APPENDIX 27
Memorandum from the Wastepack Group Ltd
INTRODUCTION
1. The Wastepack Group provides environmental
support services in distinct but related market sectors to more
than 700 customers in the UK. We are the leading supplier of independent
waste management services to multi-site organisations through
a nation-wide network of designated contractors. Through our recyclate
management activity we extract recyclable materials from the waste
stream and identify commercially viable markets for the materials.
Companies within the Group also operate a number of compliance
schemes for the packaging waste regulations.
2. We expect that the Committee will receive
many submissions in the course of this important inquiry. We are
therefore confining our own submission to the UK performance on
packaging waste recycling since the introduction of statutory
targets in 1998 and the actions we consider necessary to achieve
future targets.
SUMMARY OF
THE PACKAGING
RECYCLING SYSTEM
3. The UK packaging waste regulations currently
require around 6,000 businesses to recover and recycle packaging
waste in proportion to the tonnages of packaging they handle through
the supply chain. More than 80% of them have chosen to pass these
obligations to around twenty compliance schemes regulated by the
three environmental agencies in the UK. The regulatory agencies
have issued statutory guidance which defines Packaging Waste Recovery
Notes (PRNs) and Packaging Waste Export Recovery Notes (PERNs)
as the normal method of providing evidence of compliance. These
documents are issued by accredited reprocessors and exporters,
certifying that specific tonnages of specific packaging materials
have been recovered or recycled. From here on the acronym PRN
is used to cover both types of documents and reprocessors is used
to include exporters.
4. Although it is not defined in the regulations
it has been the general intention that payments to reprocessors
for PRNs by obligated parties will create market forces to maintain
existing recycling and to stimulate additional activity to meet
future targets.
5. The total demand in the market is the
combined obligation to buy PRNs of all the compliance schemes
plus the companies which comply individually. This is established
by the recycling targets set for each year under the regulations.
The supply side of the market consists of the total tonnages of
packaging waste accepted for reprocessing by the accredited reprocessors
for which PRNs can be issued.
6. Compliance schemes and the larger individual
compliers have a statutory obligation to submit compliance plans
each year to the regulatory agencies. The purpose and scope of
these plans and the role of the agencies which receive them has
recently been the subject of considerable debate. The nature of
the Wastepack compliance plan for 2001 was recently reviewed by
a House of Lords Select Committee as an element in its review
of the UK performance against targets. That Committee made no
criticism of Wastepack but did propose changes in the regulatory
systems. The situation in 2002 is that The Wastepack Group is
the UK's second-largest purchaser of PRNs.
PACKAGING RECYCLING
PERFORMANCE AND
PROJECTIONS
7. The EU Directive required the UK to recover
and recycle 50% of its packaging waste annually by 2001. This
amounted to an obligation of 4.65 million tonnes. This was to
have been achieved through a series of graduated target increases
for businesses, beginning in 1998 and steadily increasing until
2001. Small businesses and some types of activity are outside
the scope of the UK regulations. Therefore those businesses which
do have an obligation, have to recycle more than 50% of their
packaging in order to achieve the national target. The Minister
set a target for obligated businesses of 56% in 2001 and believed
that this would result in a total target of 4.75 million tonnes,
somewhat higher than the 4.65 million required in the Directive.
In fact this 56% target created a national obligation of only
4.45 million tonnes. Therefore if every organisation with an obligation
to buy PRNs had bought every PRN it needed then the total number
bought would have been around 200,000 tonnes less than the EU
Directive. No business would buy more PRNs than its legal obligation,
so therefore it was impossible for the UK to comply with the Directive
through the PRN system.
8. It would still have been possible in
theory for the UK to comply outside the PRN system if reprocessors
had taken in more waste packaging material for reprocessing than
the target required. In fact, depending on how the DEFRA statistics
are interpreted, the amount of material received for reprocessing
was 200,000 to 300,000 less than the national target. This was
still much higher than many experts in the market had expected.
Only 3.85 million tonnes was reprocessed in 2000 and it had seemed
impossible that this could be increased to 4.65 million tonnes
or more in one year. One leading observer forecast a shortfall
of around 600,000 tonnes. The fact that the UK failed by a smaller
margin than expected was almost entirely due to a remarkable doubling
in one year of the recycling of wood packaging from around 300,000
tonnes to almost 600,00 tonnes.
