STUDY ON THE PROGRESS OF THE IMPLEMENTATION AND IMPACT OF DIRECTIVE 94/62/EC ON THE FUNCTIONING OF THE INTERNAL MARKET: FINAL REPORT

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1 STUDY ON THE PROGRESS OF THE IMPLEMENTATION AND IMPACT OF DIRECTIVE 94/62/EC ON THE FUNCTIONING OF THE INTERNAL MARKET: FINAL REPORT Volume I main report 6 May 2005 David Perchard Gill Bevington Fred Soomers Kees Wielenga Raphael Veit Perchards, St Albans, UK FFact Management Consultants, Rijen, The Netherlands SAGIS Ltd, Sliema, Malta

2 STUDY ON THE PROGRESS OF THE IMPLEMENTATION AND IMPACT OF DIRECTIVE 94/62/EC ON THE FUNCTIONING OF THE INTERNAL MARKET: FINAL REPORT INDEX VOLUME I EXECUTIVE SUMMARY I. INTRODUCTION i II. OVERALL CONCLUSIONS ii III. IMPACT OF THE DIRECTIVE ON RECYCLING, REUSE AND WASTE DISPOSAL iii Recycling rates and tonnages for disposal Cost of meeting the targets The impact of measures to encourage reuse IV. MARKET ACCESS ISSUES vii The Essential Requirements and the CEN standards Infringement proceedings and other possible trade barriers and distortions of competition V. SPECIAL MEASURES FOR BEVERAGE CONTAINERS ix How successful have market intervention measures to protect refillables been? Market share quotas for refillables Mandatory deposit systems for non-refillables The German arrangements Environmentally advantageous (and disadvantageous) packaging VI. INTERNAL MARKET IMPLICATIONS OF DIFFERENT NATIONAL APPROACHES TO IMPLEMENTATION OF THE DIRECTIVE xiii VII. PACKAGING TAXES (OTHER THAN BEVERAGE CONTAINER TAXES) xiv VIII. ECONOMIC IMPACT OF THE NATIONAL RECOVERY ORGANISATIONS xv Recovery organisations and the Internal Market Producer responsibility and competition policy Matching the supply of recyclate with demand IX. COSTS AND BENEFITS OF FURTHER HARMONISATION xvii Support for reusable packaging Anti-litter measures Does one size fit all?

3 MAIN REPORT 1. INTRODUCTION 1.1 Background The Directive Terms of reference for this study Scope of the report Structure of the report 6 2. IMPACT OF THE DIRECTIVE ON RECYCLING AND WASTE DISPOSAL 2.1 Background Development of recycling before and after introduction of the Directive The Directive s impact on recycling rates up to the 2001 deadline Methodology The scenarios Rationale for our hypothetical recycling rates and tonnages Assumptions Outcome of the scenarios Likely future impacts of the Directive Methodology The baseline scenarios The no-directive scenarios Projected impact of the Directive National measures to encourage reuse systems The policy options Impact on reuse Impact on recycling and disposal Packaging prevention and substitution Economic impacts Introduction Methodology and results Distributional consequences The impacts of cross-border shopping Introduction Impact of taxes and duties on retail prices Impact of cross-border shopping on deposit systems Impact of cross-border shopping on recovery and recycling Cross-border shopping elsewhere in the Community 46

4 3. MARKET ACCESS ISSUES 3.1 The Essential Requirements and the CEN standards Background Enforcement of the Essential Requirements Possible trade barriers arising from different legal obligations Impact of the Essential Requirements on producers Trade barriers and distortions of competition The notification procedure Infringement proceedings Measures subject to infringements and measures amended during the notification procedure Belgium Czech Republic Denmark Finland Germany Ireland Italy Luxembourg Malta Netherlands Norway Portugal Slovakia Spain Sweden Marking requirements NATIONAL RULES SPECIFIC TO BEVERAGE CONTAINERS 4.1 Policy objectives Market share quotas and other refill protection measures Germany Portugal Austria Deposit systems for beverage containers Introduction Deposit systems for refillables Deposit systems for non-refillable beverage containers Assessment of deposit systems for non-refillables from an Internal Market perspective Criteria Cost of deposit systems for non-refillables Administrative burden for producers and importers Marking requirements Restrictions on pack design Distortions of competition within national markets which arise from mandatory deposits on non-refillable beverage containers Evidence of barriers to trade arising from mandatory deposits on non-refillable beverage containers Refill protection and cross-border trade 116

5 4.4.9 Impact of cross-border shopping on deposit systems for non-refillable beverage containers Impact of deposit systems for non-refillable beverage containers on consumers Impact of deposit systems for non-refillable containers on packaging recovery organisations Risk of fraud Conclusions Applicability of the Nordic model to other countries Deposit systems for non-refillable beverage containers and competition Potential future impact of competition on deposit systems for non-refillable beverage containers The principal objections to mandatory deposit systems for non-refillable beverage containers Proportionality Mandatory deposits for non-refillables a possible way forward Potential for international co-operation between deposit systems for non-refillable beverage containers IMPACTS ON THE INTERNAL MARKET OF DIFFERENT NATIONAL APPROACHES TO IMPLEMENTATION OF THE DIRECTIVE 5.1 Legal requirements for recovery and recycling Impact on the Internal Market of the non-mainstream legal structures Denmark Netherlands UK Conclusions Taxes on packaging Introduction The objectives of packaging taxes Review of selected national taxes on packaging Italian tax on polyethylene Danish tax on PVC Taxes on certain carrier bags in Denmark and in Ireland Eco-taxes on non-refillable beverage containers in Belgium Hungarian product fee on packaging Other packaging taxes in the new Member States Conclusions on packaging taxes EVALUATION OF PRODUCER RESPONSIBILITY SYSTEMS 6.1 Evaluation of the systems in EU Impact of different legal requirements on the role and operation of packaging recovery organisations Producers legal obligations Differences in national coverage Differences between the roles of the various national recovery organisations The implications of these differences 178

6 6.3 The fees charged by national recovery organisations Overview of fees Impact on different players The impacts on producers of inconsistent data reporting requirements Data reporting Definition of packaging Differences in the scope of the recovery organisations Composites Different material categories Reusable packaging Different data formats The party responsible for reporting data Conclusions recovery organisation reporting requirements The impacts on producers of inconsistent marking rules Recovery organisation marking requirements Difficulties arising from mandatory marking of the Green Dot Difficulties arising for countries with no Green Dot organisation Recovery organisation requirements for industrial packaging Other marking requirements Conclusions marking requirements Recovery organisations and competition policy Competition between recovery organisations Improving competition within recovery organisations Conclusions competition IMPACT OF NATIONAL RECOVERY SYSTEMS ON THE WASTE MANAGEMENT AND RECYCLING SECTORS 7.1 Introduction Household packaging waste Transport packaging waste Early impact of the German Packaging Ordinance The creation of managed markets Paper and board Plastics Glass Response by Germany s neighbours Developments since the Directive was adopted Overview Targets exceeding the Directive s maxima Current market issues paper & board Current market issues metals Current market issues plastics Current market issues glass Conclusions Impact on energy recovery facilities 233

7 8. COSTS AND BENEFITS OF FURTHER HARMONISATION OF IMPLEMENTATION OF THE DIRECTIVE 8.1 Overview Where the Directive might do more to increase harmonisation Possible omissions from the Directive Ensuring that the Directive remains compatible with other policy developments The limits of harmonisation does one size fit all? Measures to encourage reuse Quantifying packaging reuse Amending Article 5 of the Directive Implications of a unified producer responsibility regime The Commission s ideas Model A: adapting the existing arrangements to EU/EEA targets directly binding on companies Model B: companies to acquire tradable permits to comply with EU/EEA targets Model C: EU/EEA targets traded between Member States Bilateral trading between national recovery organisations Impact of a switch from product-based targets to material-based targets Should all Member States be aiming for the same recovery and recycling targets? Targets and derogations Repak s position The response of other stakeholders STAKEHOLDERS VIEWS AND ARGUMENTS 9.1 Introduction Attendees at the stakeholder meeting Material submitted by stakeholders on the interim report Summary of views expressed by stakeholders Environmental NGOs General industry associations Packaging material manufacturers and packaging converters Packer/fillers Packaging waste compliance organisations Material submitted by stakeholders on the draft final report Summary of stakeholder views on the draft final report Environmental NGOs General industry associations Packaging material manufacturers and packaging converters Packer/fillers Packaging waste compliance organisations 276

8 INDEX TO FIGURES Fig, 1 Glass recycling Fig. 2 Aluminium and steel recycling Fig. 3 Paper & board recycling Fig. 4 Recycling rates in EU Fig. 5 Germany market share of refillable beverage containers (litres sold) 30 Fig. 6 Portugal market share of refillable beverage containers (by number of containers sold) 30 Fig. 7 Sweden market share of refillable beverage containers (in %) 31 Fig. 8 Reasons for cross-border shopping by Belgian consumers 44 Fig. 9 % market share of refillable beverage containers in Austria, Fig. 10 Direction of beverage container flows 98 Fig. 11 Comparison of 2001 glass recycling rates in Denmark, Finland and Sweden with those in 5 non-deposit states 133 Fig. 12 Comparison of 2001 metal recycling rates in Denmark, Finland and Sweden with those in 5 non-deposit states 133 Fig. 13 Comparison of 2001 plastics recycling rates in Denmark, Finland and Sweden with those in Fig non-deposit states 134 Impact of taxes, duties and Green Dot charges on mineral water prices in Belgium and neighbouring countries 156 Fig. 15 Comparative prices for 1.5 litre spring water (private label) 157 Fig. 16 Comparative prices for 1.5 litre soft drink (private label) 157 Fig. 17 Beer exports from Germany to Hungary (in hl), by pack type 163 Fig. 18 Prices for Old Corrugated Cardboard in France, Germany and the UK, (in ) 222 INDEX TO TABLES Table 1 Glass recycling 20 Table 2 Metal recycling 20 Table 3 Plastics recycling 21 Table 4 Paper & board recycling 21 Table 5 Impact of Scenarios 2 and 3 on tonnages recycled in EU Table 6 EU population as at 1 January Table 7 Impact of Scenarios 2 and 3 on tonnages recycled in EU-8/15 22 Table 8 Impact of Scenarios 2 and 3 on tonnages landfilled or incinerated without energy recovery in EU Table 9 Impact of Scenarios 2 and 3 on tonnages landfilled or incinerated without energy recovery in EU-8/15 23 Table 10 Comparison of tonnages landfilled or incinerated without energy recovery in EU-15 under the three scenarios 23 Table 11 Comparison of tonnages landfilled or incinerated without energy recovery in EU-8/15 Table 12 under the three scenarios 23 Comparison of per capita tonnages landfilled or incinerated without energy recovery under the three scenarios, Table 13 Projected recycling rates under the Directive (tonnes) 26 Table 14 Projected recycling rates without a Directive (tonnes) 26 Table 15 Impact of the Directive against no-directive Scenario 2 27 Table 16 Impact of the Directive on recycling tonnages and rates 27 Table 17 Impact of the Directive on disposal tonnages and rates 28 Table 18 Impact of the Directive on future recycling rates in the ten new Member States 28 Table 19 Total financing need for packaging waste management for EU Table 20 Overview of costs and benefits to particular sectors 37 Table 21 Public/private sector shares of collection and sorting costs for household packaging waste, Table 22 Used packaging recovery tonnages funded by producers 40 Table 23 Expenses of the recovery organisations 41 Table 24 Relative price levels in Estonia and neighbouring countries,

9 Table 25 Examples of retail prices in Finland and Estonia 43 Table 26 Recycling tonnages required to meet Estonia s 2012 targets 45 Table 27 Issues where the Directive brought about changes in national policy in favour of free movement 58 Table 28 Issues resolved in favour of the Member States concerned 59 Table 29 Issues where the Directive or other EU legislation has failed to bring about change in national policy in favour of free movement of goods 59 Table 30 Issues unresolved/cases still proceeding 60 Table 31 Market share of refillable beverage containers in Germany, Table 32 Portuguese market share quotas for refillables sold to households 85 Table 33 Deposit system requirements for non-refillable beverage containers, Table 34 Comparison of charges per non-refillable drinks container deposit system versus recovery organisation costs 106 Table 35 Market share of beer production by container type, Table 36 Market share of carbonated soft drinks by main container type, Table 37 Breakdown of market in Germany for non-alcoholic drinks by container type, Table 38 Market share of imported beer (by volume) 116 Table 39 Comparison of per capita beer consumption with the balance of trade 117 Table 40 Balance of trade in beer in EU-15 Member States, ranked according to per capita consumption 117 Table 41 UK targets Table 42 Overview of taxes on packaging charged by EU-25 Member States 150 Table 43 Belgian beverages Price evolution per product and pack type since March Table 44 Evolution of Hungarian packaging tax rates, Table 45 New Hungarian unit-based packaging taxes 160 Table 46 Targets related to individual compliers exemption from the product fee 161 Table 47 Conditions for exemption from the product fee for Öko-Pannon members 161 Table 48 Market share quotas for producers, Table 49 Additional market share quotas for distributors 162 Table 50 Evolution of beer exports from Germany to Hungary, Table 51 Legal obligations for meeting recovery targets for packaging waste, and compliance requirements in practice (excluding deposit systems for beverage containers) 170 Table 52 Interseroh s maximum and minimum waste management costs for transport packaging, Table 53 Table 54 Beverage cartons and other composite packaging legal requirements and recovery organisation rules 191 Infringements and challenges to national legislation on marking in relation to Directive 94/62 and Commission Decision 97/ Table 55 Belgian targets for Table 56 Belgian glass recycling, Table 57 Belgian trade balance for cullet, Table 58 Forecast UK glass tonnages, Table 59 Reuse of packaging in Finland 238 Table 60 Use of reusable packaging in Belgium 238 Table 61 Types of reusable packaging used in Belgium 238 Table 62 Protection of refillable containers some proportionality issues 240 Table 63 Ktonnes additional packaging to be recycled under the proposed material-specific targets (2006 compared to 1998) 249 Table 64 Deadlines to meet the recovery and recycling targets 253 Table 65 Origin of packaging placed on the Irish market (1999 data) 254 Table 66 Attendees at the stakeholder meeting, 7 December Table 67 Responses received during the consultation process 259 Table 68 Responses received on the draft final report 271

10 VOLUME II CHAPTER 2: IMPACT OF THE DIRECTIVE ON RECYCLING AND WASTE DISPOSAL Annex A: Annex B: Annex C: Impact of the scenarios on tonnages Economic and social impact assessment from the Pira/Ecolas study Neighbouring countries with particular potential for cross-border shopping CHAPTER 3: MARKET ACCESS ISSUES Annex D: Summary of findings of Perchards and FFact reports on how companies have been implementing the Essential Requirements for packaging Annex E: Infringements & challenges to national legislation in relation to Directive 94/62 Annex F: Infringements & challenges to national legislation on marking in relation to Directive 94/62 and Commission Decision 97/129 CHAPTER 5: IMPACTS ON THE INTERNAL MARKET OF DIFFERENT NATIONAL APPROACHES TO PRODUCER RESPONSIBILITY Annex G: Annex H: Evolution of PRN and PERN prices in the UK Recovery organisation and legislative reporting requirements CHAPTER 6: EVALUATION OF PRODUCER RESPONSIBILITY SYSTEMS Annex J: Annex K: Annex L: Overview of fees charged by packaging recovery organisations Recovery fees a shopping basket of typical products Currency conversions

11 i STUDY ON THE PROGRESS OF THE IMPLEMENTATION AND IMPACT OF DIRECTIVE 94/62/EC ON THE FUNCTIONING OF THE INTERNAL MARKET EXECUTIVE SUMMARY I. INTRODUCTION This study aims to address the following questions: What impact has the Directive had on the Internal Market from an economic and social point of view? In particular, we were asked to examine trade barriers and distortions of competition created by national implementation measures, especially those relating to Article 5 (encouragement of reuse systems). We were also asked to compare current packaging and packaging waste management arrangements with those that might have existed in the absence of a Directive. Have the various national measures resulted in discrimination between domestic producers and importers of packaging? What are the costs of producer responsibility having been imposed only in some Member States? What are the costs and benefits of a further harmonisation of producer responsibility from an Internal Market perspective? This report is intended to complement the report which Pira International and Ecolas N.V. have completed for DG Environment, and should be read in conjunction with it. Its analysis is based on the legislative situation that existed in the EU on 31 April 2005, but currency conversions have been expressed at the rates effective on 28 September 2004.

12 ii II. OVERALL CONCLUSIONS We believe that in most respects, the Directive has worked very well. It has brought about a significant convergence between Member States recycling rates, and the notification procedure governed by Directive 98/34/EC has resolved many Internal Market issues before they became a real problem. While some national measures aimed at beverage containers have undoubtedly resulted in discrimination between domestic producers and importers of packaging, we have seen little evidence of this outside the beverage sector. However, there have been and still are serious Internal Market issues relating to beverage containers legislation, and industry stakeholders are very concerned that the growing trend to use taxation to drive packaging policy has serious potential to disrupt the Internal Market. A report focusing on the Internal Market aspects of the Directive and on the market impacts of national implementation measures will almost by definition conclude that national interventions to influence choice of beverage packaging are unhelpful; it is for others to weigh these findings against the environmental issues involved and come up with an overall conclusion. The beverages sector has experienced a long period of legal uncertainty as a result of the lack of clarity of Article 5 of the Directive. Two European Court of Justice (ECJ) judgements delivered in December 2004 have laid down further ground-rules, but only time will tell whether this guidance is sufficient to resolve the existing problems and avoid future issues. We received very strong representations from industry stakeholders, drawing attention to the danger that Member States will see taxes as a way to introduce measures that give rise to barriers to trade or distortions of competition without risk of legal action from the Commission. There is already evidence that taxes are undermining the Internal Market objectives of the Directive, by protecting local producers or undermining rather than helping recycling efforts. Industry is urging the Commission to re-examine the impact of the packaging taxes that have been introduced, to determine whether these measures are indeed justified by the environmental objectives claimed, but the Commission services stress that its powers are limited, since Member States do not have to justify setting taxes at a particular level.

