Urban Planning

MEMORANDUM: SOURCING OCEAN PLASTICS TO REDUCE ENVIRONMENTAL DEGRADATION AND GLOBAL POVERTY

TO: Sustainable Materials Sourcing, Okay Corporation

FROM: Sustainability Consulting

DATE: May 8, 2018

SUBJECT: Recycled ocean plastic textiles are a novel and economically viable market sector. The Okay Corporation should source recycled ocean plastics to expand their global sustainability efforts.

SUMMARY: Sourcing ocean plastic to manufacture plastics will incentivize global cleanup efforts. Okay Corporation can partner with companies such as the Plastic Bank to source the plastic to take advantage of this growing market on a quick timeline. Partnering with the Plastic Bank will reduce transaction costs like uncertainty in the global supply chain. In addition, their model addresses deeper indirect causes of the problem, namely, poverty.

PROBLEM: Plastic waste is a driver of ecosystem degradation worldwide and poses a threat to human health, livelihood, and well-being (Derraik, 2002). Directly, plastics reduce biodiversity by killing marine species and reducing viable habitat. Indirectly, this is caused because of the improper capture of waste or production plastics that are then released into the environment.

CONTEXT: The issue of plastic debris in the marine environment is severe and widespread. Over 300 million tons of plastic are produced every year; of this, eight million ends up in the ocean [IUCN]. Marine species are sickened and killed due to ingestion of plastic (Derraik, 2002). Organic pollutants attach to the surface of plastics because of their chemical affinity. Their surfaces host bacteria and algae and provide breeding ground for mosquitoes [cite].

Plastic enters the food chain and is consumed by humans [cite]. Plastic acts as a carcinogen and endocrine disruptor in animals, including humans [cite]. The EPA has said, “every piece of plastic made still exists.” This is because plastic has only been in production for a relatively short amount of time compared to the time it takes to degrade. Plastic takes hundreds of years to degrade to simpler compounds [cite]. In the interim it breaks into smaller physical pieces, making it easier to enter the food chain and leach toxins [cite]. However, it is also the case that in some places, plastic is burned, since it is cheap, widely available, and more effective than other fuel sources [cite]. In this case, plastic presents additional damaging effects, including contributions to climate change via carbon dioxide and negative effects to air quality from gaseous and particulate toxins [cite].

The direct drivers of ecosystem degradation described above are caused by several indirect drivers. The first is the improper management of waste. Approximately eighty percent of ocean plastics originate from land and are blown or washed to the sea. The remaining 20% originate in the ocean, often related to fishing operations [Clean Water Action]. The part that comes from land represents imperfect systems, deprioritizing of this issue at the local level, or lack of infrastructure altogether.

A second and related major indirect driver of plastic in the marine environment is poverty. It is estimated that 80% of plastics in the marine environment are derived from areas of high poverty (Frankson, 2017). The resulting lack of infrastructure, including recycling or waste management, leads to plastic ending up in the ocean. Developing nations are also disproportionately affected by the harmful effects of plastic on marine systems, since they often rely more on fishing for subsistence or wages (cite).

It is a key moment to enter this market sector. In 2017, the Adidas Parley shoe, which is made from recycled plastic sourced from the ocean, saw commercial success; one million were sold (Kharpal, 2018). Ocean plastic was also used to make soccer jerseys for the teams Real Madrid and Bayern Munich, bringing visibility to the cause of ocean pollution (Arrowsmith, 2016). Additional high-profile efforts include Pharrell Williams’ Raw for the Oceans line of clothing, part of the Dutch G-Star clothing company he purchased in 2016 (Ilyashov, 2016). Raw for the Oceans uses textiles created with Bionic Yarn, a start-up based in New York City that sources ocean plastic for their yarns (Ilyashov, 2016). In two years, the Raw for the Oceans line integrated two million bottles and 1,000 tons of trash instead of virgin materials.

These and similar efforts have elevated garments made with ocean plastic to a level beyond their functional purpose. Conspicuous consumption is described by Veblen as a motivating social aspect to our purchasing preferences (Rutherford, 2001). In our modern context, conspicuous consumption is shifting to include not only luxury goods but also those products that communicate our morality. Ethical and sustainable purchases are used as virtue signaling to indicate to others about our character as well as our class (cite). OKC should be aware of this phenomenon as they expand their sustainability efforts.

ALTERNATIVES:

I. NEOCLASSICAL APPROACH

Okay Corporation (OKC) will want to maximize profits by optimizing price. Demand for ocean plastic-derived textiles exists and these products can command a high market price. Evidence from existing products from other companies suggest that consumers find these products especially desirable and they often sell out quickly (H&M Conscious Collection). This suggests that prices may not be optimized and could be raised.

