Producer Responsibility for Packaging in Asia: Will It Stop the Sachets Polluting the Seas?

Sachets remain a source of considerable plastic pollution in many countries, especially in Asia.

As part of their response to the problem of plastic pollution, many Asian – and other - countries have been considering the potential for introducing extended producer responsibility (EPR).

I was asked recently to consider whether EPR was likely to help solve the problem of pollution caused by sachets. This was essentially a desk study, and the report was published recently. The evolving picture in the countries I was reviewing meant that I focused on what policy and law suggested would happen. I looked at the law, as drafted, in India, the Philippines, Indonesia and Vietnam.

My own experience tells me that there’s rarely much point in looking at EPR law in isolation: almost without exception, EPR law relies upon (rather than being the determinant of) the existence of a sound waste management system. With some exceptions – deposit refund systems, and systems based on direct take-back (for example, of electronic goods), and then, only up to a point  – it’s very difficult, if it’s possible at all, to have a decent EPR system without there being a well-functioning waste management system. It is, on the other hand, possible to have a decent waste management system without EPR, but for reasons I’ll explain below, that would seem to imply that a trick has been missed. So, in the research, I also looked at what the waste management law seemed to be requiring.

Waste management is a service with some peculiar characteristics: it shares some characteristics of a typical ‘public good’ (society benefits from it) yet there are private benefits to it also. Presumably, people generating more waste derive greater benefit from a well-functioning service that takes their waste away.

But businesses also derive some benefit. After all, what would happen if, in my country (the UK), there was no waste collection service, and at the same time, we were prevented from dumping or burning our waste? The accumulation, in each household, of (on average) about 3-4 cubic metres every year of waste would be enough to make residents think hard about what they next purchased. Should they carry on consuming the same way?

Society, on the other hand, is impacted by wastes being discarded into the environment, something which happens for different reasons in different places. The concept of EPR is, at its core, a simple one: businesses should become financially responsible - they should pay - for the management of whatever remains from the stuff they sell at the end of its life. For businesses, EPR should be considered central to their social license to operate.

In countries where waste management is in an early stage of development, some – not necessarily all – of the problem that needs to be overcome is one of money: where local government has responsibility for waste management - and in all four countries I reviewed, that is the case – then improving waste management is a matter intimately bound up with the question of how the waste management service provided by local government can be placed on a sound financial footing. At its most basic level, whatever the system costs, there needs to be revenue coming in to cover those costs. In the absence of any funding from businesses, the source of revenue is usually one or more of a share of central government tax revenues, a share of local taxes that might be raised on households, or fees collected directly from citizens and businesses related to the waste management service, or linked to a wider range of services (for example, including energy).

Against this backdrop, EPR can become a means by which countries gain a source of revenue – from businesses – to support the provision of public services that are most often the responsibility of local government. This shifts the burden of cost recovery away from taxation and fees, and onto businesses (and hence, also, to consumers). The shift in the distribution of costs is potentially important, politically, as taxes and local fees do not need to be so high as they otherwise would, and because the costs fall on those who consume most of the packaging. Local politicians are unsurprisingly concerned to avoid having to increase local fees and taxes, even if that might improve local service provision.

The most surprising aspect of the study which I undertook was that none of the systems in the four countries seemed designed to use EPR as a tool to generate significant financial support for local government services (this could happen in Vietnam - the full details of the scheme were not complete at time of drafting). In each country, this is obviously badly needed, but instead, two of the schemes (in India and the Philippines) seem designed to engage obligated businesses in transactions where the ultimate beneficiaries are not well defined, and where the level of benefit to those who need the funding most is uncertain, and likely to be minimal. In Indonesia, the law itself is not especially well drafted, and will most likely struggle to generate any meaningful change (it is not clear who is really obliged to do what).

In both India and the Philippines, evidence of compliance from those businesses who have an obligation under the law is to be provided in the form of certificates, and these may be traded. The ‘EPR laws’ sit alongside laws on waste management which already require local government to undertake specific activities: either as part of, or apart from, what local government does, waste pickers may also be engaged in relevant activities, not least, collection of materials for sale (and subsequent recycling).

