Packaging Afterlife Becoming Shipper’s Responsibility

Over the past two decades, more and more countries have implemented Extended Producer Responsibility (EPR) programs to address the growing cost of packaging disposal and alleviate the burden on governments to pay for it. The programs, which shift the cost of collecting and recycling onto those who place the packaging on the market (in most cases, the obligated companies are brand owners or first importers), have been in place in Europe since the 1990s and have been established more recently in parts of Asia, Latin America and Canada. Now, interest in EPR is gaining strength in the U.S. as local governments look for ways to ensure funding of recycling and hold brand owners more accountable.

The idea behind EPR is to increase recycling by funding the infrastructures and to internalize the costs of recycling services into the product. Many, but not all, EPR laws also privatize the recycling systems. It is also intended to incentivize companies to choose materials that are less harmful to the environment by holding businesses financially responsible for their disposal. To accomplish this objective, the programs charge brand owners for what they put on the market—and that doesn’t just mean the packaging directly around the product. The scope of EPR can extend to transport packaging, service packaging (e.g. bags, gift wrap, or foodservice ware) and even to printed inserts and coupons the consumers take with them when they leave the store. In some jurisdictions, just business-to-consumer packaging is covered while in others, such as Belgium, both business-to-consumer and business-to-business is subject to EPR.

Fee or Tax?

In most countries, the charge for packaging recovery is a “fee,” but in some, like Denmark, it is a tax. While the specifics of EPR systems can differ by country, each requires obligated companies to pay compliance organizations a specified amount based on the amount (weight) and type of material for every piece of product packaging they sell there. These fee rates are adjusted each year by the waste recovery organizations according to formulas that consider a variety of factors, including collection, handling, sorting, processing, infrastructure, and administrative costs, offset by the value of the material collected.

Generally, the more difficult the material is to recycle, the higher the fee. For example, plastics, laminates and composites can cost up to 500% more than other materials. And in some jurisdictions, brand owners face an even stricter penalty when they introduce packaging that contaminates the recycling stream. In France, a disruptor fee of an additional 50% to 100% is imposed on plastic PET bottles containing aluminum (labels, plugs, caps, inks), using PVC sleeves, or silicone, as well as on glass packaging with ceramic or porcelain caps.

Conversely, to drive better design decisions, some jurisdictions award bonuses to proactive brand owners. In France, companies receive a two percent reduction in fees if they implement a preventative measure like weight or volume reduction in their packaging and a 10% discount for using recycled content. 

Fee Comparisons

To illustrate the potential impact of different packaging designs on the bottom line, below is a fee comparison of clamshell and blister packaging.

Rigid Reporting Requirements

Currently, more than 50 countries worldwide require companies to track and submit data on their household packaging to a waste recovery organization they join. Some countries have just one official recovery organization, like the Canadian programs, while in others, such as the U.K. and Germany, companies have a choice of competing schemes that assess varied—sometimes negotiated—fees for different materials.

Brand owners, private label retailers and importers who bring into the country the materials that end up in the waste stream must pay the required fees to the recovery organizations they join to fund the collection, transportation, sorting and recycling of the packaging based on the actual amount sold in the market. The exception? Producers with a relatively small amount of gross sales or packaging in that particular country are either not obligated or could pay a small fixed fee.

To meet the compliance requirements in the various jurisdictions, a company must follow strict guidelines. Most companies designate a primary contact who can act on behalf of the organization to gather the requisite information, file the report and authorize payments. This individual would ensure the company follows critical steps in declaring their packaging, including:

∙ Filing Deadlines. The reporting and payment deadlines can vary both by country and sales volume. In some jurisdictions, like Ontario, Canada, reporting is annual. In other jurisdictions, like Germany, the frequency could be as often as monthly.

∙ Submission Formats. Most jurisdictions allow packaging data to be uploaded via the web or input manually on a paper declaration form.

∙ Accurate, Standard Data. For the reports, complete and accurate bill of materials data is required, including:

-Weight

-Material type

-Packaging type (bottle, box)

-Form

In some jurisdictions, there are relatively few material categories, while others have very complex systems with 25 or 30 different material types.

Costs of Non-Compliance

Since the waste recovery organizations use the fees collected by its members to cover the collection and recycling of their packaging at its end of life, compliance is critical to reduce the number of “free riders”—producers who do not pay fees yet whose materials are collected by an organization. Most programs have government backdrop regulations that punish free riders with fines and penalties.

