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

4.0 Options

45. The options considered are:

• Baseline. No policy change: continuation of the existing packaging producer responsibility regime in its current form, adjusted for the introduction of DRS in Scotland (and subsequently for the different DRS in England, Wales and Northern Ireland).
• Option 1. Packaging EPR scheme: Reform the packaging producer responsibility system such that producers pay the full net cost of collection and end-of-life treatment of packaging from households (Kerbside and Household Waste and Recycling Centres (HWRC)). Introduce modulated fees on packaging, and retention of the PRN system. This is assumed to incentivise the correct behaviours by producers and consumers to deliver the policy objectives. This is the preferred option.

46. Since publication of the last packaging EPR Defra and Scottish IA, there have been notable changes on the preferred option, these are listed below:

• Implementation date: As per the 2023 Collection and Packaging reforms reset, this impact assessment is presented with the new implementation date of 2025.
• Reduction of packaging EPR scope: Since the last published Scottish and UK IA, some components of the Statutory Instrument (SI) supporting packaging EPR needed to be removed and delivered separately in order to focus on delivery for the planned implementation year without imposing any further delay. As a result, three of the functions from the last preferred option which were considered have been stripped from the cost benefits analysis; mandatory recyclability labelling, mandatory takeback of fibre-based composite cups, and binned packaging waste clean-up costs.
• Updated input data: Updating the packaging input data using the Packflow 2023^[34] report data (year reporting, 2022) from previously 2019 reporting years. This has had a reasonably big impact on the modelling due to the changes in trends since the 2019 data^[35]. The report shows that, for most materials, amount of total packaging placed on the market (POM) has decreased, and relative increases in material recycling rates have impacted the amount of additional recycling from packaging EPR.
• Reduction in number of MF facilities: In line with the de minimis assessment produced last year for the supporting Material Facilities SI, Defra have updated the central analysis to include the revised down facility estimates in scope, using submitted Devolved Administration data. Note, MF costs in the Defra Impact Assessment have been removed from the EANDCB, as they are introduced under separate regulations. They are shown in the central case for full transparency.

4.1 Approach to modelling

47. As packaging EPR is a joint legislation between the four nations of the UK, the economic modelling in this BRIA is fully informed by the modelling provided to the Scottish Government by Defra, which estimates the net present value (NPV) between the baseline/do-nothing scenario and the implementation of packaging EPR.

48. Estimations of costs and benefits will therefore be scaled to Scotland based on a population share of the UK. While this will not be wholly representative of the share of costs and benefits between actors in Scotland (producers, materials facilities, central and local government etc.), this will provide a broadly correct estimate, and avoid potential complications from utilising a range of proxies that would not sum to the correct overall results given by the model.

49. One important adjustment however has been made to better account for the reality of packaging EPR in Scotland. Defra’s model has applied an uplift to recycling rates in the baseline scenario based upon implementation of Simpler Recycling^[36], which aims to simplify local authority recyclate collection systems in England to achieve higher recycling rates. While this specific policy will not be implemented in Scotland, the Circular Economy (Scotland) Act 2024 includes proposals to co-design a statutory Code of Practice for service provision which, as outlined in the Circular Economy and Waste Route Map, will develop high-performing services, resulting in improvements to data and reporting by local government, as well as mandatory recycling and reuse targets. However, these proposals are in early stages of development and will require further analysis as measures are developed to understand the impact. We have therefore removed the baseline recycling rate improvement attributed to Simpler Recycling in the UK IA. The effect of this adjustment will be to lower the baseline recycling rates, which may therefore provide a higher relative benefit of implementation of packaging EPR on a unit basis. Such caveats will be noted throughout.

50. Since the 2022 final stage impact assessment from Defra, the evidence base and subsequent analysis has been significantly expanded. Additional pieces of analysis of particular note are:

• estimates of the impact of Covid-19 on the production and consumption of packaging;
• assessment of the impact of packaging EPR on consumer prices;
• estimates of obligated producers – including online marketplaces;
• monitoring and enforcement costs; and
• familiarisation costs to all businesses impacted.

4.2 Sectors and groups affected

51. It is assumed that packaging EPR will affect the following stakeholder groups:

• raw material manufacturers;
• packaging designers;
• packaging manufacturers or converters;
• product manufacturers or pack fillers;
• distributors;
• retailers (food and non-food);
• wholesalers;
• waste management organisations; brokers; exporters;
• reprocessors;
• brand owners;
• importers;
• third sector organisations, including public interest groups;
• Scottish Government;
• local authorities;
• regulators; and
• consumers.

