A Deposit Return Scheme for Scotland: Final Business Regulatory Impact Assessment

5. Scottish Firms Impact Test

105. The Scottish Firms Impact Test considers the impact of a DRS on key sectors and groups by consulting 12 businesses of varying sizes and sectors as appropriate. Below is the full summary of responses of face-to-face discussions with interviewed businesses, giving details of the questions asked, responses given and how business engagement fed into the development of this proposal. These interviews were conducted as part of the development of the partial BRIA

106. Question 1 "The value of the deposit that will be placed on returnable single use containers by the scheme will be decided partly by economic modelling, and partly as a result of engagement with industry and stakeholders more generally. It is expected that the deposit will range from 10p to 30p per item. Does your organisation hold a view on the level of deposit that would be appropriate to achieve the preferred outcome for your organisation and, if different, the level required to meet the Scottish Government's ambitions for a DRS in Scotland?"

107. Low or Zero Value Deposit Two organisations (Ardagh and Highland Spring), stated that the rate should be low or zero. Ardagh was concerned that a higher rate would increase the risk of fraud, and potentially negatively impact on demand for products whilst Highland Spring conducted a survey of consumers which suggested that demand for its products would decrease substantially if the sale price of its products were increased to cover even the lower rate of deposit of 10p.

108. High Value Deposit Conversely, three respondents (Changeworks, Crieff Hydro and the Co-op Group) believed that the rate should be at the higher end – "as high as possible to change behaviour" (Changeworks), and "nearer 30p than 10p" (Crieff Hydro). The Co-op sited its understanding of the experience of AG Barr which secured no more than 50% returns on glass beverage bottles when offering a deposit of 30p as justification for a higher rate.

109. Specific Value Deposit Costa Coffee and Coca-Cola both preferred a rate of circa 10p with Coca-Cola suggesting between 5p and10p. The National Federation of Retail Newsagents (NFRN) recommended a rate of 20p.

110. Variable Rates Two organisations (Coca-Cola and Crieff Hydro) believed that consideration should be given to the application of variable rates. Coca-Cola suggested a higher rate for "on-the-go" packaging with a view to minimising littering whilst Crieff Hydro believed that a variable rate should be considered "to take account of established recycling systems".

111. No Fixed View Four organisations, the Scottish Environmental Services Association (SESA), the Scotch Whisky Association (SWA), Williams Brothers Brewing Company and the Road Haulage Association (RHA), had no fixed view on the level of deposit that would be appropriate, although SESA, Williams Brothers and the SWA expressed the view that it should be high enough to encourage consumers to use the scheme but not so high as to encourage fraud.

112. Question 2 "The type of returnable single use containers that will be included in the scheme will be decided partly by economic modelling and partly as a result of engagement with industry and stakeholders more generally. Does your organisation hold a view on what containers should be included or excluded in the scheme and why?"

113. All Containers/As Inclusive as Possible Five organisations, Changeworks, Highland Spring, RHA, Williams Brothers and SWA, favoured an approach that was as inclusive of as many materials as possible, although Williams Brothers suggested that biodegradable/compostable containers should be exempt.

114. Limited Range of Containers Included in the Scheme Coca-Cola and NFRN believed that the scheme should be limited to rigid packaging such as glass, plastic and aluminium. Costa Coffee believed that the focus should be on on-the-go packaging and should possibly exclude glass because of its weight. The Co-op Group believed that the scheme should target on-the-go packaging and that which contributes most to littering, although milk and wine bottles should be exempt.

115. Specific Container Exclusions Ardagh believed that glass should be excluded because its inclusion would, in its view, result on pressure by retailers to reduce the use of glass packaging in favour of plastics and laminates. This view was based on the belief that glass is less likely to be accommodated in reverse vending machines and because returned glass packaging will be more problematic to store in retail establishments than other packaging. Costa Coffee also believed glass should "possibly" be excluded. Crieff Hydro believed that metals should be excluded because they are well catered for under established dry mixed recycling (DMR) collection systems. Williams Brothers suggested that biodegradable/compostable containers should be exempt. NFRN believed that milk containers should be exempt on the grounds of hygiene and that coffee cups should be excluded because they believed there is a lack of facilities to recycle them.

