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Producer Responsibility Obligations (Packaging Waste) Regulations 1997 (As amended)

CHAPTER FIVE

INCREASING THE AMOUNT OF OBLIGATED PACKAGING

PROVISIONS ON INTERNAL SUPPLY AND LEASED PACKAGING

This Chapter discusses changes to the Regulations which would ensure obligations are taken on leased and internal supply packaging in order to increase the amount of obligated packaging.

Obligation based on leasing as well as owning packaging

5.1 Following the first meeting of the new Advisory Committee on Packaging in October 2002, a number of Task Force groups were set up to look at particular areas of work of importance to the successful operation of the UK's packaging waste recovery system. A "De Minimis" Task Force was set up to look at how to increase the amount of obligated packaging without increasing significantly the number of obligated businesses; to establish where the majority of currently non-obligated packaging lies; and to consider what obligation should be placed on any additionally obligated businesses and how should it be discharged. This reflected a concern of a large number of obligated businesses that efforts should be made to include more packaging tonnage within the scope of the Regulations. In looking at these matters, the Task Force was to take account of the Government's wish to avoid placing undue burdens on small businesses; and at what the impact might be on the Agencies' monitoring and enforcement resources, e.g. if there were to be any increase in the number of obligated businesses to be monitored.

5.2 The Task Force's work in this area was driven by the particular concern that too much packaging was avoiding obligation under the Regulations because it was handled by businesses that do not meet the threshold tests or because not all producers were registering and declaring obligations as required ('free riders') or because for some other reason the packaging was escaping obligation. In the years 1999-2001, the obligated and non-obligated totals were as follows -

Table 8: obligated and non-obligated tonnage 1999-2002

5.3 At the conclusion of the Task Force's work, the Advisory Committee concluded that, at present, the benefits to be gained by changing the threshold tests from the current 'over 2 million' and 'more than 50 tonnes' would not justify the additional administrative and monitoring burdens that would result. This was because, in order to gain a relatively small additional tonnage of packaging, a very significant number of smaller businesses would have to be brought within the scope of the Regulations . This would mean that the Agencies would have to devote a very significant part of their time and resources to monitoring these smaller businesses who, between them contribute perhaps 15% of packaging at most, rather than focusing on monitoring compliance by the currently obligated businesses who contribute the vast majority of packaging, and to pursuing possible free riders. The Advisory Committee concluded that, although further work should be done to look at de minimis changes, at present, additional packaging could more effectively be brought within the scope of the Regulations by taking steps to ensure that obligations are attached to leased packaging and packaging used in internal supply.

Amounts of leased packaging

5.4 The work that was carried out for the de minimis Task Force indicated that 'leasing systems' includes all packaging types that are not owned, but are used by or under arrangement, whether or not involving a commercial arrangement. In the case of pallets, this includes free exchange pools and third party owned pools. As leased packaging will generally be reusable, an activity obligation or obligations will only need to be taken on the tonnage that is on its first trip. Types of leased packaging include -

• plastic crates, trays, generically termed Plastic Reusable Transit Packaging (RTP);

• wooden pallets, cases and crates and cable drums;

• steel drums, kegs and casks

• paper fibre drums

5.5 Work carried out for the ACP Task Force work has suggested that, in relation to new items in leased systems, the tonnage on which a first trip obligation would need to be taken, would be, per annum, as follows -

Table 9: annual first trip tonnage of leased packaging for obligation

5.6 These are likely to be maximum tonnages because some of this packaging will be lost to businesses that will fall below the thresholds even after the Regulations are amended. Taking account of the average de minimis level, a deduction of 15% has been made to take account of this, thus reducing the 72,900 tonnes cited above to 61,965 tonnes. The reduction for each material is shown below -

Table 10: potential obligated tonnages from leased packaging, minus 15%

5.7 Under the Regulations, businesses are obligated if they carry out one or more activity on packaging which they own and which they supply to another stage in the chain or to the final user (of the packaging). The activities set out in the Regulations are: raw material manufacturing, converting, pack/filling, selling and importing. Currently, where pallet or other leasing systems are used, for example, by a pack/filler sending his goods on to his customers, the interpretation has been that neither the leasing companies nor their customers attract pack/filling or selling obligations on the relevant tonnage of new (ie. first trip) leased packaging. This is because the pallet owner owns the packaging but does not carry out an activity on it or supply it to another stage in the chain or to the final user; and the business leasing the packaging carries out an activity and supplies on to another stage in the chain, but does not own the packaging.

5.8 The packaging that is leased is nevertheless placed on the market and becomes waste at some point. This is analogous to all other packaging on which obligations must be taken. It is evident that leased packaging only avoids obligation because one party carries out the activity and makes the supply, while another party owns it. A significant tonnage of packaging is involved here and would make a significant contribution to obligated packaging if it were included. It would seem, in principle, to be packaging on which obligations should be taken and the Advisory Committee has made recommendations to that effect.

5.9 It is proposed that an obligation should be placed on the user of new, i.e. first trip, leased packaging. It is proposed to do this by expanding the requirements in the Regulations so that businesses are obligated if they carry out an activity (or more than one activity) on packaging, supply the packaging on to another stage in the chain or to the final user, and either own or lease the packaging. This can probably be effected by amending the definition of "supply" in paragraph 2(g) of Schedule 1 to the Regulations.

5.10 In relation to the obligations we can expect producers to take, it is proposed to change the Regulations as necessary to ensure that a producer will be considered to be both the pack/filler and seller, and pick up both the pack/filling and selling obligations on the relevant first trip packaging. As noted above, leased packaging, as with packaging in general, will, if it is reusable, only give rise to obligations on its first use. Packaging that is being reused will continue not to incur obligations on second or subsequent trips.