9. The PRN system has a number of advantages
over alternative approaches but so far the market has been flawed.
The recycling targets came into effect in 1998 but for the first
few years they were set at lower levels than the volume of recycling
already taking place on a viable economic basis. Therefore industry
was paying for this existing recycling through the PRN system.
Not enough of the money was used to create new infrastructure
to extract more recyclable material from the waste stream. Some
reprocessors invested in new capacity. However for many of them
it is not a natural business activity to invest in the extraction
of mixed waste packaging materials streams from smaller commercial
and industrial sources and households. Between 1998 and 2001 the
obligated businesses paid around £250 million for PRNs. By
the end of 2002 this total will have grown to around £400
million. The efficient investment of this money to ensure minimum
cost compliance is a major issue and the companies which are paying
want to know how their cash is being spent.
10. The targets in the EU Directive are
due to be increased substantially in 2006 although this may be
delayed until 2008. For the UK to meet these higher targets will
require substantial investment. Most of the increase will have
to come from household packaging waste recycling. This will be
an expensive process and require a long-term planning approach.
In order to assess the size of this task as part of its planning
process, The Wastepack Group commissioned a study in early 2002
of the past performance of the PRN funding system and whether
it would be likely to achieve, without modification, the higher
EU targets for 2006 as then expected.
11. Bruce Bratley Associates (BBA) was appointed
to carry out the PRN study because of its extensive experience
in the PRN market. The study aimed to model the increase in recycling
that has occurred since the introduction of the PRN system in
1998. Any reported increase cannot be taken at face value because
a number of factors have led to an increase in reported recycling
that are in no way a result of the PRN funding system. For example
protocols introduced to allow PRNs to be issued against waste
incineration, estimations of packaging in scrap metals, new incineration
capacity and reprocessing activity in Northern Ireland are all
activities that occurred without funding through the PRN system.
12. A major factor taken into account in
the model was to exclude wood from the analysis because the PRN
system for wood recycling was introduced half way through the
four year period and thereby distorted any analysis.
13. The BBA study initially concluded that
between 1998 and 2001 the PRN system delivered a real increase
in packaging recycling of 250K tonnes, against a reported increase
of 1027K tonnes. Extrapolating from recycling performance in the
last four years, BBA estimated that it would take between fourteen
and thirty years to meet the EU packaging recycling targets then
envisaged for 2006.
14. Following the March publication of this
paper DEFRA released new data for recycling activity in 2001 and
a group of five compliance schemes also published a critique of
the model. BBA has since published a revised paper, which incorporates
updated DEFRA data and responds to the five schemes' critique.
The main thrust of this critique was to argue that wood should
be included in the analysis.
15. The updated BBA study concluded that
the PRN system has delivered a 322K tonne increase in packaging
recycling (against a reported increase of 1124K tonnes) and it
would take until 2016 to reach the EU packaging recycling targets
that were then envisaged for 2006. If wood is included in the
analysis (and making an assumption that 75% of the estimated 1m
tonnes of wood packaging is reprocessed in 2006) it would still
take until 2015 to reach the EU targets, demonstrating that the
analysis is not sensitive to the inclusion of wood.
The initial BBA study is attached as appendix
A[57]
and the revised version is attached as appendix B.[58]
16. Despite the shortcomings described here,
we fully support the PRN system. It works well as a method of
proving that reprocessing has taken place. Existing recycling
sometimes needs support against the fluctuations in the prices
of primary materials. The PRN system is an efficient way of doing
this. It can also be used to facilitate capacity increases by
existing reprocessors. However, it needs to be refined if it is
to perform other essential tasks such as the stimulation of new
entrants to the reprocessing industries and the extraction of
material from the domestic waste stream.
REMOVING BARRIERS
TO ACHIEVING
HIGHER TARGETS
17. The main actions which would facilitate
achievement of higher future targets are as follows:
— Improvements to the method of collecting
and reporting packaging obligation data so that the data is more
robust and demand for PRNs is known earlier
— Effective and transparent use of
the money paid by industry for PRNs to achieve the targets at
the lowest possible cost
— Effective management of the legislative
and regulatory processes including the release of information
to the market
Our views on each of these issues are described
below.
IMPROVING THE
COLLECTION AND
REPORTING OF
DATA
18. The data defining the volumes of packaging
handled by obligated businesses is provided to the regulatory
environmental agencies each year, mainly via the twenty or so
compliance schemes, and when aggregated forms the total demand
for PRNs in the market.
