Matthew Austin, Senior Market Analyst at Ecosurety, shares his predictions for how the PRN (Packaging Recovery Note) markets will react to the introduction of EPR next year.
Assuming there isn’t another last-minute delay, Extended Producer Responsibility (EPR) will finally come into force next year.
This long-awaited regulatory step-change transforms the way recycling obligations are calculated and introduces waste management fees to cover the costs incurred by local authorities. These changes will result in significantly higher compliance costs for many producers, especially brand owners.
How the PRN markets will react remains to be seen, but some predictions – and cautions – can be offered as we draw closer to 2025.
How will EPR impact obligations in 2025?
A core component of EPR is moving from the “shared responsibility” model (where recycling obligation is shared throughout the supply chain) to a “single point of compliance” (where each piece of packaging obligates a single organisation).
This aligns with the government’s polluter pays principle by placing more of the financial burden on the companies best placed to make more sustainable packaging decisions.
Alongside this, there will be changes to the way companies report their data, which could result in a sizable increase in the total amount of packaging reported.
The Department for the Environment, Food and Rural Affairs (Defra) seems to be pre-empting this in the latest draft statutory instrument, published in May, which provisionally sets much lower recycling targets for 2025.
Applied to the volume of packaging placed on market in 2022 – the last full year for which we have data – these targets would result in a significantly lower material obligation.
It is even more striking when we consider that 2023 also had a general obligation of 481K, which brought the total obligation to 7.9 million. As there is no general recycling obligation under EPR, this means our hypothetical 2025 obligation is a million tonnes lower.
This therefore begs the question: is Defra expecting the volume of reported packaging placed on market to be significantly higher under EPR?
The above illustration certainly indicates this. Indeed, if we apply a flat 10% uplift to packaging placed on the market in 2022, we get to a more “normal” obligation of 7.6 million tonnes.
Even so, this would still come under 2023’s total obligation if we account for the loss of the general recycling obligation.
While we cannot be certain, the sizable reduction in recycling targets combined with the removal of the general recycling obligation indicates that UK obligation will be lower in 2025 compared to recent years.
How will the PRN markets react?
Following the logic of supply and demand, a reduction in obligation (demand) should lead to lower PRN prices (supply) as markets become oversupplied.
This could be further compounded by there being less demand for the cheaper PRN classes, such as paper and wood, due to the removal of the general recycling obligation.
We might therefore expect PRN prices in 2025 to be closer to 2021 levels – the most-recent “cheap” year – rather than the post-Covid highs observed more recently in 2022 and 2023.
While producers would certainly appreciate these lower prices, especially given that they will also be expected to pay waste management fees, it would not be good for the recycling industry as a whole.
PRNs generated £596 million in revenue for recyclers last year, the majority of which was invested in improving infrastructure, collection and capacity. This compares to just £140 million in 2021, when prices were much lower.
Put simply, lower PRN prices mean less revenue for recyclers, which is bad for the long-term growth of the sector. It would also be bad for the UK as a whole, especially in the context of the importance recycling plays in the government’s current net zero strategy.
Beyond this, persistently low prices can disincentivise the generation of PRNs altogether, especially in materials where the outputs of recycling have a lower intrinsic value (such as paper).
Looking beyond 2025
The draft statutory instrument also sets provisional recycling targets beyond 2025. However, these generally remain below current levels until much later in the decade.
For example, plastic is not due to return to the 2024 target (61%) until 2028, while the aluminium recycling target will still be lower in 2030 (67%) than it is in 2024 (69%).
While the provisional nature needs to be borne in mind, the targets do little to suggest that obligation will return to “normal” levels in 2026 either – or beyond.
Strikingly, even applying the 2030 targets to the volume of packaging placed on market in 2022 still results in a lower overall obligation.
The PRN system only functions properly when it is a virtuous circle: producers pay recyclers to meet their legal obligations, and recyclers invest the revenue so that more waste can ultimately be recycled. If that revenue decreases due to an artificial lowering of demand, producers win at the expense of reprocessors.
While our focus at Ecosurety is on securing the best prices for our members, it is imperative that prices also remain at levels that can sustain a buoyant and growing recycling sector.
This will be even more crucial in the context of the EU’s Packaging and Packaging Waste Regulation, which will mandate minimum recycled content levels for plastic packaging in the coming years and increase demand for recycled material.
Where to next?
Based on the available information, it seems likely that recycling obligations will be lower in 2025 than at present.
It is of course entirely possible that the volume of packaging reported to the regulators will increase to such an extent that obligation will actually be higher under EPR.
However, this seems unlikely in the context of reduced recycling targets and the removal of the general recycling obligation.
Perhaps this is a deliberate attempt by Defra to lower the recycling obligation? It would certainly soften the blow for producers next year, many of which expect to pay significantly more in waste management fees than they currently do in PRN costs.
Recycling targets offer a mechanism through which both sides of the supply and demand equation can be kept in balance; they should be carefully calibrated to ensure that the PRN system continues to function well for years to come.
Defra should reconsider the provisional recycling targets to keep the markets healthy.
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