The Deposit Return Scheme - A Window Into What's To Come?

15th March 2023

A report by the Fraser of Allender Institute lays out the history and what maybe to come with the Deposit Return Scheme for Scotland.

The Scottish Government is introducing a new scheme aimed at improving recycling rates and reducing emissions associated with bottled and canned drinks. The Deposit Return Scheme (DRS) will charge consumers an additional 20p per unit that can be reclaimed when the empty bottles or cans are returned to designated return points.

On the face of it, many would assume that the DRS is simply about encouraging consumers to recycle more by giving them a financial incentive to do so. But in practice, it sets up a whole new system for managing bottles and cans, with associated costs.

The DRS may have only recently become headline news, but it has been years in the planning. The process for designing and monitoring the implementation the DRS has fairly rigorous (not always the case as our recent article discussed). Additional costs for producers have always been there.

The implementation of the scheme has been on the go for a couple of years now, and there have been a fair few issues that have come up a long the way which have been summarised in a series of Gateway Reviews.

There are still a number of issues to address that the last Gateway Review laid out in December 2022, but an additional layer of uncertainty now pervades as a result of comments made by the Scottish Secretary Alastair Jack about whether the UK Government will make necessary exclusions to the UK Internal Market Act.

The three leadership candidates have also all made comments which suggest that the DRS may be reformed of delayed.

This article does not go into all of the controversies with the DRS that may or may not affect its launch in August 2023 (these are well summarised in a recent blog from the SPICe available here).

Instead, we look in detail at one of the issues raised: the cost to business. We look at the intentions set out in the policy design and where particular issues lie for producers, retailers and hospitality businesses.

Financial implications for producers are part of the policy design
One thing has always been clear: the DRS will have a financial impact on producers - indeed that is partly the point of the scheme. Similar schemes around the world are designed to push the financial cost of recycling from consumers and public authorities onto producers, in line with the ‘polluter pays' principle.

The DRS will present a financial cost to some firms, raise the price point of drinks in shops and create different trading conditions in Scotland versus rUK. These are not unintended consequences of the scheme or evidence of poor implementation. They are part of the policy design.

The 2019 Business and Regulatory Impact Assessment states:

"As a form of producer responsibility, it will require those businesses to take responsibility for the environmental impact of their products and for the costs of managing products at end of life."

The costs include the set-up costs for separate labelling (or face an additional fee), increased inefficiencies due to the ‘production, logistics and storage due to creation of a new market', and the fees charged to Circularity Scotland. All these feature in the Full Business Case, produced back in 2019 (see link in timeline).

How much the handling fee will be (the amount each producer will have to pay to help fund the scheme) have already been amended and may change again before launch, but as of December 2022 they were expected to be around 2p for plastic bottles and cans, and 4p for glass bottles[i].

Uncertainty in these costs is not ideal, but this will continue, with the fee reviewed regularly. The producer fee is a balancing item that makes up the shortfall between operating costs and income from the sale of recyclable items. As costs and income change over time, so will the producer fee[ii].

Producers who import into Scotland are under the same obligations as Scottish producers. This may change the extent to which these importers decide to sell in Scotland but clearly is an important principle to ensure a level playing field.

Although there will be producers who are against the scheme in principal, the biggest concern voiced at the moment appears to be timing. Coming so soon after Covid-19 and at the same time as producers are struggling with high input costs. The government has already exempted ‘small' producers from paying the upfront flat registration fee, but the other costs will remain.

However, it is unlikely that the costs associated with the DRS for small producers could ever be eliminated. Concerns over whether the costs are enough to lead to Scottish producers to limit or stop production completely are legitimate, but permanently exempting small producers from the scheme would seriously undermine the aims of the policy as well as providing a hefty distortion of incentives for business who would otherwise expand production.

Read the full report HERE