Deposit return scheme for Scotland: full business case stage 1

Phase 1 of the Full Business Case (FBC) that underpins the design for the deposit return scheme for Scotland.


1 Strategic Case

Strategic Case Key Messages:

  • The Scottish Government is committed to creating a more circular economy, preventing litter and addressing climate change.
  • Current recycling rates and rate of growth, the quality of recycled material, the impact of litter in Scottish towns and countryside and the economic and social opportunities offered by addressing these issues reaffirm the need for action.
  • Four investment objectives are identified for assessing the impact of a Scottish Deposit Return Scheme (DRS):
    • Improving recycling quantity.
    • Improving recycling quality.
    • Encouraging wider behaviour change around materials.
    • Delivering maximum economic and societal benefit for Scotland during the transition to a low carbon world.
  • This Full Business Case (FBC) Stage 1 identifies a preferred scheme design - developed from work completed for the Outline Business Case (OBC), submissions received to the public consultation, additional data gathered, and modelling work that has been undertaken since the OBC was completed.

1.1 Introduction

1.0 This Full Business Case (FBC) has been prepared following the HM Treasury Five Case Model of business case development. It is published to set out the approach to developing a preferred scheme design in a clear and transparent way. This FBC is being presented in two stages. Stage 1 provides the reasons for the preferred scheme design and commercial approach but not the final detail. Stage 2 will provide this complete level of detail.

1.1 The Outline Business Case (OBC) identified four principles of the Deposit Return Scheme (DRS) for Scotland. These are now referred to as investment objectives to reflect FBC best practice.

1.2 This Strategic Case seeks to demonstrate that the spending proposal provides synergy and strategic fit and is based on a robust and evidence-based case for change. This includes the rationale of why intervention is needed, as well as a clear definition of outcomes and the potential scope for what is to be achieved.

1.3 This section sets the international and European strategic drivers for change with a focus on the Scottish policy and strategic context.

1.4 The Scottish Government consultation (Paragraph 2.10 in the Socio-Economic Case) received 3,215 submissions, which included 1,048 campaign responses organised by campaign group Have You Got the Bottle[2]. Of the remaining responses, 159 were from organisations and 2,008 from individuals.

1.5 Support amongst the public for the introduction of a DRS is high, with a poll for ITV Tonight[3] (2,000 people, UK) indicating that 75% of people would support the introduction of such a scheme.

1.6 There was widespread agreement amongst both organisational and individual respondents that a well-run and appropriately targeted DRS could provide opportunities in relation to improving the environment, changing people's attitudes to recycling and littering, and building the circular economy.

1.7 In terms of circular economy benefits, a DRS will help to target 'leaks' (where the material is discarded and no longer retained in the circular loop) of valuable resources, maximise their value and ensure they become an important feedstock for high value re-processing. This will maximise the economic impact for Scotland and create employment opportunities across a range of roles.

1.8 Where possible, consideration is also given to the carbon impact of a DRS. This is a measure of the whole-life carbon impacts of waste, from resource
extraction and manufacturing emissions, right through to waste management emissions.

1.9 DRS will operate as an instrument for implementing Extended Producer Responsibility, which is defined by the Organisation for Economic Co-operation and Development (OECD) as "an environmental policy approach in which a producer's responsibility for a product is extended to the post-consumer stage of a product's life cycle"[4]. It is important that these are proportionate to the benefits gained and look to mitigate any unintended consequences on any actors through scheme design.

1.1.1 Strategic Context

1.10 To realise these circular economy benefits and minimise the challenges, it is necessary to design a scheme tailored to Scotland's geography, population distribution and economic, environmental and social ambitions.

1.11 This approach will be considered within the international and European strategic drivers for change with a focus on the Scottish policy and strategic context (see Figure 1).

Figure 1: Scottish, European and International Strategic Context

Figure 1: Scottish, European and International Strategic Context

1.1.2 International and European Strategic Context

1.12 In 2015, the Scottish Government committed to support the United Nations Sustainable Development Goals[5]. The ambition behind the goals is to end poverty, protect the planet and ensure prosperity for all as part of a new sustainable development agenda. A DRS will have a positive impact on a number of these goals, most explicitly Goal 12: Responsible Consumption and Production.