13 iii III. IMPACT OF THE DIRECTIVE ON RECYCLING, REUSE AND WASTE DISPOSAL Recycling rates and tonnages for disposal The impact of the Directive on recycling has increased year by year and will continue to do so. By 2001 it had already led to a convergence between the packaging recycling rates in the front-running Member States and the other EU-15 countries, and convergence will continue as Member States work towards the second-stage targets set by Directive 2004/12/EC. The Directive is also prompting a big increase in recycling in the ten new Member States and in the other countries seeking EU membership. The Directive required all Member States to take steps to ensure that recycling systems were set up and developed. Legislation had already been adopted in a few of them, and in others proposals were already under discussion. Data for the period before 1997 is extremely sketchy, but it is clear that even in 1991, when work on the Directive started, there was already a high level of recycling of transport packaging, and in some Member States recycling of glass and metal beverage containers also. For a variety of political and economic reasons, recycling developed further between 1991 and Most of the packaging recycling that took place during the 1990s cannot be attributed to the Directive, as more than two-thirds of it took place in seven Member States that either had legislation or would have introduced legislation anyway. 1 However, since implementation of the Directive began, recycling rates in the remaining EU-15 Member States and in the ten new Member States have been converging on the rates achieved by the front-runners: Thus, although the Directive increased recycling levels in EU-15 in 2001 by no more than 10%, recycling rates rose by up to 30% in those eight Member States ( EU-8/15 ) whose policies were stimulated by the Directive. Our projections to 2008 indicate that the tonnages recycled in EU-15 will continue to be about 10% higher than they would have been in the absence of a Directive. Meanwhile the ten new Member States must increase their combined recycling rate from 23% in 2002 to 40% by 2008 if they are to be on course to meet their second-state targets on time (assuming straight-line progress to their deadline dates, which range from 2012 to 2015, and weighting them according to population). 1 These seven Member States Austria, Belgium, Finland, France, Germany, the Netherlands and Sweden represent almost exactly half the population of EU-15.

14 iv Figure ES-1: Comparison of tonnages recycled in the Member States where the Directive has had little effect on recycling rates (EU-7/15) and those where it has had most effect (EU-8/15) EU-7/15 actual EU-7/15 Scenario 2 EU-8/15 actual EU-8/15 Scenario 2 We estimate that in 2001, the Directive resulted in a reduction of 10% in the tonnage of packaging waste for final disposal in EU-15. The reduction in packaging waste sent for disposal in EU-8/15 was perhaps closer to 15%. By 2008, even if the energy recovery rate remains constant, we would expect the Directive to have resulted in landfilling and incineration without energy recovery in EU-15 being 14%-15% lower than it would have been in the absence of a Directive. Figure ES-2: Comparison of tonnages disposed of in the Member States where the Directive has had little effect on recycling rates (EU-7/15) and those where it has had most effect (EU-8/15) 20,000,000 15,000,000 10,000,000 5,000, EU-7/15 actual EU-7/15 Scenario 2 EU-8/15 actual EU-8/15 Scenario 2 Cost of meeting the targets Pira International and Ecolas 2005 have estimated that the additional costs of meeting the Directive s targets, compared with no recycling at all, were 0.27 bn in 1997 and 0.61 bn in Since a large amount of recycling would have taken place even without the Directive, the incremental cost of the Directive would have been a maximum of 50 million in 1997, rising to some 230 million in 2001.

15 v Pira and Ecolas estimate the total cost of packaging waste management in the absence of recycling to be 6.17 bn in In the absence of the Directive (i.e. taking into account the recycling which would have happened for economic reasons and as a result of national policy measures), the total cost of packaging waste management is estimated at 6.6 bn. The actual cost in 2001 is estimated at 6.8 bn. They estimate the incremental cost of the Directive (i.e. the additional costs for packaging waste management as a direct result of the Directive) at 227 m. Without the Directive, waste management costs would of course have been distributed differently. Out of the total cost of 6.8 bn for packaging waste management in 2001, 3.7 bn corresponds to the financing need for packaging recycling. Out of this, around 2.8 bn was paid by industry via producer responsibility. This does not take into account internal administration costs for businesses, which could be significant, particularly for small and medium sized enterprises which will find it more difficult to allocate (specialised) staff to such tasks.2 Like any other business cost, these costs are likely to be reflected in consumer prices and thus will ultimately be paid by consumers. If there had been no recycling, roughly the same amount would have to be spent for disposal, a cost which would have been paid by local government and ultimately householders. The division of financing between producer responsibility and financing by municipal authorities varies considerably between the Member States. In some Member States (Austria, Belgium, Germany), all costs for collection and recycling are paid by producers, whereas in other Member States municipalities pay all or part of the cost of collection and recycling of packaging waste from household sources. Although there are significant differences between producer responsibility costs in the various Member States, these costs are paid in any given Member State in the same way for domestic and imported products from other Member States. Therefore, these differences are unlikely to have created Internal Market distortions or distortion of competition between domestic and imported products. The impact of measures to encourage reuse We were asked to consider a scenario based on universal application of national measures designed to encourage reuse systems (for beverage containers). We assumed that all Member States took action to implement Article 5, but we also assumed to keep the scenario realistic that many would have chosen an option that allowed fillers to opt for increased recycling as an alternative, i.e. either a combined reuse/recycling target, or a tax on non-refillable beverage containers with an exemption for members of an approved recovery organisation or for materials which achieved a specified recycling rate. 2 The cost to a major multinational of employing one or two extra people per country will not be significant, and a small company with a simple product range may not have incurred much cost; but for a medium-sized company producing goods in a variety of packaging formats or importing them from outside the Community, the burden may have been substantial.

16 vi We believe that it is unlikely that any requirements pursuant to Article 5 would have resulted in an increase in beverage containers reuse. None of the national measures actually taken in response to Article 5 were able to counterbalance the market shift from reusable beverage containers towards one-way alternatives. Even the refill quotas imposed in Germany and Portugal failed to arrest the decline in the demand for refillable beverage containers, and Austria s voluntary agreement was also unsuccessful in preserving the market share of refillables.

17 vii IV. MARKET ACCESS ISSUES The Essential Requirements and the CEN standards The Directive says that Member States shall ensure that from January 1998 packaging may be placed on the market only if it complies with the Essential Requirements listed. Member States shall not impede the placing on the market of packaging which complies with the Directive. All Member States have duly transposed the Essential Requirements into their national legislation, but only three France, the UK and more recently the Czech Republic have put an enforcement mechanism in place. Member States are free to decide for themselves how they ensure compliance with the Essential Requirements, but the French and UK authorities have recommended close adherence to the CEN standards mandated by the Commission, and Czech law currently provides for no alternative means of compliance (which conflicts with the Directive and is a potential barrier to trade). In principle, there has always been a possibility of barriers to trade and distortions of competition arising from conflicting national interpretations of the Essential Requirements. Since so few Member States have been enforcing them, this danger has been much reduced, and there have been no such problems in practice. The references to the CEN standards were not published in the Official Journal until 19 February Publication of the references triggered the application of Article 9(2)(a) of the Directive, which says that packaging and packaged goods produced in conformity with harmonised standards is deemed to be in compliance with the Essential Requirements. Now that the references have been published, more Member States may decide to enforce the Essential Requirements. This is not a necessary consequence of publication, but it is a possibility, since some officials have previously said that the EU framework would not be complete until the standards had been endorsed by the Commission through publication of the references. If more Member States enforce the Essential Requirements, the result could be a wider range of legal provisions, and this may generate conflicts between different sets of national rules which have not existed up to now. If this proves to be a practical problem (and at this stage we do not know whether it will be a problem or not), a Directive setting out a conformity assessment procedure may be needed. In this study we report on two small-scale studies on the impact of the Essential Requirements on producers. EEB and EUROPEN have both called for a deeper investigation into the implementation and impacts of the Essential Requirements, including the necessary and available resources, and we support this request.

18 viii Infringement proceedings and other possible trade barriers and distortions of competition In general, we believe that the notification procedure set up under 83/189/EEC and now governed by Directive 98/34/EC has worked very well. The system of prior notification has enabled many Internal Market issues to be resolved before they became a real problem. However, fundamental disagreements over the legality and appropriateness of national refill protection measures for beverage containers have led to prolonged legal uncertainty in the beverage sector. Industry is also concerned about the growing trend to use taxation to drive packaging policy, as this has serious potential to disrupt the Internal Market. In December 2004 the European Court of Justice (ECJ) delivered two rulings which have clarified to a greater extent what national refill protection measures are allowable, but it remains to be seen whether this will be sufficient to avoid future difficulties in this area. Certainly industry stakeholders remain sceptical. As noted in Section II above, the Commission s powers to challenge national taxes are limited unless there is a clear breach of Article 90 of the Treaty. There is no proportionality limit in Article 90, so Member States do not need to justify why they set taxes at a particular level. The Commission has challenged packaging taxes on very few occasions. Under Article 15 of the Packaging and Packaging Waste Directive and Article 90 of the Treaty, it only has the right to intervene in the case of taxes that discriminate de facto between imported and domestic products. The Commission has accepted that member states are entitled to give fiscal advantages to certain product groups over other product groups on the basis of objective criteria, such as environmental considerations, and provided these advantages are given irrespective of the origin of the goods.

19 ix V. SPECIAL MEASURES FOR BEVERAGE CONTAINERS ECJ rulings indicate that proportionality is the key consideration. This depends on balancing economic and environmental considerations. Any conclusion as to whether any reuse support system is acceptable or not, falls outside the scope of this study. Decisions will be made by the EU authorities. However, we have set out in this report some information and arguments to offer suggestions on how proportionality issues might be addressed, and we support the proposal from some industry stakeholders that Article 5 of the Directive should be amended to outlaw hardcore restrictions to competition (negative harmonisation). At a second stage, consideration might be given to which, if any, reuse support measures might be appropriate. How successful have market intervention measures to protect refillables been? Experience suggests that any form of intervention to protect refillable beverage containers which is mild enough to avoid market distortions is unlikely to achieve its intended goals in the face of powerful market forces such as consumer choice. The market share of refillables has been in decline, even in Germany and Portugal where a certain share of the market has been reserved by law for refillable containers and despite the existence in Germany of a legal sanction, mandatory deposits, which industry has always been anxious to avoid. There is no evidence that mandatory deposits improve the efficiency of recycling systems collection arrangements for non-beverage packaging are still needed, and one system is cheaper to run than two. The results reported by the EU-15 countries show that deposit systems are not necessary for the achievement of high recycling rates. The Belgian eco-tax has not succeeded in improving the price-competitiveness of refillables, since the intended price signal has not been fully reflected in retail prices (the cost having been redistributed across the entire product range, both refillables and non-refillables). The main effect has been to raise the price of all Belgian drinks, which in turn has encouraged cross-border shopping by Belgian consumers, with consequent losses to economic operators and to tax revenues. The only measures which have been effective in protecting refillables have been the Danish can ban and the Dutch arrangements, which were more or less a prior approval system for companies wishing to replace refillable containers with non-refillables. Both were eventually withdrawn following legal challenges. The situation in Germany is a special case, a unique set of circumstances that will not be repeated. The introduction of mandatory deposits has caused a great deal of disruption in the market, and one type of non-refillable container the beverage can has virtually disappeared. The German government is in the process of amending the legislation to take account of the ECJ s rulings of 14 December 2004, but it intends to maintain mandatory deposits.

20 x Market share quotas for refillables Market share quotas for refillables clearly affect trade patterns and/or the location of production. It is generally accepted that refilling makes better sense when distribution distances are short, so measures reserving a large share of the market will inevitably restrict competition from more distant producers, especially foreign companies. According to the principles laid down by the ECJ in the Danish bottles case (Case 303/86), measures may be permitted even if they give rise to barriers to trade, on condition that the measures are justified by an environmental objective, the environmental benefit is proportionate to the restriction, and the measure must be necessary. To be necessary, the Member State must demonstrate that the objectives could not be achieved through other, less restrictive, measures. On 14 December 2004, the European Court of Justice concluded, in two cases relating to Germany s refill protection measures (Cases C-463/01 and C-309/02), that: the Directive does not prevent the adoption of reuse measures, provided that they are consistent with the Treaty, but the Directive does not establish a hierarchy between the reuse of packaging and the recovery of packaging waste i.e. reuse is not automatically superior. However, the ECJ did not specifically say whether or not refill quotas are acceptable. Mandatory deposit systems for non-refillables The beverage container deposit systems in the Nordic countries are stable and relatively uncontroversial. However, they started operating before there were recovery organisations for nonbeverage packaging. Grafting beverage containers legislation onto a mature recycling system for all packaging appears to be much less successful. In the Nordic countries, deposit-bearing non-refillables coexist with refill systems, so the infrastructure and consumer habit was there it would be very difficult to rebuild a beverage container return system once it has disappeared. Thus, Member States wishing to set up a deposit system for non-refillables would not necessarily be able to replicate the Nordic model. In all mandatory deposit regimes, distortions arise between (a) materials or (b) products which are caught by the deposit system but compete with products which are not. The differences between the scope of each of the existing deposit systems indicates that there is no clear and logical border between products and packaging materials that are appropriate to handle through deposit systems and those that are not. Thus deposit systems do give rise to some problems in the Internal Market, and as was noted above, overall recycling rates in Member States with deposit systems are not higher than those of comparable EU countries where there are no special arrangements for beverage containers.

21 xi Deposit systems for non-refillable beverage containers currently operate in four EU member states Denmark, Finland, Germany and Sweden and in Norway which, as a signatory to the Treaty on the European Economic Area, must also comply with the Directive. Deposit systems typically handle metal cans, and PET bottles. Aluminium and tinplate cans are among the easiest and cheapest containers to recycle, and the PET bottle is by far the easiest type of plastic to recycle and the polymer for which recycling facilities are most readily available around Europe. If these easy-to-recycle materials are handled through a deposit system, they are excluded from the scope of packaging recovery organisations. These organisations may have to meet the recycling targets using other packaging waste of the same material, which reduces economies of scale and probably increases the cost of meeting the target for any given material. The extent of the impact on the packaging recovery organisation of beverage containers being handled separately depends on how the targets that it must meet are structured and how high they are but the diversion of this material from the recovery organisation to the deposit system is unlikely to have a significant effect on overall recycling rates to compensate for the loss of system efficiency. The deposit systems in the Nordic countries are stable and relatively uncontroversial. Even so, we have identified a number of ways in which the administrative arrangements and marking requirements associated with deposit systems are easier for domestic producers to cope with than for producers exporting to the deposit state. We suggest that a Member State wishing to impose a mandatory deposit should set out clear and detailed requirements in legislation for the establishment and operation of deposit systems. The proposed legislation should be notified to the Commission as a technical regulation, providing the Commission and other Member States with an opportunity to comment on the proposals and identify any problems. We consider that the legislation should cover the following issues: clear requirements for the operation of the deposit system; clear approval requirements and procedures; arrangements for competing deposit systems, where relevant; a realistic transition period; clear legal obligations for economic operators; a clear indication of the pack types and products to be subject to the deposit; the proposed rates of the deposit for each pack type/size; how unredeemed deposits should be allocated; and rules for marking deposit-bearing containers. The German arrangements A recovery organisation, DSD, started to handle all categories of sales packaging ten years before the deposit took effect. Mandatory deposits were triggered by a provision in the 1991 Ordinance, and were a penalty for failure to maintain the refill quotas. There is as yet no national deposit system in Germany. There are a few open deposit systems which accept each other s containers and refund the deposit, but they have only a small market share. Some companies, particularly discount retail chains, operate island solutions. Since these chains specify a unique design of container for their own-brand drinks, they are not obliged to accept containers from other suppliers.

22 xii The judgements announced by the European Court of Justice on 14 December 2004 included the following rulings: the German deposit requirements are a barrier to trade for imported mineral water, since they compel foreign producers to adapt their packaging for the German market; the German measures are disproportionate because they did not allow a sufficient transitional period to enable producers and distributors to adapt to the requirements of the new system; but deposit systems for non-refillables do contribute to environmental protection. The ECJ said that a deposit system must have an adequate network of return points so that consumers can redeem their deposits at any store, which calls into question the island solutions, and in December 2004 Germany notified proposed new deposit legislation which will amend the provisions that have permitted island solutions. The link between refill quotas and deposits will be broken, at least until the results of the new policy are reviewed in Instead, a deposit will be imposed on all beverage containers not deemed environmentally advantageous environmentally advantageous beverage containers being defined as refillables, beverage cartons and certain laminated pouches. Environmentally advantageous (and disadvantageous) packaging Germany s unilateral definition of environmentally advantageous packaging creates a danger of new distortions of competition or barriers to trade. If other Member States were to do the same, they might well have different views on what types of pack are environmentally advantageous or disadvantageous. The result could be a patchwork of market interventions (mandatory deposits, taxes or other measures) which give no clear signal to producers operating on a European scale, and place at a disadvantage companies based in one Member State which wish to export to another Member State which has a different view on what are the environmentally disadvantageous packs that should be discouraged. But why apply this distinction to beverage containers if it is not applied to other packaging? Given the different distribution and usage patterns of various products, beverages or non-beverages, is it practicable to impose such a rigid classification on the packaging for either? The answers to these questions are outside the scope of this report, but we point out the difficulties that would occur if a number of member states made such distinctions on the basis of their own research findings. Differences between pack types can be marginal and depend on the specific measurements made. The pattern of trade may differ from one Member State to another, and different assumptions may be made about system boundaries, transport distances and so on. Each national LCA may be defensible in its own terms, but if this practice were to spread it could only lead to further market distortions. In any case, some Member States and other stakeholders have complained that it is not appropriate for Germany to unilaterally introduce definitions which do not appear in the Packaging and Packaging Waste Directive.

23 xiii VI. INTERNAL MARKET IMPLICATIONS OF DIFFERENT NATIONAL APPROACHES TO IMPLEMENTATION OF THE DIRECTIVE The basic framework of an industry organisation or organisations funding or partially funding segregated collection of used packaging from households is common to most of the 25 Member States, though the legislation in a number of them has additional features such as mandatory deposits or packaging taxes. Rather different structures are in effect in Denmark, the Netherlands and the UK. These approaches might be classified as a unique form of producer responsibility in the UK, limited producer responsibility in the Netherlands, and no producer responsibility in Denmark. We conclude that whilst any distorting effects of subsidies paid by individual national recovery systems (the Green Dot model) cancel each other out to some extent, problems can emerge in countries where there is a different funding arrangement. These differences in national approaches have had only a limited impact on the Internal Market. There do seem to be practical advantages in all Member States adopting a broadly similar approach, but on grounds of subsidiarity, it may not be necessary or appropriate for the Directive to specify what type of recovery organisation or funding regime each Member State should establish.

