Packaging - extended producer responsibility: full business and regulatory impact assessment (BRIA)

2.0 Purpose and intended effect

2.1 Background

2. Over 10 million tonnes of packaging waste are produced every year in the UK. A substantial share of this ends up in landfill, though almost two-thirds of it could be recovered, meaning that there are avoidable environmental costs.^[5]

3. Extended producer responsibility (EPR) schemes can be implemented to ensure that producers’ responsibility for their products is extended to the post-use phase. This includes financial responsibility and can apply to, for example, the environmental or waste management costs of the products they place on the market. This incentivises producers to design for key circular economy outcomes such as reduced consumption of resources, reuse, repair and recycling.

4. A UK-wide producer responsibility system for packaging has been in place since 1997. It is currently governed by the Producer Responsibility Obligations (Packaging Waste) Regulations 2007 (as amended).^[6] Under these regulations, organisations which produce or fill packaging or sell packaged goods are obligated to contribute towards the cost of recycling and recovery of this packaging. The objectives of this system are to:

• reduce the amount of packaging produced;
• reduce the amount of packaging waste going to landfill; and
• increase the amount of packaging waste that is recycled and recovered.

5. Businesses currently prove they have met their recycling obligations through the purchase of Packaging Waste Recycling Notes (PRNs) and/or Packaging Waste Export Recycling Notes (PERNs) which are sold by accredited reprocessors or exporters. Obligated businesses must buy sufficient PRNs/PERNs to offset their obligations, in line with the ‘polluter pays’ principle.^[7] PRNs and PERNs act as evidence that an equivalent amount of similar packaging has been recycled.

6. The current producer responsibility system for packaging has helped drive recycling while keeping the cost to businesses low. However, it does not give packaging producers full financial responsibility for the end-of-life management of their packaging or any of the environmental externalities created.

7. It is estimated that the current system covers only around 10% of the total cost of managing post-use packaging waste,^[8] which means that most of the cost is borne by local authorities, other public authorities and businesses who consume packaged goods. Additionally, there is significant fluctuation of revenue raised through PRNs. The current system therefore does not meet the polluter-pays principle or provide sufficient financial stability to encourage investment in infrastructure to meet environmental objectives.

8. Other issues highlighted within previous public consultation proposals are:^{[9], [10], [11]}

• concerns over system transparency, including the fate of materials and producer visibility of PRN fee use;
• an uneven playing field for domestic reprocessing due to an over-reliance on export markets;
• limited direct consumer communications to encourage recycling;
• a lack of producer incentive to design for greater recyclability or reuse, as the price of PRNs is not linked to recyclability or environmental impacts of materials. This means that materials are often reprocessed into much lower-value goods or lost to landfill or incineration after just one use; and
• a lack of granularity in data reported by producers, as this currently only includes the type of material and does not include the packaging or polymer type.

9. Therefore, the Scottish Government is introducing packaging EPR along with the other governments of the UK. The four governments are working to deliver a single UK-wide scheme that reflects local needs and priorities.

10. The regulations place obligations on actors across the packaging supply chain. Producers, as defined in the regulations, will be required to:

• fund the full net costs of efficient and effective waste management services for household packaging. These costs will be allocated to producers based on their share of each packaging material type placed on market each year. From 2026 onwards, fees will be ‘modulated’ based on environmental factors such as recyclability to incentivise more sustainable use of packaging;
• meet packaging recycling targets through the purchase of evidence notes from accredited reprocessors and exporters. The evidence requirement will be based on the total tonnage of packaging producers place on the market and national recycling targets; and
• report data on the packaging they place on the market.

11. Producers’ precise obligations will depend on factors including their turnover and the tonnage of packaging they place on the market each year. See the partial BRIA for further details.^[12]

12. The fees raised from producers will fund:

• the full net costs of efficient and effective local authority household packaging waste collection and disposal services;
• information provision for members of the public and businesses on the reuse of packaging, recovery (including recycling and disposal) of packaging waste, and prevention of packaging litter; and
• the operating costs of a scheme administrator which oversees the scheme and is responsible for meeting the stated outcomes.

13. Providers of household recycling and waste services will be funded for efficient and effective household waste collection and disposal services. This will take into account factors specific to local areas, such as rurality, levels of deprivation, and policies on waste management in each nation.

14. The scheme administrator will be a public body, tasked with ensuring the efficient and effective delivery of the scheme, including guidance for all actors on their roles and responsibilities, financial payments to local authorities and meeting the scheme outcomes and targets.

15. Producers’ costs are estimated to total approximately £1.7 billion each year for the UK-wide scheme. An estimated £1.2 billion of this relates to household packaging recycling and waste services (£800 million for household recycling services and recycling centres; £300 million for household residual waste).^[13] In addition, producers will contribute an estimated £300 million through purchase of evidence notes, and £100 million in administrative costs for the Scheme Administrator, communications and regulatory activities.^[14]

16. The policy is focussed on businesses, rather than individuals, but has the potential to impact on all individuals and households in Scotland as it concerns packaging in all forms. It is a UK-wide policy. This policy change can be considered to be strategic given the strong links to a wide array of environmental and wider policy objectives for Scottish Government.