19. The main problem for the market participants
is that the final statutory data for providing data is 15 April
in the current compliance year. So recycling obligations begin
on 1 January but the size of the task is not declared until well
into the year in which it has to be achieved. This makes advance
planning very difficult. Furthermore it is usually very much later
before DEFRA releases the size of the total UK obligation. In
2002, for example, some flawed statistics were issued in May which
implied that the size of the market might have fallen by 25% since
2001, despite a target increase. A meaningful number was only
announced in mid September after strong pressure from the compliance
industry. Another problem is that there have been surprising fluctuations
in the data from year to year and the actual tonnage targets have
been difficult to forecast.
20. Apart from the problems caused for planning
and managing the recycling compliance market, the current method
of data collection creates significant problems for obligated
companies. In some cases the cost of collecting data is as much
as the cost of compliance and can reach £50,000 annually
or more. For some businesses, provision of accurate data is an
almost impossible task. The problem facing wholesalers is particularly
acute as they may have to gather data about the packaging supplied
to them from hundreds of suppliers covering many thousands of
individual products. The Scottish Wholesalers Association has
given us examples of their members who have to approach around
two hundred suppliers for data about the packaging on products
they have supplied and are unable to obtain a reply from around
90% of these.
21. We believe that the current bottom-up
approach to data collection could be replaced by a top-down method.
This would involve sharing the national obligation between different
types of business as classified by SIC codes. A notional amount
of each packaging material would be assigned to businesses in
each classification for each £ of turnover. Many companies
would be able to calculate their obligation in minutes, through
multiplying turnover by the packaging coefficients, rather than
going through the complex processes needed at present.
22. One objection to this idea is that the
coefficients would have to be calculated and agreed and this would
be a lengthy process. However, much of the work has already been
done. Some packaging coefficients by sector were published in
the early discussion processes before the regulations were introduced.
In recent years companies have been required to indicate their
SIC code on their registration documents so a large database of
SIC code related packaging data already exists.
23. Another objection to change might be
that an average approach to data fails to recognise the effects
of packaging minimisation by particular companies or take account
of individual anomalies. This would be overcome by giving businesses
the choice of accepting the standard data for their classification
or submitting detailed information to establish an individual
obligation.
24. Another beneficial change would be to
set an earlier statutory date for the filing of data. This might
be in October or November of the previous year, based on the most
recent audited accounts of each obligated company. This would
facilitate planning of compliance by both purchasers and suppliers
of PRNs. Adjustments to individual obligations could be made to
take account of changes of ownership or business closures. Whatever
system is used it is vital that DEFRA should be resourced to issue
the obligation data to all market participants much more rapidly
than at present.
EFFECTIVE AND
TRANSPARENT USE
OF FUNDS
25. Businesses paid £250 million for
PRNs between 1998 and 2001 and expect to pay another £150
million in 2002. Estimates for future costs suggest that a further
£1 billion will be expected of them over the next four years.
Industry is looking for clarity on how these large sums are being
spent. Another issue is that businesses have a great deal of difficulty
in budgeting for these recycling costs. This is largely because
of the lack of advance planning, due to delays in announcing targets
and the confused structure of the market which is discussed elsewhere
in this submission.
26. If we are to reduce the amount of packaging
going to landfill to meet the next wave of EU targets in either
2006 or 2008 then money needs to be spent on the whole of the
collection, separation, reprocessing and market development infrastructure.
This includes both revenue items and capital expenditure. Money
is required to support the annual profit and loss accounts of
all companies involved in the collection and recycling process.
Otherwise we cannot assume that these businesses will participate.
Substantial capital expenditure has to be made by companies involved
in the extraction and recycling activities. This ranges from collection
vehicles to sorting and conditioning facilities and reprocessing
plant.
27. There are examples of other industries,
such as the utilities, where large sums of money are used to support
revenue and capital projects to achieve long-term sustainable
goals The revenue and expenditure of utilities is regulated. This
ensures that money collected from customers is spent on the appropriate
balance of operating costs and capital expenditure programmes.
Uneconomic but necessary activities are funded, participants receive
a known and fair return and everyone can plan ahead to ensure
the job is done. This comparison may be simplistic but we believe
that the approach to packaging legislation could benefit from
the application of similar principles. Everybody using the money
from obligated companies should be required to account for how
it has been spent. The current monitoring processes are not sufficiently
defined. Some reprocessors already do make general public statements.
