Last reviewed 10 April 2018

Packaging waste regulations were introduced to ensure packaging is fit for purpose, improves material efficiency and reduces the amount of waste going to landfill. But there is concern that the UK packaging recovery note (PRN) system is in urgent need of reform. In this article, John Barwise explains how the system works, why the UK’s open market approach is failing and how it might be improved.

The UK generates around 10 million tonnes of packaging waste a year, of which around five million comes from consumers and the rest is generated by businesses and other end users. Much of this waste is recycled but a large portion still ends up being burned or buried in landfill.

The EU first introduced measures on the management of packaging waste in the early 1980s, with Member States adding additional measures setting rules on the production, marketing, use, recycling and refilling and disposal of containers of liquids for human consumption. Further EU packaging regulations were introduced to harmonise packaging recovery and to raise recycling targets in all Member States.

However, critics argue that the current UK open market system isn’t working as it should. The lower threshold of two million tonnes means that many businesses in the supply chain are exempt from packaging regulations, while the system itself is inhibiting investment in UK-based packaging recovery and recycling plant. Local authorities have also complained of the lack of transparency in the system and that limited funding available through PRNs restrict scope to increase collections and infrastructure.

Packaging — the regulations

The European Directive on Packaging and Packaging Waste Directive 94/62/EC is the main piece of legislation governing packaging and packaging waste in Europe. The twin objectives of the directive are to continuously improve the environmental performance of packaging and to facilitate the correct functioning of the EU internal market, thereby protecting the free circulation of packaged goods in all Member States.

The legislation harmonises national measures concerning the management of packaging and packaging waste to prevent or reduce its impact on the environment and improve resources efficiency. The directive has been subsequently amended to provide criteria clarifying the definition of the term “packaging” and to increase the targets for recovery and recycling of packaging waste. The latest revision, Directive (EU) 2015/720, further clarifies the consumption of lightweight plastic carrier bags.

The UK PRN system is a mechanism used in the UK to implement the requirements in the European directive. PRNs (or Packaging Export Recovery Notes (PERNs) used for export) are certificates that provide evidence that waste packaging material has been recycled into a new product.

They form a key part of the Producer Responsibility Obligations (Packaging Waste) Regulations 2007 which covers Great Britain. The system is designed using the “Producer responsibility” principle, set out in the Producer Responsibility Obligations (Packaging Waste) Regulations 1997, which requires packaging producers to contribute to financing the recovery and recycling of packaging materials, so that UK achieves the European packaging recycling targets.

Under the UK regulations, packaging producers are required to provide financial incentives to the packaging recycling industry to collect and reprocess (or export for reprocessing elsewhere) sufficient material to meet the targets set by the Government. The system does not finance the full cost of recycling or recovery, but does provide a subsidy above market prices to incentivise reprocessors to process sufficient material to meet EU recycling targets.

What packaging materials are covered?

The directive currently specifies that Member States must achieve between a 55% and 80% recycling rate for packaging. There are basically six materials for which a business may have an obligation, plastic, paper, glass, aluminium, steel and wood. There are also material-specific targets which are as follows:

  • 60% for glass, paper and board

  • 50% for metals

  • 22.5% for plastics

  • 15% for wood.

Who’s involved?

Packaging producers are all businesses (above a certain size) that produce or use packaging, or sell packaged goods on the UK market. Businesses that handle packaging are called “producers” and are “obligated” under the regulations if:

  • they handle over 50t of packaging material annually

  • their turnover exceeds £2 million.

Those involved include importers, brand owners, packaging material manufacturers, packers/fillers as well as distributors and retailers, regardless of whether the material supplied is for household or business consumption.

Smaller producers below either of these thresholds do not have any obligations under the regulations. Small and medium-sized enterprises (SMEs) with a turnover of £2 million–£5 million currently have a 30-t recycling allocation threshold. This means that the targets on larger obligated businesses are slightly higher in order for the UK as a whole to meet its requirements under EU rules.

