Ecosurety response to the 2022 Reforms to the PRN and PERN system and operator approval consultation

Introduction

The current producer responsibility system for packaging – also known as the PRN system – does not fully recover the costs of managing packaging waste from producers. Instead, producers fund a proportion of recycling costs by buying recycling evidence via Packaging Waste Recovery Notes (PRNs) or Packaging Waste Recovery Export Notes (PERNs).

Government intends to introduce Extended Producer Responsibility (EPR) for packaging waste from households and street bins in 2024, and key decisions surrounding this were published on 26 March 2022, alongside a new PRN consultation summarised in this article.

The publications outlined that the PRN system will continue to run alongside EPR as an interim solution for all packaging waste types, with some modifications. This is because a viable solution for producer payments for non-household waste packaging could not be developed.

Additionally, many responders to the EPR consultation in 2019 felt there would “be issues in not continuing with the existing PRN/PERN system until a new, comprehensive payment mechanism could be put in place”.

Key information

The PRN consultation impacts all UK administrations - England, Wales, Scotland and Northern Ireland.

The deadline for consultation responses is 21 May 2022.

You can view the original Consultation on Reforms to the Packaging Waste Recycling Note (PRN) and Packaging Waste Export Recycling Note (PERN) System and Operator Approval by clicking here, which contains the questions referenced below.

Watch video

In addition to the guidance below, you can also watch a video of a webinar recorded on 11 May 2022, presented by policy advisor Louisa Goodfellow and Innovation and policy director Robbie Staniforth to walk through the Ecosurtey consultation response, including a Q&A at the end.

General comments on the consultation

Ecosurety agrees with the broad aims of this consultation and believe many of the suggestions to be sensible ones, that will improve both accountability and transparency in the PRN system for its duration. We are pleased to see practical solutions outlined that have been developed in conversation with industry and stakeholders.

With this said, there are two key areas where we feel there has been a missed opportunity for improvement. The first of these is that only minimal new requirements will be put on the export market, and that there are no direct policy proposals to improve and stimulate domestic reprocessing infrastructure. Although the difficulties of regulating overseas waste treatment are obvious, there is a long-term disparity of standards between operators who export, and those that process waste in the UK.

Secondly, we believe there is an absence of recognition in the proposals that dedicated funding support is needed to ensure the environmental regulators can comprehensively ensure compliance. Current lack of resource in this area means bad operators are still a significant problem in the PRN/PERN system.

Producer Compliance Schemes (PCS) can play a part in identifying areas of non-compliance but, similar to suggestions proposed in Defra’s recent consultation on Mandatory Digital Waste Tracking, a discreet enforcement funding stream – either from government or via producer responsibility arrangements – should be developed.

This article outlines our consultation response which we openly shared ahead of the consultation deadline to encourage other people to use it for their own response, if they were aligned with our views. We hope this encouraged wider participation to the consultation to maximise representativity of each stakeholder group. Please note that we only responded to the questions that were relevant for us to feedback on.

The Ecosurety response

Data reporting

Question 5: Do you agree or disagree with the introduction of mandatory monthly reporting for reprocessing/export data?

Ecosurety response: Agree

Ecosurety comments: More frequent reporting of reprocessing and export data will be valuable, in that it may help reduce market fluctuations throughout the year.

However, to resolve market issues caused by PRN/PERN supply data, the most important action that can be taken is to ensure that reprocessors/exporters report on time. Deadlines continue to be missed on the current quarterly basis, so ensuring compliance with adequate enforcement is the priority.

Missing data leads to greater market speculation and volatility in prices caused solely by the supply vs demand nature of the PRN/PERN market.

Question 6: Do you agree or disagree with the introduction of mandatory monthly reporting of PRN/PERN prices and revenue data?

Ecosurety response: Neither agree or disagree

Ecosurety comments: While we do agree that the information being submitted to increase transparency, we do not agree with the frequency outlined.

The information is solely useful to the scheme administrator/central body/market regulator to monitor the proper functioning of the marketplace and provide reassurance to producers.

We anticipate that the information will not be particularly useful to operators in the PRN/PERN market as it will need to be so aggregated due to competition issues that it will not provide much insight. Therefore, we recommend that this information is only collected on a bi-annual basis as it may be overly burdensome, particularly for small reprocessors/exporters.

