Publication - Corporate report

Deposit return scheme for Scotland: full business case stage 1

Published: 8 May 2019
Directorate:
Energy and Climate Change Directorate
Part of:
Environment and climate change
ISBN:
9781787818217

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

Deposit return scheme for Scotland: full business case stage 1
2 Socio-Economic Case

2 Socio-Economic Case

Socio-Economic Case Key Messages:

  • This Full Business Case (FBC) for a Deposit Return Scheme (DRS) 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 a complete level of detail.
  • Of the 12 components of the scheme design identified in the Outline Business Case (OBC), seven are considered in the Socio-Economic Case and five (which relate to the most effective means of delivering the final scheme) are considered in the Commercial Case.
  • The public consultation generated 3,215 submissions (comprising 1,048 campaign responses, 159 organisational responses and 2,008 from individuals).
  • The individual components have been informed by:
    • The consultation responses.
    • Evidence and the revised Net Present Value (NPV) model, Business and Regulatory Impact Assessment (BRIA), Equalities Impact Assessment (EQIA) etc.
    • A review of international best practice.
    • Feedback from a series of stakeholder engagements.
  • The preferred scheme design is described in full as:
    • Return to any place of purchase.
    • Including PET, metal cans and glass bottles.
    • With a 20p deposit.
    • A target capture rate of 90%.

The NPV and Benefit-Cost Ratio (BCR) for the preferred scheme design are:

Scheme Design Net Present Value Benefit-Cost Ratio
Preferred Scheme £705m-£141m 1.2 - 1.03

2.1 Development of the Full Business Case Stage 1

2.0 This Full Business Case (FBC) for a Deposit Return Scheme (DRS) 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.

2.1 The 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.

2.2 Based on the shortlisted potential scheme designs set out in the Strategic Outline Case (SOC), the Outline Business Case (OBC) explored four example scheme designs from the 12 key components that make up a DRS.

2.3 The purpose of the four example scheme designs was to stimulate discussion and demonstrate how different system choices made on the scheme for Scotland can influence scheme performance.

2.4 The SOC and OBC were published in conjunction with the Scottish Government's public consultation, which ran between June and September 2018. The consultation was based on a series of questions related to the 12 key components.

2.5 In addition, ongoing stakeholder engagement and commissioned research projects have contributed to inform the development of the FBC Stage 1.

2.6 The Socio-Economic Case will identify the preferred scheme design by considering the seven components set out in Figure 4 below.

Figure 4: Scheme Design and Delivery Route Approach

Figure 4: Scheme Design and Delivery Route Approach

2.7 The remaining components (Financing, System Ownership, Scheme Regulation, Infrastructure and Logistics, and Realising Additional Benefits) are determinants of the most effective means of delivering the DRS and as such are considered in the Commercial Case.

2.1.1 Additional Evidence Gathering

2.8 Additional evidence has been gathered since the OBC was published to inform the FBC. This includes:

  • The public consultation responses.
  • The revised Net Present Value (NPV) model.
  • A review of international best practice.
  • Feedback from a series of stakeholder engagements.

2.9 The public consultation was open between June and September 2018, and 54 questions were posed, of which 39 related to the 12 system components.

2.10 The consultation received 3,215 submissions, which included 1,048 campaign responses organised by campaign group Have You Got the Bottle[33]. Of the remaining responses, 159 were from organisations and 2,008 from individuals.

2.11 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.

2.12 Respondents identified potential benefits (for employment, small retailers, charities and individuals) and risks (both general and specific) of establishing a DRS in Scotland. They also suggested ways to maximise the opportunities and mitigate the risks.

2.13 The remaining 15 questions were structured around the four example scheme designs, co-operation with the UK Government and the Equality Impact Assessment. The responses to these questions are not considered here as they are outwith the scope of the FBC.

2.14 An independent analysis[34] of the consultation responses was completed by Griesbach & Associates and Jennifer Waterton Consultancy. This was published by the Scottish Government on 21st February 2019.

2.1.2 The Revised Net Present Value Model

2.15 In the OBC, a model was developed to calculate the 25-year NPV for each example scheme design and assess the impact of different design choices on the NPV.

2.16 The bespoke model developed for the programme during the OBC drafting has been enhanced. The data inputs have been improved based on additional research and the model itself has been enhanced to ensure that costs and benefits are scaled in a more accurate and consistent manner. For example, if the number of containers in scope is increased or decreased, the costs associated with handling those containers also changes. Additional work includes: a Business and Regulatory Impact Assessment (BRIA), Equalities Impact Assessment (EQIA) and Strategic Environmental Assessment (SEA) - the final BRIA and EQIA documents will be concluded as part of the FBC Stage 2.

2.17 Section 2.10 describes the preferred scheme design for Scotland's DRS. A 25-year NPV is provided for the preferred scheme design alongside a Benefit-Cost Ratio (BCR), which summarise the overall value for money of the proposal.

2.1.3 International Best Practice

2.18 A number of international schemes have been researched, including visits to eight currently in operation across Europe. Each one operates in different circumstances (e.g. legal and fiscal systems, a number of which have been operating for several years so behaviours and systems are embedded). Therefore, no direct comparators are possible.

2.19 This work informed thinking on how different components interact and how the most effective scheme for Scotland could be constructed.

2.1.4 Stakeholder Engagement

2.20 For the purpose of the OBC, evidence was gathered from a wide range of stakeholders through interviews, workshops and strategic conversations.

2.21 Throughout the programme, engagement and data gathering has covered a wide range of stakeholders including producers, retailers, the hospitality sector, local authorities, private waste management companies, packagers and the logistics and transport sector.

2.22 Data input for all actors has been reviewed, reflecting any improved information from this ongoing stakeholder engagement. This has either reinforced existing figures for costs and benefits or resulted in an improvement in projected figures.

2.1.5 Analysis of Components

2.23 Each of the seven components considered in the Socio-Economic Case has been considered based on their contributions to the investment objectives, informed by:

  • The consultation responses.
  • The NPV model based on the preferred final scheme design.
  • International best practice.
  • Feedback from a series of stakeholder engagements.

2.24 It should be noted that the impact of components cannot be assessed in isolation. A DRS is a dynamic system where the selection of one component can impact on others. For example, selecting a high performing scheme (80%+) would direct the return location choice towards a "return to the point of purchase" model rather than a dedicated return point, to ensure ease of access for the wider public.

2.25 A DRS with a more extensive scope is expected to be easier for consumers to understand, and will help simplify system communications to the public. A smoother user experience and more regular use is expected to make people more accustomed to a DRS more quickly and more effectively than diverse routes for diverse items. Additionally, the DRS not only encourages recycling directly (via the deposit incentive) but also indirectly, by modelling recycling behaviour in a highly visible way across Scotland.

2.26 This system view has been considered in the component selection and influenced the preference under individual components.

2.1.6 Working Assumptions

2.27 DRS will operate as an instrument for implementing Extended Producer Responsibility, where producers who benefit from placing material onto the market incur the costs of ensuring appropriate treatment at end of life. As such any change in costs and benefits for the Scheme Administrator are reflected in the costs to producers, who are responsible for contributing to the scheme.