24 xiv VII. PACKAGING TAXES (OTHER THAN BEVERAGE CONTAINER TAXES) Leaving aside beverage container taxes which have been discussed above, there are currently taxes on packaging in eight Member States five of the ten new Member States (Hungary, Latvia, Lithuania, Poland and Slovakia), and three of the EU-15 countries (Belgium, Denmark and Ireland). The taxes in the new Member States are all linked to achievement of the targets in some way, by offering an exemption or a discounted rate if certain targets are met. In some cases, these taxes have been set lower than the recovery organisation fees. Thus participation in the recovery organisation in effect competes with paying the taxes, and the recovery organisations have to set their fees to take account of the taxes rather than of the cost of meeting the targets. In this situation there is a risk that the fees charged by recovery organisations will not be sufficient to ensure that the targets are met. In our view it would be more effective policy if the legislation simply imposed a penalty on the recovery organisation(s) or individual operators that did not meet the targets. Recovery organisations could then determine what is needed to meet the targets and set their fees accordingly. We recognise that packaging taxes can play a useful role in encouraging producers to establish recycling systems. However once recovery organisations have been established, the need for taxes is greatly reduced. Belgium is alone in taxing packaging of solvents, glues and inks for professional use; Ireland taxes plastic shopping bags, and Denmark both plastic and paper shopping bags (to avoid discrimination between materials). Denmark also taxes consumer packaging used for a wide range of products. The stated objective of the taxes in several Member States was originally to raise revenue for environmental purposes. However, in some Member States it is not ring-fenced for this purpose. There is a danger that once a Member State creates a tax, it becomes a useful source of state revenue regardless of the future environmental impact of the taxed items.

25 xv VIII. ECONOMIC IMPACT OF THE NATIONAL RECOVERY ORGANISATIONS Recovery organisation rules and the Internal Market National legislation is different in every member state, and the national recovery organisations were set up as national solutions to specific national problems. Differences in recovery organisation fees are inevitable, and we do not believe that they create any significant distortions of competition. Distortions could arise if fee structures favoured domestic producers, but we have found no evidence of this. However, poor enforcement can create distortions of competition between competing companies, when some operators bear the costs of complying with the legal requirements and some do not. Inaccurate reporting can also cause distortions by affecting the quantity of packaging that a recovery organisation needs to recycle in order to meet its targets. There are significant differences in national reporting requirements, and these give rise to serious administrative costs and thus to barriers to trade for imports. Reporting requirements should be simplified and approximated, so producers can use a single packaging database to generate the necessary data for all member states. Use of the EU material codes and any other recycling logos should remain voluntary, since differences in national interpretations could give rise to barriers to trade if they were made mandatory. Producer responsibility and competition policy Some national competition authorities have been trying to inject some competition into their national producer responsibility arrangements. This has not always been successful, sometimes because the legal framework was not amended appropriately and the operating conditions for newly established competitors were not the same as for the original recovery organisation. Following discussions with the competition authorities, DSD s competitors in Germany will be allowed access to the tonnages of packaging waste collected that they need to meet the targets on behalf of their customers, and will negotiate a price for this with the dominant player (the shared use concept). The practical effects of this remain to be seen, but at this stage it seems likely that there will continue to be a single dominant recovery organisation in most Member States, particularly in the smaller countries where the waste services market is smaller.

26 xvi Shared use should result in cheaper compliance for obligated companies, at least in the short to medium term. However, if liberalisation makes it easier for service providers to offer their services across borders, the long-term result might be concentration of ownership and therefore less competition. We also fear that if there is more competition on national markets, the system will become less transparent. Another very likely outcome is an increase in shipments of plastics to Asia, and redundant capacity in Germany. National recovery organisations with a dominant position in the market have traditionally been very open in reporting their fee tariffs, costs and achievements, but we have found it very difficult to obtain equivalent information from recovery organisations in those Member States where they are operating in competition. In a competitive situation, this information is commercially confidential. DSD has worked with the plastics sector to develop recycling capacities within Germany and has made sure that these are fully utilised, but the restructuring of the German recycling system to allow more competition will mean that systems will seek the best economic option. Asian recyclers have been offering prices far higher than those available from German recyclers. Matching the supply of recyclate with demand Member states are allowed to exceed the maximum targets laid down in the Directive provided the Commission and the other member states are satisfied that this will not create distortions or hinder their own achievement of the targets. We show that higher targets have had potential to give rise to distortions and imbalances in the markets for secondary raw materials, but member states are unlikely to make any further requests to go beyond the EU targets, as Directive 2004/12 sets the upper limit for recycling as high as 80%. 3 It makes sense to export a certain amount of packaging waste for recycling in Asia, as Europe is a major importer of packaged goods from Asia. But there is a risk. Large-scale exports of recyclable materials could threaten the future of European recycling plants, particularly for paper and plastics. These recycling activities may need subsidies to survive, but subsidies from recovery organisations may decrease or cease completely in a more market-based scenario in future. And as Asian countries develop their own recycling legislation, they may no longer want so much European packaging waste as a feedstock. By that time, Europe will have lost some of its recycling capacity and it could become difficult to meet the Directive s targets. 3 Though it cannot be ruled out that the very high material-specific targets under discussion in Germany may require permission to exceed the overall 80% recycling target. In 2002, Germany achieved a 74.4% recycling rate.

27 xvii IX. COSTS AND BENEFITS OF FURTHER HARMONISATION Support for reusable packaging Data is poor, but overall, the share of reusable business-to-business packaging appears to be increasing. These systems are used where they make economic sense, and we see no need for any legislative support for them. The use of refillable beverage containers is in decline, but as we have already remarked, any form of intervention to protect refillables which is mild enough to avoid market distortions is unlikely to achieve its intended goals in the face of powerful market forces such as consumer choice. Anti-litter measures Our interim report questioned whether the market distortions that result from singling out certain types of packaging or other key components of litter are justified by the results, and asked whether litter should be regarded as a behavioural problem best addressed by measures aimed at reducing the incidence of all litter. It suggested that littering is a behavioural issue which needs to be addressed holistically through concerted action by central and local government and by producers and retailers of products likely to be littered. There was a consensus among stakeholders that littering is not an issue that should be addressed within the framework of packaging and packaging waste legislation, so this section of the report has been deleted. Does one size fit all? We have considered whether uniform targets albeit with different deadlines for achieving them are appropriate for a few small member states which are at a permanent structural and geographical disadvantage, in particular the three small island nation-states and possibly also the Baltic states. Studies tend to rely on European averages or data obtained from mainstream member states. We therefore support calls for a Commission study on non-mainstream countries in order to indicate whether the same targets should be applied to all member states, develop criteria to measure equivalence between the member states in terms of economic and environmental costs and benefits of recycling targets, and establish what degree of flexibility (if any) is needed to assure equivalence..

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29 1 STUDY ON THE PROGRESS OF THE IMPLEMENTATION AND IMPACT OF DIRECTIVE 94/62/EC ON THE FUNCTIONING OF THE INTERNAL MARKET 1. INTRODUCTION 1.1 BACKGROUND The Directive Directive 94/62/EC on packaging and packaging waste 4 had twin objectives, one economic and the other environmental: This Directive aims to harmonize national measures concerning the management of packaging and packaging waste in order, on the one hand, to prevent any impact thereof on the environment of all Member States as well as of third countries or to reduce such impact, thus providing a high level of environmental protection, and, on the other hand, to ensure the functioning of the internal market and to avoid obstacles to trade and distortion and restriction of competition within the Community. It required Member States to set up systems to recover at least 50% of packaging waste and no more than 65% by 30 June 2001 and to recycle at least 25% and no more than 45% of packaging materials, with no material recycled at less than 15%; 5 ensure other preventive measures are taken; encourage, where appropriate, the use of materials recovered from recycled packaging waste in the production of new packaging and other products; ensure that from January 1998, packaging is allowed on the market only if it complies with certain Essential Requirements, which include minimisation of packaging weight and volume to the amount needed for safety and consumer acceptance of the packed product, and suitability for reuse, material recycling, energy recovery or composting; limit heavy metals content to 600 ppm by 30 June 1998, 250 ppm by 30 June 1999 and 100 ppm by 30 June 2001; allow free access to packaging complying with the Directive; notify the Commission of measures adopted or to be adopted; and report on progress and set up national databases so implementation can be monitored. 4 European Parliament and Council Directive 94/62/EC of 20 December 1994 on packaging and packaging waste (OJ No. L365, ). This is the measure in question to when this report refers to the Directive. 5 Because of their specific geographical, demographic and economic situations, Greece, Ireland and Portugal were allowed until the end of 2005 to achieve these targets. By the 30 June 2001 deadline they only had to achieve 25% recovery.

30 2 Additionally, Member States may encourage reuse systems for packaging which can be reused in an environmentally sound manner, provided they do not conflict with the EC Treaty; introduce economic instruments to implement the objectives of the Directive provided they are in accordance with the principles governing Community environmental policy; set themselves higher recovery and recycling targets, but only if they had appropriate recycling/recovery capacity and provided the measures taken do not distort the internal market or hinder other Member States ability to comply with the Directive. They must pre-notify the Commission, which must verify that the proposals will not constitute arbitrary discrimination or a disguised restriction to trade. Directive 94/62 contained provision for a review to set further recovery and recycling targets for a second five-year phase, and new targets (and certain other changes) were established by Directive 2004/12/EC. 6 At the behest of the European Parliament, Article 6.8 of Directive 2004/12 also set out the scope of the Commission s report on progress so far and further measures that might be considered: The Commission shall, as soon as possible and no later than 30 June 2005, present a report to the European Parliament and the Council on the progress of the implementation of this Directive and its impact on the environment, as well as on the functioning of the internal market. The report shall take into account individual circumstances in each Member State. It shall cover the following: (a) an evaluation of the effectiveness, implementation and enforcement of the essential requirements; (b) additional prevention measures to reduce the environmental impact of packaging as far as possible without compromising its essential functions; the possible development of a packaging environment indicator to render packaging waste prevention simpler and more effective; (d) packaging waste prevention plans; (e) encouragement of reuse and, in particular, comparison of the costs and benefits of reuse and those of recycling; (f) producer responsibility including its financial aspects; (g) efforts to reduce further and, if appropriate, ultimately phase out heavy metals and other hazardous substances in packaging by This report shall, as appropriate, be accompanied by proposals for revision of the related provisions of this Directive, unless such proposals have, by that time, been presented. 6 Directive 2004/12/EC of the European Parliament and Council of 11 February 2004 amending Directive 94/62/EC on packaging and packaging waste (OJ No. L47, ).

31 3 To provide background information for the Commission s report, DG Environment commissioned Pira International Ltd and Ecolas N.V. to carry out a study on the environmental, economic and social impacts of Directive 94/62 7, and DG Enterprise has commissioned Perchards, Ffact Management Consultants and SAGIS Ltd to: evaluate the impact of the Directive on the Internal Market from an economic and social perspective; evaluate the effects on the Internal Market of the decision of some Member States to implement the Directive through different producer responsibility schemes; and summarise stakeholders views and argument on these issues Terms of reference for this study According to the Terms of Reference, the tasks to be undertaken in the study are as follows: Evaluation of the impact of the Packaging Directive 94/62/EC on the functioning of the Internal Market The consultant shall give an overall evaluation of the impact of the Directive on the internal market from an economic and social point of view. A specific attention shall be paid to trade barriers and distortions of competition raised from the measures adopted by national authorities to implement the Directive and in particular the measures provided for in Article 5 (Reuse systems). Where possible, this may be done on the basis of available information and appropriately reasoned extrapolation. The evaluation of the impacts of the Directive shall be done on the basis of a comparison of current packaging and packaging waste management with the following scenarios: No packaging recycling and recovery and no other national measures on packaging and packaging waste management 8 A baseline scenario with recycling and recovery rates as well as other national measures that would have been likely in absence of the Directive. This baseline shall be established on the basis of estimates and extrapolations and shall be split into sub-scenarios to test the sensitivity of assumptions. A scenario with any national measures adopted to encourage reuse systems on the basis of Article 5 of the Directive. In this framework, the consultant should quantify as far as possible the consequences of the eventual distortions raised from the implementation of national measures. 7 Study on the implementation of Directive 94/62/EC on Packaging and Packaging Waste and options to strengthen prevention and re-use of packaging, PIRA International Ltd and ECOLAS N.V., final report, 21 February 2005 [ 8 It was subsequently agreed that as a substantial amount of recycling was already taking place before the Directive was adopted, a zero-recovery scenario was not necessary for this study.

32 4 Producer responsibility Contrary to more recent directives (ELV, WEEE), the Packaging and Packaging Waste Directive does not contain any obligation to introduce producer responsibility. Nevertheless most Member States have implemented the directive through some form of producer responsibility. The study shall: assess the current situation with a particular attention to (a) the eventual discriminations that the producer responsibility systems raise between domestic producers and importers of packaging; (b) the costs induct by the implementation of the producer responsibility only in some member States; assess the costs and benefits of a further harmonisation of the producer responsibility from an internal market perspective. The methods to be used by the consultant were specified as follows: The study shall focus on establishing a synthetic picture of available information rather than spending too much time on generating new data. This will include, however, verifying and linking various data sources. For certain items, it may be necessary to complement existing information with own work. Furthermore, for some issues it may be appropriate to base work on interviews with government actors and stakeholders. The offers shall contain proposals for a methodology to address the above tasks. Further details shall be agreed on the basis of the work programme to be submitted as part of the inception report. The geographical coverage was specified as follows: In principle, the geographical coverage shall be EU-25. However, the consultants may choose to select a number of countries to be studied in more depth wherever particular information seems to be available. Extrapolations to other countries shall be appropriately reasoned and their validity must be checked. A number of countries with particular geographical conditions and differing levels of packaging consumption, both within EU-15 and the new Member States, shall be studied in more depth. A choice of such countries (a minimum of three) shall be proposed in the offers and agreed in the work plan to be submitted together with the inception report.

33 5 1.2 SCOPE OF THE REPORT Most of this report relates to the 15 countries in membership of the EU between 1997 and 2001 ( EU- 15 ). However, Iceland, Liechtenstein and Norway are also part of the European Economic Area and as such were required to implement the Directive: Norway has similar arrangements in place to EU-25, with a Green Dot recovery organisation and a deposit system for beverage containers. Iceland, which imports all its packaging and so has no recycling facilities, has adopted taxes on certain packaging types, and has a deposit system for beverage containers. Liechtenstein has adopted relevant legislation. However in practice Liechtenstein, which has only 30,000 inhabitants, has aligned its packaging waste management system with that of neighbouring Switzerland, which is not bound by the Directive. We have not considered Iceland or Liechtenstein, but we have taken account of Norwegian measures where they relate closely to those of EU members. This means in particular the cross-border implications of the Nordic deposit-and-return systems for beverage containers. We also consider the impacts of the Directive on the ten countries that joined the EU on 1 May 2004, and offer some comments relating to the members of the enlarged EU ( EU-25 ).

34 6 1.3 STRUCTURE OF THE REPORT Chapter 2 contains an estimate of the impact of Directive 94/62 on recycling and waste disposal. Two hypothetical scenarios were developed on how public policy on packaging and waste might have evolved in the absence of a Directive. The impacts of these scenarios on the amount of packaging placed on the market, on recycling rates and on the tonnages for ultimate disposal were then calculated against the baseline of the official data submitted by the Member States for , and we went on to consider the likely impacts of the Directive up to Next, we considered what the impacts might have been if Member States had all taken specific measures to protect packaging reuse. Finally, an estimate was made of the annual cost of the increased recycling activity which we believe has resulted from implementation of the Directive. Chapter 3 deals with market access issues. The first question addressed is the impact of the Essential Requirements, and of possible trade barriers arising from differences in how they have been transposed and enforced. We also considered to what degree they have been respected by producers. Chapter 3 continues with an analysis of the trade barriers and distortions of competition which have arisen from the different ways in which Member States have transposed the Directive. These have been classified so as to demonstrate how far national initiatives have created Internal Market problems, and the effectiveness of the procedures in place to resolve such issues. Many of the infringement cases that have arisen in respect of Directive 94/62 relate to beverage containers, and Chapter 4 considers national rules specific to packaging for these products. It considers first the impact of refill protection measures in Germany, Portugal and Austria, including quotas reserving a certain proportion of the market for refillable beverage containers, and then considers the mandatory deposit systems on non-refillable containers in the Nordic countries and Germany. The relationship between deposit systems in neighbouring countries is considered in the context of the impact of beverage containers legislation on the Internal Market, and with a view to the possible extension of deposit systems to other Member States. The applicability of the Nordic model in other countries is discussed, and a possible way forward is outlined. 12 of the 15 countries in membership of the EU before 1 May 2004, and all ten of the countries which joined on that date, have in place a producer responsibility system based to a greater or lesser extent on the model first developed in Germany in Denmark, the Netherlands and the UK met the 2001 targets using very different approaches. Chapter 5 considers whether these different legal structures have created any distortions of competition or any disproportionate costs for the producers that have to comply. It goes on to consider the impact of national packaging taxes. Chapter 6 considers the producer responsibility systems in EU-15. Although the same concepts are common to most of them, there are important differences of detail, and Chapter 6 considers whether these differences create trade distortions, and if so, whether these distortions are unacceptable or whether they are the inevitable consequence of a Single Market consisting of a large number of quite diverse economies. Chapter 7 discusses the impact of national recovery systems on the waste management and recycling sectors. It describes the changes that took place as a result of the German Packaging Ordinance and the response of Germany s neighbours, outlines developments since the Directive was adopted, discusses current market issues for each packaging material and draws some conclusions. Chapter 8 considers the costs and benefits of a further harmonisation of producer responsibility rules. It looks first at where more might be done to increase harmonisation, with a particular focus on the implementation of Article 5 (encouragement of reuse). In this chapter we also consider possible omissions from the Directive, before reviewing the possible implications for the structure of packaging legislation that might arise from broader EU waste management policy, in particular the Thematic

35 7 Strategy on Waste Prevention and Recycling, and finally discussing an issue raised by one stakeholder has harmonisation already gone too far? Chapter 9 describes stakeholders participation in the consultation process, and summarises the views they put forward. The Annexes in Volume II provide supporting detail.

