unit), and integrate easily into existing waste management • number of functional units sold by the project in the infrastructure in the location where they are sold. This accounting period (e.g., each year). means that any waste generated needs to have an equal or higher recycling or composting rate than the waste generated in the baseline. For example, bio-based or 3. Net project impact biodegradable plastics are currently considered to be popular substitutes to petroleum plastics. However, for The impact of avoidance activities can then be calculated these substitutes to be effective solutions, they need by comparing the project’s plastic or component an effective socio-technical regime (Beltran et al. 2021). material use against the baseline. This can be calculated For bio-based biodegradable plastics, this means per year or another specific period of time which aligns having segregated collection and organic composting with the usage cycle, such as a number of reuse cycles facilities. Without this supporting infrastructure, these within the packaging lifetime (WEF 2021). solutions are likely to be sent to landfill or further complicate recycling waste streams. Furthermore, bio- based plastics, whose raw material is often agricultural produce, should neither interfere with food security nor include materials that are toxic to humans. Bio‑based materials manufactured from agri-waste should be prioritized as substitutes. Bio-based plastics that are not biodegradable may also contaminate existing plastic waste streams for recycling. The activity by the crediting project is intended to displace the use of plastic. Additional evidence may be needed to demonstrate that the solution will be adopted and lead to an overall reduction in plastic consumed. In all cases, projects should be able to indicate that the project has no negative impact on circularity. 76 Analytical Study of Plastic Crediting Report TABLE AIV: Examples of Upstream Plastic Project Activities Upstream Hypothetical examples: potential rationale activity Avoidance Zero Waste Bali, Indonesia: grocery stores selling goods in bulk without packaging, avoiding the use of plastic packaging and bags. Reusable glass jars can be used by consumers. Potential rationale for credits: products sold in bulk are often more expensive than packaged alternatives, while the business model is limited. Credit finance could help to scale and replicate the model. across regions. Reuse Muuse, Singapore: reusable packaging services for cafés and food-delivery services across Singapore. Potential rationale for credits: consumers still find reusable packaging services less attractive due to their current limitations, such as the limited locations where these are offered, and the higher upfront costs required. Financing would help scale the project, removing these barriers to access and expanding the services to more customers. Replace Avani, Indonesia: Avani offers products made of plant‑based material, such as cassava and bagasse. Potential for plastic credits: packaging made from alternative packaging has limited demand as it is significantly more expensive than virgin plastic. Financing plastic credits could help reduce costs for consumers. Source: Zero Waste Bali n.d.; Koinpack n.d.; Muuse n.d.; Biopak n.d.; Avani n.d. How do plastic credits work? 77 ANNEX V Landscape of plastic crediting in Southeast Asian countries There is currently an unequal level of understanding on government recently included a crediting mechanism as plastic credits across Southeast Asian countries. States a compliance tool within its EPR scheme. Comparatively, where plastic crediting programs have gained traction Indonesia and Cambodia are in an exploratory phase have a greater understanding of plastic crediting as a of applying the plastic crediting model, with several voluntary initiative. For example, in the Philippines, plastic projects registered under crediting programs in the headquarters of plastic crediting program PCX categories 1 and 2 and interest rising in plastic crediting Solutions is most advanced in its consideration of initiatives. Table AV.1 outlines the development of plastic crediting; several Philippine FMCG brands have plastic credit projects and the status of EPR in Southeast voluntarily purchased plastic credits, and the Philippines Asian countries. 78 Analytical Study of Plastic Crediting Report TABLE AV: Overview of Plastic Credit Projects and EPR in Southeast Asian Countries Does EPR law Number of Crediting Country EPR status include plastic projects programs crediting Cambodia 1 OBP Neutralization None N/A Certification Malaysia 1 OBP Neutralization Voluntary EPR No Certification Philippines 16 PCX Solutions, BVRio Mandatory EPR in Yes - “plastic offsetting” CCM force since 2023 permitted Thailand 5 PCX Solutions PPRS, Under consideration Unknown Verra PWRS, BVRio CCM Indonesia 17 OBP Neutralization Mandatory / No - plastic crediting Certification, PCX Voluntary EPR in compatible with Solutions PPRS, Verra force since 2020 obligations80 PPRS, BVRio CCM Lao People’s 0 N/A None N/A Democratic Republic Vietnam 4 OBP Neutralization Mandatory EPR since No - plastic crediting Certification, PCX 2022 compatible with Solutions PPRS, BVRio obligations81 CCM Source: Verra n.d.; OBP n.d.; PCX n.d.; RMS n.d.; Resource Recycling 2019; WWF 2019; Lorax EPI n.d.; OECD, n.d.82 80 Plastic crediting is not explicitly mentioned in the EPR legislation in Indonesia. Plastic credits may still be used to meet requirements to fund waste management. 81 Plastic crediting is not explicitly mentioned in the EPR legislation in Vietnam. Plastic credits are one method that obligated entities can use to meet compliance requirements to finance third party services. See UNEP (2022). 