2.28 There have been changes in the Scheme Administrator and return point costs and benefits since the OBC. However, where the Scheme Administrator is not running a surplus, these are intended to have a net benefit of zero.

2.29 The Scheme Administrator will fully reimburse return point costs, leading to no overall net benefit or loss during the 25-year NPV period. This cost is incurred from staff time, the value of any lost retail space, miscellaneous supplies and, where an automated solution is used, the cost of maintaining and operating the Reverse Vending Machine (RVM).

2.30 The Scheme Administrator is national in coverage, providing a collection and logistics service for the whole of Scotland. This ensures that remote rural locations are not disadvantaged by incurring costs that would make delivery of the scheme uneconomical. It also provides the necessary control functions to minimise fraud and maximise other potential benefits e.g. ownership of large amounts of materials

2.31 As outlined in the Programme for Government 2017-18, a DRS is being introduced to improve Scotland's recycling rate by including single use beverage containers in scope[35].

2.32 A summary of the preferred scheme design is presented in Figure 5 below and a summary of the rationale for the selection of each component follows.

Figure 5: Preferred Scheme Design

Figure 5: Preferred Scheme Design

2.1.7 Materials in Scope

2.33 Six questions in the public consultation related to materials in scope. The summary responses to each question are set out in Table 2 below:

Table 2: Materials in scope

Number

Question

Summary Results

1

Which of the options do you prefer? Please choose one or more options and explain your reasoning. [PET plastic containers / PET plastic containers and metal cans / PET plastic containers + glass containers + metal cans / PET plastic containers + glass containers + metal cans + HDPE plastic containers / PET plastic containers + glass containers + metal cans + cartons + disposable cups]

Almost half of respondents overall (45%) thought the DRS should include the widest possible range of materials. A further 44% thought the DRS should include all materials except for HDPE (36%) or cartons and disposable cups (8%). Organisations were much less likely than individuals to favour a highly inclusive scheme: only 21% of organisations favoured the inclusion of the widest possible range of materials, while over half of the organisations (53%) favoured a restriction to PET plastic containers only, PET plastic containers and metal cans only (27%), or PET plastic containers, metal cans and glass containers (9%). There were substantially different views among different organisational groups. For example, food and drink producers, retailers, and recycling / waste management organisations were more likely to favour a more limited set of materials being included in the DRS. By contrast, public sector organisations, charities, community bodies and environmental consultancies were more likely to favour a wider range.

2

Do you think the scheme should start with a core set of materials and then be expanded as appropriate? [Yes / No / Don't know]

Around two-thirds (65%) of respondents overall were in favour of the scheme starting with a core set of materials and then expanding later. Whilst most types of organisation were also broadly in favour of a staged approach, retailers were fairly evenly divided in their views (37% said 'yes' and 47% said 'no'), and food and drink producers and packaging manufacturers disagreed with a staged approach (64% and 75% respectively said 'no').

2a

If yes, which materials should it start with? [PET plastic / Metal (aluminium and steel) / Glass / HDPE plastic / Cartons / Disposable cups]

(i) PET plastic was almost universally selected as belonging to the 'core set' (92%), (ii) a large majority of respondents also selected metal (68%) and glass (61%), and (iii) the least popular material for inclusion in the 'core set' was HDPE plastic which was selected by 30% of respondents.

3

Are there any materials that you think should not be included? [PET plastic / Metal (aluminium and steel) / Glass / HDPE plastic / Cartons / Disposable cups]

Around a third of all organisations thought that disposable cups and HDPE plastic should not be included in the scheme, and over a quarter thought that glass containers should not be included.

4

Are there any other materials not already listed that should be included?

Among both organisations and individuals, the following materials / items were frequently mentioned for potential inclusion in the scheme:

Other plastic items such as detergent and shampoo bottles, plastic cutlery, plastic straws (i.e. not just PET plastic drinks containers), polystyrene, textiles (including clothing, shoes and bags), Tetrapack and other forms of composite packaging (including multi-laminate pouches), batteries.

5

Are you aware of any materials currently in development that should be included?

Bioplastics were highlighted in particular. Both organisations and individuals repeatedly emphasised the importance of clear labelling (some wanted to see statutory labelling requirements) to avoid confusion among members of the public, and the mixing up of materials which should be recycled separately.

Figure 6: Summary of response from individuals and organisations

Figure 6: Summary of response from individuals and organisations

2.34 A summary of responses from individuals and organisations are shown in Figure 6 above.

2.35 Combined PET plastic, metal and glass account for 83% of the sealed beverage containers placed onto the market. Including these materials will:

  • Improve the quantity and quality of materials captured (contributing to investment objectives 1 and 2).
  • Have a substantial impact on the volume of litter (contributing to investment objective 3).
  • Support the normalisation of behaviour.
  • Minimise opportunities for market distortion (switching products between material types to avoid inclusion in the DRS).
  • Support the creation of a high performing scheme.

2.36 There is currently no reprocessing capacity for PET in Scotland, therefore all PET collected must be exported. In January 2019, Highland Spring launched a 100% recycled PET (rPET) bottle[36] and Coca-Cola European Partners has committed to 50% recycled content of all bottles by 2025[37]. These are indications of the increase in demand for rPET which will be accelerated by the UK Government's tax on plastic packaging with less than 30% recycled content[38].

2.37 The current system of mixing household packaging means achieving food grade recycled plastic on a consistent basis is challenging due to cross contamination. Under DRS, the quantity of PET plastic that would be captured and owned by a single entity[39] (the Scheme Administrator) would provide an opportunity for inward investment to create reprocessing capacity for plastic bottles.

2.38 99% of 'metal' drinks containers are aluminium[40]. Recycling 1 tonne of aluminium saves nine carbon tonnes[41] compared to virgin aluminium.

2.39 Aluminium is 100% recyclable and in terms of £/tonne consistently commands the highest value of the materials in scope, a reflection of demand for this material.

2.40 Including aluminium/metal in the DRS will increase the quantity captured from 47%[42] (contributing to investment objective 1) and reduce litter (contributing to investment objective 3). This is based on modelling work comprising Kantar data, waste compositional analysis and expert input from industry.

2.41 Considering the case for glass against each of the investment objectives, it is estimated that glass capture rates will increase from the existing 64% level towards 90% (scheme target rate) thereby contributing to investment objective 1.

2.42 Regarding investment objective 2, a scheme which prevents glass from breaking in the RVM will promote colour separated glass streams, ensuring that high quality recycled glass is available on the market. This increases the viability of closed loop recycling in Scotland and hence leads to significant energy saving and CO2 emissions reductions.

2.43 In terms of investment objective 3, glass is estimated to make up 17% of drinks containers in the DRS. As such, it is believed that it will play an important role in normalising behaviour and increasing capture rates. It should also minimise the risk of market distortion by material switching. Including glass will also help reduce litter rates of glass - which has a broader range of litter disamenity impacts compared to aluminium cans and PET.

2.44 Including glass offers several economic benefits thereby contributing to investment objective 4. It offers an overall scheme NPV of £705,016,264 compared to £175,419,989 without an additional high-volume high-quality feedstock (1.4megatonnes by 2043) of recycled glass to the Scottish glass industry. It will also benefit society through boosting CO2e emission reductions by 1.3megatonnes over 25 years.