2.2 Objective and Rationale

17. The objectives of the new scheme are:

• producers are responsible for the full net cost of managing their packaging efficiently and effectively at end-of-life;
• unnecessary packaging is avoided;
• more reuseable packaging is used, replacing single-use;
• more packaging is designed to be recyclable;
• the recycling rate of packaging placed on the market increases to 76% by 2030; and
• the quality of packaging materials presented for recycling improves and is more widely used in higher-value secondary applications.

18. Packaging EPR has strong cross-policy links to Scottish, UK and European legislation and strategic direction.

19. The circular economy contributes directly to the Environment and Economy outcomes under the National Performance Framework. Directly applicable National Indicators include:^[15]

• Carbon footprint
• Natural capital
• Greenhouse gas emissions
• Waste generated
• Marine environment
• Biodiversity
• Scotland’s reputation
• Perception of local area
• Condition of protected nature sites

20. Resource use and waste generated are recognised as key sources of greenhouse gas generation, and the Scottish Government reports on progress against both territorial and consumption emissions. Packaging EPR will contribute to objectives set out in the Climate Change (Scotland) Act 2009,^[16] as amended through the Climate Change (Emissions Reduction Targets) (Scotland) Act 2019,^[17] and the Climate Change Plan Update 2018-2032.^[18] The legislation establishes a target of achieving net-zero emissions by 2045.

21. In 2015, the Scottish Government committed to the United Nations Sustainable Development Goals. The ambition behind the goals is to end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda. Packaging EPR will have a positive impact on a number of these goals, most explicitly Goal 12: Responsible Consumption and Production.^[19]

22. Scotland is transitioning to a circular economy. In February 2016, “Making Things Last: A circular economy strategy for Scotland” was published.^[20] This overarching strategy integrated the key elements of the Zero Waste Plan^[21] and Safeguarding Scotland’s resources^[22] report and built on Scotland’s zero-waste and resource efficiency agendas. Preventing waste arising, reusing and recycling products and materials were central requirements to accelerating a circular economy.

23. The Scottish Government implemented Article 5 of the EU Single-Use Plastics Directive (SUPD) on 1st June 2022. The regulations introduced market restrictions for single-use plastic cutlery, plates, beverage stirrers, straws and balloon sticks as well as single-use food containers and cups made of expanded polystyrene.

24. The Deposit and Return Scheme Scotland Regulations, passed by the Scottish Parliament in May 2020, aim to help improve the quality and quantity of recycling, reduce litter and achieve Scottish Government climate change targets. DRS is a form of producer responsibility. Until 1 January 2028, drinks containers (excluding those made of glass) are exempt from certain obligations under the regulations, including disposal costs, recyclability assessments, and the requirement to provide recycling information; they are subject to data collection and reporting obligations and recycling obligations. From that date, if there is no operational DRS in any part of the UK, the exclusions for drinks containers will fall away so that drinks containers will be subject to all of the obligations in the Regulations. The four nations have agreed to a revised implementation timeline of October 2027 for an aligned DRS scheme across the UK.

25. The Circular Economy (Scotland) Act received Royal Assent on 8 August 2024. The Act aims to support Scotland’s transition to a zero waste and circular economy, significantly increase reuse and recycling rates, and modernise and improve waste and recycling services.

26. The 2020 update to the Climate Change Plan, and Programme for Government also commit to publication of a Circular Economy and Waste Route Map.^[23] An updated draft Circular Economy and Waste Route Map was published for consultation in January 2024. The Route Map is designed to drive progress in three key areas:^[24]

• setting the strategic direction and laying foundations for delivering a system-wide, comprehensive vision for Scotland’s circular economy to 2030;
• setting out priority actions from now to 2030 to accelerate more sustainable use of resources across the waste hierarchy; and
• reducing emissions associated with resources and waste.

27. In 2022, the UK Government implemented a new tax on businesses that produce or import plastic packaging with less than 30% recycled content. ^[25] This aims to incentivise businesses to use recycled materials in the production of plastic packaging, which will create greater demand for recycled inputs and in turn stimulate increased levels of recycling and collection of plastic waste. The Plastic Packaging Tax should complement packaging EPR in providing businesses with the right incentives to design and use plastic packaging that is easier to recycle, driving the overall development of more-sustainable packaging.

28. An amendment to the EU Waste Framework Directive 2018 set a 70% packaging recycling target by the end of 2030.^[26] The Scottish Government, and our partners in the other UK governments, aim to exceed this target through packaging EPR.