36 8 2. IMPACT OF THE DIRECTIVE ON RECYCLING AND WASTE DISPOSAL 2.1 BACKGROUND In 1988 the European Court of justice ruled 9 that the admitted restrictions on the free movement of goods involved in Denmark s ban on non-refillable beer and soft drinks bottles were a price worth paying for the environmental benefits claimed to result. This opened the way for a stream of unilateral national measures aimed at packaging all different in scope, in the obligations imposed on manufacturers and retailers, in the recycling targets laid down and even in how recycling was defined. Existing European Community law did not make it clear where the balance should lie between protection of the environment and the free movement of goods. The Commission first tried to remedy this by amending the loosely-worded Liquid Food Containers Directive of 1985 to fix quantitative objectives for waste prevention and reduction, but it eventually decided to merge the liquid food containers amendment within an overall Packaging and Packaging Waste Directive. Work began in earnest around the beginning of 1991 and the Commission adopted its proposal in July The Directive was adopted at the end of 1994 and the deadline for transposition was 30 June In the first half of the 1990s, however, the text that had the greatest influence on the development of packaging recycling across the Community was the German Packaging Ordinance of June This established a recycling system template producer responsibility, collective funding of recycling by industry, and material-specific targets variations on which have been adopted by the vast majority of countries in Europe. The Directive allowed for other options, but only Denmark and the Netherlands chose to deviate fundamentally from the model first devised in Germany. When the German Packaging Ordinance first appeared, there was great concern that it would have the effect of destroying embryonic recycling activities in neighbouring countries. The German system required used packaging to be collected and taken back by the reprocessor free of charge. The German collection targets were very high, and the vast quantities of material collected could not all be absorbed by the German recycling market. The surplus was exported, and reprocessors in other countries who had previously had to pay for material collected locally, were now able to take in German material at a low or even negative price. Some neighbouring countries decided that the best means of defence against this was to adopt legislation setting their own national targets to ensure that local packaging waste was still collected and that local reprocessors were not driven out of business by their subsidised German competitors. Some people of course felt that the German Ordinance was a good idea anyway, and deserved to be emulated. The EC Packaging and Packaging Waste Directive restored some order by ensuring that all Member States took steps to ensure that recycling systems were set up and developed. The question for this part of the report is how far this would have happened if the Directive had never been adopted. Would these defensive measures, and the general Zeitgeist in favour of more recycling, have meant that recycling would have developed the same way in the absence of a Directive, or would the status quo have continued in some countries? 9 In Case C-302/86.

37 9 2.2 DEVELOPMENT OF RECYCLING BEFORE AND AFTER INTRODUCTION OF THE DIRECTIVE Waste paper has long been recycled for economic reasons. From the 1970s, the waste paper collection and recycled papermaking industries expanded rapidly in response to technological advances that opened up new markets for recycled papers. Collection rates were governed by demand from the papermakers, demand being fixed by the recycling capacity of the paper mills and regulated by the price mechanism. In turn, the demand from the papermakers was limited by the demand for recycled paper products. Plastics film has also been collected from commercial and industrial end-users for economic reasons. The recycling of post-consumer packaging involves much higher collection costs, and was not originally initiated for economic reasons. Glass recycling, and later post-consumer can recycling, began in the 1970s as a response to criticism of the decline of refillable beer and soft drink bottles in favour of non-refillables. It obviously made sense to maximise economies of scale by encouraging consumers to deposit non-beverage containers also. Figures 1 to 3 give an indication of the rate at which these developments occurred in the years before and after adoption of the Directive. These estimates are drawn from a variety of sources and are not complete. Also, we do not have data for plastics recycling in 1991 there was little or no collection of household plastics packaging for recycling, and no need to collect data on the amount of plastics film from commercial and industrial sources that was being recycled. Nevertheless, these charts do demonstrate rough orders of magnitude. Figure 1: Glass recycling % 80% 70% 60% 50% 40% 30% 20% 10% 0% Belgium Denmark France Germany Greece Ireland Italy Netherlands Portugal Spain UK

38 10 Figure 2: Aluminium and steel recycling % 80% 70% 60% 50% 40% 30% 20% 10% 0% Austria Belgium Denmark Finland France Germany Greece Ireland Italy Netherlands Portugal Spain Sweden UK Al 1991 Fe 1991 Metal 1997 Metal 2001 Figure 3: Paper & board recycling % 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Belgium Denmark France Germany Ireland Italy Netherlands Portugal Spain UK

39 THE DIRECTIVE S IMPACT ON RECYCLING RATES UP TO THE 2001 DEADLINE Methodology To quantify the impacts of the Directive on recycling and disposal rates, we have compared three scenarios: Scenario 1 the situation as reported Scenario 2 pre-existing legislation, but no new legislation in the other Member States Scenario 3 pre-existing legislation, plus the legislation in those Member States that opted to set stricter targets than those in the Directive. We assume that these were committed to increasing packaging recycling rates. The analysis is based on the tonnages and recycling rates for which were reported to the Commission by the Member States as required by Article 17 of Directive 94/62. We have assumed that the Directive had no effect on the market before 1997, and 2001 is our cut-off point as this was the deadline for achievement of the targets laid down. The Member States have only harmonised their data collection methodologies to a limited extent, so these national returns are not necessarily comparable with each other. 10 Furthermore, since national methodologies have been refined over time in the light of the experience gained, national data may not always be comparable from one year to the next. We have been advised by the Commission not to spend time considering the accuracy of the existing official data, so for the purposes of this report actual data and reported data are synonymous. So that our hypotheses can be easily related to the actual data, we have reproduced in our scenarios any deviations from the trend (peaks or troughs in particular years), on the assumption that these are either statistical quirks which would have happened anyway or the result of market factors which are mostly independent of the Directive. Even before the Directive was adopted, considerable quantities of commercial and industrial packaging waste were being recycled for economic reasons. The Directive created a need to measure and report on these tonnages for the first time. Metal drums, for example, have a relatively high scrap value, and it is unlikely that the collection rate for reuse or recycling would have been much different in the absence of a Directive. However the Directive has led to a considerable increase in the recycling tonnages reported (in Ireland, there was a jump in the reported metals recycling rate from 4% in 1998 to 25% in 1999). Industry has developed protocols so that the amount of metal packaging waste in mixed metal scrap can be included in these tonnages. To avoid introducing distortions arising from changes in reporting conventions rather than changes in recycling rates, we are assuming that these changes in reporting would have taken place even in the absence of a Directive. Taking the Irish example above, if the metal recycling rates would have been unchanged in the absence of a Directive, we assume that these would still have been reported as 4% in 1998 and 25% in 1999, even though in practice the protocol would probably not have been developed and the reported 1999 rate would have been considerably lower. 10 This issue is discussed further in Pira and Ecolas 2005 and in section of this report. Also, one stakeholder asked us to draw attention to CEN standards EN 13439:2003 (Packaging Rate of energy recovery Definition and method of calculation) and EN 13440:2003 (Packaging Rate of recycling Definition and method of calculation).

40 The scenarios Scenario 1 the situation as reported This represents the data submitted by the Member States in accordance with Commission Decision 97/138. We have excluded wood from this analysis, as it was only reported by nine Member States. Scenario 2 pre-existing legislation, but no new legislation in the other Member States We have taken account of the targets set in Germany (1991), the Netherlands (Covenants I and II, 1991 and 1997), Austria (1992) and France (1992), and have projected from what was already being achieved by voluntary action in the other Member States or future Member States. We have used our own judgement on how far sectoral measures predating the Directive, beverage containers legislation for instance, would have affected developments. We have also made our own judgements on whether national measures which were challenged as a breach of Single Market rules and subsequently abandoned, would have survived in the absence of a Directive. It was noted above that some countries adopted producer responsibility legislation for packaging as a defence against local material being driven off the market by imported packaging waste whose collection had been mandated by legislation in the country where it had been collected. We have assumed that for the most part those countries affected by waste imports were those which introduced legislation of their own. Of those countries that did not legislate, the largest were Spain and the UK. The UK plastics and paper & board sector complained about subsidised imports from Germany. As a result of increased collection rates, Germany s share of the Community waste paper market had risen from 21% in 1989 to 34% in 1991 and the UK s share had fallen from 13.3% to 8.9%. As the German system matured, however, Germany increased its own recycling capacity and shifted the export of packaging waste surpluses eastwards rather than to other Member States. We have assumed therefore that by 1997 the market had adjusted and that recycling rates in Spain and the UK were only marginally affected. Scenario 3 pre-existing legislation, plus the legislation in those Member States that opted to set stricter targets than those in the directive When Belgium, Finland and Sweden transposed the Directive in 1997, they set targets higher than the minimum allowed. On the assumption that these Member States showed a clear commitment to establishing recycling programmes of their own, we have used the actual recycling rates they achieved. We have also developed alternative hypotheses for some other Member States. Where Scenarios 2 and 3 differ, the higher recycling rates always appear in Scenario 3. We have assumed that there would have been no changes to the tonnages placed on the market, except in the case of Ireland, Portugal and Spain under Scenario 3. Our hypothetical recycling rates for the other Member States are as in Scenario 2.

41 Rationale for our hypothetical recycling rates and tonnages Austria No hypotheses were made, as Austrian legislation predated the Directive and was not significantly changed by it Belgium An eco-tax law was adopted in June There would be a tax of FB 15 (37 euro cents) per container on all non-refillable beverage containers unless fillers could show that 80% of their nonrefillable glass and metal containers, and 70% of their non-refillable plastics, were being recycled, or that they were members of a recycling organisation recognised by the Regional Governments which met those conditions. FOST Plus was set up in 1994 to promote, co-ordinate and ensure financial support for selective collection and sorting of household packaging waste. Because of the tax exemption rules, FOST Plus was successfully recruiting beverage producers long before the Directive was transposed. There were also voluntary agreements with the three Regional Governments to develop packaging recycling, and FOST Plus also addressed these. Without the Directive, there would have been no Inter-regional Co-operation Agreement. This was the instrument for transposing the Directive, and without it each Region would have been free to set its own policies. It is probable that the Regional voluntary agreements would have been given statutory backing if the Regional Governments had not been happy with the progress made. Scenario 2 Glass: Industry estimated that the glass recycling rate was 55% in 1993 and 67% in This is consistent with the official estimate of 70% for The voluntary agreements in the Flemish and Brussels Regions set an 80% target for all glass recycling by 2000 (and in Wallonia, 75% by 1995). The original criterion for exemption from the beverage containers eco-tax was 80% recycling of nonrefillable glass beverage containers. In 1996 the target was relaxed to 55% in 1996, rising to 80% in 2000, but it was later decided that beverage producers in membership of FOST Plus would be exempt from the tax if FOST Plus met its own targets. We have assumed that glass recycling would have increased from 70% in 1997 to 80% in Scenario 2 Metals: According to industry estimates, steel can recycling was at 30% in 1994 and 1995, but the Government reported a 70% recycling rate for all cans in 1997 and fluctuations thereafter between 66% (1998) and 81% (2001). In the absence of a Directive, the drivers for metals recycling would again have been the rules for exemption from the tax (originally 80% recycling, but amended in 1996 to 40% in 1996, rising to 80% in 2002) and the regional voluntary agreements (80% by 1995 in Wallonia, and 80% in the other two regions by 2000). We have assumed an increase from 50% in 1997 to 60% in 2001.

42 14 Scenario 2 Plastics: Industry estimated that 13% of packaging plastics was being recycled in The beverage container tax exemption rules would have led to refillable PET rather than providing a stimulus for plastics recycling, so we are assuming that the main driver would have been the Walloon voluntary agreement s targets of 30% recycling by 1995 and 60% by We have assumed a considerable shortfall from these voluntary targets, resulting in 18% recycling by 1997, rising to 22% by Scenario 2 Paper & board: We have no data on paper and board recycling rates before The Walloon voluntary agreement aimed at 25% recycling by 1995 and 60% by 2000, and we have assumed a growth rate for Belgium as a whole along these lines. Scenario 3: We assume that the legislation introduced in 1997 would have happened even without the Directive, and that the recycling rates reported would have been achieved irrespective of whether the Directive had been adopted or not Denmark Denmark has not established specific producer responsibility legislation or an industry funding system; its principal means of meeting the Directive s targets has been its voluntary agreements on transport packaging. Under the original 1994 agreements, the recycling of paper & board transport packaging was to rise from 62% to 80% by 1998, and the recycling of plastics transport packaging was to reach 80% by The targets were revised in 2000, and are now 80% recycling for paper & board transport packaging and 40% for plastics transport packaging. Scenarios: We assume that these agreements would not have been developed had the Directive not existed, but for economic reasons recycling rates for transport packaging are usually high. In Scenario 2 we have reduced the plastics recycling rate by two percentage points and the paper recycling rate by four percentage points; in Scenario 3 we have reduced these rates by one and two percentage points respectively Finland The Government has long used the tax system to discourage the development of non-refillable beverage containers there is a lower tax on beverage containers which are part of a deposit system. As a result, there were no non-refillable glass or PET bottles, and cans had only a small share of the beverage market. Thus beverage can recycling did not begin until 1996, and beverage containers did not provide a critical mass for metal and plastics packaging collection systems. Industry estimated that 46% of glass was recycled in 1993 and 50% in 1995, 6% of plastics were recycled in 1995, 4% of metal packaging was recycled in 1994 and 44% of paper and board. Scenario 2 assumptions: For glass and paper/board, we assume no change from the actual recycling rates as recycling facilities were already available.

43 15 For plastics, we have taken as our baseline the available pre-directive recycling data and have assumed that the recycling rate grew only slowly; for metals, we have assumed an accelerating rate of increase from a slow start. Scenario 3 assumptions: We assume that the legislation introduced in 1997 would have happened even without the Directive, and that the recycling rates reported would have been achieved irrespective of whether the Directive had been adopted or not France No hypotheses were made, as French packaging recycling legislation predated the Directive and was not changed by it Germany No hypotheses were made, as German legislation predated the Directive and was not significantly changed by it Greece We have no pre-directive recycling data. The Directive was not transposed until 2001 and the national recovery organisation did not start operating until 2003, but for the purposes of Scenario 2 we assume that if there had been no awareness of the need to meet the full EU targets by the end of 2005, the pilot schemes developed between 1997 and 2001 would have been rather less extensive. In Scenario 3 we assume no change from the reported recycling rates Ireland Since Ireland imports most of its packaged goods, it has only had a small recycling industry and, therefore, relatively few recycling outlets for packaging waste. Industry estimated that 32% of glass was recycled in 1993 and 39% in 1995; other recycling rates were 2% for plastics in 1995 and 16% for metal packaging in Scenario 2 assumptions: In the first phase of its activities, Repak, the packaging recovery organisation, concentrated on maximising the collection and recycling of commercial and industrial packaging and of glass bottles from pubs, hotels and clubs. For reasons unconnected with the Directive there was a fall in the collection of household glass in the late 1990s, which counterbalanced that development. We are therefore assuming that there would have been less glass recycling in the absence of the Directive. We assume that the actual metal packaging recycling rate would have been little changed in the absence of a Directive (though, as explained above, the reported recycling rate would have been lower). We assume that in the absence of a Directive, plastics recycling would have been confined to commercial and industrial pallet wrap, where it was economic to collect it, and would have grown very slowly.

44 16 Paper recycling has developed for commercial reasons, to feed Ireland s one paper recycling plant, and it is likely that without the Directive the rates achieved between 1997 and 2000 would have been unchanged. However, the big increase in 2001 would have been unlikely to occur. Scenario 3 assumptions: Assuming that the Landfill Directive would have been adopted even if the Packaging Directive had not been, Ireland would have been concerned about its landfill shortage, and keen to protect its ailing glass producer (which has now closed) which was the largest indigenous recycling outlet for used packaging. We suspect there might have been legislation designed to encourage the use of glass (mandatory deposits or a tax on beverage containers that did not achieve a certain recycling rate). For the purposes of this scenario, we assume that producers would have chosen to pay the tax or set up the deposit system rather than set up a recovery organisation that would have had to export all the collected cans and plastic packaging for recycling abroad. Thus for the purposes of Scenario 3 we assume a 33% reduction in the number of metal and plastics beverage containers sold, with a corresponding increase in the literage sold in glass. We assume the same recycling rates as in Scenario Italy In the absence of a Directive, recycling would have been driven by the 1988 law which required separate collection of liquids packaging from It set recycling targets of 50% for glass and metal containers for liquids, and 20% of plastics covered by the law, to be reached in From April 1993, non-refillable container types which did not meet the targets were to be subject to a small tax. With work on the Packaging and Packaging Waste Directive well underway, this tax was never imposed, but it is reasonable to assume that it would have been imposed and increased had the Directive not appeared. Scenarios: Industry estimated that glass recycling advanced rather slowly, from 40% in 1988 to 49% in 1990 and 54% in The official figures reported to Brussels were considerably lower, rising from 33% in 1997 to 48% in We have taken 33% as our 1997 baseline, and have assumed in Scenario 3 that the growth rate would have continued. In Scenario 2 we assume that the glass recycling rate would have been almost static. Industry estimated that 32% of beverage cans were recycled in 1993, but the official recycling rate for all cans in 1997 was only 5%. Without a Directive, we doubt that the huge increase to 44% in 2001 would have happened, but, as in Ireland, we assume that protocols covering the drums and strapping collected with mixed metal scrap are a significant factor in the quantities reported. We have therefore simply reduced the 2000 and 2001 estimates to bring them into line with the Irish figures. Industry estimated that 7% of plastics packaging was recycled in The beverage containers recycling law will have provided some stimulus for recycling, but in Scenario 3 we assume a slower rate of progress. In Scenario 2 we assume that the plastics recycling rate would have been almost static. We assume that paper & board recycling would have developed more slowly in 2000 and 2001.

45 Luxembourg A beverage containers law was due to come into effect in 1995, but was postponed and eventually abandoned in 1996 following a warning from the Commission that the provisions promoting refillables breached Single Market rules. Had the Directive not been adopted by this time, we can assume that its recycling targets would have come into force, together with the eco-tax to be imposed if they were not met. These targets were 70% for glass and 20% for the other beverage container materials, and were to be achieved by Scenarios: We assume that in the absence of a Directive, glass recycling would have advanced more slowly, and that the growth rates for metals and plastics materials would have been much more modest, particularly in the later years. We have left the recycling rates for paper & board unchanged Netherlands No hypotheses were made, as the Dutch system predated the Directive and was not significantly changed by it Portugal The measures introduced to transpose the Directive included special provisions on beverage containers. It is arguable that beverage containers rules might have been introduced in the absence of a Directive. For the purposes of Scenario 3 we have assumed that they were, but in Scenario 2 we have assumed that they were not. Industry estimated that recycling rates in 1995 were 42% for glass, 1% for plastics and 17% for aluminium cans. Scenario 2 assumptions: In the absence of a Directive, we have assumed that the glass recycling rates were unchanged (we have interpolated a 1997 rate), that metal recycling rose much more slowly and that plastics recycling remained at its modest rate. SPV, the packaging recovery organisation, reports that in 2003, 31.4% of the paper & board packaging it licensed was recycled, and 17.5% of the total on the market. Since SPV only has a small involvement in the commercial and industrial sector, it can be inferred that most of the paper & board recycling reported by the Government comes from non-household sources. We have assumed that in the absence of a Directive, there would have been little difference in the recycling rate for nonhousehold paper & board packaging, but that little or none would have been collected from households. Scenario 3 assumptions: Thus for the purposes of Scenario 3 we assume that market share quotas designed to encourage the use of refillable beverage containers were introduced even in the absence of a Directive. The result would have been a reduction in the overall tonnage of beverage container material placed on the market, and a higher share for glass and PET at the expense of metal cans. We assume the same recycling rates as in Scenario 2.