There are five main activities in the packaging chain for which obligated businesses take a percentage share of the responsibility for the packaging, totalling 100% responsibility.

  1. Raw materials — manufacturers of the raw materials = 6%.

  2. Converters — businesses that convert raw materials into packaging = 9%.

  3. Packers and fillers — places goods into (or fills) packaging = 37%.

  4. Seller — supplies packaging on to the end user/consumer = 48%.

  5. Importers — packaging or packaged goods coming from outside the UK = rolled up obligation.

PRNs are material specific and businesses need only purchase PRNs to cover those materials that are directly related to their business activities.

Under the rules, all obligated producers must aim to:

  • reduce the amount of packaging produced in the first place

  • reduce how much packaging waste goes to landfill

  • increase the amount of packaging waste that’s recycled and recovered.

These are in addition to waste duty of care rules all businesses must follow.

How the PRN system works

Obligated producers can either join a compliance scheme or register themselves in the National Packaging Waste Database (NPWD).

A compliance scheme registers businesses with the appropriate environmental regulator, obtains evidence of your compliance and submits the certificate of compliance (CoC) each year. Businesses that register themselves are responsible for registering, getting evidence of compliance and submitting the CoC.

PRNs are certificates that show a company has met its obligations to fund the recycling and recovery of packaging waste as required by the UK regulations. The system works as follows.

  • Packaging is created and sold to customer or consumer.

  • Packaging waste is collected, recovered and/or recycled by an accredited reprocessor.

  • PRN is generated as evidence of compliance.

  • Compliance company buys PRNs to meet their members’ obligations.

  • Packaging data and PRNs are submitted to the Environment Agency, demonstrating compliance with packaging waste regulations.

Businesses do not need to recycle their own packaging. Purchasing PRN certificates from accredited reprocessors demonstrates that an equivalent amount of packaging waste has been recovered and recycled on their behalf, to meet their obligation.

PRNs — an open market approach

The UK PRN system is an open market allowing PRNs to be traded between accredited reprocessors and obligated companies that have a packaging obligation. UK reprocessors use funding from the sale of PRNs/PERNs to obligated businesses, to help fund their recycling industry. The UK system is “unusual” in Europe in that it uses a tradeable permit mechanism to achieve mandatory packaging recycling targets. A similar set up in Poland has been modelled on the UK system, but elsewhere in Europe, continental compliance schemes provide funding for segregated collections, mainly for household collections.

According to Defra’s own Advisory Committee on Packaging (ACP), the UK is not a fully free market system. Each year there is a set demand for PRNs from producers while the supply of PRNs is dependent upon recycling plants, which means PRNs fluctuate in price according to economic demand principles. Other factors such as the oil prices, secondary raw material prices and exchange rates can also affect prices.

Under the UK system, not all producers are registered because of the thresholds on business size and turnover, mentioned above, which means that business recycling targets are set slightly higher in order to meet EU requirements.

Using an example provided by the ACP to illustrate this: “A 55% UK national target requires 5.5mT of packaging to be recycled, which translates to a 61% target on registered businesses (assuming 10% of overall packaging is from unregistered producers).”

The ACP says this procedure is the same for each of the material-specific targets.

UK PRN system in need of urgent reform

PRN/PERN prices fluctuate depending on their availability against demand from obligated producers who need them to meet their targets. This arrangement is designed to ensure that UK industry could meet the targets at the lowest possible cost, with market forces allocating the necessary funding in the most efficient way.

Yet, rather than helping to build UK recycling capacity, the volatility of the PRN/PERN market-based system has actually restricted infrastructure investment in the UK, with most of the growth being achieved through exports, and a growing dependence on export markets.

China’s recent ban on certain imports of recyclable materials raised alarm in many western countries who rely on exporting waste to developing countries, and who are now in competition with each other to find new export markets for their waste or start stockpiling at home.

