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Market GreenPremium: Who

Market GreenPremium: Who is willing to pay more? An introduction to nova paper #3 on bio-based economy 2014-05 Biobased plastics are usually more expensive than their conventional counterparts, and companies face supply chain challenges when they switch from one raw material solution to another. Nevertheless, the biobased plastics market continues to grow. GreenPremium plays an important part in this. In its paper “GreenPremium along the value chain of biobased products” nova-Institute (Hürth, Germany) is, for the first time, putting forward a clear definition of GreenPremium: The GreenPremium is basically understood as the extra-price market actors are willing to pay for a product just for the fact that it is green or, in our specific case, biobased. In other words: an extra charge for the additional emotional performance and/or strategic performance of the intermediate or end product the buyer expects to get when choosing the biobased alternative compared to the price for the conventional counterpart with the same technical performance. The results of the surveys and analyses of 35 cases of biobased chemicals and plastics clearly demonstrate that GreenPremium prices do indeed exist and are paid in the value chains of different biobased chemicals and plastics – especially for new biobased value-added chains and on the European market. In line with the definition of GreenPremium, the motivation for paying additional prices is the biobased product’s expected increased emotional and strategic performance. In the absence of any policy incentives, GreenPremium prices are very important for the market introduction of biobased products, and many new biobased plastics would not even exist if there were no customers willing to pay GreenPremium prices. The range of reported GreenPremium prices in the various branches and applications analyzed ranges from a 10% to a 300% premium over the conventional petrochemical product with the same technical performance. Most of the GreenPremium prices found lie within a range of 10-20% for biobased intermediates, polymers and compounds, followed by the 20-40% range. Higher GreenPremium prices could only be obtained in specific cases. For the end consumer the range of GreenPremium prices for biobased products goes from 0% (automotive, cosmetics, bottle) to 25% (wall plug, toy) with, in the middle, a 10% GreenPremium for organic food with biobased packaging. Experiences show that consumers tend to pay GreenPremium prices (and hence pass on the difference to other actors in the supply chain) when the environmental or social benefits are explained to them (Levine 2012*). “The consumers are the driving force. Some consumers already pay a premium for less polluting cars, for organic food and for green plastics, and they are constantly growing in number. ‘Being green’ is the premium, and the consumer shall pay for it. Local regulation can be helpful, but it is definitely the demand that makes the difference. And the current trend is going green, worldwide.” (Prestileo 2012*). 32 bioplastics MAGAZINE [04/14] Vol. 9

Market GreenPremium in percentage of the product price Chemical company Polymer producer Compounder Product producer Dictrbuter End consumer Value chain Fig. 1: Analysis of GreenPremium prices along the value chain of different bio-based chemicals, plastics and end products. Coloured lines represent one value chain, single dots represent single findings. Regional differences The data within the study is largely based on estimations of the European market. It should also be mentioned that the willingness to pay GreenPremium price is relatively high in Europe, whereas in China it is relatively low and North America somewhere in between (Ravenstijn 2012*). An evaluation of the US market conducted by P&G largely confirms this trend. “Roughly 80% of consumers are either highly engaged with environmental sustainability (they will accept some performance trade-offs for products with better environmental footprints), or are ‘eco-aware’ but will not accept trade-offs. The latter group (70%) are considered the mainstream and are an important target group for biobased products. The remaining 20% are indifferent; in the US, half of this 20% self-classify as never greens (Meller 2009*). Similar results have been revealed by the National Retail Federation, showing that 70% would be willing to pay a premium of at least 5% (NRF 2010*). Other analyses confirm more generally that “consumers are willing to pay slightly more, but not huge amounts more” (Cooper 2013*). GreenPremium changes along the supply chain Fig. 1 shows the results of all expert interviews and surveys undertaken and analyzed in the context of this study. nova-Institute’s surveys and analyses cover cases of GreenPremium prices for 35 bio-based chemicals, polymers and plastics (drop-in and new biopolymers), and compounds – and additional background information from market insiders for the GreenPremium prices. Expert interviews by phone, skype, LinkedIn and face to face, as well as a literature analyses, were conducted in late 2012 and 2013. The figure shows the identified GreenPremium levels depending on where they are paid in the value chain – for example, the polymer producer buys a building block from the chemical company and might pay a GreenPremium for it or the end consumer buys the final product and might pay a GreenPremium to the distributor. Some identified GreenPremium prices are part of the same value chain; they are shown by coloured lines. The empirical data shows that for all lines the GreenPremium price levels (in percentage terms) decreases along the supply chain towards the end consumer, as well as the █brown and █green lines after an intermediate peak. Relatively high GreenPremiums are paid for (early) intermediate products, whereas the end consumer pays a much lower GreenPremium or even no extra price at all. The reason for this is that intermediate products like building-blocks, polymers or compounds only account for a minor fraction of overall product costs, with the effect that endproduct costs increase only slightly. The material costs share (including the GreenPremium) of the total product price decreases along the value chain. The highest GreenPremium price (in percentage) is paid predominately for the intermediates. And without this enhanced and confirmed willingness to pay high GreenPremium prices for intermediate products, many new bio-based value-chains would not have been implemented at all. The green line rises towards the middle of the supply chain, which means that the highest GreenPremium levels are paid by the distributor for the green packaging. This situation can occur when a product is subject to very high emotional performance that would allow producers and distributors to pass on their extra costs to the end consumer. Biobased packaging for organic food can serve as an example, with a small fraction of packaging costs and high emotional performance through green packaging making a perfect fit with the consequent green image of the organic food product. The distributor can pass his extra costs of the green packaging (+100%) on to the end consumer, who only has to pay 10% GreenPremium for the final organic food product. (The high GreenPremium price for the green packaging can be explained by a small production volume.) bioplastics MAGAZINE [04/14] Vol. 9 33

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