NBC News: The new steel? Hope and fear as a new plastics factory rises in Appalachia

MONACA, Pa. — Steve Krizan, 64, remembers the nights in Aliquippa, Pennsylvania, when steel was king. Back in the 1970s, more than 60 percent of the workforce in Beaver County was tied to steel, and Aliquippa was the industry's beating heart. Its streets were lined with tidy houses and busy shops, and when the day shift ended, its bars were packed full of steelworkers with flush pockets.

"Aliquippa was booming," said Krizan, then a steelworker. But when the layoffs started, he said, it was the first hint of what would become a regional catastrophe: the collapse of the steel industry.

"It seemed like once it started, it snowballed," he said. "In this case it's steel, but it doesn't matter what it is. If a business that supported a town collapses, it's devastating."

Today, just a 10-minute drive away, a new industry is rising from the banks of the Ohio River: Royal Dutch Shell's multibillion-dollar ethane "cracker," an industrial complex that heats ethane, a component of natural gas, and "cracks" it into ethylene, a building block for plastic. Krizan, who found a second career in commercial trucking, is one of the about 8,000 temporary laborers who report to the cracker daily. He transports fuel, driving across the massive complex to supply an average of 10,000 gallons a day.

When it launches next year, the Pennsylvania Petrochemicals Complex will make 1.6 million metric tons a year of what many say the world needs less of: the plastic pellets that will become plastic products, from sports gear to shrink wrap.

It will also be Appalachia's first ethane cracker. Far from the petrochemical manufacturing facilities that line the Gulf Coast, the region where coal and steel once reigned is perhaps an unlikely home for the cracker. But in recent years, states have offered more than $1 billion in economic incentives to lure plastic projects to a region where hydraulic fracturing — "fracking" — has produced an abundance of cheap natural gas. In 2012, Pennsylvania's leaders bet big on Shell by authorizing a tax credit worth about $1.65 billion for ethylene projects.

The tax credit was a sign to industry that "the public sector was able to be a good partner," said Mark Thomas, the president of the Pittsburgh Regional Alliance, a nonprofit economic development group. Shell's cracker, he said, is a "long-term play" that many hope will spark more regional growth.

Curtis Smith, a Shell spokesperson, wrote in a statement, "The economic multiplier associated with these employment and contracting opportunities will be apparent for decades."

But others, including some residents and advocates, fear that amid the climate crisis and a global plastics glut, such projects aren't just risky investments, but also the wrong choice for a region still struggling to rebound from the toxic legacy of its industrial past.

"We've seen this for generations," said Rob Altenburg, the director of the Energy Center at PennFuture, an environmental advocacy group. "They come in, they take profits, the industry goes away, and it leaves Pennsylvania taxpayers holding the bag for not only the economic impacts of this, but also the public health impacts.

"We're doing the same thing with Shell, ignoring the carbon pollution that they're putting out and effectively giving them money to pollute," he added.

Why Appalachia?

Over the past decade, facing unstable oil prices and uncertain demand for fossil fuels, companies like Shell and ExxonMobil have turned toward plastic — nearly all of which is produced by chemicals derived from crude oil or natural gas.

The industry was "trying to determine, 'OK, if we can't make money with oil and gas extraction in the way that we could 20 years ago and the refinery business has become increasingly competitive and increasingly unprofitable, what is our future?'" said a senior researcher at the Ohio River Valley Institute, a progressive regional think tank, Kathy Hipple, a finance professor at Bard College's MBA in Sustainability program. "Plastics or petrochemicals were seen as a lifeline."

The industry's pivot, fueled in part by cheap natural gas unlocked by the fracking boom, has led to a proliferation of plastics manufacturing.

The industry has poured tens of billions of dollars into plastics projects in the U.S. According to a report released last month by Bennington College and Beyond Plastics, an advocacy group dedicated to ending plastics pollution, ethylene manufacturing capacity in the U.S. has grown to 45 million tons a year since 2005, a 69 percent increase. Most of that buildup has occurred on the Gulf Coast in Texas and Louisiana, where so-called fenceline communities have long lived pressed against petrochemical complexes and where plastic manufacturers have recently faced intense scrutiny and civil penalties for air and water pollution.

But the industry also set its sights on Appalachia. The region is closer to East Coast manufacturers and awash in "wet" gas, which contains more of the ethane necessary to make plastic. State and federal officials have promoted the petrochemical industry as a harbinger of a regional renaissance, not only for the jobs it might bring, but also for the development that could bloom in the wake of projects like Shell's cracker — from restaurants and hotels to commercial transportation and manufacturing.

"It's not that the industry by itself will rescue all the communities that need investment," said Thomas, of the Pittsburgh Alliance. "But it will create enough of a fire that it can be catalytic."

Since about 2010, regional leaders have pursued at least seven plastics-related projects. They include an ethane cracker in Ohio and a multistate mega-complex called the Appalachian Storage and Trading Hub, which would include hundreds of miles of pipeline and underground storage for natural gas and petrochemicals. To attract industry, states have offered tax credits, grants, loans and other incentives worth about $1.7 billion.