1.13 The United Nations Draft Resolutions on Marine Litter and Microplastics[6] (2017) and Management of Marine Debris[7] (2014) both reference the role that deposit return schemes can have on preventing the harmful escape of plastics into marine environments.

1.14 The European Parliament voted on 24 October 2018[8] to introduce a number of new requirements related to the use of single use plastics within the European Union. This included a requirement on member states to separately collect and recycle 90% of plastic beverage bottles by 2025.

1.15 The European Commission's Circular Economy Package[9] 2018 aims to move supply chains towards a circular economy, maintaining the value of products, materials and resources in the economy for as long as possible. This introduces more ambitious recycling targets for packaging materials and full cost recovery of recycling costs from producers.

1.16 Amendments in 2018 to the EU Waste Framework Directive[10], proposed as part of the EU Circular Economy Package, introduces new requirements for extended producer responsibility schemes. This includes a requirement that such schemes should recover 100% of the costs under Article 8A (4).

1.1.3 Scottish Strategic and Policy Drivers

1.17 The Scottish Government's aim of delivering sustainable economic growth is underpinned by five strategic objectives[11] - to make Scotland wealthier and fairer, smarter, healthier, safer and stronger and greener.

1.18 The above strategic objectives are supported by the National Performance Framework[12]. The strategic business case for the introduction of a DRS for Scotland will deliver on the following outcomes:

  • We value, enjoy, protect and enhance our environment.
  • We have a globally competitive, entrepreneurial, inclusive and sustainable economy.

1.19 Delivering for today, investing for tomorrow: the Scottish Government's Programme for Government 2018-2019[13] reinforced the commitment to introduce a DRS (initially made in the Programme for Scotland 2017-18[14]) following public consultation. The views shared via the consultation will help to design an effective system that will work well for everyone in Scotland. The introduction of a DRS for Scotland will contribute to the following strategies:

1.20 Making Things Last - Scotland's first circular economy strategy[15] sets out the Scottish Government's priorities for moving towards a more circular economy - where products and materials are kept in high value use for as long as possible. Realising this strategy will deliver benefits including:

  • Environmental - cutting waste and carbon emissions and reducing reliance on scarce resources.
  • Economic - improving productivity, opening up new markets and improving resilience, with potential savings of £500 million to £800 million per year identified in the food and drink and broader bio-economy sectors.
  • Social - more lower cost options to access the goods we need, with opportunities for social enterprises.

1.21 The strategy states that the role of a DRS will be further considered to support long-term Scottish targets to recycle 70% of all waste, and to send no more than 5% of all waste to landfill, both by 2025.

1.22 Towards a Litter-Free Scotland[16] is Scotland's first national litter strategy with a focus on litter prevention. The aim is to reduce the estimated £46 million of public money spent removing litter and flytipping from the environment each year and the wider negative impacts of litter, representing at least a further £361 million in costs on our society and economy. Achieving this aim will enable the lost value of littered materials to be recovered which could be worth up to £1.2 million.

1.23 This will be achieved through behaviour change (encouraging people to take personal responsibility) and support around infrastructure, information and enforcement.

1.24 A Marine Litter Strategy[17] was launched in 2014, focused on protecting Scotland's coastal environment. This will contribute to collaborations under The Convention for the Protection of the Marine Environment of the North-East Atlantic (OSPAR Convention)[18] and the Marine Strategy Framework Directive[19].

1.25 The carbon savings derived from the introduction of a DRS in Scotland will also contribute to objectives set out in the Climate Change (Scotland) Act 2009[20] and the Climate Change Plan[21], which sets out plans to achieve decarbonisation of the Scottish economy in the period to 2032.

1.26 Resource use and waste generation are recognised as key sources of greenhouse gas generation and the Scottish Government reports on progress against both territorial and consumption emissions.

