Deposit return scheme for Scotland: full business case addendum

Additional information for the full business case that underpins development of the deposit return scheme for Scotland.


1 Modelling Assumptions – Summary of Changes

1.1 Since FBC 1 a number of figures relating to the scheme operating costs and overall NPV have been updated including:

  • Scheme administrator costs (driven largely by container number increases and changes to the handling fees)
  • Retailer costs (relating to installation, running and maintenance of automatic return points)
  • Regulatory costs, and
  • Carbon pricing.

1.2 The number of containers falling within scope of the scheme has been increased from 1.67 billion to 2.17 billion based on an updated estimate arrived at following further engagement with industry representatives. Additional adjustments to average weights for containers (for PET, aluminium, steel and glass), the proportion of drink to non-drink glass containers and the split between on-sale and off-sale containers have also been made based on stakeholder feedback. Resultant changes to the NPV for individual actors and overall for the scheme are summarised in Table 1 and presented in Section 2.

1.3 The carbon metric figures applied for the purposes of the FBC stage 1 have been refined to reflect the change in end use for materials and residual waste disposal route in the early 2020s to account for the delay to implementation of the landfill ban[1].

1.4 Benefits to the public have increased since FBC Stage 1 following revisions to the value of carbon based on updated traded carbon values (£/tCO2e) published by the Department for Business, Energy and Industrial Strategy (BEIS).

1.5 The collection targets for target materials have been aligned to reflect those in the Regulations, setting a 70% target in the first full year, rising to 90% by year 3.

1.6 The optimism bias has been reduced from 41% to 20%, as a result of improved confidence in the input assumptions, giving a smaller range of costs.

Table 1: Presentation of Scheme Design: Net Present Value (NPV)

Actor Scheme Design: 25 Year NPV (£)[2]
Costs (£m) Benefits (£m) Net benefit (£m)
Scheme Administrator (1,514-1,817) 1,8366-2,139 322 All of the costs of delivering the DRS scheme (scheme administrator) including logistics, counting infrastructure, staff and reimbursing return points via the handling fee.

Due to the increase in container numbers since FBC Stage 1, the associated handling fee element has increased along with costs associated with logistics and fraud management.

Benefits are the income streams for the scheme (unredeemed deposits, material sale, producer fee). The revenue figures have risen since FBC Stage 1 as a result of the increase in unredeemed deposits (associated with a greater throughput of containers) and producer fees (balancing the increased handling fees)

It is assumed income will broadly equal expenditure. The net benefit is a result of unredeemed deposits in years 1-5 being reserved until sufficient evidence has been accumulated to allow these to be treated as a revenue stream by the scheme administrator.
Return Points (937- 1,125) 963- 1,151 26 All costs associated with operating a return point under return to any place of purchase (staff, value of space, purchase of Reverse Vending Machines (RVM) or other appropriate containerisation and utility costs) reimbursed via handling fee.

An increase in costs since FBC Stage 1 has resulted from increased container numbers combined with refinements made to installation, running and maintenance costs of automated return points. This is countered with an increase in handling fees to maintain the net zero benefit.

The realisation of a small net benefit since FBC Stage 1 is due to the estimated value of RVM advertising, a monetary benefit previously apportioned to the public.
Producers / Supply Chain (824-1,150) 720 (104-430) Costs relate to the producer fee (to cover any shortfall in finances for the scheme administrator), upfront costs associated with the introduction of a market specific barcode, and ongoing costs associated with having to operate these additional Stock Keeping Units. This figure includes broader impacts across the supply chain such as changeovers, logistics, and increased stockholding.

The benefit to producers involved in DRS is the avoided compliance costs that they would be required to pay in order to achieve compliance with the Circular Economy package, and to deliver the same outcomes against the four stated investment objectives.

Increases to the producer fee since FBC Stage 1 have been driven by changes in container numbers and material revenue rates which have increased direct scheme costs. Increased benefit from revisions to estimated EPR scheme compliance costs, has reduced net costs over the 25-year period.
Local Authorities (46) 214 168 Costs are driven by a combination of reduction in income and increased costs associated with sorting the remaining materials left in kerbside collections. The benefits to local authorities are collection efficiencies for both bin collections and from litter collections, and reduced costs for disposal of materials.

A reduction in benefits has arisen since FBC Stage 1 due to changes in the split between DRS and non-DRS containers, resulting in more materials remaining at kerbside for collection
Commercial Premises 0 23 23 Business premises that are currently paying for the collection and disposal of material will realise savings, as the scheme administrator will provide this collection free of charge.

A reduction in benefits has arisen since FBC Stage 1 due to changes in the split between DRS and non-DRS containers, resulting in more materials remaining at kerbside for collection, at a cost to the commercial premises.
Other Sectors (165) 151 (14) Private Waste Management companies: The income generated from the provision of existing waste management services is expected to reduce, resulting in a reduction in profit. There will, however, be benefits realised through increased availability of resource which may be diverted to other activity. The cost and benefits to private waste management companies has decreased as a result of the reduced weights of containers applied since FBC Stage 1, in turn impacting on collection costs and material income.

RVM suppliers: Costs are linked to the provision of services to return point operators undertaking automated returns. Income is generated through the charging of businesses to deliver this activity, resulting in an overall profit for these actors. The cost and benefits to RVM suppliers have increased since FBC Stage 1 due to revised figures for installation and maintenance costs provided by industry.

Regulators: Costs are linked to staff time for enforcing the scheme. The cost to regulators has been increased since FBC Stage 1 based on updated estimates provided by SEPA who will regulate the scheme.
Public (1,019) 1,187 168 Costs are driven by:

  • individuals not claiming back their 20p deposits on containers (10% of containers over 25 years)
  • a financial value being placed on public time associated with returning containers to have the deposit redeemed. This is £10m per year.
The benefits are avoided disamenity from reduced litter in towns and neighbourhoods, based on the large reduction in volume by removing a significant amount of drinks containers from the litter stream. Benefits also include the value of carbon reduction resulting from the Emissions Trading System (ETS) and non-ETS eligible carbon savings.

Estimated costs to the public have increased since FBC Stage 1 due to the increase in container numbers and therefore associated value of unredeemed deposits.

Benefits to the public have increased since FBC Stage 1 following revisions to the value of carbon based on current traded carbon values (£/tCO2e), provided by the Department for Business, Energy and Industrial Strategy (BEIS[3]
Total (4,505-5,322) 5,095- 5,585 590- 263

1.7 The scheme has a total net benefit of £590 million over the 25-year Net Present Value (NPV).

Contact

Email: DRSinScotland@gov.scot

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