But for as much money as has been promised or spent, Shell's Beaver County cracker is so far the only plastics-related project to break ground. It will produce both low- and high-density polyethylene for use in consumer items like food packaging, shampoo bottles and housewares. According to Shell, it will produce about 600 permanent jobs.

Pennsylvania's tax credit for ethylene manufacturing projects was a "key factor" in Shell's decision to build the cracker, said Smith, the Shell spokesperson.

Both states and the federal government regularly provide direct and indirect subsidies to fossil fuel and petrochemical companies through tax abatements, loans, training programs and other incentives. In the U.S., conservative estimates put direct subsidies to the fossil fuel industry at about $20 billion a year, with about 80 percent going to natural gas and crude oil.

The package Pennsylvania gave to Shell, however, is the largest tax credit offered to a single company in the state's history. The 25-year tax break is worth about $66 million annually.

The state granted Shell an additional $10 million for site development and infrastructure costs and expanded the boundary of an existing Keystone Opportunity Zone to include the entire proposed site — a zinc smelter that closed in 2014. The Keystone Opportunity Zone exempts Shell from most state and local taxes, including property taxes owed to Potter Township, which has fewer than 600 residents. To offset the loss of about $100,000 in tax revenue a year — the approximate cost of funding the township's police — the state gave the hamlet a one-time grant worth about $2.2 million, said Rebecca Matsco, a Potter Township supervisor.

A tax credit like the one given to Shell "takes money out of the state coffers," said Altenburg, of PennFuture. "Not to mention the question of all the other state services that go around this facility, whether it's road maintenance, educating the workforce, environmental protection, all of these things. The question is: You're putting an extra burden on this community — are you getting the revenue that pays for it?"

Altenburg said such subsidies fail to account for the "negative externalities" that result from industrial activity, such as rising health care costs related to pollution or the cost of environmental remediation. The plant is permitted to emit 2.2 million tons of carbon dioxide a year, and according to data from the Environmental Protection Agency analyzed by the Breathe Project, a Pittsburgh-based environmental advocacy group, it will emit the third-highest amount of volatile organic compounds from a single source in the state. Volatile organic compounds are gases that contribute to the formation of ground-level ozone.

To feed the cracker, Shell built a 97-mile pipeline that stretches across three states. In southwest Pennsylvania, the pipeline runs beneath farmland, through dozens of towns and underneath a water line that connects a drinking water reservoir to a treatment plant.

"We view growth in chemicals and the products derived from them as an integral part of sustaining our business and lowering our carbon footprint," Smith wrote in a statement. "In addition to complying with all applicable and federal laws, we are committed to pursuing environmental programs that prove to further reduce the impact of our operations."

That includes, Smith added, working to eliminate plastic waste. "Protecting people and the environments in which we work remains [Shell's] top priority."

For some, such incentives are the price tag for a shot at economic resurrection. "I'm not saying we give the house away for free, but if we don't incentivize an industry or a business to come to a specific area, somebody else will, and they will take their business there," Beaver County Commissioner Daniel Camp said.

"This is a chance for Beaver County to come back to where it was in the late '70s," he said, "when the steel mill was here and it was a place where people wanted to come and raise a family."

Smith of Shell wrote, "The benefits of hosting one of the largest construction sites in North America have been apparent since day one." He said that in addition to the "billions of dollars" Shell has invested in the region during site preparation, it has also contributed to community organizations and has worked with Beaver County to expand its recycling program. It also expects to hire contractors from the area. Shell sponsors a technical program at the Community College of Beaver County, from which it has hired nearly a dozen graduates, Smith said.

An economic impact analysis commissioned by Shell estimated that the cracker could generate $3.3 billion in economic activity across the region every year, as well as $23 million in state income tax.

But Hipple, the analyst, said hopes of widespread prosperity based on plastics projects are "based on forecasts that aren't necessarily going to materialize."

'A sunk cost fallacy'

More than 400 million metric tons of virgin plastic are produced every year.

About half of that is for single use. Recycling technologies haven't caught up to the problem: A recent study estimated that only 9 percent of plastic waste ever made has been recycled, meaning what is left — hundreds of millions of metric tons — has been thrown away, burned, buried in landfills or dumped into oceans.

The problem isn't just waste. Plastics production, a carbon-intensive process, also undercuts global efforts to curtail carbon emissions. According to Beyond Plastics, the U.S. plastic industry's greenhouse gas emissions will surpass those of coal-fired power plants over the next decade.

There are, however, signs that the world is realizing that plastics "are a crisis in their own right," said Carroll Muffett, the president and CEO of the Center for International Environmental Law, an environmental advocacy group. "We've seen a proliferation of measures to reduce plastic use and curtail the use of virgin plastic in countries across the world."

That includes an increasing number of bans on plastic-based products, including single-use plastics like bags and straws. Some countries have also moved to limit imports of plastic waste, leaving the U.S. scrambling to find other places to dispose of its plastic. Recent annual reports of many petrochemical companies note the shift and warn that a turn away from plastic would hurt bottom lines.

In the meantime, the industry is primed to produce a staggering amount of plastic.

