Does the PRN system need a Compliance Fee?

Re-gen recycling

Joseph Doherty, Managing Director of Re-Gen Waste, asks whether the PRN system needs a Compliance Fee.

The PRN system was set up for two reasons: to record the amount of packaging being recycled and to incentivise recycling growth where it was needed to meet targets. As a market mechanism, it has been relatively successful although not without its problems.

Its volatility and annual nature have done little to encourage investment in UK reprocessing in the past. The result is that the majority of growth has been through exports as Far East markets have become more restrictive but that is changing.

Producers have been unable to budget with any reliability; it has had little impact on packaging design and minimisation, and high prices have led to fraud. Nevertheless, at times of shortage where the targets have seemed unattainable, PRN price escalation has led to targets being met.

This year has seen the highest level of overall PRN cost since the system started.

This year has seen the highest level of overall PRN cost since the system started. Current prices indicate a likely year-end cost of over £500m – dwarfing the previous peak costs of 2019 – and this has led to renewed calls for a price control mechanism.

At the recent RWM exhibition, Steve Gough, the CEO of Valpak, called for a Compliance Fee to ‘take the heat out of the PRN market’ and compared the packaging system to WEEE where a Compliance Fee has been in operation since 2014.

But it is widely acknowledged that the Compliance Fee has been responsible for WEEE targets not being met for several years. This is because it offers producers and their compliance schemes an easy way out of obtaining difficult – and therefore more expensive – tonnage.

Although the level of the WEEE Fee is not known until after the compliance year has ended, those that need evidence are prepared to take their ‘chance’ on the basis that the overall cost is unlikely to be more than physical WEEE collection.

In packaging, compliance schemes and producers have long been used to ensure cheap compliance. Compared to most of Europe, our free-market PRN system is amongst the cheapest for producers and even at current levels is still far cheaper than many EU countries.

It is only when PRN prices escalate that calls for a control mechanism are heard; never when cheap PRNs that undermine recycling growth are available.

Bales of aluminiumPRN value trickles down through the system to where it provides the most benefit. It helps investment in processing, access to markets that would otherwise be uneconomic, access to material that would otherwise be uneconomic to collect and, at higher values, encourages producers to consider packaging design and minimisation.

And let’s not forget that whilst current prices seem high, compared to the estimated annual £1.7 billion that producers will pay under the new EPR system from 2024/25, the 2022 cost to producers will be far less.

There must also be consideration of the mechanics of a Compliance Fee system. Who would set the fee levels for each material and what would be the pricing criteria? Who would collect the fee? What would it be used for? What would happen to redundant packaging waste if the PRNs weren’t needed?

Steve Gough talks about the need for a system that protects producers from unpredictable world events and cites the current energy crisis and the increased difficulty in finding export markets. But as a system of Producer Responsibility, it is surely down to compliance schemes and producers to support the development of sustainable markets and to move away from dependence on export markets.

For those involved in treatment and recycling, a Compliance Fee would undermine development and bring even more uncertainty into the market. If there is going to be ceiling protection for producer costs then surely there should be floor protection for recyclers as low PRN prices can have an equally disruptive impact on recycling as high PRN prices can have on producers.

Unlike the WEEE Fee, the Compliance Fee money must be ringfenced for the development of recycling growth

After all, the price charged by accredited re-processors and exporters is only part of the cost to producers as there are significant fees to manage the process for producers.

If the government is minded to consider a Compliance Fee then I would suggest that, unlike the WEEE Fee, the Packaging Fee must be set at a punitive level to ensure that producers and compliance schemes do not use it as an excuse to do nothing to increase recycling levels.

The fee must relate to the highest market price during the year to ensure that those that do make the effort are not disadvantaged by those that don’t make the effort. Unlike the WEEE Fee, the Compliance Fee money must be ringfenced for the development of recycling growth.

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