Q30: Do you agree that we should amend the Regulations as proposed above, so that a business is obligated if it "owns or leases" packaging as a result of which an additional tonnage would be included in the 'obligated tonnage' total ?

Internal supply packaging

5.11 There is a similar issue in relation to new empty packaging which is purchased by a business and used within the business a number of times and then discarded when it can no longer be repaired and used further. Not all internal supply packaging will be reusable; some will be single-trip containers. There is very significant tonnage involved here which, at present, does not have a pack/filling or selling obligation on it, although the raw material manufacturing and converting obligations are, in principle, being picked up. The purchaser of the packaging is not currently obligated because, although they own the packaging, and carry out an activity or activities, they are not considered to then supply to another stage in the chain or to the final user. It is therefore the case that the pack/filling 37% and the selling 48% obligations are lost.

5.12 'Internal supply' includes packaging that is generally but not always reusable and the types of packaging involved includes -

• plastic crates, trays, generically termed Plastic Reusable Transit Packaging (RTP);

• wooden pallets and possibly also cases, crates and cable drums;

• steel drums, kegs and casks

• paper fibre drums, cardboard boxes (one trip)

5.13 For internal supply, the overall quantity of new items on which a first trip obligation would need to be taken, in the different materials, is estimated to be -

Table 11: annual first-trip tonnage from internal supply packaging for obligation

5.14 Again, these are likely to be maximum tonnages. Here, too, some of this packaging will be lost to businesses that will fall below the thresholds even after the Regulations are amended. This figure of 714,850 t is therefore also reduced by 15% to reflect a more realistic tonnage of newly obligated packaging. This results in 607,623 tonnes. The reduction of each material is shown below.

Table 12: annual first-trip tonnage from internal supply packaging for obligation minus 15%

5.15 It is evident that the internal supply of packaging represents a significant proportion of packaging placed on the market but which is currently avoiding obligations. The Advisory Committee has recommended that the necessary amendments should be made to enable the pack/filling and selling of such packaging to be brought within the scope of the Regulations. The Government accepts the Advisory Committee's recommendations because there would be beneficial effects on the overall obligated tonnage which could result in lower targets, and thus lower costs, than would otherwise be the case. Changes to the Regulations would probably include an amendment to the definition of "deemed supply" in the Regulations, clarifying that the business using internal supply packaging will be deemed to be carrying out the activities of pack/filling and selling on packaging which it owns or leases and which it is filling and supplying on. There needs, however, to be clarity as to what degree of "internal transfer" is covered. The policy intention would be to include as internal supply the movement of crates, boxes etc. between sites or premises, e.g. between two sites in a business, or from a business (eg. retailer) to a distribution centre and vice versa, or between a business and a contract filler; also included would be the use of e.g. a single-trip cardboard box to transport goods from a company's factory or distribution centre to its retail outlets. It may, however, be appropriate to include all packaging used in the production chain (even within the same factory, etc). Excluded would be items used in a business in circumstances where the Agencies would not currently regard them as packaging.

5.16 There may well be a number of situations where the position is not clear-cut. For example, it would not be the intention to obligate a manufacturer who places, say, ball bearings in a crate at one end of the production line (i.e. pack-fills) and then transports the crate to another part of the same factory where the ball bearings are added to a component or final product. At the same time however, it needs to be borne in mind that, had the same scenario involved two companies rather than just one, there would have been reason to impose pack-fill and sell obligations upon the first company (assuming the crates were on their first trip, and were owned or leased by them).

5.17 The Government would be particularly grateful for views as to where to draw the line in interpreting 'internal supply'. It may be appropriate to base the test on movement between premises or sites, as indicated above; it may be appropriate to accept that packaging used in the production chain (even within the same factory, etc) should be caught.

Q31 (i): Do you agree that we should amend the Regulations as proposed above, so that a business using internal supply packaging is deemed to carry out the pack/filling and selling obligations and thus add a significant tonnage of obligated packaging to the total ?

(ii) Where do you think the line should be drawn in interpreting internal supply ? should movement between premises or sites be included ? and all packaging used in the production chain, even in the same factory, etc. ?

Impact on recovery to be achieved

5.18 In terms of obligation, the additional recovery we might expect from the above proposed changes, depends on the obligations to be taken and on whom they fall. A certain tonnage has already been deducted to take account of the proportion expected to be associated with businesses that will remain below the thresholds. Overall, therefore, the following are the likely newly obligated tonnages we would expect to be reported as packaging handled (NB where reusable, the obligated tonnage is the new, first trip tonnage each year) -

On leased packaging and internal supply packaging we expect pack/filling and selling obligations (37% + 48% = 85%) on the newly obligated tonnage.

Impact on gap between obligated and non-obligated packaging

5.19 It is evident that such a significant tonnage could contribute to reducing the difference between obligated and non-obligated tonnage. If we added the obligated tonnage of 671,011 tonnes to the obligated total for 2002, for example, the result would be a reduction from 19.5% to 12.8% non-obligated tonnage (table 6 below). It should be noted, however, that these figures are not entirely representative, since they take account of a new, higher figure for wood arising in the waste stream without yet showing the expected concomitant higher figure for reported wood packaging.

Table 13: impact of additional obligated tonnages

5.20 Such an amount of newly obligated packaging would, if added to current totals, have a beneficial effect on the level of targets that need to be set for 2004-2008. It should be noted however, that the above results can only be achieved if the businesses with these obligations make the necessary declaration of packaging handled and discharge their recovery obligations.

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