4.3 No policy change – business as usual

52. This is the baseline against which the costs and benefits of packaging EPR are compared. In the baseline it is assumed that there will be no reform to current packaging regulations. It is therefore assumed that producers would continue to be required to obtain evidence, in the form of PRN/PERNs, to demonstrate that they have met their recycling obligations. Future PRN/PERN prices are not forecasted, but there are assumptions about the cost to producers of meeting these obligations, which are detailed below.

53. Defra’s model has been altered to exclude the impacts of Simpler Recycling, which is applicable to collections in England only, and assumed to be implemented in 2026.

54. The baseline accounts for the introduction of a Deposit Return Scheme (DRS) for drinks containers. It is assumed that a PET, aluminium and steel drinks container Deposit Return Scheme will be introduced in England, Northern Ireland, and Scotland in October 2027. The cost attached to any DRS materials collected via household or other business collection services will be a matter for the DRS Deposit Management Organisation. packaging EPR obligated producers will not be expected to pay for the costs of collecting DRS materials not returned to designated DRS collection points.

55. In anticipation of policy implementation, it is expected that some packaging will switch from harder to recycle (or non-recyclable) packaging material types to more recyclable packaging material types in anticipation of the policy pre-2025, due to the Government’s announcement of its intention to reform packaging producer responsibility policy combined with voluntary initiatives by industry such as the UK Plastics Pact. These switches have been accounted for in the baseline modelling.

56. In the previous Defra IA, UK placed on the market (POM) packaging data was taken from 2019. Since this initial IA, updated data has been published to account for the impacts of Covid-19 lockdowns, and the eventual ending of restrictions in future years. These updated assumptions have been reflected in the new modelling. As such, the current model used to inform costs and benefits for this BRIA is based on Defra-commissioned 2023 data.

57. The key benefit of this data, taken from updated material specific PackFlow 2023 reports, is that they account for packaging supplied by currently unobligated businesses not captured in the National Packaging Waste Database (NPWD).

58. The data is also granular enough to provide a detailed breakdown of POM for each material type by packaging format and polymer (for plastic). This is important for calculating the impact of modulated fees on individual packaging types. As, for example, different plastic polymers can impact recyclability.

59. According to a report from Eunomia^[37], the use of some plastic polymers is expected to reduce significantly before 2025, which has been captured in the baseline scenario. It is expected that some of this material switching will be attributable to producers starting to respond to anticipated packaging EPR measures and some will be attributable to other incentives, including the WRAP-led UK Plastics Pact^[38] and other independent business initiatives. Without robust data on the extent to which these switches will take place, assumptions were informed by WRAP expert judgement and trends emerging from the UK Plastics Pact.

60. It is assumed that all non-recycled packaging waste is collected as residual waste and sent to landfill or Energy from Waste (EfW). This is calculated by subtracting the recycling tonnage from the POM tonnage for each material.

4.4 Option 1. Packaging EPR fees for packaging waste collected from households, modulated fees, and retention of recycling obligations and the PRN system

61. Option 1 is to reform the packaging producer responsibility system. The principal change in this option will see the requirement placed on producers to take financial responsibility for the net costs of managing packaging they supply and import which arises as waste in households and Household Waste Recycling Centres (HWRCs), and the introduction of modulated fees. Modulated fees are the mechanism by which those costs are recovered from producers and the costs vary to reflect the environmental sustainability of the packaging and associated criteria, such as the recyclability of the packaging. The IA quantifies these changes for all packaging materials in scope by using a model developed by Eunomia on behalf of Defra. The results of this model have been scaled using a population share of Scotland relative to the whole of the UK, with the exclusion of Simpler Recycling in the baseline as stated above.

62. The 2019 and 2021 packaging EPR consultations, also set out options for introducing payments to cover household-like packaging collected for recycling from businesses. Stakeholders raised concerns about the options in the consultation relating to the complexity and value for money of introducing a new payment mechanism, given that obligated sectors already bear much of this cost, and the potential for fraud in the system. Government has decided to prioritise introducing payments to cover household packaging waste collected from households by local authorities, as soon as possible. As an interim measure, producers will still be required to obtain recycling evidence (PRN/PERNs) to demonstrate they have met their recycling obligations on all packaging.

63. These measures will be complemented by producer funded local and nation-based communications and education initiatives to advise consumers on how to recycle their packaging and the consequences of making the wrong disposal choices. These costs will be included in the fees paid by producers.

64. The consultation BRIA contained two potential approaches to the administration and governance of packaging EPR, various compliance schemes and a Scheme Administrator (SA), or a single Scheme Administrator; the former approach will be taken forward. Producers will retain the choice of whether to join a compliance scheme or manage their own compliance directly. The use of compliance schemes by producers is reflected in the baseline and option 1.

