Producer responsibility for packaging: Inadequate legislation can lead to distortion of competition and chaos in waste handling

Press release

Producer responsibility for packaging: Inadequate legislation can lead to distortion of competition and chaos in waste handling

Soon, Danish companies will have to pay for the handling of their packaging waste through the so-called Extended Producer Responsibility for packaging - a task estimated to cost the affected companies billions of kroner annually to solve. The legal framework is still in development. Now, the two producer responsibility organisations, Emballageretur and European Recycling Platform (ERP Denmark), warn that the financial model proposed for the upcoming Extended Producer Responsibility could distort competition for Danish companies. Instead, they point to an alternative solution.
Dato: February 29th 2024

By: Morten Harboe-Jepsen, CEO of Emballageretur, and Torben Frahm, CEO of ERP Denmark.

Cleantech Watch has published this article.

The upcoming Extended Producer Responsibility for packaging is estimated to cover 41,000 companies. Their 1.1 million tons of packaging will need to be handled – a comprehensive task estimated to cost the affected companies DKK 2.35 billion annually.

Most companies choose to lift the Extended Producer Responsibility collectively through Producer Responsibility Organisations (PRO’s), such as Emballageretur and ERP Denmark, who have been handling the Extended Producer Responsibility for electronics and batteries since 2005.

Both organizations also assist companies in managing the upcoming Extended Producer Responsibility for packaging and are part of the stakeholder group supporting the Ministry of the Environment in shaping the legal framework.

It is precisely the legal framework that gives rise to significant concern.

The consequences of the model currently proposed to cover municipalities’ costs for collecting packaging waste have the potential to undermine waste management – and this could have enormous economic costs for the Danish companies covered by the Extended Producer Responsibility for packaging.

This issue has been raised with the Ministry of the Environment several times, most recently in a consultation response submitted at the end of January.

Wide-ranging prices for the same task

In particular it is the so-called ‘allocation mechanism’ proposed in the legal framework that is concerning.

The Extended Producer Responsibility for packaging entails several practical tasks – including the collection of packaging waste.

Municipalities collect the packaging waste, and companies pay the municipalities’ costs through the Extended Producer Responsibility.

The allocation mechanism distributes municipalities among the PROs in a way that reflects the market share represented by the PRO’s member companies in terms of the volume of packaging waste. The PRO then compensates the municipalities it has been allocated on behalf of its member companies.

As it stands, the legal framework for the Extended Producer Responsibility for packaging proposes a method where the geographic allocation of municipalities becomes skewed in relation to unit prices because the authorities will compensate the municipalities based on the actual cost level.

This is where the imbalance arises. Because municipalities have different waste management systems that vary greatly in price per inhabitant, they also have disparate cost levels.

This effectively means that two identical producers, each a member of a different PRO, could be subjected to widely different demands for financial compensation for a service that is fundamentally the same.

This, in itself, is not a problem, but it becomes one if not addressed in the legislation, which is not currently the case.

We advocate for competition when it is based on the individual producer’s ability to influence their own costs and business choices. However, when competition is created based on external, unequal costs that disregard the producer’s actual competitiveness, it becomes an issue.

Management of packaging waste may collapse

The problem will become apparent as early as this summer. From April to August, companies must register with the authorities, report their expected quantities of packaging, and decide whether to join a PRO.

However, the allocation of municipalities and thus the costs, will occur at a later date. Therefore, at present, it is a lottery for companies whether they end up in a PRO with low or high costs. Companies are bound to their membership in their PRO for a minimum of one year, after which they can switch PRO if they wish.

With the current financial framework, the natural mechanism will therefore be for companies to gravitate towards the PRO with the lowest municipal costs. 

This movement of members represents two problems:

  1. The PROs are bound by their financial and practical obligations under the Extended Producer Responsibility for a period that does not directly align with the allocation period. It is expected that the PRO allocated to municipalities with the highest costs will lose members. When the membership periods of the members are staggered relative to the allocation period, the PROs will be obligated to fulfill their responsibilities under the Extended Producer Responsibility for an extended period, even though the member – and thus their financial contribution – will disappear. Ultimately, this may mean that the PRO cannot fulfill its part of the Extended Producer Responsibility. This will result in losses for the municipalities and likely lead to the collapse of packaging waste management in a very short time.
  2. The movement of members will also create an incentive for a monopoly with only one consolidated PRO, leading to a lack of competition in terms of price, service, innovation, etc.

This can happen regardless of whether companies choose Emballageretur, ERP Denmark, or a third, fourth, or fifth collective scheme.

Financial clearing house creates balance

Instead of the current solution, authorities could establish a so-called ‘financial clearing house’.

With a financial clearing house all information about municipalities’ costs is collected and distributed equally according to market share. This way, companies achieve the same cost level, where the only variable parameters are types and composition of packaging, as well as volume.

These parameters are under the control of the companies themselves, and they can compete freely on how adept they are at using packaging in the most sustainable way possible, thereby reducing their costs associated with the Extended Producer Responsibility for packaging.

Company-specific information is sensitive data that must not be shared or disclosed. Therefore, it is crucial that a financial clearing house is established and operated by the authorities. A financial clearing house is an efficient way to ensure a fair and equitable distribution of costs. At the same time, it is relatively simple to establish and subsequently operate. It is an effective solution that can avert a potentially enormous problem.

Therefore, we strongly hope that the Ministry of the Environment will reconsider and adjust the financial framework for producer responsibility for packaging so that we together can find a suitable solution for everyone.

Emballageretur har sendt vores høringssvar på Miljøministeriets udkast til ændring af lov om miljøbeskyttelse (udvidet producentansvar for emballage og engangsprodukter mv.)