1.2 Assessment of Need

1.2.1 Current recycling rate

1.27 Scotland's household recycling rate has increased substantially in the last decade. The latest figures, published in September 2018[22] by the Scottish Environment Protection Agency (SEPA), confirm that in 2017 the household recycling rate reached 45.6%. That same year for the first time there was more Scottish waste recycled (1.12 million tonnes) than was landfilled (1.11 million tonnes).

1.28 This has been driven by substantial investment by central and local government in kerbside collections. The result has been significant increases in the number of households that have access to kerbside recycling facilities. All 32 local authorities are now nearing completion of these rollouts, covering most of the properties in their area.

1.29 The rate of growth in household recycling rates has been slowing. Since 2014, following the introduction of a new methodology for calculating household recycling rates, the rates have only increased by 2.8%. The 2017 rate was only a 0.6% increase on the 2016 figures. It is, therefore, clear that further intervention is required to stimulate growth in household recycling rates in order to achieve national recycling targets for 2025.

1.30 Most types of materials used in drinks containers are easily recyclable and there is scope to improve their recycling rates.

1.31 Recycling quality remains challenging, with financial and operational constraints limiting the level of segregation that can be achieved at the kerbside. Scotland's Household Recycling Charter[23] will drive some improvements but many more valuable materials continue to be degraded or not separated.

1.32 Currently the ownership of recycled materials remains spread across many organisations, including local authorities and private waste management companies. This means there is no critical mass of materials and so limited scope to maximise economic opportunities by managing the materials effectively, offering an aggregated and high-quality feedstock for reprocessing.

1.33 A DRS for drinks containers would: improve segregation of materials, thereby decreasing the opportunities for contamination; incentivise the return of materials, increasing capture rates; and bring the control and ownership of materials in scope under a single body, providing greater opportunities for increased and higher value recycling.

1.34 The impact of a DRS on national capture and recycling rates for materials in scope will be slightly higher than the system capture rate itself. This is because some items not returned to the DRS will continue to be returned to other recycling streams.

1.35 There are limitations in the available Scottish specific data in relation to sales, waste by material type and material reprocessing of drinks containers. Figure 2 sets out the Household Waste Compositional Analysis[24] estimates of recycling rates by material through local authority collections.

Figure 2: Current Local Authority Household Collection of Target Containers

Figure 2: Current Local Authority Household Collection of Target Containers

*Disposable cups did not exist as a separate category in the compositional analysis.

1.36 Beverage cartons, plastic, glass and metal containers are widely targeted for recycling, either via kerbside collections or recycling points and centres. Despite this there is clearly scope for improving recycling rates, with the best performing deposit return schemes in the world achieving a capture rate of up to 95%.

1.37 Single-use disposable cups were not considered as a separate category in the Household Compositional Waste Analysis report but generate a significant volume of waste, little of which is currently recycled.

1.38 The Programme for Government commitment is to develop a DRS for Scotland. Refillable schemes operate a logistics and commercial model where industry participants agree and operate standard bottle and collection crate designs, shared logistics and infrastructure arrangements (such as bottle washing and refilling facilities).

1.39 Across many countries in Europe organised schemes for 'refillable' glass bottles are in operation. These schemes are logistically and commercially separate from the recycling deposit return schemes but, where both types of scheme are present in the same nation (e.g. in Finland), they often work alongside each other.

1.40 The DRS for Scotland will focus on non-refillable single use drinks containers. There may be scope for a refillable scheme to be developed in the future to complement the DRS.

1.41 As well as assessing the amount of targeted material collected, it is important to consider the end destination for those materials. A true circular economy approach is one where the quality of material collected is high enough, that it can displace virgin materials (e.g. plastics made from oil, or aluminium made from bauxite) in high value uses.

1.42 As noted above, in section 1.35, specific data on Scottish waste materials often does not exist. The majority of these materials are currently collected co-mingled, i.e. mixed together with other household packaging. For glass, even where it is not co-mingled, the collection method makes it difficult to separate different colours, as a mechanical sort is required.