Consider what a traded certificate system might be designed to do: it could provide financial support to activities that are needed to deliver compliance. Consider then what might happen if the activities required to deliver compliance are already happening as a result of what local government already does: who, then, would feel the need to pay for a certificate? What would the payment for the certificate achieve? Only once the level of obligation exceeds what is already happening does anyone really need to pay anything for credits, other than a payment for the administrative side of this (which may include some legal costs).

The UK commenced its scheme of compliance certificates – Packaging Recovery Notes (PRNs) and Packaging Export Recovery Notes (PERNs) – in 1997. I recall discussing with the Defra economist at the time that what had been created was a tradable certificate system but that it had not been designed to be such. I also recall the three-way discussions in those early years – between officials from the UK’s environment department, the department for trade, and the Treasury. It was clear that a key objective of the scheme, from the perspective of the department of trade, was to ensure that the costs of compliance to businesses were kept to a minimum.

The scheme itself was not what kept the costs – in terms of the revenues generated from sales of PRNs and PERNs – low (relative to the costs of managing waste). What kept those costs low was the fact that the government introduced a range of other policies, including an escalating tax on landfill, recycling targets for local governmfor packagning ent, and (the scheme was later mothballed) a system of landfill allowances for municipalities. The landfill tax pushed up recycling by businesses, whilst all the measures had the effect of increasing the collection and recycling of household waste by local authorities. What businesses were obliged to do - provide evidence that more packaging waste was being recycled - was made easier by the effect of other policies: the recycling of household waste was undertaken by local authorities, and so paid for through a combination of taxes raised by central government, and those raised locally by local government (linked to housing values). Businesses didn’t have to fund much additional activity to achieve compliance. That generally meant that PRN / PERN revenues remained low. It also meant that whilst the costs of waste management were increasing, local government saw next to nothing in terms of financial support from businesses via the revenue from businesses buying PRNs and PERNs from reprocessors. In work for the UK’s environment department, Defra, in 2015, I wrote, regarding the scheme:

’Local authorities see little, if any, benefit from PRN / PERN revenues, and consider them a peripheral consideration (if they are considered at all) in the design of their collection systems and the letting of contracts. Revenues from material sales are a far more important consideration in the context of contracts (for waste companies and for the local authorities). It should also be noted that PRN/PERN prices are more volatile than prices of the linked primary commodities’

(Source: Eunomia (2015) Evidence on the UK PRN/PERN System: Briefing Note 3: Constraints on the UK’s Ability to Increase Packaging Recycling, and their Relationship to Prices in the PRN Market, 30th June 2015).

For that reason, I coined the term ‘producer irresponsibility’ to describe the UK scheme.

The UK exported all sorts of ‘not always clean’ material to various countries, not all of which were well equipped to deal with the sometimes dubious material badged as ‘mixed plastics’, or ‘mixed recyclables’, or similar. As long as the ‘evidence’ could be acquired, it didn’t matter whether the material was recycled, especially if the costs of export were low (even though the evidence was meant to confirm that the material had been recycled). The aim was to keep the costs of compliance low, and compliance was based on acquiring PRNs and PERNs. The ‘recycling targets’ were best considered as ‘targets to acquire evidence of recycling’ – the ‘evidence’ was not always linked to recycling activity.

The graphic below shows where the increase in UK packaging recycling (other than for wood) took place after the first compliance year: for plastics, there was a 43% increase in domestic recycling, and a 4,000% increase in recycling taking place overseas.

Net Change in Quantities of UK (non-wood) Packaging Recycled and Exported Since 1998 (Commencement of the Packaging Obligations)

Source: D. Hogg, A. Gibbs, T. Elliott, S. Russell, D. Fletcher and S. O’Brien (2011) Producer Responsibility: Policy Evaluation, Final Report to the Scottish Government, May 2011.

