Fearful of failing to meet EU recovery targets set for 2008, the Department carried out a review this Spring regarding how packaging producers and compliance schemes intend to meet their obligations to invest in the recycling of packaging waste.
Reporting back on the operational plans of 22 compliance schemes and 190 individual producers this month, the Department said generally compliance scheme plans were satisfactory but with certain “shortcomings”.
” We were surprised at the extent of spot market purchases; in some cases for large tonnages of material. “
– Defra report
There were some concerns about the “inadequate” plans of individual producers, but even some compliance schemes had plans using “high risk compliance arrangements”.
Contracts
The Department's concerns on the use of the spot market came despite revealing that 89% of all purchases of PRNs – the evidence used to demonstrate required investment in packaging reprocessing – are to be through contracts in 2006.
The Department identified an “over-reliance on the spot market” for purchasing PRNs and even for those using the contract route, warned of “over-reliance on a single reprocessor for large tonnages”.
Commenting on the plans, Defra said: “We had expected schemes to use the spot market for a small tonnage, in order to maintain a degree of flexibility in case of unexpected developments. However, we were surprised at the extent of spot market purchases; in some cases for large tonnages of material.”
” There's little interest in three-year contracts among businesses, it's simply the way businesses are – they plan a year in advance. Defra are nave to think otherwise. “
– Peter Gaffney, Wastepack
There was also some disapproval by Defra that contracts were not being arranged for future years – officials said the level of PRN buying through contracts in the plans dropped to 71% in 2007 and just 56% in 2008.
“Prescriptive”
Commenting on Defra's report, Phil Conran of compliance scheme Biffpack, welcomed the report, but said it had not fully taken into account the free market approach to PRN purchasing.
He said: “There's no point in doing these plans for the sake of plans if people are going to have to fudge things because they can't know what will happen in three years.
“There has to be a balance between the free market approach that says you can comply in your own way with the expectation that operational plans must include all this details. The key thing we need is a level playing field so that everybody produces plans of the same quality – but you have to be careful about getting too prescriptive,” Mr Conran said.
Spot/contracts
Peter Gaffney, director of compliance at Wastepack, said the Department shouldn't criticise schemes on use of the spot market if 89% of buying was through contracts.
He said: “This is more of an issue among the individual producers – only 10% of their PRNs are through contracts, and this can even disadvantage schemes if producers are waiting until the end of the year to pick up PRNs for low prices.”
The Wastepack director said Defra showed a lack of commercial awareness by expecting contracts to be arranged three years in advance. “There's little interest in three-year contracts among businesses,” he said, “it's simply the way businesses are – they plan a year in advance – Defra are nave to think otherwise.”
“Choice”
Angus Macpherson, managing director of the online PRN trading market The Environment Exchange, dismissed Defra's view that a dependence on the spot market was a “high risk approach” to compliance.
” It's not the lack of contracts that is stopping the investment getting through, it's the fact that Defra set the targets too low “
– Edward Cooke, Compliance Link
He said: “The spot market gives a producer the choice of all available reprocessors and exporters, and can be a more effective way to manage the risk (of non-compliance) than just going into a contract with one or a small number of reprocessors. Assessing price and volume risks are everyday commercial issues.”
Edward Cooke of compliance scheme Compliance Link said: “Defra is convinced everyone must contract – but nowhere in the legislation does it say you have to. It's not the lack of contracts that is stopping the investment getting through, it's the fact that Defra set the targets too low last year – there's been a flood of PRNs as a result.”
PRN revenue
The Defra report has had some support from the compliance sector, with the UK's largest compliance scheme, Valpak, welcoming Defra's call that schemes should be doing more to ensure that PRN revenue is spent effectively.
Valpak contracts director Brian Wood said: “We welcome this report, as it says generally schemes aren't doing too badly. We would stress the need for schemes to work more closely with reprocessors on the use of PRN revenue to improve recovery and recycling in the UK.”
However, some in the PRN market have told letsrecycle.com that the regulations do not make producers or compliance schemes responsible for “policing the reprocessors” – that such an activity was the Environment Agency's job.
” The volatility in the market can be attributed to the problems with data – that's the real cause for concern. “
– Angus Macpherson, The Environment Exchange
Mr Macpherson said: “There's no doubt in the legislation there is a requirement to grow recovery and recycling, but that's not what the PRN system was set up for. PRNs are evidence of recycling – not investment.”
Data
“The PRN system seems to have worked – it looks like we will meet the targets – the volatility in the market can be attributed to the problems with data – that's the real cause for concern,” Mr Macpherson concluded.
Others agreed that getting the data right should be Defra's highest priority. Mr Gaffney said: “Figures are paramount – they affect the price, and the price has to be on everybody's mind. Some of the figures released have been extraordinary.”
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The problems in data management were even raised by Defra itself, which reported that the operational plans revealed reprocessors promising more PRNs than they had capacity to back up – and producers buying PRNs from non-accredited reprocessors and exporters.
Defra said such observations had come because data provided by the Environment Agency had been “not fully up-to-date”.
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