Alongside the recent release of the final packaging recycling figures for 2020 (Q4 verified), the Environment Agency (EA) have also once again released data, outlining the expenditure of revenue generated through PRN (PERN) sales throughout 2020, by accredited reprocessors and exporters. Unlike recent trends of total revenue generated through PRN sales increasing each year, 2020 has actually seen a reduction in total revenue generated for the first time in 3 years.
As a reminder, the PRN system is designed to function in a way that during periods of market pressure and high prices, UK accredited reprocessors and exporters are encouraged (by additional financial gain) to recycle extra tonnes of packaging waste and also, the higher prices will potentially attract new start-up reprocessors and exporters into the market. In theory, such increased recycling activity will in turn increase the PRN supply, so that it is more in balance with PRN demand, and this should then ease the original price pressure on the market.
Trends and Totals
In 2019, this market dynamic was illustrated very clearly and to quite extreme levels for some materials, such as Plastic and Aluminium. With each periodic release of recycling data, both materials were seen to be struggling in terms of overall tonnage recycled, meaning their progress versus their annual recycling target was dropping back, and PRN prices continued to respond with often sharp rises in prices, with peaks of both materials going as far as surpassing £500 per tonne, before the balances were tipped and much more packaging recycling was stimulated.
These levels were record highs and it was a very ‘extreme’ year, however the PRN system did demonstrate its effectiveness, as by the end of the year, both materials hit their recycling targets and the UK once again remained compliant. However, the prolonged period of uncertainty in 2019 alongside those record prices meant that when total PRN revenue was reviewed at the close of the year, this total figure reached a record high and almost hit £367 million.
2020 was a contrasting year in that despite the extremity of the global situation and the coronavirus pandemic, packaging reprocessing and exporting appeared to go from strength to strength, with strong and sufficient overall tonnage shown to have been recycled with each EA data release. The strong recycling information promoted much more stable PRN markets for all materials, less extreme swings in price peaks/troughs and less volatility overall too.
Figure 1: Total PRN revenue 2015 – 2020
Figure 1 illustrates how the more settled and less extreme PRN market of 2020 compared to 2019, has resulted in a decrease of roughly £136 million to total PRN revenue, and a final total of approximately £230 million. This is significantly reduced from the final total for £367 million in 2019, but when viewed in scope of the last six years, the total revenue appears to fit a trend of overall ‘increasing’ PRN revenue, and therefore cost to UK packaging producers. 2019 for all the reasons mentioned, appears to be a somewhat anomalous year, driven by peak prices for prolonged periods of time.
Despite the more settled market in 2020, Plastic PRNs continued to command the highest values compared to other materials, and are therefore once again, contributing the most value to the overall total PRN revenue generated.
It is worth mentioning that recycling targets have risen over the last few years which creates a higher demand for PRNs and contributes to higher revenues if more PRNs are being traded to meet the target each year.
Figure 2: PRN revenue contribution by Material 2020
Figure two illustrates the overall make up of the total revenue figure and pinpoints plastic as the main contributor once again, largely due to its relatively higher price point to other materials (even during trough periods), and the other two highest contributors were paper and glass. The massive increase in stability within the Aluminium PRN market vs 2019 also has meant this material’s proportional contribution is much reduced in 2020.
Paper and Glass PRNs both have a relatively high recycling target (75% and 80% respectively in 2020), meaning the UK obligation, or PRNs required to be bought for these materials, are quite high. With paper, around 3 million PRNs were required to be bought to hit the specific ‘paper’ recycling target in 2020, meaning that despite a relatively low average PRN price, this material will still contribute significantly to overall revenue. Likewise with Glass, it has a high obligation, but also typically holds a much higher average PRN price than Paper which helps contribute significantly to total revenue.
Investment into the UK recycling ‘system’
As well as releasing information regarding total revenue and by material, this is also detailed by category of re-investment. This information is available as all accredited UK reprocessors and exporters must outline to the Environment Agency where the money generated through PRN sales have been re-invested back into the UK recycling system. All revenue has to be re-invested for the regulations to succeed, which is why a firm stance is taken on any reprocessors or exporters who either fail to report or are found to be fraudulent in their generation of PRNs or reporting on investment.
