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‘Plastic Polluters’ Pay £300 Million

The doctrine of ‘Polluter Pays’ has been visited with a vengeance during 2019 on all those companies involved in the plastic packaging supply chain. The vehicle which has been used for extracting some £300M in taxes from the plastic packaging supply sector is the Governments implementation of the EU’s packaging waste directive. The UK use of Packaging Recovery Notes (PRN) to comply with this directive.

As a consequence, packaging suppliers are legally obliged to purchase the requisite number of PRN’s to prove that their allocated percentage of waste generated has been legitimately recycled. At first glance this looks a laudable ambition on which the EU and the UK Government should be congratulated.

However, as in many of these well-meaning schemes, there lurks the Law of Unintended Consequences. In this particular case it was triggered in 2018 when China decided to ban the import of plastic waste. As the cost of a PRN is determined by supply and demand, the effect on plastic waste disposal costs can be seen below; costs soared as plastic waste exporters searched desperately for alternative markets.

PRN Prices 2019 Paper Glass Aluminium Steel Plastic Wood
Q1 £20 £35 £65 £25 £85 £65
Q2 £17.50 £30 £35 £20 £149 £55
Q3 £16.50 £22 £145 £22.50 £295 £18
Q4 £9.80 £18 £510 £14.50 £628 £5
Average 2019 £15.95 £26.25 £198.75 £20.50 £289 £35

As Paper, Glass and Wood are all ahead of their targeted annual recycling, targets for their PRN prices have fallen significantly. However, Aluminium and Plastic have yet to reach their recycling target of 55%, thus fuelling demand for PRN’s for the second half of the year. As a consequence, the costs of PRN’s have increased dramatically and, in the case of plastic, by some 600%, January to December.

As the total UK recycling obligation for plastic packaging in 2019 is around 1.1Million tonnes, then this waste disposal tax will cost OVER £300 Million in one year. Compare this with 2018 when the total cost of plastic PRN’s was some £68 Million and we can get some idea of the potential financial impact of these costs increases on the supply chain, particularly the £628 for quarter 4, which will mean a total cost of over £160 Million in the final quarter alone.

Who Pays?

The costs of this tax are distributed across the plastic packaging supply chain as follows;

Manufacturer Convertor Packer Filled Seller (S/Mkts)
6% 9% 37% 48%

This is where the ‘UK Law of Unintended Consequences’ really kicks in.

The food manufacturers / retailers are forced to accept a cost increase of some £200 Million. The logical response to this extra cost is to change their current packaging material to alternative packaging materials such as paper / glass / compostables.

Whilst this may save them £Millions in tax, the unfortunate consequence of such changes would be;

  1. They will generate more food waste
  2. They will generate more CO2 emissions from alternative material manufacture
  3. They will use more of the Earth’s resources by changing from plastic
  4. They will add significantly to the numbers of lorries on our roads due to the extra weight of alternatives

All of these changes simply add up to more CO2 and more climate change. However, in the current climate of negative media publicity about plastic, plus the extra cost, who can blame them?

I asked one of our Supermarket friends, ‘Why are you not complaining?’ and was told (in confidence) that their Corporate Responsibility Department would not let them be seen as ‘Plastic Defenders!’

But who gets the £300 Million?

Since the introduction of PRN’s some 10 years ago, it is estimated some £2 Billion has been raised from their sale. This money has allegedly gone to recyclers and exporters for investment in packaging waste recycling. These companies are obliged to annually notify the Environment Agency as to how they spent the money. Categories, such as collection sorting, recycling, Capex and Future Investments! are used. As monitors of expenditure, all these companies have E.A Registration and are allegedly checked for compliance. However, as the recent BBC programme ‘War on Plastic’ highlighted. These checks have not been carried out and thousands of tonnes of our plastic waste is simply dumped in Asia.

As for expenditure on infrastructure for plastic recycling, this has been conspicuous by its absence. We recently met a company, ‘Recycling Technologies’ (there are others), that can recycle plastic back to oil using Pyrolysis. The resultant oil is high value and readily saleable. Their plants can recycle any type of plastic and can be assembled in a few months at any waste site for a cost around £7M per unit. Meanwhile, Preston Plastics are installing another OPP recycling plant for under £2 Million. These plants are not high cost.

So, to put this in context plastic PRN’s will generate over £160 Million in quarter 4 2019. If the government were really serious about plastic recycling, rather than discourage the use of essential plastic packaging by imposing next year’s plastic tax why don’t they ensure the PRN revenues already being paid by the plastic packaging supply chain are actually spent on new mechanical and chemical plastic recycling? This would benefit the environment as well as the customers of the food supply industry.

Hopefully these problems will be addressed in the proposed 2020 extended Producer Obligations, but I very much doubt it.

As ever I welcome your views on any of the points made and why not join me on LinkedIn for more regular contact. https://www.linkedin.com/in/barry-twigg-3a440b53/

#DontHatePlastic

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