Recycled content: Let's talk about tax

Will a tax on minimum recycled content in plastic packaging drive remand for recycled material?

On 29 October 2018, Chancellor Philip Hammond delivered HM Treasury’s Autumn Statement, announcing that the Treasury would be introducing a tax on the manufacture and import of plastic packaging containing less than 30 per cent recycled plastic, with a view to introducing the new fiscal measure from April 2022.

The move is part of the government’s attempts to stimulate demand for secondary materials in plastic packaging manufacturing, in a bid to reduce the use of virgin plastic and drive investment in domestic reprocessing infrastructure.

The need to increase the UK’s domestic plastic recycling capacity and make increased use of recycled content is being driven both by the increased awareness of the environmental impacts of plastic waste and by the closing of multiple export routes for plastic waste following China’s waste import ban – particularly challenging to the UK given that around half of the
UK’s 46.2 per cent plastic packaging recycling rate is accounted for by exports.

The government’s proposal has already garnered significant public and industry support. An exploratory consultation on what has been dubbed the ‘Plastics Tax’ held in 2018 received more than 162,000 responses across the two-month consultation period, the largest ever response to a Treasury consultation, and a second consultation closed on 12 May after a period of intense industry debate. The UK Plastics Pact has seen UK businesses across the packaging value chain voluntarily commit to achieving an average 30 per cent recycled content in all plastic packaging by 2025.

It would be easy for the government to forge ahead with the tax on the basis of such strong public support for action, but there remains much to consider before implementation – including whether a tax is actually the most appropriate way to achieve what the Treasury intends it to.

What is the government proposing?

Fundamentally, the government proposes to set a minimum level of 30 per cent recycled content for plastic packaging, which includes pre-consumer material – off-cuts from the production process or waste plastic that has not met colour or quality specifications during that process – and post-consumer material, in order to ‘maximise the resource productivity of both sources of plastic waste’. The Plastics Tax consultation document states that all plastics, including bio-based plastics and compostable, biodegradable or oxo-degradable plastics, will fall within the scope of the tax, while each individual packaging component, for instance lids or pots, will also be liable.

Any liable businesses – likely excluding small operators – producing packaging containing less than the minimum threshold of recycled material will be charged a flat rate of tax, ‘significant enough’ to change manufacturer behaviour. The tax will be charged at ‘the point where a UK manufacturer commercially exploits chargeable plastic packaging through sale or supply... to be packed/filled’, with imported plastic packaging being taxed at the first point of sale or supply in the UK. UK manufacturers that export packaging will not have to pay the tax, and could receive tax credits if they pay the tax then decide to export.

Liable businesses will be required to keep evidence of the levels of recycled content in their products, and HMRC will adopt similar compliance powers to those already in place to administer other taxes and duties, with the right to detain non-compliant plastic packaging.

A ‘transformational change’?

On a base level, the tax has been welcomed by industry. Richard Kirkman, Chief Technology and Innovation Officer at waste management company Veolia UK & Ireland, which runs the high-density polyethylene (HDPE) plastic milk bottle reprocessing plant in Dagenham, recalls the “transformational change” delivered by the landfill tax in driving alternatives to landfill, saying: “Tax is a significant lever in decision making and behavioural change, clearly a fiscal tool that changes behaviour and well-proven to be effective even at low levels.”

While “more tools need to be made available rather than rely[ing] on a single blunt instrument” – tools such as extended producer responsibility (EPR) to recover packaging and ensure the funding of collection systems and reprocessing infrastructure – Kirkman states that the industry is “ready to invest” in infrastructure if the tax is brought in.

Environmental think tank Green Alliance previously backed the introduction of minimum recycled content requirements, stating that adequate pull measures could lead to recycled plastics providing 71 per cent of the raw material needed by UK manufacturers.

The rate of tax will be a key determinant in its ability to incentivise the increased use of recycled content. Dominic Hogg, Chairman of environmental consultancy firm Eunomia, states: “In principle, such a tax should drive demand for secondary materials, the more so the higher the tax and the broader its scope”.

Richard Parker, an independent packaging and sustainability consultant who has worked with companies such as Unilever and Iceland Foods and has been a prominent voice in promoting alternatives to single-use plastic packaging, adds: “The level of tax should be such that it influences the choice of materials at the design phase of development, encouraging the selection of more sustainable alternatives in order to be successful.”

Parker underlines that the “key issue with plastic is that it is a brilliant and cheap solution for most packaging applications” while emerging alternatives such as cellulose are “significantly more expensive”. Parker advocates a tax rate of more than £2,000 per tonne for plastic packaging that falls short of the minimum required recycled content – if the average weight of a 500-millilitre PET plastic bottle is around 20 grammes, that would amount to an extra four pence per bottle. A rate of less than £1,000 a tonne, he states, could have little impact as many packaging plastics, particularly flexible plastics, are very light and such a rate would not be enough to incentivise greater recycled content over virgin plastic.

Why only plastic packaging?

With the sea change that has taken place in the public perception of single-use plastic and its impacts on the environment, it is understandable that the government would seek to increase the sustainability of this material. But plastic is not the only packaging material on the market, with metal, paper and cardboard and glass all frequently used in common packaging applications. So why is the minimum recycled content requirement not being applied to these other materials?

On a base level, they do not need them – recycling rates and levels of recycled content are already high for these materials, with established collection routes, sorting and reprocessing infrastructure and end markets. Metal (steel and aluminium) packaging recycling rates currently stand at a combined 71.3 per cent, according to the latest UK Statistics on Waste, while fibre (paper and cardboard) and glass stand at 79 per cent and 67.6 per cent respectively.