Up until the time when countries that had previously been receiving plastic (and other packaging waste) from the UK closed their borders to receiving those materials, around two-thirds of UK plastic packaging reported as recycled was being recycled overseas. Only now that markets overseas have shrunk has the proportion exported for recycling declined, yet the UK model still struggles to give genuine support to investment. This is understandable: after all, making medium- to long-term capital investments based on a speculative estimate of the potential value of credits (the value of which will decline, at the margin, as more investments are made) is a risky business.

So where does this leave us? Here are some key observations based on the desk study undertaken:

1.      Trading in recycling credits should not be considered a means of implementing EPR for the simple reason that the sum of money that obligated businesses will be required to pay for credits / certificates is extremely unlikely to provide sufficient funds from businesses to cover the full net (of material sales value) costs of end-of-life management. If, as I have suggested above, the principle – that businesses should cover the full net costs of end of life management – effectively defines EPR, then systems based on trading credits / certificates are not, strictly speaking, a form of EPR;

2.       Recycling credits are not a good way of implementing EPR other than in circumstances where, for some reason, there is no alternative, or where there is no readily identifiable entity with responsibility for (for example) managing waste from households. Such circumstances would raise wider questions about the state of waste management (and waste management law);

3.      The question of whether recycling credits are a good or a bad policy (even if they might not be “EPR”) is not related only to the quantum of revenue. The sum of revenue required to deliver compliance will vary from one year to the next, and the ultimate beneficiaries of the transactions between obligated businesses and those from whom they purchase credits / certificates are not well known. It is, for this reason, entirely possible for a system of tradable recycling credits to imply a low cost of compliance for business, whilst at the same time representing terrible value for the same businesses (what are businesses getting for what they pay?). The uncertain and fluctuating nature of the revenue stream is also far from optimal for supporting investment. This is especially important for plastics where the business case for dedicated investments to increase recycling beyond relatively low levels is heavily reliant on there being a supportive public policy environment.

4.      There has been some discussion, in India, about establishing minimum values for credits. But that does not – in the Indian context - resolve the matter of who benefits from the revenue. It would be different if, for example, government was auctioning allowances for a particular purpose, and if government benefited from (for example) the additional revenue which the setting of a price floor might generate, and where the setting of a floor price clearly incentivised further appropriate action. But that is unlikely to be the outcome in the Indian (or the Philippine) system, where setting a minimum credit price could simply channel excess profits into the hands of those whose activity generates certificates / credits;

5.      Where there is far from comprehensive access, by the population, to waste collection and management services of a reasonable quality – as is the case in India, the Philippines, Vietnam and Indonesia, but in many other countries besides – then EPR ought to focus on ensuring that revenue from levies on businesses is used to cover ‘the relevant costs’ of management of end-of-life packaging (and various other products). The ‘relevant costs’ could be a more-or less comprehensive list of the costs related to end of life management, including collection (including of waste not sorted for recycling), sorting, processing, clean-up (of mismanaged plastic), and disposal (of waste not recycled). EU countries have slowly moved to a position where more of these costs are required to be recovered from businesses, and some countries have taken this further, but this evolution has taken time (see Figure below). There is no need for countries implementing EPR anew to wait so long to do this: they should, as far as they feel able, leap-frog to a broad scope of costs to be recovered from businesses;

Scope of Cost Coverage under EPR within the EU (and links to specific Directives)

6.      Both India and the Philippines have established schemes covering plastic packaging only. This could be based on the view that little packaging made from other materials is not already recycled. In Indonesia and Vietnam, on the other hand, the aim is to cover a more complete range of packaging materials. Whatever is true today, it might not always be true in future, but perhaps the main reason for including all materials is recognition that plastic competes with other packaging materials. That does not mean that other instruments might not be used specifically targeting some plastic packaging formats (see below);

7.      Targets should be established in law, and should be set so as to establish expectations for improvement. The Indian targets for recycling provide a good example of this. The Vietnamese law, on the other hand, sets targets only three years ahead, and these are somewhat lacking in ambition;