116. Question 3 "Does your organisation have specific concerns on how the scheme might impact smaller retailers if it is rolled out across this segment of the market?"

117. Space and Logistical Constraints for Small Retailers This was raised as a concern by eight organisations (Ardagh, Changeworks, Costa Coffee, Crieff Hydro, The Co-op Group, Highland Spring, NFRN and SESA).

118. Reduced Sales Ardagh, Crieff Hydro, the Co-op Group and Highland Spring all raised concerns that small retailers would experience a reduction in sales of products covered by the scheme. However, two respondents also expressed concern that if small retailers were not included in the scheme or were given the opportunity to opt out, there is risk of a drift of footfall away from them to larger retailers.

119. Cash Flow Crieff Hydro expressed concern about potential cash flow challenges for small retailers if there were delays in recovering deposits they may pay out to consumers. Williams Brothers expressed similar concerns, particularly if small traders are required to pay out deposits for containers that are purchased elsewhere, for example supermarkets.

120. Other Concerns Coca-Cola expressed the view that clear criteria needed to be established to determine which, if any organisations, should be excluded from the scheme. The Co-op Group suggested that where feasible, communal RVMs should be provided close to small retail outlets to minimise the impact on this sector. Costa Coffee were of the view that questions about status of small retailers should include all retail outlets with a small footprint, even if the outlet is part of a larger chain. The Co-op had a similar concern and were keen to understand the definition of "smaller retailers". SESA expressed concerns about potential confusion that the scheme will cause small retailers, many of whom are still coming to terms with their obligations to recycle under the Waste (Scotland) Regulations. NFRN believed that the space taken up by RVMs should be exempted from the calculation of business rates.

121. No Fixed View Neither the SWA nor the RHA had a fixed view on this issue.

122. Question 4 "Does your organisation have specific concerns on how the scheme might impact more remote areas of Scotland e.g. logistical constraints?"

123. Logistical/Critical Mass Issues/Cost/Cash Flow Issues Four organisations expressed concerns about logistical and/or critical mass issues - Ardagh, Costa Coffee, NFRN and SESA. The Co-op Group was concerned about the added costs to stores serving island communities where goods have to be delivered by ferry. It suggested that rather than exempting those from the scheme, the body responsible for administering the scheme should make financial provision to island stores to cover the extra cost of back hauling returned packaging. Williams Brothers expressed concerns that "out of season" cash flow challenges for small independent retailers in remote areas might be exacerbated.

124. Explicit Support for Full Geographic Coverage/No Concerns Coca-Cola and SWA supported full geographic coverage. Changeworks and RHA expressed no concerns about the potential impact in more remote areas.

125. Remote Areas Exemption Crieff Hydro and SESA recommended that consideration be given to the introduction of Remote Areas Exemptions to exclude specified areas from the scheme.

126. No Fixed View Highland Spring had no fixed view on this issue.

127. Question 5 "Administration of the scheme can include representation from the main stakeholder groups, primarily drinks manufacturers, importers and the retail sector. Does your organisation hold a view on what this body should look like, including its remit and what groups should be represented?"

128. Majority View on Scheme Administration The majority of organisations interviewed were in favour of the scheme being administered by representatives of stakeholders. However, there was no unanimity of who those stakeholders might be.

129. Additional Views Some, like Coca-Cola and Ardagh Group, took a narrower view than others, with the former suggesting the membership should be limited to organisations responsible for funding the scheme, and the latter recommending that membership be limited to retailers, manufacturers and fillers. Others, including the Co-op Group and SESA, were in favour of expanding membership to include organisations representing local authority waste managers and the wider waste management industry. A number of organisations were explicitly of the view that the administering body should operate on a not-for-profit basis.

130. No Fixed View Two organisations had differing views to the majority; Changeworks had no fixed view on the issue whilst RHA was of the view that the scheme should be administered by the Scottish Government.

131. Question 6 "It is expected that the scheme will result in lower levels of litter. How would this impact your organisation?"

132. No or Minimal Impact on Litter This was the view of four organisations, Ardagh, Highland Spring, SWA (in relation to packaging used/produced by SWA members) and SESA. A number of these organisations indicated that studies had shown that drinks packaging was not a significant contributor to litter. The Co-op Group was of the view that its costs for litter management would not reduce, although there may be a modest reduction in littering.