Figure 3.1: Total 2020 PRN revenue investment channels for UK Reprocessors and UK Exporters
Figure 3.2: Total PRN revenue investments by activity 2020
As with previous years, when reporting this information, reprocessors and exporters must categorise their investment of revenue gained through the sale of PRNs. As you can see from figures 3.1 and 3.2, the categories are still classified as:
- Infrastructure and capacity
- Funding collection
- Reduction in price and developing new markets
- Cost of complying with the regulations
- Retained for future investments
- Developing communication strategies
The results of this year’s reporting highlights show that’s as with 2019, the three most popular and significant categories for re-investment are ‘Infrastructure and capacity’, ‘Funding collection’ and ‘Reduction in price and developing new markets’. Despite changes to the global situation, it appears that not only did reprocessing and exporting levels uphold, so did the same channels of investment into the recycling system, and also the type of area this money was being invested into.
Due to their very different nature, varying degrees of input/cost required and often contrasting business models, there were once again differences identified between how the PRN revenue was stated to be invested by approved exporters compared to approved UK reprocessors of packaging waste.
Figure 4.1: Exporters PRN revenue investments by activity in 2020
Figure 4.2: UK Reprocessors PRN revenue investments by activity in 2020
Despite the stark difference in PRN values between 2019 and 2020, the investment behaviours for both reprocessors and exporters remain very similar. Both types of PRN seller invest their PRN revenue into the same top three channels as stated, but figure 4.1 and 4.2 show how exporters’ main investment priority lies with ‘reduction in price and developing new markets’, compared to UK reprocessors who direct the majority of their investment into ‘infrastructure and capacity’. Both of these channels will be key in the success of the current PRN system as it’s in use until 2023, so it’s encouraging to see large proportions of re-investment into these areas.
Overall, there was a significantly reduced amount of PRN revenue available to invest into the UK recycling system from 2020, than there was in 2019, and this is simply because of the calmer markets and therefore reduced PRN prices traded. In the greater context given the exceptional climate and results of PRN pricing in 2019, it’s still not an insignificant amount of money, which once invested, will hopefully continue to go some distance towards improving packaging recycling in 2021, which is the overarching goal of our current packaging regulations.
This current PRN system is now officially under consultation and the results of this consultation, hold the potential to evolve the PRN system as we know it today. These changes known as ‘EPR’ or Extended Producer Responsibility, are being implemented with the aim of increasing the total amount of revenue available, to be invested back into UK recycling. Specific focuses of ongoing consultations at present tend to focus on areas such as; increasing collection capability/quality, deposit return schemes and a modified flow of recycling evidence/purchasing, with the aim of increasing available revenue, which will likely be ringfenced and reinvested by choice of the government, and into local councils.
Of all the currently unknown aspects of the current consultation, the only tangible factor at present is that costs will more than likely be increasing for UK producers, and these costs are likely to be higher than those experienced through our current system, even in 2019. For context, the 2019 PRN market operated at a cost to producers of around £369 Million, whilst the estimated cost to producers of EPR is closer to £2.7bn per year.
The consultation is open for 10 weeks and open to all stakeholders, from compliance schemes such as Comply Direct, to UK producers of packaging waste, right through to reprocessors and exporters and local councils too. It’s very important that we all respond in order to ensure that any changes which are made, are done so in the best interests of the UK recycling system, and in the most cost and time efficient manor, to ensure of actual improvements.
We will be responding as your scheme but you can also respond individually as well. If you need help please speak to our policy team on email@example.com and for more detailed information, you can see our recent news story here.
As well as representing our members best interests within the current EPR consultation, our packaging and procurement teams will continue to ensure that we are capitalising on all opportunities within the current PRN market on your behalf, to ensure we keep your compliance costs to a minimum. We’ll also continue to ensure that we keep you fully informed on market trends and pricing too, through our usual mediums of the monthly inside look update, the regular PRN update webinars (next webinar available on 20 May at 10.00am and you can sign up here), and you can also get in touch any time.
We hope this overview is helpful and informative, as well as bringing some needed transparency for Producers in terms of getting a better feel for just how their PRN spend has been invested.
If you have any further specific queries regarding 2020 PRN revenue expenditure, please don't hesitate to get in touch with me - firstname.lastname@example.org / 01756 706578.