Chemical recycling is an umbrella term for a variety of methods to create new material from waste. Waste can be reverted back to monomer – building-block chemicals – or all the way back to crude oil. Unlike traditional mechanical recycling, chemical recycling alters the fundamental chemical properties of the material.

One chemical recycling process, which uses heat and pressure, is pyrolysis. The most common output of the process is pyrolysis oil, which is commonly used as an alternative to crude oil or naphtha, or to produce fuel or carbon black.

Today, pyrolysis accounts for more than 60% of European chemical recycling capacity. Pyrolysis oil produced from mixed plastic waste has a current nameplate (input waste processing) capacity of close to100,000 t/y in Europe, according to the ICIS Chemical Recycling Supply Tracker.

Europe’s pyrolysis oil capacity from mixed plastic waste could potentially reach more than 2.7mn t/y by 2030, based on the current pipeline of projects, including both those projects which have passed the final investment decision (FID) stage as well as those at earlier development stages.

The pyrolysis oil market remains nascent, and because technology, processes and feedstock use are continuing to develop, the market is not yet fully standardised and quality can vary from producer to producer. Potential barriers to growth include limitations on the availability of suitable waste, uncertainty over its environmental impact and a lack of regulatory clarity.

Pyrolysis oil grades
Three broad grades of pyrolysis oil have emerged in the past two years, depending on the purity of the product. The purest is naphtha-substitute grade – this is produced from mixed plastic waste (typically, but not exclusively, mixed polyolefin bales) and can be used as a direct drop-in solution replacement for virgin naphtha (a building block chemical for the petrochemical chain) at concentrations of around 20%. It has typically been upgraded or purified for direct use in a cracker in a refinery to create oil and gas products.

The next grade down is non-upgraded pyrolysis oil. This is also produced from mixed plastic waste but has not been upgraded or heavily purified. It can only be used in a cracker in limited quantities, typically of 5% or lower concentration, and relies on a dissolution effect to do so.

The final broadly-traded grade of pyrolysis oil is derived from tyres at end-of-life. It typically contains the highest levels of impurities. This grade is commonly used as a fossil fuel alternative, or as a carbon black feedstock (typically for use in tyres).

Current demand is outpacing availability across all pyrolysis grades, but particularly for plastic-derived grades, where prices are at record highs. Across all grades, prices are largely decoupled from virgin naphtha and fuel equivalents. The market is expected to remain tight in the mid-term.

Across the last 10 months, prices for naphtha substitute pyrolysis oil have traded between lows of €1,700/t and highs of €2,200/t ex-works Europe on the spot market, according to ICIS data.

Non-upgraded pyrolysis oil, meanwhile, has traded between €1,200–1,800/t ex-works Europe. Tyre-derived pyrolysis oil has traded at between €800–1,200/t ex-works Europe.

Fuel is an important end-product
Tyre-derived pyrolysis oil demand is typically more limited than plastic-derived because it is more challenging to use in a cracker. The incorporation of natural rubber means there is also a biogenic component that can be comingled. It is usually cheaper than bio-based or plastic-derived pyrolysis oil alternatives.

Players in this market continue to expect usage from the fuel sector to rise in the mid-term – particularly for sustainable aviation fuel (SAF). This has been encouraged by parts of the European Union’s (EU) ‘Fit for 55’ package allowance of the use of pyrolysis oil to contribute to renewable fuel targets, provided emissions reduction criteria are met.

The quality of input waste has among the greatest impact on output quality across pyrolysis oil grades, dictating the type of impurities and boiling point. Boiling point, chlorine content, sulphur, fluorine, nitrogen and oxygen are among the key determinants of pyrolysis oil prices – with a spread of more than €1,000/t between the lowest and highest qualities of pyrolysis oil. Pyrolysis oil can be – and often is – run through an upgrader or purifier to enhance its properties, but the quality of input waste has an impact both on yield and quality, and therefore profitability. This is one of the reasons the environmental impact of pyrolysis oil remains unclear and varies from producer to producer.

While there are auditing and certification schemes available in the market – with the most widely used currently being ISCC (International Sustainability and Carbon Certification) Plus – these are provided by private organisations that are in competition with each other and which may use differing methodologies. Also, they are not currently officially recognised by authorities.