2.45 Although there are several strengths associated with including glass in the DRS, it is important to acknowledge the associated weaknesses and threats which will need to be addressed to ensure efficient functioning of the system:

  • Most best practice examples that include glass elsewhere differ from the Scottish context and as such it is difficult to accurately predict the extent of public participation in the scheme, at least in the short term. This risk has been mitigated to some extent by other components of scheme design being selected to incentivise participation.
  • Approximately 10% of glass containers (by weight), such as jam jars, will not be included in system. One unintended consequence of this could lead to increasing glass in the residual waste streams. There is the potential to include a fraction of this 10% in the DRS in future and the negative effect is assumed to be marginal relative to the positive effects associated with the predicted increase in recycled glass volume and quality from inclusion.

2.46 The size range of containers accepted by the four main RVM manufacturers is above and including 50ml and below and including 3 litres. Adoption of RVMs will improve the efficiency of the scheme by the automated capture of 85-90% of containers in scope, reflecting experience in other EU Schemes. This will be achieved in part through compaction of plastic bottles and metal cans (after being verified as deposit bearing containers) which significantly reduces storage and transport costs. The balance will be collected manually.

2.47 A manual collection scheme would substantially increase costs and commissioning RVMs which collect containers below 50ml and above 3 litres would represent an additional commercial and operational risk. Containers below 50ml and above
3 litres represent around 2%[43] of overall container numbers. Therefore, it is recommended that the range of containers in scope will be those above 50ml and below 3 litres.

2.48 It is proposed that the materials in scope of Scotland's DRS are PET plastic, metal and glass drinks containers. The range of containers in scope will be those above 50ml and below 3 litres.

2.2 Basis for Recommended Exclusion

2.49 Of the remaining materials that were consulted on and that deliver investment objectives, the following are recommended not to be included at this stage: single-use disposable cups, beverage cartons and HDPE bottles

2.50 For all three materials the OBC identified that there were no national schemes that used a primarily automated (RVM) collection approach which included them all. Although multiple manufacturers have assured that this is technically feasible, introducing these as part of a new scheme significantly increases the commercial risk.

2.51 The January 2019 Scottish Budget announcement signalled support in principle for the use of charging and other measures to reduce the use of single-use disposable cups. Therefore, these are considered out of scope of the DRS.

2.52 Typically, beverage cartons are reprocessed with single use cups, therefore the materials could be collected together. Removing cups excludes 75% of the containers and 80% of the weight, changing the economics of including cartons.

2.53 Cartons only represent 6% of sealed containers and so do not impact the comprehensive nature of the scheme.

2.54 When considering HDPE, the following factors are relevant:

  • The consultation indicated lower levels of support (53%) for including this material in the scheme. Concerns primarily centred around perceived hygiene risks. Despite Environmental Health professionals advising that there is no greater risk compared to other materials - and that a well-designed scheme would further mitigate any risk - this perception could adversely impact on participation in the scheme.
  • As it is primarily used for dairy products there is limited potential for market distortion by excluding HDPE.
  • The dairy category has a significant proportion of the over 3-litre (large milk containers) and sub-50ml (probiotic drink containers) containers which have also been recommended for exclusion.

2.55 There is a possibility that these materials could be considered for inclusion at a later date, expanding a well-established and high performing scheme, especially if some of the technical issues are resolved or additional information and evidence becomes available to reduce commercial risks and reassure participants. Facilitating this future flexibility will be explored in the preferred scheme design.

2.56 It is proposed that the materials out of scope of Scotland's DRS are single-use cups, cartons and HDPE drinks containers. In addition, containers below 50ml and over 3 litres are also recommended for exclusion.

2.3 Products in Scope

2.57 Six questions in the public consultation related to products in scope. The summary responses to each question are set out in Table 3 below:

Table 3: Products in scope

Number

Question

Summary Results

7

Do you think the material the container is made from or the product it contains should be the key consideration for deciding the scope of the scheme? [Material the container is made from / Product it contains / Don't know] Please explain your reasons.

There was no clear consensus among respondents about whether the key consideration should be the material the container is made from (53%) or the product it contains (43%). Organisations were more likely than individuals to prefer a focus on the material the container is made from (68% of organisations compared to 52% of individuals). However, there were large differences between organisational types. Recycling and waste management organisations (100%) packaging manufacturers (92%), retailers (88%) and public sector organisations (83%) were strongly in favour of a focus on materials while charities (72%) and DRS companies (50%) favoured a focus on products.

8

Are there any product categories that should be excluded from the scheme? [nine options listed]

The number of individuals who thought any particular product category should be excluded was low. The figure was approximately 1% for soft drinks; 2% for mixers and bottled water; 3% for fruit / vegetable juice and alcohol products; 4% for spirits and other drinks; and 7% for dairy.

As far as organisations were concerned, the numbers who favoured exemptions for soft drinks and bottled water were also low (2% of all organisations). However, the proportions favouring exemptions for mixers and fruit / vegetable juice were around 8-9%; for alcohol products 15-16%; and for dairy 34%.

There were differences among the various organisation types. Around four in ten public sector organisations, food and drink producers, and packaging manufacturers, five in ten recycling / waste management organisations, and six in ten retailers wanted dairy products to be excluded from a DRS.

9

Are there any product categories that you broadly agree with but think that certain products within them should be excluded? [Yes / No / Don't know] Please give specific reasons for excluding anything.

The most common product identified for exclusion, both by organisations and individuals, was fresh milk. Some respondents explicitly stated that they thought other milk-based drinks (which are often consumed on the go) should be included.

10

Are there any other products that broadly fall into the category of 'drinks' that we have not included that you think should be?

The most common response to this question, both among organisations and individuals, was 'no' or 'none'. In addition, individuals often said 'don't know'.

11

Do you think the DRS should be limited to 'on the go' only? [Yes / No / Don't know] Please explain why.

Respondents were strongly of the view that the DRS should not be limited to 'on the go' only - 88% answered 'no' in response to this question. Individuals were more likely than organisations to answer 'no' (90% compared to 61%). There were substantial differences in the views expressed by different organisational types - charities (100%), DRS companies (100%), community bodies (89%) and environmental consultancies (86%) were particularly opposed to the scheme being limited to 'on the go' only, while a majority of respondents from the hospitality and restaurant trade (67%), recycling and waste management organisations (57%), public sector organisations (55%) and retailers (50%) were in favour of an 'on the go' only scheme.

2.58 European Court of Justice (ECJ) guidance[44] on DRS and the interaction with the EU single market states that:

"Member states must ensure that there is no discrimination between those products that are exempt and those that are subject to the deposit requirement and that any differentiation is based on objective criteria. Therefore, the Commission is of the opinion that the differentiation should in principle be based on the material used for the containers and not on the content of the beverages, for reasons that the content in itself is not related to the environmental performance of the packaging."

2.59 Unless there is robust evidence of the impact of a product's inclusion on the environmental impact of the scheme (e.g. it reduced the recycling quality of materials) then no distinction should be made on the basis of product. No evidence of this type of impact has been identified.

