Mark J. Costa
Chairman and Chief Executive Officer at Eastman Chemical
So, good morning, Vincent, and thanks for the question. Overall, we're incredibly excited about the circular platform, excited about how we're operating the first plan, proving out this technology works and then have a lot of engaged customers and also excited about Longview with the DOE grant, and Pepsi contract that gives us a lot of confidence. And we believe long-term, the European market is going to be structurally an extremely attractive market to serve. But there are sort of two issues we're working with that we mentioned in the prepared remarks. There's a sort of regulatory uncertainty and there's just continuing to do the work we always do in dealing with inflation and getting the capex number to where it needs to be for good investment. And on the capex, you know we feel good about how we can manage that.
So it really comes down to customer contracts and EU policy. And what I'd say is the European Union has been far ahead of the world on recognizing both the carbon issues in this world of climate change and having aggressive policy that -- and also recognizing that they've got a packaging waste problem like we do everywhere else and wanting to have policy that really drives the brands, suppliers, the market to sort of address that packaging waste, which also includes a lot of carbon emissions. And so they developed a policy that is quite comprehensive, that has some reduced and reuse goals that will be sort of help the problem, but really focused on how do we get all of this material recycled. And it's still being finalized, but they've got aggressive targets like 25% content in beverages next year in '25 and everything being at 30%, very high local recycling rates required in Europe, EPR taxes on people who don't do it, strict definitions of what is a recyclable polymer etc.
And so all that is, I think is headed to be in policy makes sense. But there was one recent change that created some uncertainty on how the brands can achieve the recycled content targets. And there's a problem they face, especially as you go from this year to next year, which is they're only recycling about 12% of PET back to bottles at the food grade level. They got to be at 25% next year. So they will struggle to achieve that pretty significantly, as well as there are some WTO issues that come up around imports. And so they changed the policy from requiring everything to be made from local material to allow imports to be included. Now they put a bunch of restrictions on what imports would qualify around how it's being made from a sustainability point of view as well as quality standards.
And there's still a lot of complexity in trying to understand that, but it would probably make it very difficult to import from most countries in these equivalency requirements. And it really creates a huge amount of complexity both for the implementation of policy as well as -- and achieving the goals of high recycling rates and really issues around consumer brand equity when you're using imports, right? Because if you bring imports into the country, you're replacing local demand for recycling, which increases incineration, which also violates the carbon emission goals of the European Union. The recyclability targets, which is your material considered recyclable requires a very high recycling rate in the European Union, which is also a problem. And then consumers don't want to be solving China's waste problem. They want to see policy driving up recycling locally to address the local problem. So this creates some uncertainty and really goes back to why we had the circular contracting model of -- we're in this business to be a service provider to the brands to solve their plastic waste problem. We're not getting back into commodity business. So we're sticking to our guns as we've told you we would around long-term take or pay contracts that provide stable margins. And so we're still highly engaged with customers, still very much working with us, but this has slowed down the discussion on how to structure these contracts in this market context. I'd also note that we are targeting a lot of applications that can't even use mechanical recycled material because of performance requirements in the package.
And long-term, mechanical recycling won't work anyway because it's going to degrade without chemical recycling sort of keeping it refreshed. So we're very confident in the long-term market structure. We believe this is a facility that should get built, but we got to stick to our milestones and our requirements around getting the contracts in place like we told you we would do.