1.43 The Recyclate Quality Reporting Tool[25] using data from the Materials Recovery Facility (MRF) Code of Practice[26] calculates that between 7% and 13% of non-target and non-recyclable (material that should not be present) materials in metals, plastics and glass, leave MRFs for reprocessing. This contamination from other co-mingled materials is often too costly to separate, and while the majority of a material is collected, the overall amount suitable for high value recycling could be significantly lower.

1.2.2 Litter

1.44 The costs of litter, both direct and indirect, are identified in the OBC, informed by Scotland's Litter Problem[27]. This report identified the average composition of the litter stream in Scotland.

1.45 The categorisation doesn't differentiate between drinks containers and other containers but the following breakdown, by weight, was identified: plastic bottles (9%), packaging glass (9%) and metal cans (4%). It is not possible to identify beverage cartons, pouches or single use cups within the categories used.

1.46 When assessing the contribution to indirect costs, such as a loss of visual amenity, then volume, rather than weight, is likely to be a more accurate indicator of impact. Measured by volume, drinks containers would make up a greater proportion of the litter stream than indicated above.

1.47 The Marine Conservation Society's Great British Beach Clean 2018 survey[28] provides a breakdown of the sources of litter and types of materials found. Over 28% of material is categorised as being littered by the public, while 48% remains unsourced, primarily because it has broken down into fragments too small to identify. Glass and container caps and lids both appear in the top 10 items found in these annual surveys.

1.2.3 Economic Opportunities

1.48 Both Scotland's Economic Strategy[29] and Manufacturing Action Plan ('A Manufacturing Future for Scotland'[30]), recognise the economic opportunities presented by 'Making Things Last'. Creating the conditions for a more circular economy helps companies embrace new business models and manufacturing processes and transforms used products into assets. In addition to ensuring that the lifecycle of all resources is maximised, this approach helps to protect against increased volatility and vulnerability in the supply of raw materials.

1.49 A DRS will be an exemplar of a circular flow of resources, maximising the financial value of secondary resources to Scotland and creating a potential high value feedstock for industry in Scotland.

1.50 The 2018-19 Programme for Government commits to the introduction of an Economic Action Plan and Rural Economy Action Plan. The Economic Action Plan 2018-20[31] has been published, incorporating a section on sustainable growth and seizing the opportunities in the transition to a circular economy and low carbon economy.

1.3 Scope

1.51 The programme has followed the HMT Treasury Five Case Business Model process, starting with the Strategic Outline Case (SOC), moving to the OBC and onto this FBC. This staged approach incorporates the five cases (Strategic, Socio-Economic, Commercial, Financial and Management) at each point but with increasing detail.

1.52 The SOC developed a longlist of scheme design types and proposed a shortlist, by excluding those that were not capable of delivering the required outcomes for the four investment objectives. The shortlisted examples were:

  • Example 0: Do-nothing (No scheme is introduced) was modelled for the purposes of developing a baseline to assess the impacts of no intervention.
  • Example 1: Take back to dedicated drop-off points.
  • Example 2: Take back to dedicated drop-off points and some shops (with cartons and cups).
  • Example 3 Take back to any place of purchase.
  • Example 4 Take back to any place of purchase (with cartons and cups).

1.53 The OBC then assessed each of the shortlisted scheme design examples by, wherever possible, calculating an economic value (either cost or benefit) against each of the actors in scope of a DRS. This allowed a Net Present Value (NPV) to be calculated.

1.54 Where it was not possible to convert the impact directly into an economic value, then a qualitative assessment was undertaken, either via a weighting and scoring matrix or a multi-criteria analysis. This allowed a comparison against these qualitative criteria of the four-example scheme designs to complement the NPV for each option.

1.55 The OBC was used to support a public consultation by the Scottish Government. The consultation sought responses to a series of questions on each of the 12 components that comprise a DRS scheme design.

