This article is the first in a series seeking to inform how the regulatory environment is shaping the plastics industry. We start with a review of Extended Producer Responsibility for packaging, a policy which we expect will cover the majority of US states this decade. The article aims to clarify the main aspects of the policy instrument and its implications for manufacturers.
Extended producer responsibility (EPR) legislation for packaging is gaining momentum, globally and in the US.
First introduced over three decades ago, EPR is becoming a critical policy instrument to help address plastic waste. Currently, over 70 countries have some form of plastic packaging EPR system in place or under development globally, including 26 of the 28 European Union member states. In the US, to date, four states (Maine, Oregon, Colorado and California) have adopted EPR laws for packaging. An additional 11 states proposed EPR legislation in 2023, including three states (New Jersey, Washington, and Connecticut) that have mandated minimum PCR content requirements for packaging. The current legislative momentum will be further bolstered and catalyzed by the Global Plastics Treaty which is supported by 175 nations including the US. The Global Treaty - slated to be adopted in 2025 - is expected to mandate establishing EPR systems, making producers and importers accountable for plastic pollution across international supply chains.
What is EPR and how does it work? – EPR is a mandatory, fee-based scheme, in which all industry players introducing plastics, and in particular packaging, to the market provide funding dedicated to collecting, and processing their packaging after use. Companies either fulfill their responsibility individually or collectively (most common), through a third-party Producer Responsibility Organization (PRO). The process of collection, sorting, and recycling plastic packaging generally costs more than the revenues made from selling the recycled materials. Applying the “Polluter pays principle,” EPR schemes deliver dedicated, ongoing and sufficient funding for end-of-life (EOL) management of these materials.
Most EPR for packaging programs involve brands and retailers, through their PROs, reimbursing municipalities for the costs of collecting and processing recyclables, or contracting with private companies to provide these services. Collectors gather materials from households or drop-off points and deliver to a Materials Recovery Facilities (MRF). MRF operators sort the materials and sell them to recyclers.
The landscape of EPR schemes is complex and constantly evolving.
Variations across EPR schemes make it difficult for producers to understand their obligations, including what data they need to track and submit to calculate compliance costs. Even within the EU, significant variations exist across countries, not only with respect to fee levels (e.g., the material-specific rate for rigid polystyrene was €0.44/kg in France versus €0.67/kg in Belgium in 2022) but also fee structures. Different criteria come into play - or not - in the overall calculation of compliance costs. Below are just a few examples of such criteria:
- Participation fee - In addition to material-specific fees, some jurisdictions require companies to pay a participation fee. Ireland is one of few European countries where, to determine the participation fee, further distinction is made on the basis of a company’s activity in the supply chain: manufacturers, converters, and distributors paid €2.42/tonne while retailers paid €4.83/tonne in 2022.
- Cut-off for flat fee - A flat fee is often charged for smaller companies. In France, for example, the cut-off is a function of the total consumer sales units sold on the market (< 10,000 CSUs); while in Hungary, it is a function of the amount of packaging placed on the market (< 10,000 tonnes).
- Unit-based contribution - In some jurisdictions, a fee is charged based on the number of packaging units placed on the market. In Greece, a flat rate of €0.0004/unit was applied in 2022; while in France a basic contribution of €0.0008/unit was adjusted upward based on the number of packaging units (e.g., bottle, sleeve, cap) that make up each consumer sales unit.
In an attempt to harmonize across EPR schemes, boost the circular economy, and improve enforcement, the EU is moving beyond its original packaging waste directive toward regulation. The newly proposed regulation (PPWR - final adoption is expected in 2024) serves as a bellwether EPR scheme in the US (where laws are expected to be implemented as early as 2025). While each state is in the process of developing its own scheme, with fee levels and structure still to be defined, similarities are emerging across schemes. The table below offers a comparison of EPR across US states, with key characteristics discussed below:
- Targets – Each EPR scheme will establish statewide targets for minimum recycling rates, PCR content, and source reduction.
- The most ambitious targets set to date are for single-use plastic packaging in California:
- Recycling rates of 30% by 2028, 65% by 2032
- PCR content requirement of 25% by 2025, 50% by 2030
- Source reduction rate of 10% by 2028, 25% by 2032
- These targets rival those in the EU:
- Recycling rate of 55% by 2030
- PCR content requirement of 25% by 2025
- Source reduction of 5% by 2030
- The most ambitious targets set to date are for single-use plastic packaging in California:
- Eco-modulation – All four states will use eco-modulation to establish fee structures. Under an eco-modulation system, fees are determined not only on the basis of basic criteria such as product weight or units, material, and waste management costs, but also in function of advanced lifecycle criteria such as recyclability, recycling rates, hazardous substances, reusability, recycled content. The eco-modulation fee structure – differentiating between easier- and harder-to-recycle materials as well as negative versus positive lifecycle impacts for example through bonus or malus adjustments to a basic fee - is intended to incentivize producers to make environmentally-friendly design changes. Examples of eco-modulation from existing international EPR schemes include:some text
- Governance – Three of the four states in the US initially allow for a single Producer Responsibility Organisation (PRO) to develop and implement the program. The PRO Circular Action Alliance has been selected to run programs in Colorado and California, and intends to submit a plan for Oregon as well. CAA is a non-profit founded by brands including Coke, Unilever, Walmart, Amazon, Nestle, P&G, L’Oreal, Pepsi (most of which already participate in EPR schemes outside the US). CAA has also been appointed as sole PRO to join Maryland’s EPR advisory council which is to develop recommendations on a proposed EPR plan by the end of 2024. Having the same PRO operating in multiple states is likely to help harmonize schemes across jurisdictions and streamline geographic expansion.