2.60 It is proposed that there should be no differentiation based on product.

2.4 Return Locations

2.61 Four questions in the public consultation related to return locations. The summary responses to each question are set out in Table 4 below:

Table 4: Return locations

Number

Question

Summary Results

14

Which option for return location do you prefer? Please choose one and explain your reasons. [Take back to a place that sells drinks / Take back to a designated drop-off point / Mixture of take back and designated drop-off]

43% of respondents preferred containers to be taken back to a place that sells drinks and 52% preferred a mixture of take back and drop-off locations. Individuals were more likely than organisations to prefer containers being taken back to a place that sells drinks (45% compared to 25%) and less likely to prefer a mixture of take back and drop-off locations (51% compared to 69%). The views of charities differed substantially from other organisations. Almost seven in ten charities (68%) preferred a scheme in which containers would be taken back to a place that sells drinks.

15

In any model involving return to retail, are there any types of retailer that should be excluded? [Yes / No / Don't know] Please explain your reasons.

Both individual and organisational respondents were in general agreement that the most important feature of a DRS - and the determining factor in whether it would be successful in achieving the aims of the scheme - was that it should be easy, accessible, simple and convenient for consumers. Respondents thought these qualities were best achieved by a system which allowed exclusions for a few key types of location only.

16

Do you agree that online retailers should be included in the scheme? [Yes / No / Don't know]

A large majority of respondents (76%) agreed that online retailers should be included in the scheme. Less than one in ten (9%) thought that they should not. The remaining 15% said they 'didn't know'. Organisations were slightly more likely than individuals (85% compared to 75%) to agree that online retailers should be included. Hospitality and restaurant trade respondents, recycling and waste management organisations and retailers were slightly less likely than other organisational respondents to think online retailers should be included. However, even for these groups, over two-thirds were in favour of including online retailers.

2.62 96% of respondents favoured retailer involvement in a return to any place of purchase model which includes dedicated return points.

2.63 This would require a mix of manual and automatic return options, depending on the volume of containers and size of retail space. It is anticipated that this will require retailers of all size, by regulation, to act as a return location. However, it would not prevent other types of organisations applying to act as a return point if they desire.

2.64 Existing international schemes with dedicated return points fail to achieve high capture rates e.g. Australian Northern Territories (48%), Newfoundland / Labrador (61.6%), Hawaii (65%).

2.65 Conversely, in Canada, where the model is predominantly return to depot or a hybrid of return to depot/return to retail, there is an average capture rate of 79.3% and Iceland achieves 90%. These higher rates reflect specific geographic factors of the region, relating primarily to small, concentrated populations of people where return to depot is a more suitable mechanism.

2.66 In line with the public consultation response (76% in favour), it is proposed that online retailers will be required to participate. The inclusion of places of purchase and online retailers was identified as a key design impact by the EQIA. Ensuring groups covered by the protected characteristics had easy and frequent access to redeem their deposits is key to the scheme not creating inequality.

2.67 Hospitality businesses, where containers are sold for consumption on-site, currently retain the vast majority of these containers and then pay for their disposal. Because these containers are highly unlikely to be taken off-site by the customer, it is proposed that such businesses be given the option not to charge the deposit to customers and need not act as a return point for containers that they do not sell. However, these businesses will still be expected to return the containers that they sell which are in the scope of the scheme. No handling fee would be paid to these businesses, as they are not incurring any additional costs. These businesses will benefit from the scheme as the containers that they currently pay to dispose of will be collected free under the DRS. Conversely, hospitality businesses that sell drinks containers that may be taken off-site will still be required to charge the deposit to customers and act as a typical return point for any in-scope material. This will apply to hospitality business such as cafes and takeaways.

2.68 It is proposed that a return to any place of purchase model will be adopted as part of the preferred scheme, with hospitality business being given the option not to charge the deposit to customers and not to act as a return point for containers that they do not sell.

2.5 System Performance

2.69 There were no questions in the public consultation related to system performance.

2.70 The Scottish Government has a clearly stated aim for the DRS to deliver ambitious impacts.

2.71 A high capture rate will contribute to (i) the Scottish Government's target of achieving a 70% recycling rate by 2025; (ii) the EU Circular Economy packaging targets (which the Scottish Government has committed to adopting); (iii) the EU Single Use Plastic Directive target of recycling 90% of plastic bottles placed onto the market.

2.72 A number of DRS in Europe achieve a capture rate of over 90% of containers in scope. The median capture rate for plastic bottles in the scope of these DRS is 90%.

2.73 A progressive increase in performance over a three to four year period from scheme introduction has been evident in all new European schemes. This suggests that a three to four year ramp-up period to achieve the target capture rate should be considered to allow time to engage consumers and for system performance enhancements to be developed and implemented.

2.74 Setting a capture target against all containers with a variable target for individual material types provides flexibility for the Scheme Administrator to manage capture rates across materials.

2.75 It is proposed that a performance target of capturing 90% of containers being reached at the end of three years of operation represents an ambitious but achievable performance objective. This is subject to a minimum capture rate of 85% by material type. This should be a statutory target, written into Regulation, for the Scheme Administrator to deliver.

2.76 It is further intended that the performance target will be achieved over the first three years of the DRS operation (e.g. 70% in year 1; 80% in year 2 an 90% in year 3). This is in line with international best practice.

2.6 Consumer Information

2.77 The summary responses to each question in the public consultation related to consumer information are set out in Table 5 below:

Table 5: Consumer information

Number

Question

Summary Results

22

Do you agree that producers should be required to put DRS-related information on each container? [Yes / No / Don't know]

The general consensus among respondents was that producers should be required to put DRS-related information on each container, with 93% overall answering 'yes'. Both organisational and individual respondents favoured this requirement. However, one-quarter (25%) of retailers disagreed with this view and said 'no'.

22a

If yes, should those putting small amounts of material onto the market in Scotland be exempt from this labelling requirement? [Yes / No / Don't know]

There was agreement among both individuals and organisations that producers who put small amounts of material onto the Scottish market should not be exempt from this labelling requirement. Overall, 78% indicated that they were opposed to exemptions.

22c

Rather than be exempt, should small importers be required to put a label with deposit return-related information onto the existing packaging? [Yes / No / Don't know]

There was no clear consensus on this issue. Occasionally, respondents suggested this should be discussed and agreed with producers or piloted.

2.78 93% of public consultation responses favoured the inclusion of consumer information on the packaging.

2.79 Achieving an ambitious scheme performance target of 90% capture rate of containers is likely to require voluntary identification of containers in scope.

2.80 It is important to give industry the ability to adopt efficient and effective measures to achieve the target capture rate e.g. the benefits of requiring a micro-business to incorporate on-pack labelling maybe disproportionate to the cost.

2.81 A combination of the scheme performance target and fraud prevention measures is likely to result in the deployment of on-pack labelling in the majority of circumstances - where it will support delivery of the investment objectives.

2.7 Fraud Prevention

2.82 Two questions in the public consultation related to fraud prevention. The summary responses to each question are set out in Table 6 below:

Table 6: Fraud Prevention

Number

Question

Summary Results

23

Which option for labelling do you believe offers the best balance between reducing potential for fraud and managing costs to producers and retailers? [No changes to current system / Specific barcode / High security label] Please elaborate.