Okay Corp already offers specialty and luxury sportswear goods. By offering an additional feature, ecologically-oriented sourcing, OKC can increase the utility that an individual buyer derives from the product. This will also attract more customers, who, acting independently and with full and relevant information, will turn from competitors who offer comparable products but that lack this extra utility.

The flexibility of price at this time means that Okay Corp can take the opportunity to integrate externalities more fully into their cost estimates. Appropriate cost estimations and forecasting will provide more accurate and sustainable information when price setting in this emerging market.

Creating demand for ocean plastic as a desirable source material will financially incentivize its removal. If there is a market, companies will extract ocean plastic to make a profit. This mechanism is described by Anderson and Leal, 1992, to describe the relationship between “willing sellers” and “willing buyers.” Market equilibrium is again reiterated by Williamson as he describes the Coasean recommendation to protect private property to allowing markets to optimize resource allocation (Williamson, 2000).

II. INSTITUTIONAL APPROACH

Consumers have fluctuating preferences. OKC can be at the forefront of creating a new market for ocean-derived plastic. Preliminary products have shown success already, but with advanced marketing techniques, we can encourage consumers to look to OKC as leaders in sustainable sportswear and agents of environmental change on a global scale. Statistics and science are some of the strongest tools available (Rutherford, 2001). OKC can leverage them to gain deeper insight into market behavior.

In addition, OKC should collaborate with non-profit organizations to encourage anti- litter and recycling campaigns. Continuing to promote awareness and affirm norms around proper disposal of trash will reduce the overall amount of plastic waste that enters the ocean to begin with. Vatn describes the importance of integrating moral norms in modulating behavior that affects the environment (Vatn, 2010).

III. NEW INSTITUTIONAL APPROACH

Okay Corp will want to reduce transaction costs. These costs can take several different forms. Search and information costs may arise as a result of uncertain sources of ocean plastic. Bargaining costs may arise during the process of contracting with many small and international contractors who collect plastic in their home locale. Policing and enforcement costs would arise in order to ensure contracts are adhered to and consequences are followed in the event that sellers violate terms.

A short-term step to reducing these costs is to work with an intermediary who is already working with plastic suppliers. The Plastic Bank is a company that contracts with suppliers around the world to source socially-responsible plastic gathered from marine environments (Frankson, 2017). In addition, they have integrated blockchain technology. This is an advantage because it reduces the challenges of exchanging between many different currencies. In addition, blockchain improves transparency and improves confidence that the harvesters are getting paid fairly. It also reduces the risks associated with being paid in cash, such as theft.

Longer-term, Okay Corp will want to consider replacing the Plastic Bank with their own sourcing, since the partnership would have its own set of transaction costs. Plastic Bank charges a premium for their materials. Okay Corp will want to evaluate whether an in-house team can replace the functionality of the Plastic Bank.

Plastic Bank has an excellent reputation, so while replacing their services would likely be a responsible fiscal move, Okay Corp will have to find a way to communicate about the integrity of its sourcing process to customers. Williamson refers this to the “credible commitment” node, where companies interface with customers and notes that product warranties are one solution (Williamson, ). OKC should consider a certification process, since a warranty would not be relevant for this purpose. Since Okay Corp will be working in a global context, there are constraints on which mechanisms are effective to reduce transaction costs (Vatn, 2010).

RECOMMENDATION: Okay Corporation should partner with an existing organization such as the Plastic Bank to expand into recycled ocean plastic garments. This would reduce transaction costs and permit timely entry to the marketplace at a critical point of expansion. In the longer term, OKC can look to replace the functionality of the Plastic Bank to reduce transaction costs even further.

WORKS CITED: Anderson, Terry L., and Donald R. Leal. (1992). Free Market Versus Political Environmentalism. Harvard

Journal of Law & Public Policy 15(2): 297–310. Arrowsmith, Richard. (Nov. 4, 2016). “Real Madrid and Bayern Munich to wear specially designed one-off kits

made from recycled ocean plastic.” Mailonline. Derraik, J. G. (2002). The pollution of the marine environment by plastic debris: a review. Marine pollution

bulletin, 44(9), 842-852. Frankson, Shaun. (August 31, 2017). “Plastic Bank deploys blockchain to reduce ocean plastic.” IBM IT

Infrastructure Blog. Ilyashov, Alexandra. (April 22, 2016). “Pharrell Might Be The Most Sustainability-Focused Celeb In Fashion.”

Refinery29. Kharpal, Arjun. (March 18, 2018). “Adidas sold 1 million shoes made out of ocean plastic in 2017.” CNBC. Rutherford, M. (2001). Institutional economics: then and now. Journal of Economic Perspectives, 15(3), 173-

194. Vatn, A. (2010). An institutional analysis of payments for environmental services. Ecological economics,

69(6), 1245-1252. Williamson, O. E. (2000). The new institutional economics: taking stock, looking ahead. Journal of economic

literature, 38(3), 595-613.