46 Spain In the absence of a Directive, we assume that Spain would have introduced legislation later, with similar priorities and targets as France but with a later deadline (possibly 2005). We would expect that some of the Autonomous Regions would have introduced their own legislation, so national measures would have been necessary for the sake of the Spanish internal market. The export of packaging waste from neighbouring countries for recycling in Spain would have had an adverse impact on the collection of used Spanish packaging, and this would have provided an additional motivation for legislation. The Canary Islands legislation banning beverage cans, which was adopted in 1999 but never implemented, would have contravened Article 28 of the Treaty forbidding quantitative restrictions on imports, but in the absence of a Directive there would have been no Essential Requirements for packaging. It is possible therefore that infringement proceedings may not have begun had the Directive not been in place, and if the Canaries can ban had come into force similar measures might have been taken in the Balearics. Later, half-litre PET could also have been banned. It is difficult to quantify the effect on the market and on recycling tonnages, but we have rounded down the metal packaging tonnage in Scenario 3 for and have added the same amount to the glass packaging tonnage to take into account these possible developments. Industry estimated that recycling rates in 1995 were 32% for glass, 6% for plastics, 14% for aluminium cans and 17% for steel cans. Scenarios: Glass recycling was only one percentage point higher in 2001 than in 1995, so we have assumed that in the absence of a Directive the glass recycling rates would have been unchanged. We have assumed a slower growth rate for metals, plastics and paper/board recycling, particularly in the latter years when the national recovery organisation s activities have clearly had a major effect Sweden Legislation predating Sweden s entry into the Community set high material-specific recycling/reuse targets to be achieved by When the legislation was amended in 1997 to take account of the Directive, some of the targets were changed but they were still set on a material-specific basis. This makes comparison relatively easy. Scenarios: The targets for glass in the Ordinance transposing the Directive were the same as in the previous measure, so we assume no changes in the glass recycling rates. The beverage can recycling targets remained unchanged (90%) when the legislation was brought into line with the Directive, but the targets for other metal packaging were increased from 50% to 70%. The recycling rates reported fluctuated somewhat, and we have assumed no change other than in 2001, where we suggest that the big increase from 43% to 69% would not have happened. The PET beverage container reuse/recycling target also remained unchanged (90%) when the legislation was brought into line with the Directive, but the recycling target for other plastics packaging was increased from 30% to 40%. In practice, the plastics recycling rate peaked at 25% in 1998 before falling back to 17% in 2001, so we have assumed no change. The target for corrugated board remained unchanged (65%) when the legislation was brought into line with the Directive, but the recycling target for other paper & board packaging was increased from 30% to 40%. We have assumed a slight reduction in the recycling achievement after 1997.

47 19 Scenario 3 assumptions: We assume that the legislation actually introduced in 1997 would have happened even without the Directive, so the actual recycling rates would have been achieved anyway UK In the absence of a Directive, we believe that the recycling rates promised in 1992 by COPAC (the Consortium of the Packaging Chain) would have been the basis for a voluntary agreement. We do not believe that these targets would have been achieved without statutory backing, but we doubt whether the agreement would have been replaced by legislation before Scenarios: Under the COPAC plan, as revised in 1993, glass recycling would have increased from 19% in 1991 to 33% in 1995 and 58% in The actual rate increased from 19% in 1997 to 35% in Without legislation, we would have expected a much slower growth rate after COPAC promised an increase in metals recycling from 10% in 1991 to 20% in 1995 and 45% in The actual rate increased from 24% in 1997 to 35% in Again, we assume a much slower growth rate. COPAC promised an increase in plastics recycling from 5% in 1991 to 7% in 1995 and 19% in The actual rate increased from 6% in 1997 to 16% in Again, we assume a much slower growth rate. COPAC promised an increase in paper & board recycling from 44% in 1991 to 47% in 1995 and 49% in This was much closer to reality 41% in 1997, 49% (as predicted) in 1999 and 53% in 2001 and the COPAC commitment did take into account the impact of German waste paper exports to the UK. Thus we conclude that in the absence of a Directive, recycling rates would have been just two to four percentage points lower Stakeholder comment on these assumptions The only challenge to these assumptions came from PRO Europe, which takes the view that we have underestimated the impact of the Directive. Whereas we believe that the principal influence on Member States thinking was the German Packaging Ordinance, PRO Europe argues that the national measures which came into force before the Directive were formulated during the discussions about the Directive in the knowledge that there would be a Community Directive on packaging in the near future. If these discussions had not taken place, there may have been no legislation in many countries, in which case the Directive s effects on recycling and recovery rates and on the costs of packaging waste management would have been considerably greater. We take note of this point of view, but it does not accord with the impressions that we gained when monitoring this issue in the early 1990s.

48 Assumptions In the following tables, the actual reported rates appear in black type and our hypothetical rates in red italics. None of the stakeholders offered specific alternative assumptions. 11 Table 1: GLASS RECYCLING Actual Scenario 2 Scenario Austria 77% 80% 77% 97% 82% 77% 80% 77% 97% 82% 77% 80% 77% 97% 82% Belgium 70% 66% 75% 80% 85% 70% 66% 73% 76% 80% 70% 66% 75% 80% 85% Denmark 61% 75% 85% 81% 76% 61% 75% 85% 81% 76% 61% 75% 85% 81% 76% Finland 50% 63% 78% 64% 50% 50% 63% 78% 64% 50% 50% 63% 78% 64% 50% France 42% 45% 50% 50% 51% 42% 45% 50% 50% 51% 42% 45% 50% 50% 51% Germany 84% 85% 85% 85% 85% 84% 85% 85% 85% 85% 84% 85% 85% 85% 85% Greece 25% 21% 19% 24% 24% 22% 18% 16% 21% 21% 25% 21% 19% 24% 24% Ireland 34% 32% 32% 29% 39% 31% 28% 28% 24% 31% 31% 28% 28% 24% 31% Italy 33% 37% 40% 47% 48% 33% 33% 33% 34% 34% 33% 34% 35% 36% 36% Luxembourg 71% 80% 76% 83% 91% 70% 73% 71% 73% 76% 70% 76% 73% 76% 80% Netherlands 75% 85% 80% 80% 78% 75% 85% 80% 80% 78% 75% 85% 80% 80% 78% Portugal - 42% 44% 38% 34% 36% 42% 44% 38% 34% 36% 42% 44% 38% 34% Spain 37% 37% 38% 31% 33% 37% 37% 37% 30% 32% 37% 37% 38% 31% 33% Sweden 76% 84% 84% 86% 84% 76% 84% 84% 86% 84% 76% 84% 84% 86% 84% UK 19% 23% 30% 39% 35% 19% 19% 20% 21% 20% 19% 20% 21% 25% 24% Table 2: METAL RECYCLING Actual Scenario 2 Scenario Austria 34% 38% 38% 49% 61% 34% 38% 38% 49% 61% 34% 38% 38% 49% 61% Belgium 70% 66% 72% 70% 81% 50% 48% 54% 53% 60% 70% 66% 72% 70% 81% Denmark 16% 40% 35% 49% 40% 16% 40% 35% 49% 40% 16% 40% 35% 49% 40% Finland 8% 15% 19% 28% 42% 8% 10% 13% 17% 22% 8% 15% 19% 28% 42% France 49% 45% 45% 49% 52% 49% 45% 45% 49% 52% 49% 45% 45% 49% 52% Germany 82% 83% 82% 78% 79% 82% 83% 82% 78% 79% 82% 83% 82% 78% 79% Greece 13% 11% 11% 11% 10% 10% 8% 8% 8% 7% 13% 11% 11% 11% 10% Ireland 5% 4% 25% 24% 37% 4% 3% 21% 20% 33% 4% 3% 23% 22% 35% Italy 5% 5% 11% 45% 44% 5% 5% 11% 20% 33% 5% 5% 11% 22% 35% Luxembourg 22% 11% 42% 68% 77% 22% 9% 38% 48% 55% 22% 11% 42% 53% 65% Netherlands 67% 80% 78% 78% 78% 67% 80% 78% 78% 78% 67% 80% 78% 78% 78% Portugal - - 1% 15% 24% 1% 1% 1% 2% 4% 1%!% 1% 3% 5% Spain 23% 22% 24% 34% 38% 23% 22% 22% 23% 24% 23% 22% 24% 24% 26% Sweden 45% 77% 50% 43% 69% 45% 77% 50% 40% 50% 45% 77% 50% 43% 69% UK 24% 23% 38% 42% 35% 24% 23% 24% 25% 24% 24% 23% 25% 28% 26% 11 PRO Europe suggested that to measure the effects of the Directive, only household packaging should be taken into account. We agree that it would have been valuable to have shown the development of household recycling rates separately, but we were not able to obtain this information.

49 21 Table 3: PLASTICS RECYCLING Actual Scenario 2 Scenario Austria 20% 27% 25% 26% 29% 20% 27% 25% 26% 29% 20% 27% 25% 26% 29% Belgium 25% 26% 24% 25% 28% 18% 19% 18% 19% 22% 25% 26% 24% 25% 28% Denmark 6% 7% 11% 12% 14% 4% 5% 9% 10% 12% 5% 6% 10% 11% 13% Finland 10% 10% 13% 14% 15% 5% 6% 7% 8% 9% 10% 10% 13% 14% 15% France 6% 8% 9% 11% 14% 6% 8% 9% 11% 14% 6% 8% 9% 11% 14% Germany 61% 59% 59% 53% 52% 61% 59% 59% 53% 52% 61% 59% 59% 53% 52% Greece 3% 4% 3% 3% 3% 2% 2% 2% 2% 2% 3% 4% 3% 3% 3% Ireland 2% 3% 4% 9% 12% 2% 2% 2% 3% 4% 2% 2% 2% 3% 4% Italy 10% 11% 16% 16% 19% 9% 9% 10% 10% 11% 9% 10% 11% 13% 15% Luxembourg 6% 9% 26% 36% 34% 6% 7% 9% 12% 11% 6% 9% 12% 16% 16% Netherlands 12% 14% 18% 23% 21% 12% 14% 18% 23% 21% 12% 14% 18% 23% 21% Portugal 4% 4% 4% 9% 2% 4% 4% 4% 4% 2% 4% 4% 4% 5% Spain 7% 9% 14% 17% 18% 6% 8% 8% 9% 9% 6% 8% 9% 10% 12% Sweden 14% 25% 20% 14% 17% 14% 25% 20% 14% 17% 14% 25% 20% 14% 17% UK 6% 7% 13% 15% 16% 5% 6% 7% 8% 9% 5% 6% 7% 8% 9% Table 4: PAPER & BOARD RECYCLING Actual Scenario 2 Scenario Austria 85% 84% 88% 87% 81% 85% 84% 88% 87% 81% 85% 84% 88% 87% 81% Belgium 78% 83% 70% 82% 86% 39% 55% 46% 60% 60% 78% 83% 70% 82% 86% Denmark 47% 58% 59% 62% 65% 43% 54% 55% 58% 61% 45% 56% 57% 60% 63% Finland 57% 57% 61% 62% 58% 57% 57% 61% 62% 58% 57% 57% 61% 62% 58% France 59% 61% 59% 59% 61% 59% 61% 59% 59% 61% 59% 61% 59% 59% 61% Germany 88% 88% 87% 90% 91% 88% 88% 87% 90% 91% 88% 88% 87% 90% 91% Greece 67% 66% 67% 67% 68% 63% 62% 63% 63% 64% 67% 66% 67% 67% 68% Ireland 17% 15% 14% 17% 24% 17% 15% 14% 17% 17% 17% 15% 14% 17% 17% Italy 36% 37% 39% 46% 52% 36% 36% 37% 37% 38% 36% 37% 39% 41% 44% Luxembourg 45% 49% 35% 37% 59% 45% 49% 35% 37% 59% 45% 49% 35% 37% 59% Netherlands 65% 70% 71% 71% 65% 65% 70% 71% 71% 65% 65% 70% 71% 71% 65% Portugal - 48% 52% 47% 57% 36% 38% 40% 32% 41% 38% 40% 42% 34% 43% Spain 52% 52% 54% 58% 64% 50% 50% 51% 51% 52% 50% 50% 52% 56% 58% Sweden 66% 84% 72% 63% 69% 66% 81% 69% 60% 65% 66% 84% 72% 63% 69% UK 41% 47% 49% 50% 53% 37% 42% 44% 45% 48% 39% 44% 46% 47% 50% Outcome of the scenarios Impacts of the Directive on recycling rates From our two scenarios we conclude that in the absence of a Directive, the tonnages of packaging likely to have been recycled in EU-15 would have amounted to the following percentages of the actual reported recycled tonnages:

50 22 Table 5: IMPACT OF SCENARIOS 2 AND 3 ON TONNAGES RECYCLED IN EU Glass 98% 98% 95%-96% 92%-94% 92%-94% Metals 99%-100% 98%-100% 92%-94% 84%-87% 88%-92% Plastics 96%-97% 95%-97% 85%-87% 84%-88% 82%-88% Paper & board 98%-100% 97%-98% 96%-98% 94%-97% 92%-96% Total 98%-99% 97%-98% 95%-97% 92%-95% 91%-94% It is clear that the two sets of assumptions used produce only marginal differences. This is because we believe that implementation of the Directive had little effect on the recycling rates achieved in 7 of the 15 Member States Austria, Belgium, Finland, France, Germany, the Netherlands and Sweden. Since these were among the countries with the highest recycling rates, and since they account for almost exactly 50% of the population of EU-15, their contribution to the overall EU recycling tonnages outweighs the rest. Table 6: EU POPULATION AS AT 1 JANUARY 2001 EU-8/15 Population ( 000) EU-7/15 Population ( 000) Denmark Austria Greece Belgium Ireland Finland Italy France Luxembourg 441 Germany Portugal Netherlands Spain Sweden UK Total Total It is more interesting to examine the effects of the Directive on the convergence of recycling rates. We believe that those Member States that would not have had legislation in place by 2001 in the absence of a Directive ( EU-8/15 ) would have achieved the following percentages of the actual recycled tonnages. This achievement is significantly lower, particularly for the lightweight fraction: Table 7: IMPACT OF SCENARIOS 2 AND 3 ON TONNAGES RECYCLED IN EU-8/ Glass 100%-101% 92%-95% 83%-88% 74%-80% 75%-82% Metal 99%-100% 99%-100% 74%-78% 57%-62% 70%-75% Plastics 87% 84%-89% 59%-64% 58%-67% 55%-68% Paper & board 95%-97% 93%-95% 92%-95% 86%-92% 82%-89% Total 96%-98% 93%-95% 86%-90% 79%-85% 77%-84% Impacts of the Directive on tonnages remaining for final disposal We have calculated the effects of the Directive on the packaging waste landfilled or incinerated without energy recovery by subtracting the tonnages recycled from the tonnages generated, and applying to the residual waste the energy recovery percentages reported by the Member States. Comparing the amount of packaging waste landfilled or incinerated without energy recovery from our scenarios with the actual data indicates that for EU-15, the Directive resulted in a reduction of around 10% in the used packaging not recovered in 2001 and that the Directive was having an increasing impact year by year:

51 23 Table 8: IMPACT OF SCENARIOS 2 AND 3 ON TONNAGES LANDFILLED OR INCINERATED WITHOUT ENERGY RECOVERY IN EU Glass 100%-101% 102%-103% 105%-106% 109%-111% 108%-110% Metal 100%-101% 100%-102% 100%-102% 114%-118% 109%-113% Plastics 101% 101% 104% 104%-105% 101%-104% Paper & board 102%-106% 103%-106% 103%-107% 106%-113% 110%-119% Total 101%-102% 102%-103% 104%-106% 107%-110% 108%-111% The reduction in used packaging not recovered in those 8 Member States whose recycling performance has been most affected by the Directive is perhaps closer to 15%: Table 9: IMPACT OF SCENARIOS 2 AND 3 ON TONNAGES LANDFILLED OR INCINERATED WITHOUT ENERGY RECOVERY IN EU-8/ Glass 100%-101% 104% 108%-110% 115%-117% 113%-116% Metal 100% 100% 104%-106% 122%-126% 113%-116% Plastics 101% 101% 105%-106% 106%-108% 101%-107% Paper & board 102%-104% 103%-106% 105%-107% 109%-115% 115%-125% Total 101%-102% 103%-104% 106%-107% 111%-115% 112%-115% The impacts on the tonnages not recovered are as follows: Table 10: COMPARISON OF TONNAGES LANDFILLED OR INCINERATED WITHOUT ENERGY RECOVERY IN EU-15 UNDER THE THREE SCENARIOS Tonnes not recovered (actual) 24,366,166 24,206,085 23,455,063 22,108,500 21,651,119 Additional tonnes not recovered (Scenario 2) 552, ,032 1,312,550 2,316,235 2,299,934 Additional tonnes not recovered (Scenario 3) 238, , ,192 1,568,689 1,673,209 Table 11: COMPARISON OF TONNAGES LANDFILLED OR INCINERATED WITHOUT ENERGY RECOVERY IN EU-8/15 UNDER THE THREE SCENARIOS Tonnes not recovered (actual) 16,655,245 16,812,375 15,905,983 14,554,520 13,952,622 Additional tonnes not recovered (Scenario 2) 272, ,747 1,184,130 2,128,057 2,075,361 Additional tonnes not recovered (Scenario 3) 207, , ,192 1,568,689 1,673,209 The population of EU-15 was 378,181,000 in 2001 and the population of EU-8/15 was 188,119,000. On this basis, we estimate that by 2001 the Directive had reduced the amount of waste landfilled or incinerated without energy recovery by 5-6 kg per capita per annum in EU-15, and by 9-11 kg per annum in the eight Member States where the Directive has had most effect. Table 12: COMPARISON OF PER CAPITA TONNAGES LANDFILLED OR INCINERATED WITHOUT ENERGY RECOVERY UNDER THE THREE SCENARIOS, 2001 (kg) EU-15 EU-8/15 Tonnes not recovered (actual) Additional tonnes not recovered (Scenario 2) Additional tonnes not recovered (Scenario 3) 62 83

52 LIKELY FUTURE IMPACTS OF THE DIRECTIVE Methodology In section 2.3, we concluded that the Directive had resulted in a reduction of around 10% in the used packaging not recovered in 2001, and that it was having an increasing impact year by year. We have modelled the likely impacts in 2008 in order to demonstrate this. In June 2003, the European Commission Joint Research Centre (JRC), in collaboration with the European Science and Technology Observatory, published Scenarios of household waste generation in This assumed a 55% increase in GDP between 1995 and 2020, an increasing number of dependants (children and pensioners) relative to the number of people of working age (15-64), and a 10% increase in the number of households over this period. A 55% increase over 25 years is equivalent to a 6.8% increase over eight years. In the JRC s baseline scenario, this translated into an increase in demand between 1995 and 2020 of 10% for food and drink and its packaging, and a 55% increase in other categories (recreation, information and entertainment, housing, care (incontinence products for babies and the elderly, medicines and cosmetics) and clothing. 12 Overall, the report suggested that household waste would increase by 42.5%, but that packaging tonnage would increase by only 14% which is roughly equivalent to a 3.5% increase over eight years. 13 There is no mention of lightweighting or material substitution, so it is not clear whether this was factored in. We asked Pira International for their packaging growth rate forecast. Pira work on the assumption that packaging will grow at half the rate of increase of GDP i.e. by 3.4% between 2001 and In other words, their assumption is more or less the same as the JRC s, but Pira have certainly taken account of lightweighting activities. We assume that non-household packaging will display a similar growth rate. Changes in demand patterns will lead to changes in the packaging mix by 2008, but we have not modelled these. Our 2008 scenarios relate to overall packaging tonnage. The detailed calculations are set out in Annex A. 12 There are physiological limits to the amount of food and drink that can be consumed. On the other hand, the fragmentation of families into separate, smaller households, and the fragmentation of eating habits within the household, will mean that a greater number of product items will be sold, albeit in smaller pack sizes. Packaged non-food products (consumer durables, personal care items etc) will grow at a faster rate. The average UK household (2.3 people), purchases 4,300 items a year 2,850 food and drink items, 470 clothing and personal care items, 180 home and interior items, and 800 items connected with education, leisure and transport (INCPEN, 2001). 13 There are a number of alternative scenarios based on different assumptions about wider social change, but as these variables are not relevant to this study they have been disregarded.