A substantial majority of respondents (72%) thought that adding a specific barcode offered the best balance between reducing potential fraud and managing costs to producers and retailers. 17% favoured no changes to the current system, and the remaining 11% favoured a high security label.

24

Are there other security measures we should be considering, for instance heightened security measures at key return locations? [Yes / No / Don't know]

The most common such suggestion was for a Quick Response (QR) code or embedded Radio Frequency Identification (RFID) chips.

2.83 72% of public consultation responses favoured adoption of a specific barcode as the main method of fraud prevention.

2.84 The creation of a single Scheme Administrator allows the deployment of a number of fraud control measures. They will have access to all scheme data and the material managed through the scheme, allowing them to quickly identify anomalies and intervene.

2.85 Producers are assumed to be responsible for the full cost of the scheme and as such this will ensure the adoption of the most efficient and effective measures to prevent fraud. This could be different for contrasting sizes of producers e.g. micro businesses compared to those selling hundreds of thousands of containers in Scotland.

2.86 To allow this flexibility it is proposed that the preferred scheme will not mandate the adoption of a specific barcode.

2.8 Deposit Level

2.87 Two questions in the public consultation related to deposit level. The summary responses to each question are set out in Table 7 below:

Table 7: Deposit level

Number

Question

Summary Results

25

Do you have a preference for what level the deposit should be set at? [Yes / No / Don't know] Please explain the reasoning behind your choice.

70% of respondents answered 'yes' to indicate that they had a preference regarding the level of the deposit. Organisations were less likely than individuals to say this (58% compared to 71%).

26

Do you think that certain types of drinks containers should carry a different deposit level? [Yes / No / Don't know] Please explain which ones and why you think the deposit should be varied.

Respondents suggested a wide range of deposit levels. However, more than half of all respondents suggested deposit levels of 15-20p (32% suggested 15-20p, 2% suggested 15p and 24% suggested 20p). Organisations were somewhat more likely than individuals to favour lower deposit levels although for both groups the median amount suggested was very similar (15-20p for organisations and 20p for individuals). The overall median deposit suggested was 20p.

2.88 The overall median deposit suggested in the consultation was 20p. This reflects the need for a suitable financial incentive to achieve a 90% capture rate and is within the range of deposit levels used by schemes elsewhere in the world.

2.89 The equality impact of a deposit level between 10p and 20p was considered. The existence of easy-to-access return points ensures that maximum deposits are redeemed and minimises the time lapse between deposits being paid and redeemed by enabling frequent return trips.

2.90 The EQIA concludes that the exclusion of HDPE (and by extension most milk-based products) can be seen as a positive equality impact, because lower income households spend a higher proportion of their income on what is considered a staple product[45].

2.91 A standard deposit is proposed across all products, reflecting expert opinion from other schemes that variable deposits are confusing and can devalue the lower deposit bearing containers in terms of public perception.

2.92 It is proposed that retailers will be required to display the deposit separately from the product price. This level of transparency for customers makes clear the level of deposit they can expect to redeem from each product at point of purchase. This is consistent with best practice adopted for the Single Use Carrier Bag Charge (Scotland) Regulations 2014, which required the charge to be displayed separately.

2.93 It is recommended that a 20p deposit is applied to all containers in scope.

2.9 Wider economic and social impacts

2.94 As well as broader impacts on material use and disposal, the scheme has the potential to have wider economic and social impacts. Table 8 below demonstrates how these may be realised:

Table 8: Additional benefits

Benefit

Opportunities

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).

Work is underway to secure reprocessing opportunities in Scotland through expansion of existing capacity to attract inward investment.

Maximise accessibility to all demographic groups e.g. ensure there is no need to access a private vehicle to redeem deposits.

The work undertaken to identify deposit return sites has been analysed on the basis of ease of return.

Create employment opportunities for groups including the long-term unemployed or those with disabilities.

The location of the counting centre(s) will be considered accessible to an appropriate workforce.

Optimise the positive impacts for small to medium sized businesses including small retailers.

Access to funding of reverse vending machines will be explored in FBC Stage 2. There is also provision for manual collection. The impact on smaller producers is also considered.

Ensure fairness for all demographic groups e.g. considering the impacts of the deposit level on households on lower incomes.

An EQIA has been developed in consultation with relevant interest groups to ensure physical access to the widest range of people and the ability to make frequent returns.

Deliver exemplar circular business practices while still delivering value for money e.g. leasing models for reverse vending machines.

Leasing models will be considered as part of the FBC Stage 2 Business Plan.

Create opportunities to raise funds for charitable causes, where use of the money can have wider societal benefits.

Charitable giving options will be explored as part of the FBC Stage 2.

2.10 Preferred Scheme Design Description

2.10.1 Preferred scheme design - take back to any place of purchase

The preferred scheme design enables you to take your drinks containers back to any retailer that sells drinks in disposable containers.

2.10.2 What the preferred scheme design looks like

2.95 Any retailer that sells drinks in disposable containers (smaller than 3 litres and larger than 50ml) will have to act as a return point, where individuals can redeem the deposit paid on the container when the drink was purchased.

2.96 Businesses that sell drinks to be opened and consumed on-site, such as pubs and restaurants, will not have to charge the deposit to the public and will only be required to return the containers they sell on their own premises. Businesses that sell drinks that are more likely to be consumed off-site, such as cafes and takeaways, will still be required to charge the deposit to the public and act as a return point.

2.97 Online retailers will be included in the scheme. This means that those customers who are dependent on online delivery, because for a variety of reasons they are unable to travel to shops, are able to easily get back the deposits paid on containers.

2.98 Non-retail spaces will be able to act as return locations. These could include recycling centres, schools or other community hubs. The only difference is that retailers will be required by legislation to provide a return service, whereas non-retail spaces will be able to opt in.

2.99 Bigger retailers with more space may install machines to both collect the bottles and cans and enable people to return deposits. Smaller retailers with less space have the option to return deposits over the counter, collecting the containers manually.

2.100 The scheme will include plastic bottles made from PET (the most common type of bottle for products such as fizzy drinks and bottled water), aluminium and steel cans and glass bottles.

2.101 Schemes run on similar principles in places such as Scandinavia and the Baltic states capture up to 95% of eligible drinks containers for recycling. Scotland's DRS will target a return rate of 90%. This is almost double the current capture rates for the materials that are in scope. Having a deposit level which provides a sufficient incentive to return containers, together with provision of high coverage of return points, means that this target is ambitious but achievable. It is recommended that this target be written into legislation for the Scheme Administrator to deliver.

2.102 It is important to note that the true national recycling rate for the containers targeted through Scotland's DRS will be slightly higher than the scheme capture rate itself. This is because some items not returned will continue to be returned through existing recycling facilities such as kerbside.

2.10.3 The impacts of the preferred design scheme

2.103 This preferred scheme design offers a high return rate for containers in scope. As such it most closely matches the environmental ambitions which underpin the policy: increasing the recycling rate and reducing littering.