Looking beyond the present high recycling rates, these materials are by their nature very different to plastics and have their own relationships with recycled content. Simon Weston, Director of Raw Materials at the Confederation of Paper Industries (CPI), states that a minimum recycled content requirement for paper and cardboard packaging would be a “needless exercise”, given the majority of cardboard packaging is made from 100 per cent recycled fibre, while “new fibre is constantly required to replenish material lost in the recycling process” due to its physical properties.

With regard to metal packaging, Rick Hindley, Executive Director of the Aluminium Packaging Recycling Organisation (Alupro), states that a minimum recycled content requirement “would not be appropriate” because the end markets for metals already exist; plus, it is “impossible” to determine recycled content given primary and secondary metals are “structurally identical”. For glass, British Glass states that ‘most bottles and jars made in the UK routinely contain significant amounts of recycled content’ – 38.5 per cent for all colours – however, ‘demand for cullet often outstrips supply’. In other words, the markets exists, the problem is getting the material to these markets rather than stimulating demand.

How to determine recycled content?

A number of questions still need to be resolved if the tax on plastic packaging is to achieve its desired outcomes. Determining the level of recycled content is a primary challenge: “There is a risk of fraud with producers claiming that packaging contains recycled content when it does not in order to reduce the tax payable,” states Hogg. “There is currently no robust way to verify recycled content in a finished product and therefore a chain of custody which verifies recycled content is required.” Eunomia’s Demand Recycled report from November 2018 advocated the concept of a Secondary Materials Certificate (SMC), which would be generated at the start of the material supply chain and then used along the chain to verify the origin of the material is ‘secondary’ in nature.

This issue is accentuated when factoring in plastic packaging imported from abroad, with concerns that foreign manufacturers could potentially gain a competitive advantage over domestic UK producers by claiming a higher level of recycled content in their packaging than is actually present, as the costs associated with using virgin plastic in manufacturing are lower than using recycled plastic.

This is a concern expressed by Jessica Baker, Managing Director of polythene film reprocessor Chase Plastics, who raises questions about how the minimum content requirement would be enforced for overseas producers: “The Plastics Tax will not benefit the UK reprocessing sector if it drives UK packaging companies out of business, whilst sucking in packaging imports with dubious recycled content credentials. This tax is going to be extremely hard to police, and we fear another situation like the current PRN system, where rigorous auditing is applied to the UK, but not beyond.”

Hogg states that a border tax adjustment (BTA) would be required in order to ensure imported packaging is subject to the same tax regime as domestic producers. However, Eunomia currently considers BTA for plastics packaging to be “too complex” – the consultancy dismissed the idea of a tax on this basis in Demand Recycled – although acknowledges that “new approaches to data capture might change this”.

What types of plastic should be included?

Another issue that separates plastics from other packaging materials is the diversity of polymers and their applications. While metal, fibre and glass are consistent in their chemical make-up, plastic comes in many forms, such as polyethylene terephthalate (PET), polypropylene (PP), polythene (PE) and low- and high- density polyethylene (LDPE/HDPE). These polymers are then used for different applications – such as food trays, bottles and tubs – each with different requirements, with food-grade packaging in particular putting a premium on safety and hygiene.

Most food packaging is made from PP, but there is currently a lack of infrastructure available to produce recycled PP that is safely decontaminated and meeting EU standards for food packaging. Indeed. once recycled, many plastics do not maintain the same quality required to be used again in their original application, with most being effectively down-cycled into different uses.

Baker highlights this issue in the case of polythene film, asserting that 30 per cent is “too high” a requirement for polythene as “the majority of post-consumer film packaging has gone into non-packaging applications, like bin liners, where issues of odour and colour clarity are not an issue”.

Despite these complexities, there still appears to be a desire in the industry to get this tax through. Kirkman states that “it is too complicated” to apply different minimum requirements to different polymers and “we have to forego some accuracy for the benefit of simplicity and to maintain a lower administrative burden”, a position echoed by Parker.

This article was taken from Issue 96

However, the government’s proposal currently places liability on biodegradable and compostable packaging, which can be disposed of in industrial composting facilities. Given these plastics are designed to biodegrade or be turned into compost, it is unclear how they will be able to comply with minimum recycled content standards, since they will not be able to be recovered for reprocessing into new compostable plastics. Parker states “if the tax is applied across all materials that look like plastic then it will stop the development of safer alternatives” and that the tax should apply only to plastics “derived from fossil fuels” or those from renewable sources that are designed to match their structure.

A false dawn?

It is evident that many questions remain, and the responses to the second Plastics Tax consultation will be instructive in answering these. As it currently stands, it is not clear that the government’s proposal is sufficiently coherent to achieve its desired objectives; instead, it appears to be being carried along on the wave of enthusiasm for tackling the plastics problem, eager to be seen to be doing something. The public and industry are willing to make changes, but the well of goodwill will swiftly run dry if any policy designed to increase the use of recycled content and increase domestic reprocessing capacity is not well thought through.

Currently, the issues posed by the inclusion of compostable plastics in the liability for the tax, the auditing of recycled content in imported packaging and the application of a uniform minimum content requirement across all forms of packaging, regardless of their specific applications and requirements, place the success of the government’s proposal into serious doubt. That the government is taking the issue of recycled content seriously provides succour to those that want to get a handle on the plastic waste crisis; but we may only get one opportunity to implement this and the issues raised must be resolved with input from across the value chain to ensure that this policy is not a false dawn.