12 June 2019

PRN sector raises idea of compliance ‘safety valve’

With rising PRNs causing consternation among producers and compliance schemes, there is a growing call for government to look again at the system.

Speaking to letsrecycle.com, some packaging waste sector experts have said that current market issues “need the government to make changes to rectify the situation” with a pricing “safety valve’ to be brought in.

It is also being argued that, for example, with plastic PRN price rises are responding “to the fear of non-compliance rather than being a true reflection of financing needs”.

Plastic PRN prices have risen to £250 and above, prompting questions over whether the money will boost investment

Prices have risen for a number of materials (see letsrecycle.com story) and look set to continue to do so in the light of higher targets and weaker market demand for recyclables.

With most compliance schemes invoicing their members at the start of each compliance period, the rapid increase in prices is said to be leading to financing pressures both for schemes and obligated businesses as they have to pay for PRNs ahead of recouping the cost.

Impact on schemes

Highlighting the price rises, Tom Rickerby, head of trading at the Environment Exchange, an online marketplace for PRNs, said the speed of the rises is having “a real impact on schemes”.

“The plastic PRN price is rising at an alarmingly exponential rate. The first 111 days of the compliance year saw prices increase from £100 to £150 on t2e. It took a further 61 day to go from £150 to £200 per tonne and the recent milestone of £300 was breached in just three weeks.”

“The speed of the price rise has decimated compliance budgets”


Tom Rickerby
Head of business development, T2E

Mr Rickerby continued: “The speed of the price rise has decimated compliance budgets, exposed major cash-flow pressures with-in the system, distorted recovered plastic supply chains and led many to question how and where this ends, given the current transitionary state of global plastic recycling markets. If plastic targets are unachievable in the current climate only Defra can hold the answer to this question.”

Outside

On the compliance front, James Piper, chief executive of the Ecosurety compliance scheme, remarked that the higher prices were outside of what was normally seen. He said the emphasis should be on ensuring PRN revenues are spent correctly: “Whilst higher prices stimulate recycling, these recent price shifts, across most materials, sit outside normal PRN volatility.”

Mr Piper added: “These prices are a reflection of markets under increased scrutiny to act in the correct and appropriate manner, focusing on quality recycling, a view long held by Ecosurety. Our current focus is ensuring these increased PRN revenues, received by recyclers and the wider supply chain, are invested correctly. If this happens, these high prices should increase recycling capability and stabilise the price in the future.”

Problematic

A view that an increase in recycling rates as a result of higher PRN revenues did need to be visible, was expressed by Sarah Foster, commercial director of Comply Direct. And, she argued that the rapid increases must “be used efficiently to clean up the more contaminated, problematic plastic packaging waste and attract more material”.

Ms Foster pointed out that: “The Q1 verified data confirms that recycling levels of plastic packaging waste in 2019 are lower than the same period covering Jan – March in 2018, coupled with the decrease in carry-in for plastic and the increase in target, this means that at the close of Q1 the UK was behind target for the year and this has led to consistent price rises for plastic PRNs.”

Reflecting that recycling levels should rise, she commented: “Although we are now nearly half way through the compliance year, we will not have full visibility of whether the higher prices have positively impacted recycling levels in Q2 for another 6 weeks or so. With plastic PRNs now trading at prices four or five times higher than 2018 average prices and producers facing much higher costs it is not unreasonable to expect recycling levels to improve.”

With a general call for more UK infrastructure for plastics, Ms Foster added: “If the additional revenue can be used efficiently to clean up the more contaminated, problematic plastic packaging waste and attract more material so that it can be better presented for recycling, then we should see recycling levels boosted and there does appear to be significant appetite for investment in UK reprocessing to reduce our reliance on exports. Higher and unbudgeted compliance costs can be troublesome for UK businesses and ultimately they need to see that the increased cost of compliance is providing value to the UK system as a whole by increasing recycling rates.”

Aggressive policy

China’s restrictions on the import of cardboard and mixed papers have hit the PRN market

John Mooney, director of the GBN Pennine Pack compliance scheme, remarked that “Plastics, paper and wood PRNs have all jumped about 10% in the last week alone. The extremely high prices this year have been brought on by a number of factors such as aggressive government policy that has increased recycling targets by over 30% in the last five years, as well as the Chinese ban.”

And, Mr Mooney hit out at the lack of data around the system. “In the UK in particular, compliance schemes and producers have an abysmal view of what is going on with only four sets of reasonably accurate data per year, about packaging reprocessing, which is released one month after the end of the quarter. The UK PRN system is being driven, at least in part, on information that is between one and four months old.  This is akin to driving using only your rear view mirror.”

He cautioned that proposed changes to the producer responsibility regimes consulted upon earlier this year “will not fix this. The system (whether current or future) needs more timely data and a pressure relief valve.”

On the financial front, he said that by his reckoning, based on year-to-date figures (and if they do not go up any further) the cost of PRNs in 2019 will more than double compared to 2018. “Until last year, the cost of PRNs was manageable for most businesses. At the current rates, businesses will have to pass on these additional costs to their customers and ultimately consumers.”

Unprecedented territory

The largest compliance scheme, Valpak, is also of the view that some form of pressure relief valve is needed.

Director Adrian Hawkes explained to letsrecycle.com that the PRN sector is currently “in unprecedented territory. We have had a very rapid increase in prices over the past 12-18 months, not just for one material but across the piste.

“Putting a bit of perspective on this, one of the criticisms in the past has been that the system has not encouraged enough investment. So higher prices should mean more investment but the difficulty is knowing whether this level of pricing is sustainable or what the sustainable level is.

“There is little doubt that current prices are not at sustainable levels. They are higher than they need to be or are right to be, but lower compliance costs are a thing of the past.”

Mr Hawkes said that to ensure investment, reprocessors needed a longer term picture and that there is a need to have targets confirmed soon for 2021 and 2022. And, he felt that while it might take time to get new reprocessing capacity on stream, higher prices should make it more economic to access material that is not economic to do so now. “It could be about increasing the volume processed through existing facilities”.

“A smoothing factor, possibly in the way that the WEEE producer responsibility regime has the compliance fee system”


Adrian Hawkes
Policy director, Valpak

However, he said that the high prices are a factor overshadowing the market and compliance. “Compliance is either you comply or you don’t and alongside this there are no limits to prices. Only the business involved can be prosecuted but there is no limit to what the reprocessors or exporters can charge.”

Backing the idea of some form of safety valve, Mr Hawkes explained that Valpak has been suggesting for some time that there should some kind of control mechanism, “a smoothing factor, possibly in the way that the WEEE producer responsibility regime has the compliance fee system.”

He emphasised that he was not saying that there should be a low cost, but that there should be measures to stop prices “increasing to unreasonable levels” and that a control mechanism should adapt to different market solutions. “Something along these lines is increasingly going to be an important part of the system. The case is that targets are only going in one direction, previously there has been some flexibility.”

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