- Material Scope and Needs Assessment – In the four schemes, covered products include all primary and secondary packaging from residential and commercial sources, targeting in particular packaging intended for single use or short-term use. States have started to specify covered products lists:some text
- Oregon published its Recycling Acceptance Lists at the end of 2023 which includes two different recycling acceptance lists: one for local governments and another for PROs.some text
- Local government must provide collection and recycling for rigid plastic materials (which generally reach higher recycling rates) such as PET, HDPE, and PP bottles, PET, HDPE, LDPE, and PP tubs, and clear PET or PP cups.
- PROs are expected to recycle, via separate collection services, the “harder-to-recycle” materials such as EPS, film and flexible PE and PP.
- PET thermoforms were excluded from the acceptance list as there was insufficient evidence of a robust recycled material market for this type of packaging. The acceptance lists are not static however, and this material could be included in the future if it meets the state’s standards. If not, it may be subject to additional regulatory scrutiny, e.g. ban or separate Deposit Return Scheme (DRS).
- California also published a draft Covered Materials Category List at the end of 2023 (to be finalized by July 2024) including an assessment of material recyclability and compostability. According to the initial assessment only 37% of Covered Materials are considered recyclable. In particular, flexible and film PET and PE items, PVC, and LDPE were deemed not to have a robust enough recyclable material market and are therefore not considered recyclable. This characterization is likely to increase EPR fees associated with these materials and producer’s ability to make recyclability claims using the chasing arrows symbol.
- Oregon published its Recycling Acceptance Lists at the end of 2023 which includes two different recycling acceptance lists: one for local governments and another for PROs.some text
Once covered materials are defined, a needs assessment will be performed in each of the four states, to evaluate the current system for managing these materials and identify the actions and investments needed to meet the EPR goals.
What to do?
While states move ahead on specifics of their EPR schemes, producers can prepare for implementation by making the following no-regret moves.
- Gather data on packaging portfolio – Producers will be required to report data related to their packaging portfolios. As a first step, producers should gather baseline data, including number of units, weight, material, composition, format for individual components (e.g., cap, seal, label, sleeve), PCR content and certification of packaging. While reporting requirements may only come into effect in 2025, much of this data will need to be provided by suppliers, and will therefore take time to gather. Companies that haven’t already done so should start this process now (see resources available from the U.S. Plastic Pact and World Wildlife Fund).
- Assess portfolio for improvement opportunities – While specific targets, list of covered materials, and fees have yet to be determined for individual EPR schemes, it is clear that producers will benefit from reducing packaging units and weight (e.g. eliminating unnecessary sleeves, headspace), avoiding hard-to-recycle plastics (e.g., PVC, EPS, multi-material, flexible packaging), and using PCR content. Using the baseline data, identifying opportunities within the existing portfolio will help companies be prepared and limit fees when EPR schemes are implemented (see tool and resources available from The Recycling Partnership). Likewise, product teams will need to gather data on PCR plastics (search Circular’s PCR technical data records) and understand how to use these in product applications and design .
- Engage with stakeholders – Producers would do well to engage now with producers, PROs, suppliers, and regulators to support the development and implementation of EPR regulations. To reduce complexity and cost of compliance, producers should advocate for policy harmonization, striving for national standards where possible (e.g., Senate hearing on EPR, industry collaboration for a global plastic treaty), in particular for reporting requirements, material coverage, definitions, certifications, consumer education and outreach. Engaging with suppliers, e.g. through advanced market commitments, will help ensure that producers have access to adequate and sufficient recycled plastic material at competitive prices to reach their portfolio’s PCR content targets (access Circular’s digital platform to explore a global database of PCR suppliers).
Producers who get ahead in the game stand to gain on multiple levels when EPR programs are implemented.
Advanced preparation can ensure compliance when EPR schemes come into effect – the first ones in less than 18 months. Design choices can minimize environmental and health impacts associated with packaging waste. These design choices, translated into verified recyclability claims, use of PCR content, and demonstrable progress on reducing lifecycle impacts of packaging can improve brand reputation, helping brand owners outpace their peers. Finally, a rationalized portfolio will result in lower EPR fees paid by producers.
Stay tuned for our upcoming article on the value at stake: how EPR fees will affect manufacturer’s costs.