65. An SA will be appointed to manage producers’ obligations where fees are required for the management of household packaging waste to support local authorities for the provision of efficient and effective services. Producers therefore supplying or importing household packaging that is expected to end up in household waste, will register with this SA.

66. SEPA will be responsible for monitoring and enforcing compliance activities on part of these obligated producers

4.5 De minimis and point of compliance

67. The proposed de minimis for fully obligated producers under packaging EPR will be set at a turnover of more than £2 million a year and a tonnage of a least 50 tonnes. As such, the de minimis for fully obligated producers under these measures is remaining unchanged. There will however now be a single point of compliance for any piece of packaging and for complying with recycling obligations. This will mainly fall on brand owners, a new category of producer. Despite this change, many producers will still retain an obligation. Given this, the modelling has assumed that the overall number of obligated producers remains unchanged. A completely new class of producers will also become obligated, that being online marketplaces.

68. Defra modelling has assumed that this will add around 46 additional producers, based on a search of online marketplaces which sell to the UK market^[39]. We can assume that all of these online marketplaces will apply to Scotland as well as the rest of the UK nations. The de minimis threshold for the modelling for online marketplaces has been based on those with more than 300,000 monthly site visits.

69. This closes a regulatory loophole whereby overseas packaged products sold through online marketplaces are not captured under the current producer responsibility scheme. It is recognised however that this may not bring all businesses into scope and will need to be reviewed once packaging EPR is operational.

70. There will also be a new ‘lower’ de minimis threshold for data reporting requirements, based on producers with a turnover of more than £1 million a year and supply at least 25 tonnes of packaging in the previous year. While not obligated to cover disposal costs, these producers will be liable to report data on the amount and types of packaging supplied and imported.

71. A combination of Defra-commissioned research and other sources has provided a central estimate of close to 3,100 producers obligated for data reporting only.

72. The number of packaging producers currently obligated in Scotland can be sourced from the NPWD by searching for those registered with SEPA only^[40]. In 2020, 992 producers were registered with SEPA. This results in a proportion of 13.7% packaging producers registered in Scotland relative to the rest of the UK. This proportion is applied to the central and high estimate of newly obligated producers for data reporting only. The results of these adjustments are shown below in Table 1:

73. It is important to note that these producer estimates for Scotland are not used to inform later estimates of costs and benefits, as they would not correctly feed into the overall calculation of NPV. These are for indicative reading only of how many producers in Scotland are likely to be impacted upon implementation of packaging EPR.

4.6 Projected POM and recycling rates

74. It is assumed that producers will switch some packaging to more recyclable equivalents in anticipation of modulated fees. It is therefore assumed that black plastic PTTs will be completely phased out by 2025 under option 1. In addition to this, it is assumed that 50% of the 2017 tonnage of household PVC and PS PPTs will be replaced by more recyclable polymer alternatives (PET, PP and HDPE) by 2025^[41]. These switches are assumed to occur according to a linear trend over this period. The overall tonnage of plastic packaging is not expected to be impacted by these assumptions, rather the composition of plastic polymer types.

75. Not all pre-packaging EPR material switches can be attributed to packaging EPR. As such, the central scenario assumes that 50% of switches and associated benefits are caused by packaging EPR. The net impact on the NPV from these substitution effects is estimated to be small in comparison to those directly resulting from packaging EPR implementation in April 2025.

76. The primary behaviour change mechanism for producers is expected to be from the introduction of modulated fees, which are only applied to household packaging. There may however be some spillover between this and NHM (non-household municipal)/household-like packaging. Indicative fee levels and the likely impacts on producers’ behaviour and recycling rates was modelled by Eunomia^[42], which was applied to the modelling to quantify impacts. The level of fees is modulated based on recyclability, based on the recycling rate of the packaging. The preferred method for fee modulation in practice however will be decision for the Scheme Administrator.

77. Since the second packaging EPR consultation there has been engagement with industry on the approach to modulated fees, and there has been further research on international examples. For materials that warranty higher fees based on low recyclability, Defra has publicly engaged with industry stakeholders at public events. Estimations of future costs are based on INCPEN advice that it could take two or more years for producers to implement from the point the modulated fee approach is known, as major investment requires careful consideration. Once these are known, producers are likely to respond immediately to minimize future costs. Producers will be incentivised to reduce costs as quickly as possible as they know their competitors will be doing the same. For example, when the Plastic Packaging Tax was introduced at £200 per tonne for packaging components which contain less than 30% recycled material, producers began immediately and, in some cases, pre-emptively before the cost was confirmed in legislation.

78. Based on these factors, modelled impacts are estimated to be an accurate representation of producer decision making. Some positive changes will occur without the implementation of packaging EPR, and option 1 captures the additional change directly due to packaging EPR only. The introduction of modulated fees is seen as necessary for maximising the impact of packaging EPR.