1.56 Concurrent to this consultation, ongoing stakeholder engagement and commissioned projects to examine some components in more detail have been used to improve the NPV model and data inputs.

1.57 The outputs from the public consultation and this further work are used in this FBC Stage 1 to consider each of the characteristics of the scheme and develop a preferred scheme design.

1.58 The Commercial, Financial and Management Cases within the FBC Stage 1 have been developed, based on the preferred scheme design. This will form the basis of the work for the FBC Stage 2, where a detailed business and implementation plan will be developed.

1.3.1 Investment Objectives and Benefits Criteria

1.59 The four investment objectives of Scotland's DRS are:

  • Improving recycling quantity.
  • Improving recycling quality.
  • Encouraging wider behaviour change around materials.
  • Delivering maximum economic and societal benefit for Scotland during the transition to a low carbon world.

1.3.2 Investment Objective 1 - Increasing recycling quantity

1.60 Measures in this area relate to improving the overall quantity of material collected for recycling and therefore diverted from landfill, energy from waste or becoming litter. The specific criteria proposed are:

  • Increase the tonnage and percentage of targeted materials recycled.
  • Increase the total amount of material collected for recycling in Scotland i.e. avoiding any unintended consequences that result in a reduction of other materials being collected for recycling.

1.61 The effect of these measures is a change in disposal costs, which may be positive or negative, for a range of actors across Scotland. The most significant impact will be on local authorities and private waste management operators, as they handle the largest tonnage of materials.

1.62 There will be an impact on organisations that have their waste collected. Whether this is charged by weight or by volume, the introduction of a DRS will require a change in container size and/or frequency of collection.

1.63 Examples of potential changes include: lower collection costs for businesses, lower disposal costs for local authorities due to less material going to landfill, higher gate fees for co-mingled recycling for local authorities and a loss of revenue for waste management companies servicing their commercial customers.

1.64 There are other costs and benefits associated with diverting a larger quantity of material from these other disposal routes and these are captured under the other investment objectives.

1.3.3 Investment Objective 2 - Increasing recycling quality

1.65 Measures in this area relate to improving the quality of material generated in Scotland, maximising its economic value as a feedstock for re-processing activities. The specific measures proposed are:

  • Increase the tonnage and percentage of targeted materials suitable for high value recycling.
  • Increase the total amount of material collected in Scotland that is suitable for higher value recycling i.e. ensuring that other material currently achieving this goal is not diverted to lower value recycling.

1.66 The effect of these two measures should be a larger amount of the targeted material achieving high value recycling and this quality being achieved in Scotland. The impact is that industry in Scotland either benefits from the higher value through use of this feedstock or generates higher income by selling it.

1.3.4 Investment Objective 3 - Encouraging wider behaviour change around materials

1.67 Measures in this area relate to the indirect impacts on material use and disposal by the introduction of a DRS. These go beyond changing the value of the disposal route and value of materials. The proposed criteria are:

  • Reduce the quantity of single use beverage containers that are littered by the public.
  • Encourage circular product design by beverage packaging producers e.g. making packaging lighter, increasing recycled content in containers, or designing for increased recyclability.
  • Enable education and engagement on key circular economy messages and challenging aspects of our throwaway society e.g. utilising advertising space at return points.

1.68 Capturing more of the targeted material(s) for recycling reduces the number of containers that could potentially enter the litter stream. This could reduce the direct costs to landowners of collecting litter and the scale of a number of indirect impacts of litter, including impact of property prices, crime and mental health.

1.69 The experience of other nations with a successful DRS suggests that extremely high capture rate of target materials will be achieved. The true national recycling rate for the materials targeted via a DRS will be slightly higher than the system capture rate itself. This is because some items not returned to DRS will continue to be returned to other recycling streams.

1.70 To achieve a high capture rate requires interaction with almost the entire population on a regular basis via return points where the public take back containers to redeem their deposit. These locations could provide valuable advertising opportunities, which could be used to communicate other messages related to the circular economy, for example signposting local authority services for the recycling of materials not included in the DRS.