2.104 The preferred scheme design offers flexibility for consumers and the opportunity to maximise the capture rate, by adopting return to any place of purchase, including online retailers. This means that return locations will be located in the same places where individuals are purchasing the containers, ensuring ease of access for consumers, regardless of where they live.

2.105 The preferred deposit level is 20p. This is within the current range adopted by successful international schemes, before consideration of the devaluation of the deposit over time. It is the median deposit level suggested by responses to the public consultation.

2.106 The impact of the deposit on equality groups was explored in the EQIA. There is little perceived difference in the impact between either a 10p or 20p deposit, assuming that convenience of the scheme allows individuals and households to redeem deposits frequently and easily.

2.107 The design of the scheme reflects the OBC's conclusion that the implementation of a DRS should create an organisation that is proportionate to the Scottish landscape. Such schemes have been successfully implemented in a range of market sizes (smaller, comparable and larger than Scotland) and frequently including PET plastic bottles, metal cans and glass bottles.

2.108 There are no examples of a national scheme, which predominantly uses Reverse Vending Machines (RVMs) for returns, that accept HDPE, single-use cups or beverage cartons. Although the position of RVM manufacturers is that including these materials is technically feasible, the incorporation of these materials from launch substantially increases the commercial risk to the scheme.

2.109 As part of the 2019-20 Scottish Budget, the Scottish Government signalled its agreement in principle to the use of charging in relation to disposable drinks cups. We will consider the recommendations of the Expert Panel on Environmental Charging and other Measures - which are due later this year - and bring forward proposals in 2019-20 for legislation and other measures to implement the Panel's recommendations. Any measures taken could substantially influence the number of containers placed onto the market and, therefore, the costs and benefits from including these in Scotland's DRS.

2.110 The exclusion of single use cups has an impact on the costs and benefits of including beverage cartons, as these containers have the same end reprocessing destination and so could be collected together at return locations. Excluding cups removes almost 75% of the tonnage and almost 80% of the containers from this stream.

2.111 Feedback from the Scottish Government's public consultation supported starting with a "core set" of materials at the launch, with 65% of responses (57% of organisations and 66% of individuals) agreeing that this was a good idea to maximise the potential for success.

2.112 The consultation also demonstrated strong support for all materials initially proposed for inclusion eventually coming within the scope of the scheme, with HDPE having the lowest level of support. Just over half, or 53%, of responses favoured its inclusion. The concerns raised about HDPE were linked to hygiene and its use as packaging for dairy products. This was particularly strong feedback from retailers and hospitality premises, which could impact on 'buy-in' to the scheme from these providers of return points, if this material was to be included.

2.113 The preferred scheme design builds in flexibility for the future, so that there is the possibility for wider materials discussed in this document to be added at a future date. Future additions could be based, for example, on recommendations from the Expert Panel and wider expertise, as well as the adoption of measures that address stakeholder perceptions of hygiene risk, and further evidence of the robustness of the scheme in accepting a new range of containers.

Table 9: Presentation of Preferred Scheme Design: Net Present Value (NPV) and Benefits-Cost Ratio (BCR)

Actor Preferred Scheme Design: 25 Year NPV (£)[46]
Costs (£m) Benefits (£m) Net benefit (£m)
Scheme Administrator (£1,273-£1,795) £1,521-£2,043 £248 All of the costs falling to the DRS Scheme Administrator including logistics, counting infrastructure, staff and reimbursing return points via the handling fee. Benefits are the income streams (unredeemed deposits, material sale, producer fee). 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 (£887-£1,251) £887-£1,251 £0 All costs associated with operating a return point under return to any place of purchase (staff, value of space, purchase of RVMs or other appropriate containerisation and utility costs) reimbursed via handling fee.
Producers (£669-£1,233) £623 (£46-£610) Upfront costs associated with the introduction of a market specific barcode, ongoing costs associated with having to operate these additional Stock Keeping Units (increased changeovers, impact on logistics and increased stockholding) and the cost of producer fee (to cover any shortfall in finances for the Scheme Administrator). The benefits to producers are the avoided compliance costs of not contributing towards an amended Extended Producer Responsibility scheme to deliver the EU Circular Economy Package targets.
Local Authorities (£46) £237 £191 Costs relate to a reduction in income or increased costs associated with sorting the remaining materials left in the kerbside collections. The benefits to local authorities are collection efficiencies for both bin collections and litter collections, and reduced costs for disposal of materials.
Commercial Premises £0 £35 £35 Business premises who are currently paying for the collection and disposal of material would save on this, as the Scheme Administrator would provide this collection free of charge.
Other Sectors (£137) £135 (£2) Private waste management companies: Income generation from service provision is reduced resulting in a reduction in profit. Benefit relates to increased availability of resource. RVM servicing providers: Cost of providing the service and income from charging businesses for doing so (i.e. small benefit relating to profit associated with activity). Regulators: Cost of staff time for enforcing new scheme.
Public (£822) £1,101 £279 Costs include individuals not claiming back their 20p deposits on containers (10% of containers over 25 years) and placing a financial value on the 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. Carbon benefits - value of carbon reduction both under the Emissions Trading System (ETS) scheme and non-ETS eligible carbon savings.
Total (£3,834-£5,284) £4,539-£5,425 £705-£141

The preferred scheme design has a total net benefit of £705 million over the 25-year Net Present Value (NPV).

2.11 NPV Analysis

2.114 The key components of the NPV are described below, indicating the main costs and benefits associated with each actor including the assumptions that have supported the development of these. For many of the actors, a range of costs are presented because adjustments have been made for optimism bias. It is expected that the level of optimism bias adjustment required will reduce substantially as part of the FBC Stage 2 process, as set out more fully below.

2.115 In relation to optimism basis, the HM Treasury Green Book Guidance states that:

"Project appraisers have the tendency to be over-optimistic. Explicit adjustments should therefore be made to the estimates of a project's costs, benefits and duration, which should be based on data from past or similar projects, and adjusted for the unique characteristics of the project in hand.

"This guidance provides cost and time uplift percentages for generic project categories which should be used in the absence of more robust primary data."

2.116 HM Treasury suggested initial optimism bias uplifts for a range of project types are detailed in Table 10:

Table 10: Optimism Bias Recommended Adjustment Ranges[47]

Project Type Optimism Bias
Works Duration Capital Expenditure
Upper Lower Upper Lower
Standard Buildings 4 1 24 2
Non-Standard Buildings 39 2 51 4
Standard Civil Engineering 20 1 44 3
Non-Standard Civil Engineering 25 3 66 6
Equipment/Development 54 10 200 10
Outsourcing n/a n/a 41* 0*

*the optimism bias for outsourcing projects is measured for operating expenditure.

2.117 The most similar category for the purposes of this project is the outsourcing category that is described as "concerned with the provision of hard and soft facilities management services - for example, information and communication technology services, facilities management and maintenance projects".

2.118 Accordingly, an optimism bias of 41% has been applied to the capital and operating costs of providing and running the scheme in the preferred scheme design. This impacts on the Scheme Administrator costs, return point costs and the producer costs.