However better control of expenditure will result from the environmental
Agencies having a stronger involvement in the business plans of
Schemes, individual compliers and reprocessors. Most of these
ideas do not require changes in legislation. They could be achieved
through amendments to the statutory guidance or minor changes
to the regulations.
EFFECTIVE MANAGEMENT
OF THE
LEGISLATIVE AND
REGULATORY PROCESSES
28. Achievement of demanding future targets
will be dependent on more effective management of the legislative
and regulatory processes. It will be essential for DEFRA and the
regulatory environmental Agencies to be properly resourced to
achieve this. The compliance industry should look for their strong
leadership and guidance through co-ordination, clarification and
consistency of interpretation of the regulations. Obligated companies
contribute more than £3 million annually towards the cost
of regulation through the registration fees they pay. This is
a very small element in the total cost of compliance and if necessary
these fees could be increased.
29. Effective planning of increased recycling
requires proper legislative timetables. Businesses are required
to comply with targets from the beginning of the compliance year
but targets have frequently been announced retrospectively. The
1999 targets were announced in March 1999 and the statutory instrument
did not come into force until June 1999. In 2001 Northern Ireland
was allowed for some reason to have different targets to the rest
of the UK without any public disclosure. The UK targets effective
from 1 January 2002 were announced on 19 March 2002. The statutory
consultation process on targets has been unsatisfactory, with
documents often containing inaccurate and confusing information.
The Regulatory Impact Assessments have provided misleading information
on likely future costs. There has been no mechanism for feeding
back responses to the submissions made by the compliance industry.
Known legislative deficiencies have not been addressed.
30. Uncertainty about the future has now
been compounded by the failure of the EU to establish the recycling
targets to be achieved by 2006 and beyond. The way in which this
matter has "pin-balled" between different organs of
the EU has mystified and concerned industry. It has made it more
difficult for the UK to set targets from 2003 onwards. In order
to achieve future compliance, and raise and deploy the necessary
funds correctly, we need a clear planning horizon of known targets
for three years ahead.
31. In the early years of the packaging
legislation DETR issued a market analysis document called "Forward
Look for Planning Purposes". This was intended to be an annual
publication but it has not been issued since the first draft for
2000 was produced in April 2000 but then abandoned following criticism.
DEFRA and the Agencies are regularly in possession of key current
data about supply and demand in the compliance market. This information
is of vital importance for refining business plans. However it
has been subject to late disclosure and confusion. For example
the data defining the national obligation for 2001, the demand
side of the PRN market, was only issued in May 2002. The reprocessing
statistics for the first two quarters of 2002, which define the
supply of PRNs, were only issued in September 2002, following
pressure from the industry. This was despite the fact that the
information is gathered quarterly.
32. Industry has the impression that there
would be benefits in strengthening the communication and co-ordination
between DEFRA and the Agencies and this would also help to improve
communication with the industry. It could lead, for example, to
one single source, perhaps internet based, of the list of reprocessors
accredited to issue PRNs. There have been examples of the Agencies
taking different stances on interpretation of the regulations.
This includes the interpretation of their role in commenting on
and monitoring the statutory compliance plans submitted to them
by Schemes and individual compliers.
33. An active role in the co-ordination
and monitoring of compliance plans by the Agencies will be an
important factor in achieving the investment in infrastructure
to meet the much tougher future targets. The task of the PRN system
so far has largely been about supporting and enhancing the existing
recycling activities. This has been relatively low cost. The new
task of building major infrastructure to access more difficult
waste streams will be much more expensive. There will be no immediate
PRNs from this expenditure as facilities will typically take two
to three years to come on stream. The current issuers of PRNs
will not always be the appropriate contractors for these tasks.
Dealing with this dilemma will require refinement of the operation
of the PRN funding system. It will also require the Agencies to
ensure that all obligated parties take on their fair share of
the costly expansion task, rather than allowing some to concentrate
on the lower cost methods of obtaining PRNs from existing activity.
October 2002
57 Assessment of the Increase in Recycling Caused
by the Application of PRN Funds over the Period 1998-2001, Bruce
Bratley Associates, March 2002-not printed here. Back
58
Ibid-updated paper in the light of DEFRA packaging data and coments
made by Biffapack, Cleanapack, Complypak, Paperpak and Valpak-not
printed here. Back
| 