8.      Targets should be set to deliver the right outcome. The Philippine targets, and seemingly also, those in Indonesia are established so that they cover a range of activities which are all seemingly rendered equivalent. So, in the Philippines, certificates need to be obtained to demonstrate a reduction in ‘plastic footprint’, but the law seems to define this so that it includes a wide range of activities, including disposal in sanitary landfills. Reflecting on the above discussion, it is unclear at what point in time acquiring certificates would require anything to be done which is not already being done: the additionality is likely to be limited, and the beneficiaries of the transactions unclear;

9.      It ought to go without saying that the means to assess progress towards the objectives of the targets being set should be clear. This means that where there is a target for recycling, then defining what is meant by ‘recycling’, in terms of when it can be said to have taken place, and at what stage in the life-cycle to ‘measure’ how much recycling has happened, should be clear. This clarity is not always present in laws being passed. It is far more problematic in the case of those laws where different activities can contribute to the obligations which businesses hold, as in the Philippines and Indonesia;

10.      EPR schemes are beset with what economists would refer to as ‘mechanism design’ issues: how does a policy-maker design a policy such that those affected reveal their true position? Will all businesses who are rerquired to register / comply do so? Will they identify themselves as falling below a de minimis threshold established in law which exempts some businesses? Will obligated businesses understate what they place on the market (makes compliance easier and cheaper)? Will recyclers overstate the amount they recycle (allows them to sell more credits / claim more revenue)? Will business groupings - compliance schemes / producer responsibility organisations - report faithfully to regulatory authorities (and what would they be required to do to check this)? Designing the mechanism so that ‘truth revealing’ mechanisms are in-built is challenging. Hence, there is usually a need for suitable sanctions to be applied alongside enforcement activity. These exist in some of the countries studied (Philippines, India, Vietnam), and whilst some sanctions have been applied in India already, it is the likelihood of being caught, the willingness to apply sanctions, and the magnitude of those sanctions that influences the extent of (non-)compliance. It is not always easy to know what this level of non-compliance is, so that random inspections of relevant businesses involved is likely to be necessary, with this backed by sanctions that will act as a significant deterrent in the face of the potential to be caught out. The costs of the means of enforcement should be factored into the costs to be recovered from businesses (for example, through registration fees);

11.      Given the above issues around potential non-compliance, it might not be sensible to offer businesses numerous different possible routes by which to comply. There are several routes to compliance in Vietnam, Philippines and Indonesia, and some of these – where chosen – would seem to imply regulators making an assessment of submissions from producers. Whatever the other merits, this likely poses further challenges to a regulator already challenged by the potential for misreporting and fraud highlighted above;

12.      Having said all of the above, the effect on small format flexible packages (there is no agreed definition of “a sachet”) is likely to be limited, although in India, subject to full enforcement, then as the targets move to the higher levels, the targets for recycling / recycled content for flexible packages might exert a stronger effect (much may depend on what proportion of the overall share of flexible packaging on the market is accounted by the small format flexibles placed on the market by those businesses who are obligated under the law);

13.      It follows that complementary instruments are likely to be required to address particularly problematic items of packaging. India’s Plastic Waste Management Rules initially provided for a ban on flexible packaging, but this was later revoked through an amendment (one of many) to the Rules (the relevant amendment came a matter of days after the ban should have taken effect). As we noted above, there is a distinction between cost recovery (EPR) fees, and taxes. There is no reason why countries should not deploy both, with taxes intended to generate an incentive that supports reduction / phase out of some packaging formats. Much is written about modulation of fees under EPR, but the scale of fee modulation required to change decisions regarding use of small format sachets is not yet in evidence anywhere. Incentives of the order US $5,000 -10,000 per tonne of plastics are likely to be required to meaningfully shift decisions regarding many of the plastic packaging formats currently in use. Taxes rise quickly to such levels from lower rates in earlier years might generate significant reductions in use, and could be deployed to send an economic signal to enforce bans intended to take effect in later years. To be clear, I do not consider such an approach - using taxes and bans - to be part and parcel of EPR: I prefer not to consider EPR as an all-embracing term covering every policy that could be deployed, and worry that doing so limits the range of policy instruments that we should be prepared to consider;