2.119 As part of the Green Book approach, the adjustment required for optimism bias is expected to reduce as a project moves through the appraisal process, because the level of uncertainty in the appraisal is reduced through refinement of costings and consultation with stakeholders. In this case, the percentage applied to optimism bias has not been reduced since the OBC. This is a conservative approach to calculating the NPV, as further work has been undertaken to update or reinforce the scheme costs.

2.120 These updated estimates are however still pre-market, i.e. the figures are not the outcome of a competitive tendering exercise. It was therefore considered prudent to continue to exercise caution until these could be tested in this manner.

2.121 It is expected that the optimism bias will be reduced as part of the FBC Stage 2 process, which requires a greater level of commercial planning for the Scheme Administrator. A lower adjustment for optimism bias would result in smaller ranges of costs.

2.11.1 Scheme Administrator

2.122 As identified in the working assumptions section, the Scheme Administrator is an organisation incorporated to deliver a DRS at a national level. The income it receives should cover all of the operating costs i.e. the net benefit should be zero.

2.123 The total costs of delivery of the scheme over 25 years is £1,273-£1,795 million and the total benefit is £1,521-2,043 million. The net benefit is £248 million, as 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. No assumptions are made about how this accumulated balance is then distributed.

2.124 The main costs incurred by the Scheme Administrator are the handling fee paid to retailers (70%), costs of collection logistics (16%), staff and infrastructure costs associated with counting centres and scheme administration (8%) and fraud (6%).

2.125 The range of figures associated with these costs are shown in Table 11:

Table 11: Scheme Administrator costs

Scheme Administrator Tasks Cost Range
Handling Fee to Retailers (£887-£1,251 million)
Cost of Collection Logistics (£209-£295 million)
Staff and Infrastructure Costs (£103-£145 million)
Fraud (£74-£104 million)
Total (£1,273-£1,795 million)

2.126 The main income streams for the Scheme Administrator are unredeemed deposits (between 43% and 32%), revenue from the sale of materials (between 20% and 15%) and a producer fee (between 37% and 53%). As identified in the working assumptions, DRS is a form of producer responsibility, where producers who benefit from placing material onto the market incur the costs of ensuring appropriate treatment at end of life.

2.127 The revenue received by utilising unredeemed deposits assumes that the 90% capture rate of containers is achieved by year 3 of the scheme operating and is maintained for the remainder of the 25 years.

2.128 The range of figures associated with these benefits are shown in Table 12:

Table 12: Scheme Administrator benefits

Scheme Administrator Benefit Cost Range
Unredeemed deposits £657 million
Revenue from material sales (selling individual materials collected for recycling) £297 million
Producer Fee (producer financial contribution to scheme costs) £567-£1,089 million
Total £1,521-£2,043 million

Return Points

2.129 As identified in the working assumptions section, businesses operating as a return point should be fully reimbursed for their costs, leading to no overall net economic benefit or loss during the 25-year NPV period.

2.130 The total cost to return points of facilitating returns over 25 years is £887-£1,251 million and the total benefit is £887-£1,251 million. The net benefit is therefore zero.

2.131 There are 17,407 return points identified under a return to any place of purchase model in Scotland. This covers all types of premises that sell drinks containers to the public including large shops, small shops, bars, restaurants, cafes etc.

2.132 This includes a mix of automatic return, where the return is facilitated by using an RVM, and manual, where the return is facilitated by a member of staff. There are around 3,000 automatic return points, with various configurations and sizes of RVMs, and 14,386 manual return points.

2.133 For automatic return points the main costs accounted for are the purchase of the RVM, the value of space within the business occupied by the RVM, staff time to service the machine and consumables such as insurance, electricity and servicing costs.

2.134 For manual return points the main costs are staff time, the value of space within the business occupied by bags and consumables such as suitable bags and tags with barcodes to link the bag back to a specific business.

2.135 For hospitality premises that are exempt from charging the deposit to customers and acting as a return point for containers that they do not sell, they are only reimbursed for consumables. This is because they are handling and storing containers that they already manage.

2.136 Costs are reimbursed to return points on a per container basis via a handling fee paid by the Scheme Administrator. This handling fee should cover any costs incurred and therefore there are different handling fees for automatic and manual return points.

2.137 The division of containers between these return point configurations is 85% automatic and 15% manual, mirroring behaviour in other similar schemes across Europe.

2.138 This results in the following return profile (Table 13):

Table 13: Return profile

Return Point Type Automatic Manual
No of containers per year 994 million - 1318 million 175 million - 233 million
Costs £769 - £1,084 million £118-£167 million
Benefit £769-£1,084 million £118-£167 million

2.11.2 Producers

2.139 Under a DRS, producers are those companies that put deposit bearing products onto the market (a further definition is provided in the Commercial Case (page 79). DRS is a form of producer responsibility and, as such, producers are responsible for contributing to the scheme where the operating costs of the scheme exceed revenue generated from unredeemed deposits and the sales of material.

2.140 The total cost to Producers from implementation of the scheme over 25 years is £669-£1,233 million and the total benefit is £623million. The net cost is therefore £46-610 million.

2.141 The main costs incurred by producers are set-up costs for establishing a separate label for the Scottish market (between 5% and 7%), increased inefficiencies in production, logistics and storage due to creation of a new market (between 6% and 8%) and the producer fee to the Scheme Administrator (between 85 and 88%).

2.142 The range of figures associated with these costs are (Table 14):

Table 14: Producer costs

Producer Costs Cost Range
Set-up costs for establishing separate labels £46-£65 million
Ongoing costs associated with creation of two labels for UK market £56-£79 million
Producer Fee £567-£1,089 million
Total £669-£1,233 million

2.143 Reserving unredeemed deposits in years 1-5 results in a higher producer fee contribution of 30-77% to cover the scheme costs. No assumptions are made about how this accumulated balance is then distributed. However, it is clear that providing the necessary evidence to allow access to this revenue stream would dramatically reduce producer costs.

2.144 The Scottish and UK Governments have both committed to adopting the EU Circular Economy package. This package introduces new recycling targets for packaging materials, extended to 2030, and the concept of 100% cost recovery in Extended Producer Responsibility schemes.

2.145 The benefit to producers involved in DRS is the avoided compliance costs that they would therefore be required to pay, associated with the implementation of the Circular Economy package, and to deliver the same outcomes against the four stated investment objectives. This benefit is £623 million over the 25 years.

2.11.3 Local Authorities

2.146 The total costs to Local Authorities over 25 years is £46 million and the total benefit is £237 million. The net benefit is therefore £191 million.

2.147 Local Authorities are not directly involved in the scheme however they are currently managing a significant proportion of the material that will be diverted to a DRS. It is the transfer of material which is responsible for these costs and benefits.

2.148 All of the costs, £46m over the 25 years, are based on increased sorting costs for the remaining dry recyclate and the lost income from selling materials. This is based on the assumption that MRF would maintain the profit per tonne of material i.e. that the lost value of material would be added to sorting costs.

2.149 The main benefits for Local Authorities are £133m in residual disposal cost savings (56%), £27m in savings from handling less dry recyclate (11%), £59m in freeing resources currently used to collect these materials (25%) and £18m from reductions in litter collection and disposal costs (8%).