It must be ensured that competition law is not infringed upon in the publication of this data and that a situation is not created whereby producers, PCS and reprocessors could start identifying individual price points. If reporting was performed twice yearly, it should be underpinned by appropriate enforcement. Bi-annual reporting would align with new requirements for biannual reporting for producers under EPR for packaging reforms.

Therefore, a good picture of the market can be aggregated and disseminated to actors on a six-monthly basis. This would have the intended outcomes without creating unnecessary administrative burdens.

Read more about the data reporting proposals in the consultation document

Revenue reporting

Question 7: Do you agree or disagree with the proposed approach to revenue reporting for reprocessors and exporters?

Ecosurety response: Agree

Ecosurety comments: Aggregated and anonymised information of this sort could not be used to create a commercial negotiation point or provide a mechanism to improve transparency, but could be useful to gain an accurate picture for future areas that need industry investment.

However, we foresee issues in ensuring revenue reporting accuracy, as it would be impossible to evidence spending allocations are accurate. Moreover, the granularity of data required may provide a false sense of accuracy where in fact it is essentially unevidenced.

An annual, industry-wide summary would be beneficial as a benchmark for the UK’s reprocessing industry. We envisage that the scheme administrator/central body/market regulator will make regular assessments of the PRN/PERN marketplace, including PRN/PERN revenue expenditure through other means.

Question 8: Please suggest any other categories/sub-categories that you think should be included

Ecosurety response: N/A

Read more about the revenue reporting proposals here

Timeframes

Question 9: Do you agree or disagree with the proposal to reduce the timescale over which PRNs/PERNs can be traded?

Ecosurety response: Disagree

Ecosurety comments: We agree with the benefits associated with trading PRN/PERNs quickly, and the issues that arise when they are withheld. Although this solution would likely smooth market fluctuations, it would also cause issues.

If deadlines are not adhered to, this would essentially create a backlog of untradable PRNs. This may in turn cause problems associated with a lack of evidence later in the compliance year, and in turn decrease opportunities to achieve recycling targets, potentially caused further volatility.

From experience, evidence and available material necessarily fluctuate throughout the year owing to a number of factors (seasonality, supply etc). We’ve also seen in recent years that supply and demand can change dramatically. It would therefore be costly and problematic for producers if PRN/PERNs weren’t available at a given point in the year due to being untradeable or unavailable.

Question 10: Do you agree or disagree that there should be a mechanism for extending the compliance period for the trading of PRNs/PERNs?

Ecosurety response: Agree

Ecosurety comments: This mechanism has the greatest benefit, with the least risk of those proposed. We know how the “dual year market” works in December and can predict the consequences of introducing a “dual year” option for January.

Furthermore, this mechanism would ensure that “real recycling” contributes to meeting the target, rather than other options, such as, a compliance mechanism/fee.

Question 11: Please provide details of the conditions or criteria you think would be appropriate to trigger an extension of the compliance period.

Ecosurety comments: A “carry over, carry forward” system would ensure more flexibility at the end of the compliance year, and in turn ensure large fluctuations around this time are not extreme. It should be available every year (as it currently is for December).

Question 12: Do you agree or disagree with the proposal to increase the timescale over which PRNs/PERNs can be traded to a multi-year or rolling system?

Ecosurety response: Disagree

Ecosurety comments: While there may be some benefit to smoothing the peak and troughs of annual data, we believe that most packaging by nature is short-life. Therefore, packaging arises as a secondary resource frequently enough to employ an annual system. In fact, should technology allow in future, we recommend that packaging producer responsibility move closer to real-time, rather than the multi-year/rolling system outlined in this proposal.

Question 13: Which approach do you believe is the most suitable for addressing the issues of price volatility in the PRN/PERN market?

Ecosurety response: Option 2 – Extending the flexibility of the compliance year.

Read more about the timeframe proposals here

Interface with the Deposit Return Scheme (DRS)

Question 14: Do you think that the issuing of PRNs/PERNs on DRS materials that remain in kerbside collections would have an impact on the PRN/PERN market? If yes, what impact would this have, and if no, why not?

Ecosurety response: Yes

Ecosurety comments: In-scope DRS material will remain, logistically, the easiest for local authorities to collect and it is impossible that the deposit return system will attain 100% capture rate.

DRS material in England – PET plastic and aluminium – are easily recyclable and therefore will to some degree have PRN/PERNs raised against them.