Governmental or third party organizations are charged with setting EPR standards and monitoring compliance. In most countries, to ensure accountability, the packaging reports are subject to internal checks by the organization as well as periodic audits by external firms on a selection of member filings each year. In Germany, the checks are stricter: any company that places more than a certain amount of packaging material on the market must have their data audited by an auditor, tax consultant or certified accountant registered in the country.

For late filers, financial penalties and interest charges will be incurred. And for inaccuracies in the reports, companies may be required to pay a percentage of any fee deficiencies plus interest. In some cases, the ramifications even extend beyond dollars; the products of non-compliant producers can be banned from sale in the country.

Highly publicized cases reveal that enforcement isn’t taken lightly. For example, in 2009 in the U.K., soft drink company Red Bull was fined 271,800 British Pounds, plus costs and compensation and past fees, for not meeting its requirements to recover and recycle packaging waste for eight years between 1999 and 2006, and failing to register with the Environment Agency in London as a producer of packaging waste.

Data Collection Challenges

To avoid enforcement actions, data on packaging materials must be complete and accurate. And the methodology for data collection must be documented, along with any assumptions, such as averages. Rather than unduly overwhelming  brand owners, systems often allow companies to use average data based on a sampling of real packaging to estimate fees. Yet, even when these simplified methods are allowed, the reporting companies must still ensure they review the data regularly so it reflects their product mix as it changes.

Another approach to ease the burden is the use of “calculators” made available by the waste recovery organizations that enable companies to estimate their packaging tonnages by utilizing standardized package weights for typical product types. While simpler, companies risk paying as much as 40% more in fees.

To avoid overpaying, it’s best to use real data. Since each jurisdiction’s reports are unique, new EPR laws can be implemented with different data requirements, and schemes can change. A good baseline is to start with a core set of data elements, then collect the information with a sufficient level of granularity to meet any reporting requirements.

For many companies, the data are manually collected and managed at the local country level using a variety of spreadsheets and systems, then populated in the right format when due. Not only is this an error-prone approach, reporting internationally can be labor intensive and expensive.

Compounding compliance with this process are ever-changing environmental regulations that leave many companies understaffed or ill-prepared to stay abreast of updates, what they mean in terms of data requirements, and any impacts on reporting.

Centralizing Data

For multinational brand owners, the most effective way to manage packaging data is to take a centralized approach. By maintaining the information for each SKU sold in one database, it can be used and reused for various EPR reporting requirements globally—as well as reporting for retailer scorecards, ISO/CEN standards and internal environmental metrics .  Alleviating the need for each financial office in every jurisdiction from maintaining the data enables brand owners to reduce staff while maintaining the same level of data integrity.

To furthering the savings from a central repository, many companies partner with external software solutions to reduce the cost of compliance through:

∙ Fewer FTEs per country required by eliminating data entry, transfer and communications;

∙ Lower risk of non-compliance—and resulting penalties – with accurate and auditable data;

∙ Reduced risk of overpaying EPR fees through the use of real data;

∙ More cost-aware packaging designs due to increased transparency into the cost of EPR compliance obligations.

A variety of data management tools on the market can help companies gather their data, ensure data accuracy, complete the required forms, and submit them on time. Such tools are increasingly being implemented by multinational corporations, including the Estee Lauder Companies, as reported at the Sustainable Packaging Forum held in Pittsburg, PA, on September 13, 2012.

At the event, John Delfausse explained that Estee Lauder sells over 25 brands in 150 countries and has 63,000 SKUs with different packaging systems made with 250,000 components from 200-plus suppliers. The company pays EPR fees in 50 countries so accurate data is critical to fulfilling its legal obligations globally. It is also challenging. To ensure its compliance, the organization adopted a centralized system (redipoint).

Before, Estee Lauder managed its data locally in each country. The company needed a way to clean up its data, centralize it and streamline new input to:

∙ pay correct fees

∙ establish the company’s environmental footprint

∙ do CSR reporting

∙ produce required technical files

∙ complete packaging prevention plans

∙ allocate the fees paid to the appropriate brand

Using this tool, Environmental Packaging International (EPI) staff work with each Estee Lauder office worldwide to maintain a central repository for required data on all of the company’s packaging, including such data as: weight; material type; component type (such as a bottle, cap or label); packaging level (e.g. transport packaging); color; length, height and width; pre- and post-recycled content; and essential requirements data. New information added is automatically mapped correctly, there’s sufficient granularity, and, through regularly scheduled uploads, the data is up-to-date for timely, accurate report submissions to waste recovery organizations.

Victor Bell is president of EPI, a consultancy specializing in global environmental packaging and product stewardship.