2.150 The figures associated with these benefits are (Table 15):

Table 15: Local Authority benefits

Local Authority Benefits NPV Benefit over 25 years
Residual Disposal Savings £133 million
Savings from managing less tonnage of dry recyclate £27 million
Resources currently used to collect these materials £59 million
Reductions in litter collection and disposal costs £18 million
Total £237 million

2.11.4 Commercial Premises

2.151 There are no costs to commercial premises over 25 years and £35 million in benefits. The net benefit is therefore £35 million.

2.152 These savings all arise from savings in commercial waste management collections. Organisations who are currently paying to have waste collected are able to reduce collection frequency, bin size or have the material collected by the Scheme Administrator to save money.

2.153 Over 80% of these savings come from recycling collections, where material is concentrated enough to allow one of the scenarios above to occur. This will primarily impact hospitality type premises such as pubs and restaurants.

2.11.5 Other Sectors

2.154 There are 3 actors (commercial waste management, RVM service providers and regulators) who are considered in this category, as the overall impact on the net benefit is minimal. The total costs associated with these actors is £137 million over 25 years and the total benefit is £135 million. The net cost is therefore £2 million.

2.155 Commercial waste management operator costs over 25 years are £35 million and the benefits are £34 million, resulting in a net cost of £1 million. The costs relate directly to the reduced collections identified under Commercial Premises i.e. these organisations will lose this income. The cost benefits portrayed are the resources, staff and infrastructure currently dedicated to these services which will be freed to be utilised for other opportunities.

2.156 RVM service providers costs over 25 years are £98 million and the benefits are £101 million, resulting in a net benefit of £3 million. The costs are the resources that these companies invest to service the RVMs across around 3,000 automatic return points across the country. The benefits are the income received from charging these return points for servicing and maintenance.

2.157 Regulator costs over 25 years are £5 million and there are no benefits, resulting in a net cost of £5 million. The costs are staff and overhead costs associated with ensuring compliance across all actors involved in DRS. These costs primarily fall to SEPA (£4 million), with the remaining £1 million covering activity delivered by other regulators such as Local Authorities and Fire and Police Services.

2.11.6 Public

2.158 The total cost of the scheme to the public over 25 years is £822 million and the total benefit is £1,101 million. The net benefit is therefore £279 million.

2.159 The two costs incurred by the public are unredeemed deposits (80%), where individuals chose not to redeem 10% of the containers where a deposit was paid, and the value of public time (20%), which is based on a consistent figure adopted for the OBC of £10m per year. The preferred scheme design is a return to retail model with return points at all points of sale, and it is therefore assumed that almost all returns will be part of existing shopping trips.

2.160 The three main benefits to society are through improved amenity resulting from a reduction in a highly visible component of the litter stream (90%), a reduction in carbon emissions (7%) and the value of commercial advertising space at RVMs (3%).

2.161 Commercial advertising space has been allocated to society due to uncertainty about who would benefit financially from this. Practically this is likely to be either the Scheme Administrator or Return Points. The value of carbon is based on BEIS carbon values published before the 2018 Intergovernmental Panel on Climate Change (IPCC) report on Global Warming of 1.5 degrees, so is likely to be undervaluing the carbon impacts.

2.162 The figures associated with these costs and benefits are (Table 16):

Table 16: Impact on the public

Impact on Public Costs Benefits
Unredeemed deposits £657 million N/A
Value of public time £165 million N/A
Improved amenity resulting from the reduction in litter N/A £994 million
Monetised benefit from carbon emission reduction N/A £81 million
Commercial value of advertising space at RVMs N/A £26 million
Total £822 million £1,101 million

2.11.7 Summary

2.163 As the above breakdown demonstrates, most actors either benefit or have zero impact from the introduction of a DRS for Scotland.

2.164 Society, including individuals and organisations, benefit the most from the introduction of a DRS, primarily because of improved amenity from the reduction in litter and the carbon benefits from recycling more materials. This more than offsets the time required for the public to participate and the value of unredeemed deposits, resulting in a net benefit of £279 million.

2.165 Local Authorities and commercial premises also have a net benefit, as a result of the DRS collecting and managing waste that they are currently paying for themselves. This results in a net benefit of £191 million and £35 million respectively.

2.166 The Scheme Administrator in a standard operational period has a net impact of zero, as the costs of operating the scheme are recovered from unredeemed deposits, revenue from sale of materials and a fee charged to producers. There is a net benefit of £248m due to the unredeemed deposits in years 1-5 and no assumptions being made about how this would be utilised.

2.167 Return Points have a net impact of zero, as all of the costs of collecting and managing containers are reimbursed by the Scheme Administrator.

2.168 Producers will have to contribute more to a DRS, when compared to present circumstances. However, this is not an accurate baseline for the next 25 years, as the Scottish Government has committed to the introduction of the EU Circular Economy package including new packaging targets and 100% cost recovery in Extended Producer Responsibility schemes.

2.169 The net cost for producers therefore is between £46 million and £610 million, where the full 41% optimism bias is applied to the capital and operating costs of providing and running the scheme. This could be significantly reduced if the necessary evidence could be provided to allow access to year 1-5 unredeemed deposits.

2.170 Other actors identified have minimal impact across the 25-year NPV, with commercial waste operators (£1 million) and Regulators (£5 million) having a negative impact and RVM Service Providers (£3 million) having a positive net benefit.

2.171 The total cost across all actors for the 25-year NPV is between £3,834 and £5,284 million. The total benefit across all actors for the 25-year NPV is between £4,539 million and £5,425 million. The 25-Year NPV is £705 million. With full 41% optimism bias applied there is still a positive NPV of £141 million.

2.172 A Benefit-Cost Ratio (BCR) has also been calculated by dividing the total net present benefits by the total net present costs. A BCR greater than one demonstrates that the benefits are greater than the costs and therefore represents value for money. The BCR of the preferred scheme design is 1.20. Applying optimism bias the BCR is 1.03.

2.11.8 Sensitivity of costs to other factors

Possible impacts on NPV of changes to cost/benefit estimates already included in the model

2.173 For figures included currently within the NPV, there are a limited number of factors that are both significant enough to influence the overall NPV and have a large enough range of potential values.

2.174 As a way of assessing the sensitivity of the costs to these factors, an analysis has been conducted to look at the percentage changes required to result in a negative NPV for the preferred scheme design.

2.175 Table 17 below summarises this information:

Table 17: Percentage change required to result in Negative NPV

% change required in Scheme Administrator Costs (excluding handling fee) % change required in Return Point Costs % change required in Avoided Compliance Costs % change required in value of public contribution % change in value of Society Benefits
Preferred Scheme Design 183% 79% -113% 427% -64%

2.176 The minimum percentage change required across any of these factors is 65%, indicating that in most instances costs would have to almost double or benefits be reduced by over two-thirds before it results in a negative NPV.

2.177 This result confirms that avoided compliance costs and the society benefits, driven by a reduction in litter, are of equivalent or greater value than all Scheme Administrator and return point costs combined.

2.178 This includes staff costs, infrastructure, fraud, costs associated with return points etc. In addition, confidence on the certainty of these scheme costs, which can in many cases be benchmarked against overseas systems, is much greater.


Contact

Email: timothy.chant@gov.scot