Question 15: Do you agree with a sampling and modelling approach?

Ecosurety response: Unsure

Ecosurety comments: Further detail required.

Question 16: Do you think reprocessors and exporters will be able to differentiate between DRS and EPR packaging materials in issuing evidence?

Ecosurety response: Disagree

Ecosurety comments: Reprocessors and exporters do not have the capacity to identify DRS material by individual labels, which would be the only way to do so.

It would be impractical to implement the same marking technology in all household packaging waste Material Recycling Facilities (MRFs), as that used in the Reverse Vending Machine (RVM) system.

Question 17: Which of the above options do you prefer?

Ecosurety response: Option 2 - Place a recycling obligation on DRS producers for packaging waste that is in scope of the DRS, but not collected by the Deposit Management Organisations (DMOs).

Question 18: Do you think there will be any issues in the practical implementation of Options 1, 2 and 3?

Ecosurety response: Yes

Ecosurety comments: Ecosurety believe option 1 would be the best solution, but do not believe there is a viable mechanism available to ensure material is separated. Therefore, due to the practical difficulties we do not believe option 1 is viable.

The next available option then is 2, as it is a fairer approach than option 3, as it obligates the correct producer-group for the material. Option 3 would effectively make producers responsible for a category of packaging, they may not place onto the market.

If 80% of the DRS collections were achieved by the DMO, then the organisation would be obliged to purchase the remaining 20% worth of PRN/PERNs to ensure 100% coverage.

The DRS DMO will need to work closely with the EPR scheme administrator to ensure that option 2 does not cause DRS producers to “pay twice” for the same material. Effectively, DRS producers need to pay a lower fee to the DMO, proportionate to the amount of material that is collected from kerbside, rather than RVM/manual takeback.

Read more about the interface with the DRS proposals here

New operator competence tests for compliance schemes, reprocessors and exporters

Question 19: Do you agree or disagree with the introduction of an operator competence test for compliance schemes?

Ecosurety response: Agree

Ecosurety comments: We believe a high bar must be set to operate in the PRN/PERN system. Moreover, we believe PRN traders require proper market regulation by the Financial Conduct Authority to ensure fit and proper conduct.

Question 20: Do you agree or disagree with the introduction of an operator competence test for accredited reprocessors and exporters?

Ecosurety response: Agree

Read more about the new operator competence test proposals here

Call for evidence on a potential compliance fee

Question 21: Do you agree or disagree with the introduction of a compliance fee for producers who do not obtain sufficient PRNs/PERNs to meet their obligations?

Ecosurety response: Agree

Ecosurety comments: We believe the legislative basis for a compliance fee for packaging should be put in place.

Unlike the compliance fee for the WEEE system, there should be provisions that a compliance fee is only used in very particularly circumstances – such as that of market failure or very large price increases. We do not think it should be used regularly, and should only be used as a backstop.

Furthermore, unlike the WEEE compliance fee, the funding recipient should be the Scheme Administrator. This will ensure monies raised is hypothecated for UK collection and reprocessing infrastructure.

We believe that only the “ability for the secretary of state to grant a compliance fee” needs to be set in regulation at this point. It then gives adequate power to take action to ensure compliance if/when changes take place following commencement of the new EPR system.

Question 22: Do you think the introduction of a compliance fee would still be necessary in addition to the proposals (outlined in Section 2.2) to address the issues around price volatility?

Ecosurety response: Yes

Ecosurety comments: It is less likely to be used, which is very positive. However, we still recommend that the legislative power is given to the Secretary of State in regulation as there may be, as yet, unknown/unquantified impacts when the regulatory system changes.

Furthermore, it is difficult to make an accurate assessment of the recycling targets proposed due to the vast change in how they are calculated and what material counts towards them. All of this uncertainty leads to the conclusion that the power should be granted, but hopefully never used.

Read more about the compliance fee proposals here

Conclusion

It is critical that all views are evenly represented and considered and we encourage all stakeholders of the PRN/PERN system, including packaging producers and reprocessors, to respond to government about the proposed measures.

If you have any questions relating to the government proposals and consultation, please contact your account manager directly or call us on 0333 4330 370 or email info@ecosurety.com.

Related knowledge

You may also find these related articles useful:

2022 consultation on reforms to the PRN/PERN system and operator approvals - essential summary

Government response to the packaging EPR consultation - essential summary