At least 120 ethylene manufacturing projects are under construction or in the initial stages of development worldwide, said Dayanand Kharade, an oil and gas analyst at GlobalData, a data analysis and consulting firm. They include ethylene production complexes in Russia and Canada and 36 projects in China, which is poised to lead the world in plastics production.

In its push to increase domestic manufacturing capacity of plastic and reduce reliance on the U.S., China has had an explosion of new petrochemical projects since its first purely ethane cracker began operations in 2019. ExxonMobil is building a cracker plant in Guangdong that is expected to produce 1.6 million metric tons of polyethylene annually after it comes online in 2023.

The manufacturing boom has, in part, led some to be less than optimistic about the long-term viability of the industry. According to some analyses, the global buildup has led to a glut. Data collected by Statista, a data analysis firm, found that capacity has exceeded global demand every year since 2015.

Ashish Chitalia of Wood Mackenzie, an energy research and consulting firm, said that while the world continues to demand millions of tons of plastic annually, "capacity is growing faster than demand," adding, "We are adding a lot more than we can consume."

In the past five years, according to Wood Mackenzie, U.S. polyethylene production has far exceeded domestic demand, with capacity increasing by about 27 percent and demand growing by only 10 percent.

Global production is also expected to expand faster than demand, with polyethylene capacity growing by 23 percent and global demand growing by 18 percent from 2021 to 2025. Because of expected global overcapacity, margins for U.S. producers in the next decade are expected to be 25 percent lower than the in previous decade, according to Wood Mackenzie.

"What it comes down to is people don't want plastics as much as the industry wants plastics," Muffett said.

In the U.S., major petrochemical companies have hit pause on some projects — including some in Appalachia.

Since 2015, Ohio's economic development group, a nonprofit organization called JobsOhio, has spent about $67.65 million to help Thailand's largest petrochemical producer develop a multibillion-dollar ethane cracker that hasn't yet materialized. Citing oil price volatility and economic uncertainty created by the pandemic, PTT Global Chemical America, or PTTGCA, announced last year that a key investor had pulled out and that it would delay announcing its final investment decision. It remains unclear whether the cracker will move forward, although a spokesperson for Jobs Ohio said the project remains viable.

The money disbursed includes a $20 million loan that was paid back. The balance, about $47.65 million, was spent on site remediation and doesn't have to be paid back, a JobsOhio spokesperson said.

"PTTGCA remains committed to the project, and JobsOhio and its partners continue to work closely with PTTGCA to bring the project to a positive final investment decision," the spokesperson said in a statement.

Hipple said projects like PTTGCA — and Shell's cracker — were examples of a "sunk cost fallacy."

Decisions to invest in plastics manufacturing were made "when the world looked very different than it does today," she said. "They have this many years, this many billions into it. Today, would this be built? No."

'Why would we go down that path again?'

Industrial pollution is nothing new to southwest Pennsylvania.

Back in the 1940s in the Beaver County town of Ambridge, falling soot from steel mills and coal-fired power plants was so pervasive that residents called it "black sugar." In 1948, the worst air pollution disaster in U.S. history occurred in Donora, when a meteorological phenomenon called a temperature inversion, common to the area, trapped toxic smog in the valley, killing at least 20 residents. Last year, a state investigation determined that state regulatory agencies failed to protect residents in the region from the impacts of fracking — including severe health consequences and water contamination.

And while the city has made strides in reducing air pollution, Pittsburgh has consistently ranked among the country's most polluted cities, according to the American Lung Association. The organization's most recent "State of the Air" report found that Pittsburgh and the surrounding metro area ranked ninth out of nearly 200 cities for annual levels of fine particle pollution. Allegheny County, where Pittsburgh is, got an F grade for average ozone levels.

For Matthew Mehalik, the executive director of the Breathe Project, Shell's cracker is yet another iteration of an economic model Appalachia has struggled to transcend.

"What's most dismaying about this is that this region would go back to an economic model that left such a toxic social and environmental legacy that's taken 30 to 35 years to begin to clean up," he said. "Why would we go down that path again?"

The cracker has driven some residents away. Christy Begley, the granddaughter of a steel worker, used to live just a mile from the site. Begley and her husband bought their home in 2001, when the zinc smelter was running.

They took painstaking care of the house. They added bay windows that looked over the backyard and planted a vegetable garden and a plot of sunflowers. She was glad when the smelter closed.

It took time for the news that Shell was building a plastics plant to trickle down to her. When it did, she and her husband became concerned about the plant's emissions.

Mehalik said that compared to the coal-fired zinc smelter, the cracker will emit less of some kinds of pollutants, such as heavy metals. But, he added, it's permitted to emit higher levels of hazardous air pollutants and volatile organic compounds. Both, according to the EPA, are serious risks to human health.

Begley moved to another county this summer. "That was my only motivation to leave our house," she said. "It was everything we needed. We paid off everything. I've got a mortgage now because we bought a different house in a different neighborhood because the neighborhood doesn't have a Shell petrochemical plant in it.

"I just genuinely don't believe that just because it was OK and it worked for a generation that we should go ahead and sacrifice the next."