Unwrapping the packaging tax
Facing the possibility of an expensive packaging tax, Repak CEO, Dr Andrew Hetherington, outlines why he believes the current system offers retailers better value
Print8 August 2012
If the government’s mooted packaging tax is introduced here, the “worst case scenario” could see industry paying a total of €85 million. Put another way, that’s 3.4 times more than recycling agency Repak currently charges its 2,300 members.
So claims Dr Andrew Hetherington, Repak’s CEO, who is outlining the potential upshot of the Department of the Environment’s review of the Producer Responsibility Initiative (PRI) model in Ireland; essentially, the recycling market.
Worrying projections
He teases out these worrying figures in greater detail to ShelfLife. “The impact of a packaging tax is targeted in the programme for government to raise €60 million,” he says. By comparison, Repak’s income from packaging levies on participating members was €25 million in 2011.
Therefore, industry would have to raise 2.4 times what it currently pays to Repak in order to reach this projected target. Yet according to Dr Hetherington, “in all probability” the packaging targeted for this tax, would be excluded from the existing Repak charges, meaning that the organisation would still have to raise €25 million on top of the new targeted tax intake. Hence we arrive at the ominous figure of €85 million.
Waiting it out
So when will we know if these potentially increased costs will become a burdensome reality? The Department of Environment has said it wants the initial review to be completed within two to three months, with the final report being completed by September. But according to Dr Hetherington, “realistically, we are looking at the end of the year and with the impact of summer holidays, I don’t think that a two or three months’ deadline is realistic either, because they’re already late in their own timescales.”
While we therefore have a considerable wait on our hands to see what exactly the review will bring, the potential for bad news does not stop there. Repak has expressed concern at a number of provisions that it believes could involve additional costs for member companies. One of these is the possible introduction of a deposit and refund scheme for certain packaging waste.
Dr Andrew Hetherington, CEO, Repak
Retailer ‘stung every time’
This entails customers bringing back packaging such as bottles and cans to their retailer, in return for the minimal deposit they originally paid, for example, 25 cents per item. Yet, according to the Repak CEO, this has already been shown not to work well in countries such as Germany. Firstly, there are issues surrounding space for the retailers involved as most shopfloor space is already allocated to sales.
Another problem is that over time, customers don’t see the point of bringing packaging back and are prepared to forego a minimal deposit, for the convenience of simply throwing packaging into their own recycling bin. Industry therefore ends up paying extra to cover the cost of collecting these materials. So while “in principle, it all sounds great”, Dr Hetherington says that when “you get down to the practicalities of it, you say, poor retailer because they’re stung every time”.
Regulation doesn’t work
Another area of concern expressed by Repak was the potential creation of a ‘waste regulator’ which would have powers to unilaterally set levels of payments by businesses. According to Dr Hetherington, this represents “old fashioned” thinking as regulation is a “very risky option” that often doesn’t work.
He nevertheless believes local authorities should be more visible when it comes to proving that the large retailers such as Ikea, which are ‘self-compliant’ with Ireland’s recycling legislation, are bringing back all the packaging materials they should be, through conducting regular audits.
Greater inspection levels essential
Inspections need “to be stepped up,” Dr Hetherington argues, because not complying with the legislation, is giving a small number of unscrupulous retailers “an unfair competitive advantage.”
The problem centres around a lack of resources. “When you speak to local authorities, they have very limited resources. I was told recently that there are three reinforcement officers in a particular region but one is off on long-term sick and the percentage of time that they have available to enforce packaging is only 3%.”
Competition not the answer
While some commentators have argued that greater competition within the recycling arena could lower business costs, not surprisingly, Dr Hetherington disputes such beliefs. He argues that the packaging recovery and recycling market in the Republic of Ireland is only the same size as Manchester’s and that if there were numerous Repak organisations here that we wouldn’t benefit from economies of scale to the same extent. Again Germany provides a useful precautionary tale; with 12 recycling schemes in place nationwide, Dr Hetherington describes this as “a basket case” scenario, where “industry is paying far more than it ever did and collecting less”.
While he agrees that there should be competition, he notes that, “even if we had two or three Repaks, the overheads would be two or three times more. And then of course [private agencies] all have to generate a return for the investors.”
In the past, retailers have criticised Repak’s fees which vary from €400 up to €3,300 per annum for independent retailers, according to their respective turnovers. Dr Hetherington defends these charges on the basis that Repak is “very low in the order of EU charging” and has been able to demonstrate that it provides “value for money”.
“We’ve had no increase in our fees for four years, because we understand exactly what it’s like out there; we’ve tried to live within our own means. But if the consultants came out and said that Repak needed to do in addition, X, Y and Z, that would be very difficult to do without increasing our costs.”
While increased costs in whatever guise would prove unwelcome news for retailers, when examining a potentially extensive packaging tax, the not-for-profit agency makes a convincing case for the argument that it’s ‘better the devil you know’.
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