79. All material types are expected to see some increase in recycling rates due to increases in collection and shift over time towards easier to recycle materials.

80. This option would meet policy objectives, as it would drive the increased recyclability of packaging and increased recycling of packaging waste, as well as reducing packaging as a component of residual waste.

4.7 Costs and benefits of packaging EPR

81. The structure of monetised costs in Defra’s IA is given as follows:

• Costs to producers
  • Producer Compliance costs
    • Cost of purchasing PRNs
    • Net cost of Household Packaging Waste Collection and Management
    • HWRC packaging costs
    • Data reporting costs
    • Familiarisation costs
    • Monitoring and Enforcement costs
    • Scheme Administrator costs
    • IT Investment costs
    • Communications campaigns
• Costs to Materials Facilities
  • Capital costs
  • Operational costs
  • Familiarisation costs
  • Enforcement costs
• Costs to Reprocessors
  • Accreditation costs
  • Mandatory reporting costs
  • Familiarisation costs
  • Enforcement costs
• Costs to the Public Sector
  • Loss of landfill tax
  • IT investment costs

82. The structure of monetised benefits in Defra’s IA is also:

• Public sector benefits
  • Household Packaging Waste Collection and Management cost saving
  • HWRC savings
  • IT Investment Cost Recovery
• Benefits to producers
  • Household collection efficiency savings
• Benefits to reprocessors
  • Secondary market material revenue
• Benefits to society
  • Greenhouse gas savings

83. For a detailed explanation of the methodology behind the calculation of these individual cost and benefit components, please refer to Defra’s IA. The important factor to remember is that Simpler Recycling has been removed, so the costs of packaging EPR for Scotland will be different compared to the original IA for the UK.

84. The calculation of household packaging waste kerbside collection and end-of-life treatment (residual and recycling) costs warrant particular attention. Within the 2021 consultation IA, England estimates were scaled up to estimate total UK costs. Since then, analysts from Zero Waste Scotland worked with WRAP and Defra to estimate specific costs for Scotland. These costs, therefore take account of specific regional differences in collection costs (such as rurality). These costs form an important component of producer compliance costs, so the inclusion of Scottish-specific data is of great benefit. Details of how this was incorporated to the overall cost-benefit analysis are set out in Annex A.

85. The summary of the costs and benefits attributable to Scotland is based on a population share of the rest of the UK^[43] at 8.06%. These results are presented below in Table 2:

86. Producers cover the cost of household packaging waste management (£894.1m), administrative and regulatory costs including transition familiarisation costs (£44.0m); materials facilities will face additional sampling and compositional costs (£2.1m); reprocessor and exporters will face additional reporting costs (£0.4m); and the public sector will face loss of landfill tax revenue and incur IT investment costs(£8.4m).

87. Potential cost pass through from producers to consumers is not considered in the cost-benefit analysis, rather within the wider impacts (these costs are ascribed to businesses in the cost-benefit analysis).

88. Local authorities will benefit from a transfer of costs for the collection, sorting, treatment, and disposal of household packaging waste to producers (£894.1m); the recycling industry will benefit from additional material sales by reprocessing (£3.7m); producers will benefit from avoided residual disposal costs from diverting household packaging waste from incineration and landfill treatment into recycling, including landfill tax savings (£15.5m); society will benefit from avoided greenhouse gas emissions from diverting waste from landfill and incineration into recycling (£14.5m); and government will be able to recover the build of the Scheme Administrator IT systems through fees (£16.2m).

89. There are also some key non-monetised benefits by affected main groups which are of note. The domestic reprocessing market may benefit due to more material being recycled in Scotland. There may be natural capital benefits from reduced reliance on virgin materials and a reduction in the amount of waste sent to landfill and incineration. There are benefits to consumers from communications on how to recycle and dispose of household packaging waste. This results in environmental benefits from reduced greenhouse gas emissions. There are also several system-wide benefits including increased transparency in the system.

90. The ultimate impact of modulated fees on recycling rates will depend on decisions taken by the Scheme Administrator, and the subsequent decisions of producers. The modelling outputs may therefore not reflect the final approach to modulated fees. Modelling is a simplistic representation of the decisions made by producers under this scenario. The three key outcomes that could be influenced by the impact of modulated fees on recycling rates are;

• overall packaging recycling rates;
• greenhouse gas emissions; and
• household packaging collection and end-of-life management costs.

91. To account for this uncertainty, Defra has conducted sensitivity analysis to understand the impact on the outcomes of the policy should the impacts of modulated fees differ from those estimated for the analysis. Please refer to the Defra IA for a full explanation of this process.