14.      Absolutely fundamental to a well-functioning EPR system is a well-functioning waste management system. It’s possible to have a well-functioning waste management system without EPR (but then, why would you?), but it’s not possible to have a quality EPR system in the context of a poor waste management system (with the possible – but limited - exception of a deposit refund scheme that achieves very high captures of the targeted products). In each of the countries reviewed, the EPR regulations / policy / law have clouded the picture regarding who has responsibility for what as it had been set out in waste management law. In particular, taken together, it became no longer obvious who had the fundamental operational responsibility for collecting waste, not to mention, who should cover the associated costs. In India, after many revisions of the Plastic Waste Management Rules (and the EPR Guidelines included as Schedule II of the Rules), the most recent changes have attempted to clarify this. This is such a fundamental issue, and given that we have an estimated 2.8 billion people in the world with no access to a decent waste collection service, it is unwise to draft legislation that fails to give clarity in this regard.

On the basis of some engagement in the negotiations around an International Legally Binding Instrument on plastic pollution, some additional points are worth making:

• ‘Producers’ need not mean ‘those who produce packaging’: the term ‘obligated business’ might be more appropriate than the term ‘producer’;

• EPR is fundamentally about businesses paying – it could be demystified somewhat by labelling it ‘recovering end-of-life costs from businesses’ (RELCoB);

• Understood in this way, RELCoB (EPR) could take on a range of institutional forms. It is desirable to retain an open mind given the variety of political and economic circumstances in which RELCoB / EPR might be deployed;

• A key issue that has to be clarified in a country’s policy and law is the extent to which businesses are required to take operational responsibility for managing waste. Where they have no operational responsibility, they pay e.g. local government to undertake the activity, but where they have operational responsibility, they cover the costs of operations which they arrange themselves.

• If businesses have no operational responsibility in the system (and their responsibility is purely financial), then the counterpart is that they can bear no responsibility for targets. Targets ought to be met by those with operational responsibility, and policy and law should be designed with that in mind. Note that it is common for collection to remain the responsibility of local government, but with businesses taking operational responsibility for later stages in the supply chain. Note that this split may determine what needs to set out in waste management / local government law, and what needs to be set out within law on RELCoB/EPR;

• For those activities where they have no operational responsibility, businesses have a right to expect funds they provide to be spent on those activities only, and to pay no more than what is required for efficient delivery of those activities. Whatever mechanism is chosen to recover costs from businesses, mechanisms need to be in place to ensure that what should be a cost recovery mechanism does not become, de facto, a tax (broadly understood, fees should be linked to a specific range of costs: taxes are payments made to a Treasury / exchequer for which there is no counterpart service);

• The issue of where operational responsibility lies ought also to feed into the way in which law makes provision for the inclusion (and equally, avoidance of exclusion – for example, through ensuring the design of procurements for service provision does not exclude waste pickers) of waste pickers. There might be a need for such provisions in both waste management law (e.g. regarding collection) and EPR law (e.g., regarding payment for delivery of materials, and / or for inclusion in e.g., sorting systems).

Much as one would like all this to be simple, it rarely is. Together, the body of waste management law, and policy regarding EPR / RELCoB affect everyone, and every business, in a given jurisdiction, as well as some who send products and packaging from overseas countries. What happens to ‘waste’ is also shaped almost entirely by the quality of policy and law, as well as its enforcement: where that law is absent or lacking, or where enforcement is weak, the result is what is euphemistically described as ‘mismanagement’ of waste. The empirical evidence of the shortcomings of what we currently have are all around us, and few countries could claim to have ‘got this right’.

It might be expected, therefore, that a fairly methodical approach to developing the body of policy and law is required, as well as practical attention to enforcement. What we witness all around us suggests we have a long way to go. That is extremely worrying, not only as regards matters of plastic pollution, but also, in respect of the no less urgent matter of reducing methane emissions from waste.

I write this as the COP29 has concluded, and in the midst of the INC5 meeting in Busan. There is worrying little evidence of joined up thinking on the matter of providing waste management services of adequate quality to the vast proportion of the population of the planet for which these services are not yet in place, and not planned to appear any time soon.

We need that to change. Fast.