53 The baseline scenarios Table 13 below compares the actual results achieved in EU-15 in 1997 and 2001 with two forecasts for Both forecasts assume a 3.4% growth rate between 2001 and 2008, but the forecast recycling rates differ: Scenario A Scenario A assumes that the 55% recycling targets were met in each EU-12 Member State, but that those countries which in 2001 were achieving recycling rates higher than the Directive s 2008 targets, maintained those higher rates. Scenario B Scenario B assumes that the national brandholder-funded recovery organisations (the Green Dot systems, CONAI and PYR) lose their effective monopoly in household waste collection, and that competition between rival systems means that each EU-12 country limits its efforts to what is needed to meet its legal obligations. 14 The Green Dot -type organisations for household packaging have operated as public interest bodies, planning for the long term. Some of them have exceeded their targets. As the UK example shows, where there are a number of recovery organisations operating in competition with one another, competitive pressures force them to aim at just meeting the targets and no more. In Germany, pressure from the competition authorities has led DSD to abandon its public interest role. In future, it will be competing on equal terms with rival organisations [see Chapter 6]. This development may spread to other Member States, and it suggests that in some countries recycling rates may well fall to the minimum set by the law. Some Member States set national targets which are higher than the minimum targets prescribed by the Directive. There is no reason why the national targets should be reduced under Scenario B, so in these cases we have based our calculations on the recycling rates which we estimate would result from meeting the national rather than the EU minima. Most national targets are sector- or material-specific, however, and as far as we can see the only Member States where existing requirements would result in an overall minimum recycling rate of more than 55% are Germany and the Netherlands. In the case of Germany, we applied the material-specific German recycling obligations for sales packaging and assumed for the sake of simplicity that the same rates were achieved for non-household packaging. For the Netherlands, we assumed that the 2005 recycling targets in Packaging Covenant III will be achieved in Both scenarios For both scenarios, we have assumed that Greece, Ireland and Portugal met their derogated recycling targets in 2006, and that by 2008 they have achieved 40% of the difference between their 2006 and 2011 targets (i.e. a recycling rate of 37%); each Member State s 2008 energy recovery rate is identical to that achieved in We have confined our calculations to EU-12, because 2008 is an intermediate year for the three derogated EU-15 member states, and they have no national targets for that year.

54 26 Table 13: PROJECTED RECYCLING RATES UNDER THE DIRECTIVE (tonnes) EU-15 Actual Actual Scenario A Scenario B Total packaging 52,699,765 56,231,442 58,199,542 58,199,542 Recovered 28,284,315 54% 34,580,323 61% 39,116,363 67% 37,358,521 64% Recycled 25,008,298 47% 30,680,605 55% 35,080,155 60% 33,322,313 57% Energy recovered 3,276,017 6% 3,899,718 7% 4,036,208 7% 4,036,208 7% Disposal 24,366,166 46% 21,651,119 39% 19,083,179 33% 20,841,022 36% Tonnages recycled (1997=100) Tonnages disposed of (1997=100) Thus the effect of Austria, Belgium and Germany lowering their recycling rates 15 would very largely have cancelled out the increasing levels of recycling in the other Member States The no-directive scenarios Table 14 suggests what might have happened in the absence of a Directive: For EU-7/15, those Member States where we do not believe that the Directive has had a significant effect, we used the same tonnages as in Table 16 above. For EU-8/15, those Member States where we consider that the Directive has had a significant effect, our first assumption was that the average annual increase in the tonnage recycled between 1997 and 2001 would be continued through to This worked for Ireland, Italy, Spain and the UK, where the results were significantly lower than in Scenario B above. For Denmark, Greece, Luxembourg and Portugal, however, the result of applying this calculation was higher than in Scenario B. We have therefore assumed that in the absence of a Directive, these countries might have caught up with the targets the Directive would have set them: Table 14: PROJECTED RECYCLING RATES WITHOUT A DIRECTIVE (tonnes) EU-15 Scenario 2 Scenario 2 Scenario 2a Scenario 2B Total packaging 52,699,765 55,928,042 58,199,542 58,199,542 Recovered 27,773,778 53% 31,976,989 57% 35,838,954 62% 34,100,368 59% Recycled 24,471,787 46% 27,880,257 50% 31,802,746 55% 30,064,159 52% Energy recovered 3,303,291 6% 4,096,732 7% 4,036,208 7% 4,036,208 7% Disposal 24,918,178 47% 23,951,053 43% 22,360,588 38% 24,099,175 41% Tonnages recycled (1997=100) Tonnages disposed of (1997=100) We considered the following possible post-2001 developments: We assume that without pressure from Brussels, Denmark s can ban would not have been repealed in By developing our projections from the actual tonnages , we have reflected this no-change scenario in Table 14. Arguably the tonnages in Table 13 should also be adjusted, but the market share of non-refillables has only risen from 3% to 4% following abolition of the can ban, and this is not significant on the European scale. Trade and industry mounted legal challenges to the German mandatory deposit system under German law in parallel with the EU infringement proceedings, so it is possible that the German situation would have been unchanged from the current position. On the other hand, without the 15 And also very marginally Denmark, Luxembourg and the Netherlands.

55 27 encouragement provided by the EU proceedings, German opponents of mandatory deposits might have conceded defeat in January 2003, when the Federal Constitutional Court rejected the claim that mandatory deposits were unconstitutional. In that event, more orderly deposit arrangements might have been in place by now. However, as we do not know what the situation will be in Germany in 2008 even with the Directive, we have not factored this issue into our projections. If the Canary Islands can ban had not been blocked by the Commission, it could well have been followed by a can ban (and maybe a ban on half-litre PET) on the Greek islands. However, as we understand that recycling activities focus on urban areas on the mainland, we doubt that this would have had a significant effect on Greek recycling rates. Sweden maybe restrictions on heavy metals would have gone further than the current EU requirements. If, as assumed in Scenario 2, the UK would have relied on a voluntary agreement until 2000/2001 and had then introduced legislation in force from 2002, we would guess that the targets in these regulations would have been lower than those in the Directive Projected impact of the Directive Table 15 compares the recovery, recycling and disposal rates achieved or likely to be achieved under the Directive with those we would have expected in the absence of a Directive. On our calculations, the tonnages recycled in EU-15 will continue to be about 10% higher than they would have been in the absence of a Directive. If measures are taken to promote competition in household packaging waste management sector and these drive down recycling rates to the minimum required by law, this would have minimal effect on the difference between the Directive and no- Directive scenarios. By 2001, the Directive resulted in a reduction of 10% in the tonnage of used packaging for final disposal. By 2008, even if the energy recovery rate remains constant, we would expect the Directive to have resulted in landfilling and incineration without energy recovery being 14%-15% lower than it would have been in the absence of a Directive: Table 15: IMPACT OF THE DIRECTIVE AGAINST NO-DIRECTIVE SCENARIO 2 EU Scenario A Scenario B Total packaging 100% 100% 100% 100% 101% 100% 100% Recovered 102% 103% 105% 107% 108% 108% 108% Recycled 102% 103% 106% 109% 110% 109% 109% Energy recovered 99% 98% 98% 97% 95% 100% 100% Disposal 98% 97% 95% 91% 90% 87% 88% In terms of absolute tonnages, the Directive appears to be responsible for the increased recycling of 2.8 million tonnes in 2001, and we expect this to grow to 3.25 million tonnes by In per capita terms, this represents an additional 7.4 kg per person in 2001, rising to 8.6 kg per person in 2008: Table 16: IMPACT OF THE DIRECTIVE ON RECYCLING TONNAGES AND RATES EU Scenario A Scenario B With Directive 25,008,298 47% 30,680,605 55% 35,080,155 60% 33,322,313 55% Without Directive 24,471,787 46% 27,880,257 50% 31,802,746 57% 30,064,159 52% Impact of the Directive +536,511 +2,800,348 +3,277,409 +3,258,154

56 28 The disposal savings are of similar orders of magnitude: Table 17: IMPACT OF THE DIRECTIVE ON DISPOSAL TONNAGES AND RATES EU Scenario A Scenario B With Directive 24,366,166 46% 21,651,119 39% 19,083,179 33% 20,841,022 36% Without Directive 24,918,178 47% 23,951,053 43% 22,360,588 38% 24,099,175 41% Impact of the Directive -552,012-2,299,934-3,277,409-3,258,153 We do not have sufficient data from the ten new Member States to be able to replicate the foregoing analysis for EU-25. To indicate general orders of magnitude, we have taken the recycling rates the new Member States have reported for 2002, and have calculated the increase in recycling needed on the basis of a straight-line projection to the 55% minimum rate by the deadlines laid down. 16 On a weighted average according to population, this shows that between 2002 and 2008, the new Member States must increase their combined recycling rate from 23% to 40%. Table 18: IMPACT OF THE DIRECTIVE ON FUTURE RECYCLING RATES IN THE TEN NEW MEMBER STATES Population 6 Years as % of Recycling rate Millions % of EU-NEW total lead-time Cyprus % 60% 7% 36% Czech Rep % 60% 31% 45% Estonia 1.5 2% 60% 25% 43% Hungary % 60% 34% 47% Lithuania 3.7 5% 60% 15% 39% Latvia 2.5 3% 46% 31% 42% Malta 0.4 1% 55% 2% 31% Poland % 50% 19% 37% Slovenia 2 3% 60% 30% 45% Slovakia 5.4 7% 60% 21% 41% ALL % 23% 40% Figure 4 shows how this relates to the rate of progress expected in the existing Member States: Figure 4: Recycling rates in EU-25 60% 50% 40% 30% 20% 10% 0% Recycling % EU-12 Recycling % EU-NEW Recycling % EU-3 16 Directive 2005/20/EC of the European Parliament and of the Council of 9 March 2005 amending Directive 94/62/EC on packaging and packaging waste, sets 31 December 2012 as the deadline for meeting the secondstage targets in Cyprus, the Czech Republic, Estonia, Hungary, Lithuania, Slovakia and Slovenia. 31 December 2013 is the deadline for Malta, 31 December 2014 for Poland and 31 December 2015 for Latvia.

57 NATIONAL MEASURES TO ENCOURAGE REUSE SYSTEMS The policy options We were asked to consider a scenario with any national measures adopted to encourage reuse systems on the basis of Article 5 of the Directive, and in Scenario 4 we assume that all Member States took action to promote the use of refillable beverage containers. Policy options already in place when the Directive was adopted were Statutory beverage container targets for refilling or recycling (Austria and Sweden): Austria had a combined reuse/recycling target. In Sweden, there is a 90% reuse/recycling target for PET beverage containers. Sweden also has separate recycling targets for aluminium and PET beverage containers which are higher than the recycling targets for metal and plastics packaging for other products. A tax on non-refillable beverage containers (Belgium and Finland): The Belgian law exempted non-refillables achieving the recycling targets laid down. These rose year by year from 1996 to 2000, when they were 80% for glass and metals and 70% for plastics and beverage cartons. Although these targets were somewhat higher than the general targets for packaging, the beverage container eco-taxes were never imposed, as it was decided that beverage suppliers would be deemed to have met this obligation if they were members of the FOST Plus multi-material recovery organisation and the overall FOST Plus recycling rates were above the general targets. In Finland, the tax applies to both refillables and non-refillables, but there is a 75% reduction for deposit-bearing refillables provided the stipulated return rates are met. 17 A ban on beverage cans and a requirement that any non-refillable bottles should be subject to a deposit-and-return system equivalent in its effects to the dominant refillable bottle system (Denmark): Given the market strength of the established companies using refillable bottles, non-refillables did not gain a foothold in the market until the can ban was replaced by a deposit-and-return system in Even now, the market share of non-refillables is only 4% but as explained in section 5.3, the tax system has served to dissuade the purchase of non-refillables. Mandatory deposits on non-refillables (Finland and Sweden): These systems were introduced when non-refillables first came onto the market, and operate alongside traditional refillable bottle systems. Market share quotas designed to protect refillables (Germany and Portugal), or a conditional standstill on refill, i.e. with exemptions where non-refillables could be shown to be environmentally equal (Netherlands): These arrangements are discussed in detail in Chapter 4. The Luxembourg authorities were intending at one time to conclude a voluntary agreement on reuse with the beverage sector, but this was never proceeded with % within four years of the system being established.

58 30 Protection of refillable beverage containers was not a public policy objective in France, Greece, Ireland, Italy, Spain or the UK. If Member States had been required to introduce specific measures to support refill which was never a real possibility in the climate of 1994 they would undoubtedly have chosen an option that allowed fillers to opt for increased recycling as an alternative, i.e. either a combined reuse/recycling target, or a tax on non-refillable beverage containers with an exemption for members of an approved recovery organisation or for materials which achieved a specified recycling rate Impact on reuse We believe that it is unlikely that any requirements pursuant to Article 5 would have resulted in an increase in beverage containers reuse. Even the refill quotas imposed in Germany and Portugal have failed to arrest the decline in the demand for refillable beverage containers: Figure 5: Germany market share of refillable beverage containers (litres sold) Imposition of refill quotas All beverages (except milk) Mineral water Beer Carbonated soft drinks Source: BMU (Federal Environment Ministry) Figure 6: Portugal market share of refillable beverage containers (by number of containers sold) Imposition of refill quotas Carbonated soft drinks Mineral water Source: QUERCUS (Associação Nacional de Conservação da Natureza)

59 31 The Portuguese NGO Quercus 18 has argued that failure to maintain the Portuguese reuse rates is due to lack of enforcement. It adds that when this law appeared, the Secretary of State for the Environment promised companies subsidies to help them adapt. A one-year transition period was allowed, but by the time this had passed, no more than three or four companies had made the necessary changes, and those that had, received no help from the government. In the meantime, a company began to work and received the proper licenses although it had no returnable packaging. Further time has passed and, says Quercus, the only investment being made is to promote Verdoreca, a subsidiary set up by the Green Dot system SPV to collect used packaging from cafes, hotels and restaurants for recycling. Meanwhile the dual stocking requirement of the Portuguese law is so loosely worded that it can easily be circumvented by the retail trade. Retailers only have to sell one brand in one size of refillable bottle. The producers agree with the NGOs that the Portuguese requirements are not being effectively enforced, but this was certainly not the case in Germany, where the sanction was the automatic imposition of mandatory deposits, a requirement that the beverage industries have always been very keen to avoid. Similarly, the introduction of deposits on non-refillable beverage containers in Sweden has not led to a shift towards reuse: Figure 7: Sweden market share of refillable beverage containers (in %) Introduction of a deposit on cans Introduction of refillable PET Introduction of a deposit on one way PET soft drinks/water beer/soft drinks/water beer Impact on recycling and disposal As explained in section 2.5.1, we believe that if France, Greece, Ireland, Italy, Spain or the UK had had to promote beverage containers reuse in line with Article 5 of the Directive, they would have chosen policy options which allowed recycling as an alternative. The result would have been that driven by the beverage sector, recycling rates in those countries would have been accelerated in the early years of implementation of the Directive, but this effect 18 Associação Nacional de Conservação da Natureza.

60 32 would have lessened year by year as the recycling of non-beverage packaging developed. The extent of this acceleration, and how long-lasting its effects were, would depend on how high any combined reuse/recycling target was set, or how high any tax on beverage containers with exemptions for reuse or strong recycling performance. The Belgian example demonstrates this effect. Following adoption of the eco-tax law in 1993, the recovery organisation FOST Plus was set up in 1994, three years before the Inter-regional Cooperation Agreement transposed the Directive. The beverage sector needed to develop container recycling to justify an exemption from the tax, and beverage producers gave FOST Plus its critical mass long before general recycling targets for packaging came into effect. 19 Grafting beverage containers legislation onto a mature recycling system for all packaging has the opposite effect, however. This is discussed in section By early 1995, FOST Plus already had 420 members.