1.3.5 Investment Objective 4 - Delivering maximum economic and societal benefit for Scotland during the transition to a low carbon world

1.71 As well as broader impacts on material use and disposal, the scheme has the potential to have wider economic, social and environmental impacts. The proposed criteria for evaluating these are:

  • Demonstrate a net overall positive economic impact (including but not exclusively contributing to a low carbon economy, developing new reprocessing opportunities and generating additional jobs or securing existing jobs).
  • Ensure fairness for all demographic groups e.g. considering the impacts of the deposit level on households on lower incomes.
  • Maximise accessibility to all demographic groups e.g. ensure there is no need to access a private vehicle to redeem deposits.
  • Deliver exemplar circular business practices while still delivering value for money e.g. leasing models for reverse vending machines.
  • Create employment opportunities for groups including those furthest from the labour market.
  • Create opportunities to raise funds for charitable causes, where use of the money can have wider societal benefits.
  • Optimise the positive impacts for small to medium-sized businesses including small retailers.

1.72 Potential benefits arising from an intervention are significant and varied. They are spread across many actors from businesses, the public sector and societal benefits. Some of these are measurable and quantifiable while others are more difficult to assess, requiring a more qualitative approach.

1.73 The benefits criteria relate to the overall investment objectives, as illustrated in Figure 3.

Figure 3: Relationship between benefits criteria and investment objectives

Figure 3: Relationship between benefits criteria and investment objectives

1.74 These criteria will ensure that the full environmental, economic and social impacts are captured. The completion of a Business and Regulatory Impact Assessment (BRIA) will establish where the benefits and costs are distributed.

1.75 Ensuring fairness and accessibility are key criteria for the Scottish Government and, in this context, links to the principle of climate justice. This is defined as "ensuring collectively and individually we have the ability to prepare for, respond to and recover from climate change impacts - and the policies to mitigate or adapt to them - by considering existing vulnerabilities, resources and capabilities"[32].

1.76 Providing an exemplar business model for the adoption of circular economy thinking provides an opportunity to maximise the economic gains in Scotland, inspire other organisations with practical examples and help create markets that otherwise would not exist.

1.77 The delivery of a DRS will generate a range of employment opportunities across management, operational and administrative roles. It is likely that a proportion of these will be entry level jobs, creating opportunities for those furthest from the labour market to learn new skills and gain experience.

1.78 The operation of a DRS will provide the opportunity for charitable donations to generate social and / or environmental benefits. This could be through donations of containers or the deposit to existing charities or new channels and could enhance the net benefit to society.

1.4 Strategic risks (including mitigation and management)

1.79 The main risks associated with the scope of this intervention are shown in Table 1 below, together with their counter measures. Financial risks are addressed in the Financial Case.

Table 1: Key Strategic Risks

Main Risks

Counter measures

Impact on existing contracts and collection arrangements

Increased awareness amongst stakeholders since commitment to introduce a DRS in September 2017, so they can consider impacts in any ongoing contract negotiations.

Provide support to local authorities, as those organisations are currently managing most of the material.

Requirement to provide consumer information and fraud mitigation measures requiring labelling

Ensure that any requirement is proportionate to risk.

Allow flexibility to adopt different solutions for different circumstances e.g. those putting a few hundred containers onto the market vs those placing tens of thousands.

Risk of fraud by placing a value on containers

Creation of a single scheme administrator will allow a range of control measures to be established, as they will have access to both data and ownership of all the material.

Allow flexibility in scheme design for producers to adopt the most appropriate measures to minimise fraud.

Consideration of fraud in the determining of a deposit level, so as not to incentivise organised criminal activity to target the scheme.

Poor performance of DRS as a result of inadequate communication with public

The Scottish Government will undertake a public facing consumer marketing campaign ahead of the scheme launch.

Zero Waste Scotland will provide stakeholders with marketing collateral to communicate changes to their customers and residents.

The Scheme Administrator will be incentivised to invest in up-front and ongoing communication activity.

Contact

Email: timothy.chant@gov.scot

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