A recent ACP report highlights a number of criticisms of the current UK PRN system including no preferential support for UK reprocessing, vulnerability of UK reprocessing capacity, volatile pricing, lack of transparency in the system and a failure to guarantee absence of fraud or evasion.

And concern over the current PRN system is growing. The Environmental Audit Committee (EAC), says more companies should be involved in PRNs and more recycling needs to be carried out in the UK. Notes from a recent enquiry into PRNs argues that companies handling any form of packaging must ensure that a certain proportion is recycled under the PRN scheme and that they meet these obligations by buying more recovery notes from recycling companies in the UK.

Mary Creagh, Chair of the EAC, said: “Packaging Recovery Notes are intended to make companies do their bit for recycling, but there is significant concern that PRNs are distorting the market in favour of exports rather than reprocessing in the UK.”

EAC has asked the National Audit Office (NAO) to carry out a review into the UK PRN scheme arguing there is a lack of transparency over how PRN revenue is spent and the lack of incentives for eco-design. The review will also look at the potential for fraud and non-compliance in the current system.

The Environmental Services Association (ESA), which represents the UK’s resource and waste management industry, says revenue from PRNs should be channelled to material recovery facility (MRF) operators or waste collection companies rather than reprocessors or exporters to ensure that packaging recycling evidence is sold at a price “relating to collection, sorting and processing costs” rather than “supply and demand”.

Jacob Hayler, Chief Executive of ESA, said: “The proposals would help to support funding for more recycling collections. More collections would provide more feedstock for reprocessors. The whole of the sector would therefore be boosted and UK recycling could move on to another level.”

Some of the UK’s leading brands and retailers, together with the Foodservice Packaging Association (FPA), the British Plastics Federation, Industry Council for Packaging and the Environment (INCPEN) and the Packaging Federation are also calling for government reform of the PRN system to increase recycling.

The group has unanimously agreed to a number of key principles for reform based on the PackFlow 2025 Report, produced by the UK’s leading compliance scheme, Valpak.

The six principles for a reformed PRN system are the following.

  1. Everyone should play their part — this should result in the reduction or removal of the de minimis level to expand the number of obligated businesses (just as currently with batteries and all WEEE).

  2. The system should financially reward recyclability.

  3. The system should financially reward inclusion of recycled content.

  4. Local authorities (LAs), businesses and places of work should work towards a standard base recycling system, to provide certainty for all and allow the introduction of a universal labelling system.

  5. The proceeds of the new PRN fund would be distributed by an independent body that should include cross-sector industry members to achieve desired outcomes — a precedent model of this is ENTRUST for the Landfill Tax.

  6. All reprocessors and exporters of packaging waste must be obligated to be part of the system to ensure we measure the true recycling rates. Also, PERNs should be modified, not least to remove their inherent advantage over PRNs.

PRNs — the next step

The Government has acknowledged the need to reform the PRN scheme. Representatives from across the waste and packaging sectors are also taking part in a series of meetings to help the Government plan its future strategy on packaging. Six-themed workshops will cover most of the concerns outlined above and those involved including; compliance schemes, waste management companies, packaging supply chains, LAs and, whether SMEs should continue to be exempt from the packaging regulations.

Environment Secretary Michael Gove has asked WRAP CEO, Marcus Gover and Paul Vanston, Chief Executive of the Packaging Industry Council INCPEN, to review policies to improve how the UK deals with packaging. The work is supported by Defra’s ACP.

A summit will be held in April 2018, which will outline a set of recommendations and reforms, covering most aspects of the PRN system, including new ways to increase recycling targets, strategic funding, better communications and stronger political support to help LAs deliver greater consistency in household collections. The recommendations will feed into the Government’s forthcoming Resources and Waste Strategy, due to be announced later this year.

For further details of how PRNs might affect your business visit the Packaging Waste topic on Croner-i here.