61 PACKAGING PREVENTION AND SUBSTITUTION At any given recycling rate, the amount of packaging recovered or disposed of will depend on the amount of packaging placed on the market. Packaging reduction programmes have been in place in most companies for many years, for economic rather than environmental reasons, but for ten years or more companies have also been factoring environmental concerns (and marketing issues relating to the environment). In many Member States, catalogues have been published since the early 1990s showing specific examples of year-on-year improvements. Under the Essential Requirements in the Directive, packaging weight and volume is to be minimised to the amount necessary for functional purposes. Legislation implementing the Essential Requirements came into force in France in October 1998 and in the UK at the beginning of The other EU-15 Member States have transposed the Essential Requirements provisions of the Directive but have not yet set up an enforcement regime, and even in France and the UK it is unlikely that reduction measures specifically attributable to the Directive would have worked through to the market before The CEN standard on prevention by source reduction (EN 13428:2000) provides companies with a methodology for a systematic evaluation of their packaging reduction opportunities, but this is also unlikely to have worked through to the market before mid-2001 at the earliest. Two small-scale surveys (by Perchards for the UK Government 21 and by FFact for EUROPEN 22 ) have indicated that companies have usually chosen to implement packaging reduction systems Community-wide rather than adopting special procedures for their sales into France and the UK. Nevertheless, we believe that these benefits of the Directive would not have had a significant effect on the EU market until after our 2001 cut-off date so we have not factored them into our scenarios. Legislation in Belgium and Spain requires companies or product sectors to publish packaging prevention plans. The first Dutch Covenant (but not the current Covenant III) also required plans to be developed. The impact of these plans has been evaluated by Pira International and Ecolas for the parallel study commissioned by DG Environment. The other question is whether the Directive has led to substitution of one packaging material for another. Where recovery organisation licence fees for easily collected and readily recyclable materials such as glass and corrugated board are much lower than the fees charged on lightweight packaging, substitution is likely to occur. However, this effect is likely to be strongest in the countries with the highest recycling targets, which are also the countries that would have adopted legislation even in the absence of a Directive. Therefore, we have not factored into our scenarios any substitution effects resulting from prevention measures. We have however considered in Scenario 3 the implications for the overall market for each material of a hypothetical major intervention in the beverage containers market in Ireland and Portugal. 20 Though PIRA and Ecolas 2004 have identified an interesting correlation between enforcement of the Essential Requirements in France and the UK and a decoupling of GDP from packaging waste generation [report Annex 7]. This decoupling is comparable with that in Belgium and Spain, where the requirement to develop prevention plans appears to have had broadly similar effects, and is greater than for EU-15 as a whole. 21 Perchards: Impacts of the Packaging (Essential Requirements) Regulations a brief survey, Department of Trade and Industry, October FFact Management Consultants: Compliance with the Packaging and Packaging Waste Directive s Essential Requirements for Source Reduction a survey of best practices of EUROPEN member companies, EUROPEN, December 2003.

62 ECONOMIC IMPACTS Introduction To assess the impacts of implementation of the Packaging Directive on the Internal Market, the costs and benefits of implementation must first be assessed from an economic perspective. This section of the report attempts a quantitative assessment as far as this is possible. In subsequent chapters this assessment will be used as the basis for a further analysis focusing on the Internal Market aspects, and in particular of national measures taken independently of the Directive as well as of differences in national measures to implement the Directive. In section a description was given of the different scenarios and the impact of the Directive in terms of achieving recycling targets and in reduction of disposal. Three scenarios were considered: Scenario 1 the situation as reported; Scenario 2 pre-existing legislation but no new legislation; Scenario 3 pre-existing legislation plus the legislation in those Member States that opted to set stricter targets than those in the Directive. The outcome of these scenarios will be used to evaluate the economic impact of the Directive. Pira and Ecolas 2005 used the same scenarios in their study on the impact of the Directive. For that reason we use the same methodology and basic data for our assessments in this study. A more detailed description of the methodology and results can be found in Pira and Ecolas The main aspects of this work are summarised in Annex B. Here only a limited description and presentation of the main findings of that study are given Methodology and results The methodology for this assessment is based on the Handbook for (Extended) Impact Assessment in the Commission used to assess the impact of proposed measures. The methodology had to be reinterpreted to be able to use it for an ex post evaluation in this study. The aim was not to make exact calculations of costs, but rather to estimate the magnitude of the costs, and it is in that respect not a fully-fledged cost-benefit analysis. The following terms are used: Private costs These are the costs incurred by a particular sector or group (e.g. packaging manufacturers, waste collectors or businesses specialising in waste management) because of the Directive. Social costs These are the costs of the Directive to society as a whole. Incremental impacts Only the additional impacts that are directly attributable to the Directive (i.e. the incremental impacts) are considered, as opposed to changes that would have occurred anyway. This is ensured by using the baseline scenario as described in section

63 35 To assess the direct costs and benefits of packaging recycling, the following three types of costs need to be distinguished: The gross costs of packaging recycling (all costs from the moment a packaging becomes waste to the moment when, after recycling, it becomes a recycled product) ; The financing need (the gross costs minus the revenue from the sale of secondary raw materials) i.e. the funds that need to be injected into the market in order to render recycling economic, in other words, to make recycling happen. This is the relevant cost from the point of view of the recycling chain. The net costs for society (the financing need minus the saved disposal costs). Depending on the material and the circumstances, recycling may be cheaper or more expensive than disposal this is the relevant cost from the point of view of society. Table 19 shows the results of calculating the incremental costs of meeting the Directive s recycling and recovery targets. These results were calculated by extracting the total financing need of Scenario 2 from the financing needs of the reported recycling and recovery rates as achieved by implementing the Directive in Scenario 1. The incremental costs based upon Scenario 3 have not been calculated. Since the recycling and recovery rates under Scenario 3 are even closer to those in Scenario 1, the outcome would be a lower estimate of the incremental costs. Table 19: TOTAL FINANCING NEED FOR PACKAGING WASTE MANAGEMENT FOR EU Scenario 1 Amounts as reported Scenario 2 Pre-existing legislation Incremental cost : Costs of Packaging Directive Pre-existing legislation bn. euros/year % of Costs Scenario 1 100% 100% 100% 100% 100% bn. euros/year % of Costs Packaging Directive 99% 99% 97% 97% 97% bn. euros/year % of Costs Packaging Directive 0.8% 0.7% 2.7% 2.8% 3.3% The incremental costs increase from 50 million in 1997 to 227 million in The percentages relate to the costs of implementing the Directive. This shows that the incremental costs of meeting the Directive s recycling and recovery targets are quite limited. A calculation based upon Scenario 3 would provide an even lower estimate. To calculate the net costs for society, one would need to compare the actual costs of recovery and recycling with the costs in a scenario with no recovery. We concluded that a zero recovery scenario was not very relevant because it is purely theoretical, since a number of Member States were already regulating packaging before the Directive came into effect. In fact the estimates in section demonstrate that the baseline scenario is quite close to the recovery and recycling rates as achieved by the Directive. Pira and Ecolas 2005 estimated the additional costs of achieving the targets of the Directive compared with a scenario with no recovery at all. These additional costs were calculated as 0.27 bn in 1997, rising to 0.61 bn in However, only the costs indicated in Table 19 above can be attributed to implementation of the Directive. The full calculation of the costs for society as presented by Pira and Ecolas are shown in Annex B. 23 In real prices 1998.

64 Distributional consequences Pira and Ecolas 2005 made an attempt to quantify the costs and benefits for different groups in society. This is relevant because even if the Directive has incurred costs for society as a whole, it may have had positive or negative impacts on different groups in society. Table 20 on the next page summarises the groups considered relevant in this context and offers a qualitative description of the impacts on these groups. Pira and Ecolas 2005 does not quantify these distributional consequences. Such quantification is extremely difficult: The various compliance systems in the Member States differ considerably in the type of costs included into their fee structure. Therefore, these costs cannot be compared to provide a quantitative overview for the Community. Empirical data exist only for a limited number of Member States to allow costs to be broken down for these various groups in society. There is a lack of empirical data on the impact of the shift from public financing to private financing or the impact of higher packaging prices on consumer purchasing. As the incremental costs of implementing the Directive are estimated to be rather limited, no large changes in consumption patterns are to be expected. Our study does not attempt to take this analysis further, as we do not believe that such an exercise would provide meaningful results.

65 37 Table 20: OVERVIEW OF COSTS AND BENEFITS TO PARTICULAR SECTORS COSTS AND BENEFITS AMOUNT IN 1998 (BN. EURO) PACKAGING MANUFACTURERS (1) PACKAGING RECYCLING INDUSTRY RAW MATERIAL PRODUCERS CLASSICAL WASTE TREATMENT INDUSTRY PACKAGING CHAIN OR PACKERS/FILLERS/ IMPORTERS (2) PRIVATE HOUSEHOLDS MUNICIPALITIES Financing need for packaging recycling 3.1 Bear cost for x% Benefit Gross costs of packaging recycling 4.4 Cost (profit excluded) Revenue from the sale of secondary raw Benefit Cost materials Total financing need for incineration with energy recovery Total financing need for disposal of remaining packaging waste 0.5 Bear cost for x% Cost (profit excluded) Bear cost for y%? Bear cost for y% 2.7 Cost (profit excluded) Revenue from incineration with energy 0.5 Benefit recovery Revenue from the sale of the recovered N/A Benefit energy Revenue from disposal of remaining packaging waste 2.7 Revenues from sales of virgin materials 1.3 Benefit (plus profit) Revenues from packaging sales N/A Benefit Revenues from sales of products Bear cost for y% Benefit Bear cost for z% Bear cost for z% Bear cost for z % Bear cost for w% (3) Bear cost for w% (3) Bear cost for w% (3) (1) Packaging manufacturers : (in most countries) contribute to the recovery cost by paying a fee or tax for putting a pack on the market (2) Packaging chain or Packers/fillers/importers (depending on the country) (3) In many countries the municipalities are responsible for the (separate) collection of waste fractions The one aspect that we have looked into in more depth is the redistribution of costs for collection and waste management from municipal authorities to industry as a result of the introduction of producer responsibility schemes in most of the Member States. National packaging recovery organisations have taken over responsibility for the separate collection of used packaging from households or else provide financial compensation for additional collection activities by the municipalities. These organisations are financed by industry through fees paid to them which are based on the amount of packaging placed on the market. In most Member States, the brandholder has the largest part of the financial burden, but not all Member States allocate responsibility for funding funds in the same way. For that reason, and because of uncertainties in the data, we do not think it is possible to attribute the redistribution of costs to the different type of actors within industry. Even an estimate of the total amount of the costs to industry provides only a fairly rough indication. It is estimated that in the current situation industry bears approximately 65% of the cost for recovery of packaging in the EU. This would mean approximately 2.8 bn in These costs would have been borne by the municipalities if, in the absence of the recovery organisations, Member States had

66 38 had to put in place similar collection systems run by the municipalities. Under normal market conditions, the costs for industry are incorporated in the price of the product, whereas the costs for municipalities would be covered by taxes. Our estimate of the shift of costs is based upon the following assumptions. In principle, the municipalities bear the cost for collection and management of packaging in residual waste from households. 24 Recovery organisations do not interfere there. Industry bears the cost for collection and management of packaging waste from sources other than households. The only redistribution of costs is for the separate collection and recovery of packaging waste from households. In the absence of the recovery organisations, this would have been financed by the municipal authorities through taxes or levies. The total costs for recycling are estimated to be 3.7 bn. It is assumed that the costs of collecting and sorting packaging waste from businesses can be financed by the revenues from the collected material. Therefore, the total costs of recovery are attributable to the costs for collection, sorting and recovery of household waste. 25 To estimate industry s share of the financing of these costs, two calculations were made: An estimate per Member State of those costs of separate collection and recovery of used packaging from households borne by the recovery organisation. These vary from 1%-2% in Denmark and the Netherlands to 100% in Germany and Austria. It was estimated that on average, 65% of these costs would be financed by the recovery organisations. Thus the costs range from approximately 2.4 bn in 1998 to 2.8 bn in The annual combined expenditure of the recovery organisations, which varies from some 2.8 bn in 1998 to 3.0 bn in Not all of this expenditure is dedicated to the collection and recovery of household packaging; the administrative tasks of collecting the fees and monitoring the amounts of packaging placed on the market are also included, as are the overhead costs of the recovery organisations themselves. It is estimated that the costs of managing the packaging waste are approximately 90% of the expenditure of the organisations, i.e. from around 2.5 bn in 1998 to 2.8 bn in These two calculations come quite close. It should however be kept in mind that the expenditure of the recovery organisations does not include obligated companies internal administrative costs. These are impossible to quantify, but in many cases will have been quite considerable. The cost to a major multinational of employing one or two extra people per country will not be significant, and a small company with a simple product range may not have incurred much cost; but for a medium-sized company producing goods in a variety of packaging formats or importing them from outside the Community, the burden may have been substantial. This also suggests that the foregoing calculations underestimate the total costs for industry and hence the total costs of implementation of the Directive. 24 We are not aware of any detailed arrangements that might have been negotiated for funding by industry of that proportion of household packaging waste that ends up in the residual municipal waste collection system. 25 In reality, the situation is slightly more complex than this. Small end-users will pay to have their backdoor packaging waste taken away, but larger end-users will usually be able to sell the material, and use the proceeds to defray their household packaging waste management costs.

67 39 Table 21: PUBLIC/PRIVATE SECTOR SHARES OF COLLECTION AND SORTING COSTS FOR HOUSEHOLD PACKAGING, 2001 Recovery organisations Municipalities Rationale for rate of municipal financing Austria 100% 0% ARA covers full cost of collection and sorting of household packaging Belgium 100% 0% FOST Plus covers full cost of collection and sorting of household packaging Denmark 2% 98% Municipalities set up the system, no compliance scheme but nonrefillable beverage containers supported through the deposit system 26 Finland 7% 93% Municipalities cover collection costs, PYR pays some sorting costs but only up to a 61% recycling rate. PYR concentrates on non-household packaging 27 France 65% 35% Eco-Emballages only covers additional costs of collection and sorting Germany 100% 0% DSD covers all costs of collection and sorting Greece 0% 100% HERRCO was not yet operational in 2001 Ireland 25% 75% Repak has focused more on non-household packaging, but is giving increasing support to municipalities Italy 65% 35% CONAI covers most costs but not all Luxembourg 75% 25% Valorlux only covers additional costs of collection and sorting Netherlands 1% 99% SVM-Pact does not contribute significantly to the costs of collection or recycling. EcoVerpakkingen provided some support for recovery of beverage cartons and recently for glass recycling and plastic bottle collection, as well as anti-litter activities Portugal 65% 35% SPV only covers additional costs of collection and sorting Spain 65% 35% Ecoembes only covers additional costs of collection and sorting Sweden 95% 5% Repa covers almost all costs UK 7% 93% In principle, producers cover all costs of meeting the targets, but the main focus has been non-household packaging (only 35% of household packaging recycled 2001). PRN revenues provide some support for household packaging waste management 26 We have assumed that beverage containers represent 20% of all packaging, but as the market share of nonrefillables is only 4%, this is less than 1% of the total. Since the cost of the deposit system is high, we assume that the producers contribution is 2% of the total cost. 27 We have assumed a 5% contribution for non-beverage costs plus a further 2% through the beverage container deposit system.

68 40 Table 22: USED PACKAGING RECOVERY TONNAGES FUNDED BY PRODUCERS Total tonnage of used packaging recovered Producers share of used packaging recovery Austria 735, , , , , , , , , ,500 Belgium 765, , , ,230 1,076, , , , ,230 1,076,374 Denmark 758, , , , ,070 15,179 14,835 15,522 15,539 15,601 Finland 225, , , , ,000 15,771 16,464 18,585 18,606 19,880 France 5,523,000 5,960,000 6,239,000 6,449,000 6,579,000 3,589,950 3,874,000 4,055,350 4,191,850 4,276,350 Germany 9,756,100 10,033,900 10,257,900 10,491,600 10,419,800 9,756,100 10,033,900 10,257,900 10,491,600 10,419,800 Greece 263, , , , , Ireland 83,532 86,651 97, , ,333 20,883 21,663 24,304 30,988 44,833 Italy 2,331,100 2,778,940 3,168,640 3,882,500 4,354,800 1,515,215 1,806,311 2,059,616 2,523,625 2,830,620 Luxembourg 29,426 32,461 31,338 36,081 44,921 22,070 24,346 23,504 27,061 33,691 Netherlands 2,130,000 2,126,000 2,211,000 2,142,000 1,655,000 21,300 21,260 22,110 21,420 16,550 Portugal 272, , , , , , , , , ,771 Spain 2,164,460 2,332,220 2,477,971 2,768,474 2,959,137 1,406,899 1,515,943 1,610,681 1,799,508 1,923,439 Sweden 601, , , , , , , , , ,774 UK 2,654,870 3,168,705 3,649,239 3,870,736 3,888, , , , , ,180 EU 15 28,294,265 30,568,320 32,277,120 34,098,744 34,580,323 18,797,969 20,183,663 20,982,331 22,154,727 22,720,364 Producers share of total recovery 66.4% 66.0% 65.0% 65.0% 65.7% Total recovery costs ( million) 3,655 3,850 4,070 4,250 Costs borne by industry ( million) 2,413 2,053 2,644 2,792

69 41 Table 23: EXPENSES OF THE RECOVERY ORGANISATIONS millions Remarks Austria ARA also covers non household packaging ( +/- 40% of total amount managed by ARA) Belgium Denmark No recovery organisation Finland n/a n/a n/a n/a n/a n/a France n/a Germany Greece Ireland Financing need, not expenditure Italy n/a Revenues, not expenses Luxembourg Netherlands Costs related to packaging waste recovery are negligible Portugal n/a n/a n/a n/a Revenues, not expenses Spain /na Sweden UK PRN and PERN revenues, not expenses of the compliance schemes 90% of organisation costs 2,544 2,509 2,602 2,652 2,757 Source: Pira International and Ecolas SVM-Pact (Netherlands data) DEFRA (UK data)

70 THE IMPACTS OF CROSS-BORDER SHOPPING Introduction Development of the EU Single Market has facilitated not only business-to-business trade but also personal shopping in neighbouring countries. This occurs when short, low-cost travel is possible between countries with large retail price differentials. In recent years it has become popular for EU citizens to purchase goods in neighbouring countries, either on special shopping trips or in the course of leisure or business trips. Commercial parallel imports have also increased. Cross-border commercial trade and personal shopping has been facilitated by easier border controls and fewer restrictions on personal imports, through increased car ownership and the increased availability of public transport links that are becoming more and more affordable. 28 By its nature, it is hard to quantify cross-border shopping, and there is no systematic statistical recording of it. However, a proportion of these purchases are made in specialist border retail outlets and in duty free outlets, such as those on ferries. The option for economic operators and consumers to seek out cheaper products in neighbouring Member States can be seen as a benefit of the Internal Market. This trade results in increased competition and lower consumer prices. However, it also gives rise to increased transport movements and increases the likelihood of tax avoidance and non-compliance with producer responsibility requirements. Regardless of one s view of cross-border trade, it is certain that this type of informal trade is a fact of life. The expansion of the EU from 15 to 25 countries has given rise to an open market for trade between Member States with very different price and income levels. We therefore expect that cross-border personal shopping and grey imports will continue to grow, which will create new problems for packaging recovery and return systems based on national financing. These systems must accommodate the packaging arising from these imports. Differences in taxation are the most important cause of price differentials between Member States at a similar level of economic development, and for this reason, personal imports of alcoholic drinks and cigarettes are particularly significant. For example, data from the Danish Brewers Federation indicates that personal imports of beer from Germany into Denmark are increasing steadily. In 1991, it was estimated that 54 million litres of beer were imported, 29 rising to 96 million litres in 1999, and 154 million in In 2004, private imports of beer into Finland amounted to 53.7 million litres, 30 about 10 litres per capita. This represented 13% of domestic sales and was double the volume of 2003 imports. Personal import quotas had been abolished on 1 January An estimated 90% of the beer was in cans, and about 60% of the private imports were re-imports of Finnish beer, a share which is declining as the packaging and marketing of Estonian beer improves. 28 EU citizens are permitted to import as much as they wish provided it is for personal use. Guidance from UK Customs for example says that more than 3,200 cigarettes, 110 litres of beer or 90 litres of wine is considered suspicious (source: The Independent, 9 October 2004). Given that this quantity can be imported on each visit and clearly there is no limit to the number of visits, these quantities are significant Source: Institut for Grænseregionsforskning. TNS Gallup study commissioned by the Federation of the Finnish Brewing and Soft Drinks Industry.