82 This table represents data from plastic crediting programs in October 2023. How do plastic credits work? 79 Deep dive on plastic crediting in the Philippines Plastic credit projects have been available in the member states with voluntary plastic credit markets and Philippines since 2020, coordinated primarily by PCX EPR schemes in varying stages of enactment. Solutions, a plastic crediting program headquartered in the Philippines. This program has supported plastic The following recommendations are provided to waste collection and sorting initiatives that divert waste maximize the effectiveness of plastic credits within the from unmanaged landfills to co-processing and recycling, Philippines’ EPR system. while creating livelihoods and providing alternative income streams for waste workers. INCLUSION OF CRITERIA AND PROTOCOL During the development of EPR legislation, plastic credits FOR PLASTIC CREDITS WITHIN EPR ACT were reviewed and considered a viable mechanism RA 11898 for compliance. Plastic credits are included as “plastic offsets” within the EPR Act RA 11898. The inclusion of The current reference to “plastic offsets” as a viable plastic crediting aims to address the major problem of modality for compliance can be expanded upon to flexible packaging in the Philippines while gradually ensure plastic credits are effective in their objective to targeting rigid packaging. Obligated enterprises (OE’s) reduce an obligated enterprise’s plastic pollution. An can use plastic credits to meet their obligations in additional amendment in Act RA11898 should define the recovering the required packaging volume. Plastic role of credits, including robust calculation and reporting credits to be used in the scheme are expected to come methods; standards on certification authorization; the from projects within the Philippines, while obligated authentication of claims for EPR; as well as the inclusion parties are expected to offset their plastic footprint of parameters to ensure additionality and prevent against similar polymer types, starting with 20 percent double counting. This would set the stage both for a of the year 2022’s total plastic output; there is a year- more effective and implementable EPR scheme and the on-year increase in the percentage companies will have viability of credits as an effective modality for compliance. to account and take responsibility for. Commencing in Claims via credits should be made clear and transparent 2024, the EPR target will be applied to OEs. to stakeholders, demonstrating the percentage of the footprint that is managed as a mode of compliance rather The Philippines could set a precedent for other member than making broad claims on neutrality which may be states in ASEAN, because it recognizes the potential of misleading to stakeholders. plastic credits as an effective modality for implementing EPR and has taken strides to integrate plastic credits into For this to take place, multiple stakeholders must the EPR Act. This EPR Act lapsed into law in July 2022. At convene to develop local standards that consider existing this early stage of implementation, the government is international and local standards, and work to bridge the currently focusing on OE’s registration and developing divide between the high requirements of international guidelines for footprint measurement. The guidelines standards and the realities on the ground in a local for using plastic offsetting for compliance are not yet context. Management criteria and geographically and available but are planned for future development. demographically representative bodies to monitor and Thus, the recommendations below are as much for govern implementation, and the adaptation of standards the Philippines, which is in the process of integrating through an iterative process, will be key to developing credits into mandatory compliance, as they are for other standards that move from paper to practice. 80 Analytical Study of Plastic Crediting Report INCLUSIVITY OF SMALL-SCALE, REMOTE A BRIDGE TO INCLUDE SMALL PROJECTS PROJECTS WITH SOCIAL SAFEGUARDS IN LARGE-SCALE INVESTMENTS AND DEVELOPMENT FINANCE As an archipelago, the needs of projects in Metro Manila, Luzon, may differ from those in rural areas of Luzon or Funds are increasingly becoming available to combat the other populated islands. Plastic crediting could be plastic pollution in the region. However, institutional an effective method to track pollution and reduction investment and development funds often lack the efforts in these less accessible, and therefore less appetite for risk that small-scale projects present. visible, parts of the country, particularly for the 11 most Regardless of their impact, these small-scale projects populated islands. For remote projects to participate, are often ineligible for the size of investments sought by support programs in the form of technical guidance for traditional institutions. Development banks and impact data collection and certification, and access to funds for investors can treat plastic crediting as a financing certification, should be made available. The same can mechanism that can bridge this gap and de-risk be said for activities that are community-led or based investments in these high-risk, high-impact projects. around informal workers. Integrating social safety Since plastic credits provide a direct channel for capital nets for the informal sector while supporting these to flow to a unit of impact on the ground, they would remote projects to participate will require additional provide the capital and data collection necessary for a consideration, for example, avoiding displacing activity project to get operations off the ground and collate the from one group of informal participants to another data through impact metrics that would be appealing to group of formal participants. It should provide means for an impact fund. Furthermore, producer responsibility inclusion of informal workers and have alternate roles organizations (PROs) in the Philippines, for example, that are both safe and provide secure sources of income can cluster small projects together and issue credits. if their activities are displaced by the mechanization of This would also enable the necessary sizing and scaling waste sorting. up sought by institutional investment. UNLOCKING FINANCING TO COMBAT THE PLASTICS CRISIS Opportunities, Risks, and Recommendations for Plastic Credits June 2024