29. In May of 2018 the European Commission’s Circular Economy Package was approved. The legislation aims to move supply chains towards a circular economy maintaining the value of products, materials and resources in the economy for as long as possible. This includes more ambitious recycling targets and full cost recovery of recycling costs from producers. The Scottish Government has committed to meeting or exceeding the EU’s environmental standards after leaving the EU.^[27] Packaging EPR will contribute to meeting this commitment.

30. A new European Packaging and Packaging Waste Regulation is close to adoption, which includes packaging reduction targets, places restrictions on the use of certain plastic packaging types, sets reuse and refill targets, and requires all packaging (with exemptions) to be recyclable.^[28]

2.3 Polluter pays principle and negative externalities

31. At present, taxpayers pay most of the costs of collecting and managing packaging waste generated in the home through services provided by local authorities but have limited control over the packaging that accompanies the products they purchase. Whilst we cannot precisely attribute the proportion of costs that are borne by producers at present^[29], packaging producers do not bear full financial responsibility for the of end-of-life management of the packaging they supply and import and are not accountable for the environmental externalities of their packaging as consistent with the ‘polluter pays’ principle^[30]. As a result, there is limited incentive for producers to consider the impact of disposing of the packaging they choose to use for their products at end of life.

32. Under packaging EPR, producers will become financially responsible for the costs of the collection and treatment of household packaging waste^[31]. This will therefore internalise some of the costs of dealing with packaging waste.

33. With the addition of modulated fees, producers will have further incentives to reduce the environmental impacts of their packaging. For example, producers will have a financial incentive to use less packaging, particularly unrecyclable or hard-to-recycle packaging, in order to improve how their packaging is managed at end of life and to minimise their costs. Where packaging is necessary there will be a financial incentive to make it easily recyclable. This will reduce the negative externalities associated with the production, use and disposal of packaging including natural resource depletion, wider ecosystem impacts associated with the production of raw materials and damage to eco-systems including leakage to the environment, greenhouse gas (GHG) emissions (from both production and disposing of packaging to landfill and incineration), and impacts on land use from landfill sites.

2.4 Poor quality of material for recycling

34. Contamination of materials (for example where unrecyclable materials are mixed in with recyclable materials) collected for recycling during the collection process reduces the value of the materials and results in a loss of material for recycling. Packaging EPR complements other policies, such as a Deposit Return Scheme for drinks packaging, as well as simpler recycling collections in England, which will lead to higher quality recyclate. Packaging EPR specifically, will incentivise producers to consider the design of their packaging and to reduce hard to recycle, or disruptive packaging materials.

2.5 Insufficient consumer information and confusion over what packaging items are recyclable

35. The current system has not encouraged producers or compliance schemes to educate and inform consumers, although a few have chosen to do so. This is because the costs of doing so would likely be borne by a few organisations, but the benefits could be felt by all. In essence, a “free rider” problem. However, to reach high levels of collection and recycling, consumer education and information must be prioritised and scaled up. The proposed changes will require obligated producers to fund national and local consumer communication and information campaigns that will support increased recycling, reuse, and the prevention of litter.

2.6 Lack of collection and sorting infrastructure and poorly developed markets

36. Some types of packaging are technically recyclable but are not recycled (or not widely recycled) due to limited provision of collection points, collection services, or a lack of sorting capacity to separate this packaging from other packaging types. This may either be because it is not cost effective to put those systems in place currently or because the full societal cost of the packaging is not reflected currently in decisions regarding its use.

37. Examples include food and drinks cartons which despite collection provision increasing in many parts of the UK are not always collected in a way that enables them to be separated for recycling or are not separated effectively from other types of card packaging to enable them to be recycled. Whilst some types of film and flexible plastic packaging are technically recyclable, the collection and sorting infrastructure is poorly developed and there is a lack of end markets for the recovered materials. Other types of flexible plastic packaging are not suited to mechanical recycling such as packaging that is made of more than one polymer.

38. Packaging EPR will incentivise obligated producers to choose to use packaging materials for which there is effective recycling infrastructure in place or provide a means by which new infrastructure is funded to increase the recycling rates of certain packaging if it is more cost effective to do so.

2.7 System-wide inefficiencies

39. There is a lack of shared objectives across the supply chain for long term transition towards more packaging waste being recycled; a failure to include and coordinate different actors in the supply chain; a lack of support to drive market demand for recycled materials; and insufficient mechanisms to deal with uncertainty and learning through innovation. We expect that packaging EPR will lead to packaging producers making their packaging more recyclable and easier for consumers to maximise their recycling. This will reduce collection and treatment costs to Local Authorities, thereby reducing packaging EPR fees they are obligated to cover. There is a need to improve the collection, sorting and reprocessing infrastructure across the whole system. This is unlikely to happen without government intervention because the costs associated with innovation and improving the flow of knowledge and technology between actors would need to be faced by individual businesses whilst the whole sector would enjoy the resulting benefit. Whilst we should assume that there will be some innovation amongst producers at present, as ultimately different actors in the supply chain still need to operate in a competitive marketplace, the current system does not drive the optimum level of innovation due to the potential for free riding.