133. Contribution to Social Responsibility/Improved Reputation Two contributors, Coca-Cola and Costa Coffee, identified these outcomes from lower levels of litter resulting from the implementation of the scheme.

134. Other Crieff Hydro anticipated that reduced levels of litter on its estate would reduce clear-up costs. The RHA said that reduced roadside litter would be welcomed. Changeworks said that the scheme might improve attitudes to recycling and managing waste as a resource. NFRN advised that they would welcome the benefits that reductions in littering would realise. Williams Brothers expressed no firm view on the matter.

135. Question 7 "It is expected that the scheme will result in higher recycling rates, a decrease in contamination and an increase in the quality of secondary materials available to the recycling industry. How will this impact your organisation?

136. Positive Impact on Recycling The majority of responses were positive. Changeworks, Coca-Cola, Costa Coffee, Crieff Hydro, the Co-op Group, Highland Spring and SWA all believed that increased recycling rates, a decrease in contamination and an increase in the quality of secondary materials would result in benefits to their organisations. Williams Brothers advised that if the quality of glass cullet improved as a result of the scheme, that in turn would improve the quality of containers available to it.

137. Negative Impact Ardagh and SESA were not persuaded that there would be any improvement in recycling rates, a decrease in contamination or an increase in the quality of secondary materials as a result of the scheme. Ardagh expressed concern that the scheme might even result in a reduction in the quality of glass packaging presented for recycling, especially if glass packaging is crushed to reduce its volume. SESA believed that DRS will, to a great extent, displace existing recycling collection systems and further decrease the quality of dry mixed recyclate that is sent to materials recovery facilities for sorting. If so, this would have a negative impact on the waste industry.

138. No Impact NFRN's view was that independent retail sector would realise no impact from an increase in the quality of secondary materials.

139. Question 8 "The proposed scheme will include a range of measures and safeguards that will deter fraudulent transactions. Does your organisation have any concerns regarding potential misuse of the system? Are there specific issues in this area that you would like to raise?"

140. Specific Views on Fraudulent Misuse: Coca-Cola had very specific views on fraud. They noted that fraud prevention is critically important in any DRS and needs to be taken very seriously in the detailed design, especially at the boundaries of any scheme. RVMs provide better fraud control than manual schemes but are more expensive to establish and will not be feasible in all outlets.

141. Return points and counting/clearing centres would need specific controls to detect and manage individual attempts at low scale fraud as well as to reduce risks of more systematic fraud. Besides potential physical fraud with return, logistics and counting and clearing, potential data fraud would also need to be mitigated. For this reason, the role of hardware and logistics service providers would have to be arranged in detail. Anti-fraud measures would need to be closely monitored to assess their success or otherwise and updated if they were shown to be less than fully effective.

142. Theft Concerns Three organisations, Ardagh, Williams Brothers and Changeworks, expressed concern that the scheme could encourage theft of containers; in the case of Changeworks the concern was that packaging material stored for collection by its customers might be stolen, whilst Ardagh and Williams Brothers were concerned that they might have to introduce measures on their premises to prevent theft by employees and others.

143. Cross Border Fraud Four organisations, Ardagh, Costa Coffee, NFRN and Highland Spring, expressed concerns about the potential for cross border fraud if a scheme is introduced in Scotland but not elsewhere in the UK. Highland Spring advised that in order to minimise this risk for its products it would have to introduce changes to bottle labelling that would reduce operational efficiency and significantly increase costs. This issue was also of concern to the Co-op Group who believed that there was also the potential for reduced consumer choice unless a common UK-wide scheme was introduced.

144. More Information Required/Not Yet Considered Crieff Hydro advised that they required more information on the fraud risks and the measures to be considered to prevent it before they could provide a response whilst SESA advised that they had not yet considered the issue in any detail.

145. Other RHA advised that they had no concerns whilst SWA welcomed the use of tools and technology to manage fraud at reasonable cost. NFRN expressed the view that fraud management measures should not be unduly complex.

146. Question 9 "One option under consideration for the scheme is for deposits to be gifted by users at the point of return directly to local and national charities. Is this something your organisation would support? Do you have a view on the selection process for appropriate charities?"