Waste input costs are typically the biggest variable cost for pyrolysis oil producers, and input costs are volatile. For example, since September 2022, when shortages drove prices to record highs, prices of a common pyrolysis oil feedstock, 90% mixed polyolefin bales, have traded as high as €550/t ex-works Europe and as low as €0/t ex-works Europe (given away for free).

New grades emerge
New grades of mixed polyolefin waste have emerged in 2023 and 2024 – trading at a premium to standard grades – specifically targeting the needs of pyrolysis-based chemical recyclers.

This was in response to some of the challenges chemical recyclers have found with pre-treatment and sorting on site, particularly connected to the need to continuously adapt processes to account for shifting feedstock mixes. Pre-treating and sorting at waste manager level creates economies of scale and prevents the slowdown in throughput sometimes associated with chemical recyclers sorting on site.

This trend is expected to increase in the mid-term, alongside the underlying growth of the chemical recycling sector, and has the potential to radically reshape the market in the mid-term.

Access to sufficient high-quality sorted waste is one of the most commonly cited potential barriers to growth in the chemical recycling sector.

Regulatory questions centre on mass balance
The other commonly cited potential barrier is regulation. There remains uncertainty over whether pyrolysis oil can count towards EU proposed and mandated recycling targets under current recycling definitions. There is also uncertainty over the acceptance of mass balance and which mass balance accounting rules might be adopted by the EU.

In mass balance, a certified volume of renewable or recycled material is input across a production run but may not be evenly distributed across each individual product. For example, a plant may use 30% recycled material overall, but one piece of produced packaging could contain 100% recycled material, and the next 100% virgin material, or any mix between those two extremes.

Via this method, market players are able to state that they use a certain percentage of recycled or renewable material in their products, without having to prove that percentage in each individual product produced.

There remains uncertainty over whether pyrolysis oil can count towards EU proposed and mandated recycling targets under current recycling definitions.

Mass balance is widely used in a number of industries and is not exclusive to either mechanical or chemical recycling.

There are different proposed accounting rules for mass balance, all of which alter the possible recycled polymer output allocations and therefore the profitability throughout the chain, pyrolysis oil’s competitive position against mechanical recycling and the sector’s attractiveness to investors.

Given that pyrolysis oil is used as a naphtha substitute in a cracker, many see acceptance of mass-balance as an essential enabler for chemical recycling to count towards recycling targets, aside from any decision on the status of chemical recycling itself.

The EU’s Technical Advisory Committee (TAC) on waste was set to vote on introducing mass balance accounting rules via an implementing decision as part of the Single-Use Plastics (SUP) Directive in April 2024. ICIS understands that this vote has now been postponed until later in 2024.

Prices decouple
In 2023 and 2024, pyrolysis oil price movements have largely decoupled from virgin equivalents. Naphtha substitute pyrolysis oil has traded as high as 3.7 times virgin naphtha north-west Europe spot prices in 2024, while non-upgraded has traded as high as 2.9 times virgin naphtha. Whether such premiums will remain in the mid-to-longer term remains an open question, which will depend on a variety of factors including regulation, feedstock waste bale cost, economies of scale, technology developments and the relative price, availability and usability of alternative circularity routes such as mechanical recycling and bio-based plastics.

How mechanical recycling prices have developed over the past two decades could serve as a guide, though. Europe recycled polyethylene terephthalate (R-PET) food-grade pellet prices first traded above virgin values on 28 June 2010, and have generally traded above virgin values since 2Q2011, with little correlation between price movements in the two markets since that period. This suggests that an ongoing ‘green premium’ between chemical recycling and traditional manufacturing routes is potentially sustainable, albeit not necessarily at current levels.

*ICIS provides market intelligence across the chemicals sector.

• Further reading: ‘Are e-fuels the key to sustainable aviation fuel?’ A new category of SAF is emerging, called e-fuels or power-to-liquids (PtL) which use CO₂ and hydrogen as the feedstock. Producing green hydrogen requires a significant amount of renewable energy and a clean source of CO₂. Nevertheless, the sector is gaining momentum, supported by new regulatory frameworks, which value the limited impact on land use and the potential for scale. As such, it is anticipated that costs will decrease over time.
• Petrochemicals production could be decarbonised significantly by investing an extra $759bn by 2050, according to a new report from BloombergNEF (BNEF). Key technology initiatives are underway, but net zero deadlines are tight.