147. Support/No Objection to Charitable Donations Five organisations, Coca- Cola, Costa Coffee, the Co-op Group, NFRN and RHA, supported the gifting of deposits by users at the point of return. Coca-Cola believed that charities that benefit should be those concerned with environmental stewardship, reducing litter or improving local environments. Costa Coffee advised that beneficiaries should be local, community-based charities with a positive local environmental impact. The Co-op Group would wish to make use of their existing Community Fund which channels money into local charities and community groups. Three organisations, SESA, Williams Brothers and SWA, had no objections to the proposal, although Williams Brothers requested clarity that consumers would be able to decide whether to receive the deposit or gift it to a charity. SESA had no view on the selection process whilst SWA believed that there would be relevance in the beneficiaries being charities operating in the environment sector. Williams Brothers preference was that beneficiaries should be smaller, local charities.

148. Oppose Two organisations, namely Crieff Hydro and Highland Spring, opposed the gifting of deposits to charities. Highland Spring believed that all monies should be used to finance the running of the scheme or invested specifically in projects to meet the aims of the scheme.

149. No View Ardagh and Changeworks advised that they had no view on the matter.

150. Question 10 "What in your opinion will be the biggest potential impacts to Scottish businesses as a result of introducing a DRS?"

151. A number of respondents limited their views to forecast impacts in their own industry or sectors, whilst others provided views on impacts for the wider economy. One organisation, the RHA, advised that it had no views on the matter.

152. Own Industry or Sector Five out of seven respondents forecast consequences which they regarded as negative and/or would involve significant changes to operational practices. These include the following:

• A reduction in the volume and quality of cullet for glass bottle manufacture (Ardagh Group).
• Displacement of glass packaging by plastics and laminate (Ardagh Group).
• Additional business costs, the need for more space to store used packaging, and confusion about how the scheme will operate in licensed premises (Crieff Hydro).
• Risk to the continued employment of some or all the company's employees and a negative impact on communities in the vicinity of the company's bottling plants (Highland Spring).
• Changes in labelling and bottling for SWA members and the need for changes in distribution practices to reflect the fact that the majority of products are sold UK-wide (SWA).
• Williams Brothers expressed concern regarding labelling costs, with major concerns about cost implications for different labelling requirements for goods sold outside Scotland.
• Changeworks regarded the scheme as an opportunity for it to capture a significant volume of challenging waste as a resource, whilst NFRN viewed it as an opportunity for the convenience retail sector to increase footfall and revenue.

153. Wider Economy The views of the four organisations who expressed opinions on the wider economy can be summarised as follows:

• Two considered that the main positives would be the potential to increase recycling rates and recover more high-quality packaging for recycling.
• One expressed the view that there is potential for increased employment in the new activities created by the scheme although this might displace existing employment in waste collection and litter clearance.
• All four expressed concerns about an ill-designed scheme resulting in increased costs, with one also expressing concern about possible reduction in consumer choice, especially if the scheme is limited to Scotland.

154. SESA expressed a number of additional concerns, including:

• Disruption to businesses at the outset as they come to terms with the scheme and its impact on them.
• Additional disruption due to new infrastructure.
• Responsibilities that councils had for household and business collections would be displaced, resulting in confusion and reduced revenues for councils.
• Lack of clarity about who would be responsible for collection of materials from storage locations.
• Negative impact on existing collection systems and concern that quality and value of what remains to be collected would deteriorate.

155. Question 11 "Is there anything else you wish to add not covered by the above questions?"

156. There were few common themes in responses to this question. However, two themes did emerge:

• The view of a number of organisations that more information was needed about DRS to enable informed and detailed opinions to be given on it.
• The desire for a single UK-wide scheme or a significant degree of commonalty between schemes introduced by the different countries of the UK, including a common start date, to avoid confusion and unnecessary cost

157. Summary The above responses have helped to shape the development of the final scheme design and associated legislative approach in the form of the Draft DRS Regulations.^[23] The range of issues raised have been addressed throughout the suite of published documents accompanying the final Regulations, including the potential impact on small retailers, concerns regarding fraud, and the desire for a UK-wide scheme. Note that significant further business engagement regarding the implementation timetable and other changes was carried out during summer and autumn 2021. Please see section 3.3 for more details.