71 43 Private imports of other alcoholic beverages are significant too. Private imports of strong spirits tripled in 2004 to 15.9 million litres. Those of long drinks and ciders equalled 19% and 15% respectively of domestic sales Impact of taxes and excise duties on retail prices Finland and Estonia Average retail prices of all alcoholic beverages in Finland were more than double those in Estonia in 2003 (and 3 times higher in the case of tobacco products). The difference is largely explained by excise tax levels, which in 2005 are still 4-5 times higher in Finland than in Estonia. Table 24: RELATIVE PRICE LEVELS IN ESTONIA AND NEIGHBOURING COUNTRIES (2003) % more (- less) expensive than in Estonia Overall survey Food products N.E.C. Alcoholic beverages Tobacco Finland 100% 76% 103% 215% Sweden 95% 74% 71% 226% Norway 165% 58% 181% 495% Latvia -8% -13% 4% -26% Derived from Eurostat, Statistics in Focus, Eating, drinking, smoking comparative price levels in EU, EFTA and Candidate Countries for 2003 On 1 March 2004, in an attempt to curb private imports, Finland reduced its excise tax on beer by 32%, on spirits by 44% and on wine by 3%. Despite the tax reduction and Estonia s decision in July 2004 to restrict the opening hours of alcohol retailers, the Finnish Statistics office estimated in August 2004 that private imports were 2-3 times higher than in In January 2005 Estonia raised its excise duty on spirits by 5%, excepting wine and fermented beverages. The increase will be repeated in 2006 and However, this will not narrow the retail price gap between the countries by much. The alignment of excise levels cannot be done abruptly. A sudden increase in Estonia could encourage the black market and smuggling of alcohol from Russia and the Ukraine. A reduction in the excise tax in Finland could encourage an increase in personal imports from Sweden (so needs to take account of Swedish tax levels) and would increase alcohol consumption, which is contrary to health policy. Table 25: EXAMPLES OF RETAIL PRICES IN FINLAND AND ESTONIA BEER: 0.33 litre, 5% vol. FINLAND ESTONIA Before After 1 March 1 March VODKA: 1 litre, 40 % vol. FINLAND ESTONIA Before After 1 March 1 March Excise Tax Retail & Manufact. VAT Retail Price ( ) % 100% 61% 167% 100% 42% Belgium, France, Luxembourg and the Netherlands Section describes the impact of the Belgian eco-tax on non-refillable beverage containers, which was already heavy when introduced in 2004 and was increased still further in January The aim of the tax was to bring about a price difference between refillable and non-refillable containers large enough to have a dissuasive effect comparable to that of deposits, but in practice the fillers and/or

72 44 retailers have moderated this effect by reallocating or partially absorbing the tax burden so as to reduce the price differential. Cross-border shopping is easy for Belgian consumers, and one unintended consequence of the tax has been a loss of beverage sales in Belgium in favour of personal imports from shops just over the border in France and Luxembourg. The Belgian food industry association FIEB/VIWF commissioned market research company IRB europe to survey Belgian shoppers in six supermarkets just over the border in France, the Netherlands and Luxembourg, to find out the reasons for their going to these stores. As Figure 8 shows, almost all the shoppers sampled cited the purchase of soft drinks and water as one of the main reasons for their visit: Figure 8: Reasons for cross-border shopping by Belgian consumers 100% 80% 60% 40% 20% 0% Auchan Roncq (F) Auchan Leers (F) Auchan Pte Forêt (F) Pall Center (Lux) C 1000 (NL) Albert Heijn (NL) Soft drinks/water Wine Dairy Other food Textiles & shoes We understand that the Belgian authorities have recognised that the current level of eco-tax is causing problems, and have decided to reduce it to the 2004 rate with effect from 1 July Impact of cross-border shopping on deposit systems The number of beverage cans that end up in a deposit system of a different country from that in which they were purchased may be sufficient to affect the return rates achieved. It also distorts funding arrangements. These issues, and the solutions which have been attempted, are discussed in section Impact of cross-border shopping on recovery and recycling Impact on the importing country The waste management costs arising from personal imports occur in the country of destination, but the corresponding taxes or fees are charged in the country of origin. Hence personal imports increase per unit fees or taxes placed on the market in the country of destination and reduce them in the country of origin.

73 45 For instance, one effect of cross-border shopping to avoid the Belgian eco-tax (see section above) is that the Belgian recovery organisation FOST Plus is getting the used packaging in its bins but is not receiving fees from producers to pay for the management of this material Impact on the originating country There is also a potential drawback for the originating country. If a significant proportion of the packaged goods recorded as having been placed on the market actually leaves the country through personal export before it arises as waste, the waste management targets set by the Directive might not be achievable, or at least might be very difficult to achieve. This can have a significant impact on particular product sectors even in large countries the British alcoholic drinks sector asked for the Calais effect of personal imports from France to be taken into account in the UK data calculations, and the French authorities make an allowance for packaged products intended for sale to personal shoppers from England 31 but the effect on small countries is potentially much greater. A significant share of private exports will render the calculation of recycling rates for the purpose of the Packaging Directive more difficult, as the simplifying assumption that the amount of packaging put on the market is equal to the amount of packaging waste generation will no longer be true. For example, Estonia would have to recycle 102% of glass waste generated if it were to calculate its recycling rate on the basis of packaging put on its national market. 32 Table 26: RECYCLING TONNAGES REQUIRED TO MEET ESTONIA S 2012 TARGETS 33 (tonnes) Glass Metal Domestic Packaging Waste (2001) Packaging of Private Exports (2004) Total Packaging put on market Minimum recycling target % 50% Minimum recycling tonnage if target calculated on the basis of packaging put on market Actual Recycling Rate (domestically collected packaging / total packaging put on market) 102% 51% To overcome this problem, Estonia will either have to estimate the amount of packaging exported through personal export and deduct that from the reported amounts of packaging placed on the market (the British and French approach), or 31 Source : ADEME, La valorisation des emballages en France Directive 94/62/CE relative aux emballages et aux déchets d emballages Base de données. 32 Private exports of metal cans seem to have only a very small impact on the metals recycling rate. 33 For simplicity s sake, we assumed that all private exports of beer are in 0.33 litre cans with an average weight of 15g and that all other alcoholic beverages are in glass 0.7 litre bottles with a weight of 300g. Based on the estimated exports in 2004 (50 million litres of beer and 40 million litres of other alcoholic beverages), this suggests that personal exports were responsible for 250 tonnes of metal packaging and about 17,000 tonnes of glass packaging. For the packaging waste generation data we use the data submitted by Estonia during the technical consultations on revision of the Directive. 34 Data based on Estonia s submissions during technical consultations on the revision of the Packaging and Packaging Waste Directive.

74 46 base its estimated recycling rates on the amount of packaging waste arising in Estonia rather than the amount placed on the market (which is the Irish approach to data collection). The latter option, which is the one we believe Estonia is adopting, depends on the availability of reliable data on waste arisings and on the selection of realistic adjustment factors to take account of the presence of moisture and contamination in collected waste Cross-border shopping elsewhere in the Community Appendix C identifies other Member States where there is a strong incentive for personal imports of certain products.

75 47 3. MARKET ACCESS ISSUES 3.1 THE ESSENTIAL REQUIREMENTS AND THE CEN STANDARDS Background Article 9 of Directive 94/62 says that Member States shall ensure that from January 1998 packaging may be placed on the market only if it complies with all Essential Requirements defined in Annex II of the Directive. Article 18 adds that Member States shall not impede the placing on the market of packaging which complies with the Directive. No conformity assessment procedure has been laid down: in November 1996 the Commission did issue a proposal for a Directive on Marking and Conformity Assessment, 35 but this was not proceeded with. The European Parliament s rejected the marking proposals at First Reading in February 1999, and the Council did no further work on the proposal before that, apparently having no interest in either the marking or the conformity assessment provisions. The Commission formally withdrew the proposal on 1 October Article 10 of the Directive called upon the Commission to promote the preparation of European standards relating to the Essential Requirements. Use of these standards is voluntary, and companies are free to find alternative ways of satisfying the enforcement authorities that their packaging complies with the Essential Requirements, but adherence to the standards does in principle offer companies a straightforward means of ensuring that their packaging is guaranteed market access throughout the Community. Article 9 of the Directive requires Member States to presume that packaging produced in accordance with the relevant harmonised European standards, the reference numbers of which have been published in the Official Journal of the EU, is in compliance with the Essential Requirements. In March 1996 the Commission issued a Mandate to CEN, the European Committee for Standardization, to draw up a series of standards intended to give presumption of conformity and other supporting standards and reports. Drafting of the principal standards was completed by mid-1998, and they were submitted to the somewhat lengthy consultation process necessary to ensure consensus. The standards were finally adopted in The principal standards secured very strong support from the national standards bodies, but some national governments, and also DG Environment, were not convinced that they would be a viable enforcement tool. The standards were based on a management systems approach, and do not allow a 35 Proposal for a European Parliament and Council Directive on marking of packaging and on the establishment of a conformity assessment procedure for packaging, COM(96) 191 final (OJ No. C382, ).

76 48 pass-fail test to be applied to individual packs. 36 In particular, the standards do not provide any objective criteria for measuring packaging prevention or reduction. In consequence, two Member States invoked the safeguard clause, and the Commission eventually decided not to publish the references to the full set of standards. 37 The reference to the standard EN 13432:2000 (Packaging recoverable through composting and biodegradation) was published without qualification, and the reference to EN 13428:2000 (Prevention by source reduction) was published with a warning that it did not cover that part of the Essential Requirements which relates to the minimisation of the presence of noxious and other hazardous substances and materials in packaging. The references to standards EN 13429:2000 (Reusable packaging), EN 13430:2000 (Packaging recoverable by material recovery) and EN 13431:2000 (Packaging recoverable in the form of energy recovery) were not published at all. The January 1998 deadline for non-compliant packaging to be excluded from the market was fast approaching when the Commission s Mandate was accepted, and it is undeniable that the standards were prepared in some haste and were capable of improvement. Remarkably, though, acceptance of the quantitative prevention provisions of EN 13428:2000 meant that the principle of the management systems approach, the source of most of the objections to the standards, was accepted. Thus when in 2001 the Commission issued a mandate to CEN to revise the standards, the basic philosophy underlying these texts was left unchanged. The revised standards were adopted in mid-2004, and the Commission published the full set of references in the Official Journal on 19 February Enforcement of the Essential Requirements All Member States have duly transposed the Essential Requirements into their national legislation, but only three France, and UK and more recently the Czech Republic have put an enforcement mechanism in place. Member States are free to decide for themselves how they ensure compliance with the Essential Requirements, but the French and UK authorities have recommended close adherence to the CEN standards and Czech law currently provides for no alternative means of compliance. 36 The standards do contain a few pass/fail criteria. For instance, packaging fails the reuse standard unless the producer can ensure not only that the packaging is capable of being reused, but also that a reuse system is available in the markets where the pack is used; the material recycling standard lays down various procedures which must be followed before the pack can be assessed as recyclable; the energy recovery standard defines certain types of packaging as recoverable in the form of energy as these packs are known to provide calorific gain other types pass the standard only if calorific gain can be determined by calculation using the methodology laid down in the standard; the organic recovery standard lays down criteria for packaging to be regarded as organically recoverable which relate not only to the biodegradability of the materials but also to the absence of negative effects on the biological waste treatment process and on the quality of the resultant compost. However it is true that the issue that has received most attention, the avoidance of over-packaging, can only be tested by ensuring that the producer has set up and operated a system to ensure that he asks himself all the right questions and that he has documented the answers. 37 Commission Decision 2001/524/EC of 28 June 2001 relating to the publication of references for standards EN13428:2000, EN13429:2000, EN13430:2000, EN13431:2000 and EN13432:2000 in the Official Journal of the European Communities in connection with Directive 94/62/EC on packaging and packaging waste (OJ No. L190, ). 38 Commission communication in the framework of the implementation of the European Parliament and Council Directive 94/62/EC of 20 December 1994 on packaging and packaging waste, OJ No. C44,

77 49 The reluctance of the other Member States to comply with this obligation may be attributed to a belief that the Essential Requirements as currently drafted are unenforceable. The Commission s decision not to publish most of the references in 2000 and a vigorous campaign against the standards by certain NGOs 39 will undoubtedly have helped discredit the CEN approach as a viable solution, and no others are on the table. 40 The enforcement authorities can however verify compliance with the Prevention Standard by asking the producer to demonstrate the steps that have been taken to identify the critical area that prevents further source reduction. 41 If this cannot be done, the packaging fails the standard. So far there have been three successful prosecutions, all in the UK. The first two offenders were prosecuted under both the Trade Descriptions Act and the Essential Requirements Regulations, i.e. the packaging was deceptive as well as excessive, though in the second case the magistrates said they thought the Essential Requirements offence was the more serious. 42 In the most recent case, a mail order supplier was prosecuted under the Essential Requirements Regulations for sending out office supplies in excessively large corrugated cases one of the items filled only 7% of the packaging used, and the others 19% and 29% respectively. At a workshop on enforcement of the Essential Requirements which CEN organised early in 2000, officials were asked how products are selected for testing. The British officials explained that this was done by a mixture of specific complaints received; routine inspections for compliance with this and other legislation; and specific sampling projects based on trade sectors, taking account of which types of pack have the largest impact on waste. The French officials responded similarly some inspections were part of overall company controls and others are targeted, with special attention to large quantities. So companies are at particular risk if ordinary consumers see what they regard as excessive packaging and feel strongly enough about it to make a complaint. Up to now, however, it has been possible to resolve all the cases that have arisen in France without the need for action in the courts. British and French officials have made it clear that the real aim is not to notch up successful prosecutions but to encourage a change in company culture to bring about packaging minimisation. Prosecutions of particularly flagrant abuses will certainly help improve awareness of the legislation, but the real measure of success is how well companies are respecting the Essential Requirements. 39 CEN At Work: How the requirements of the European Packaging and Packaging Waste Directive (94/62) are bypassed by CEN standards, European Environmental Bureau, September Packaging minimisation is a part of the Dutch Covenant, but this too contains no pass-fail procedures. In Belgium and Spain, there is a legal requirement to prepare and submit packaging prevention plans, but like the CEN approach, this is a way of getting companies to think systematically about the issue rather than a mechanism to aid enforcement of the Essential Requirements. 41 The source reduction standard requires the producer to examine each of the ten listed performance criteria and identify the critical area which governs the achievable limit for source reduction. If no critical area has been identified, there may be scope for further source reduction. If tests show that further source reduction will result in an unacceptable increase in the packaging failure rate, the critical point has already been reached. An unacceptable failure rate must be a matter of commercial judgement it may be different for a high-value packaged product than for a low-value item, and for products where leakage could endanger people or property and this judgement must be shared between the producer, the customer and possibly the end-user. 42 The first case related to a tin of mushroom powder with a false bottom; the second concerned a butcher who was placing an upturned polystyrene tray inside a slightly larger PS tray and then packaging meat on top. The packs appeared to contain more meat than they did, and the upturned tray was totally unnecessary.

78 Possible trade barriers arising from different legal obligations France and the UK In the absence of a harmonised compliance assessment procedure, there is in theory a danger that Member States might take different views on the legal acceptability of a particular pack. It might be allowed on the market in one country, and banned in another. With an enforcement mechanism in place in only three Member States, and with enforcement being carried out with a very light touch, this danger has been much reduced. Even so, France and the UK have allocated legal responsibility for fulfilling the Essential Requirements to different stages of the supply chain. In France, responsibility falls on the packaging supplier and in the UK, on the packer/filler. This has not caused any practical problems for producers, for in reality responsibility has to be shared. The CEN umbrella standard (EN 13427:2004) which sets out how the set of packaging standards is to be used, stresses that producers need to co-operate up and down the chain. Component suppliers can provide information on minimisation of heavy metals and dangerous substances and packaging suppliers on the level of recoverability of the functional unit, while prevention by source reduction can only be assessed on the whole packaging system, which will usually be by the packer/filler. Another issue relates to how the enforcement authorities deal with imports. LACORS 43 has offered the following guidance on when packaging falls or does not fall under UK jurisdiction. It concludes (subject to any possible future court ruling to the contrary) that the relevant control regime is determined by the location at which packed or filled packaging is first placed on the market: Where this is in the UK, this means that the appropriate controls are the Packaging (Essential Requirements) Regulations Compliance with these controls also ensures compliance with equivalent legislation in other EEA countries, so free movement across these countries should not be prevented. Where packed or filled packaging is imported into the UK from outside the EEA and the UK is the first point of placing on the market, the position is the same as above. However, where the imported packed or filled packaging has previously been placed on the market in another EEA country it would have had to comply with the relevant Essential Requirements legislation in that country. The point of first placing on the market can be understood as the point where packaging or filling takes place. LACORS considers that empty packaging imported from another EEA member state for filling and sale in the UK would be controlled by the UK Regulations, as would goods imported for assembly, repackaging or labelling. These ground-rules, which are based on the Commission s Guide to the Implementation of Directives based on the New Approach and Global Approach, mean that the UK authorities will take no action against packaged products imported from another Member State, whether or not an enforcement regime exists in that country. 43 The UK Local Authority Coordinators of Regulatory Services.

79 Czech Republic This was not the case in the Czech Republic until recently. Act No. 477/2001, which transposed the Packaging and Packaging Waste Directive, said that manufacturers and importers may not place packaging or packaged goods on the Czech market unless the packaging conforms with the Essential Requirements. Those placing packaging or packaged goods on the market must prepare a written declaration of compliance for their customers, and this declaration was to be made available to the authorities on request. 44 In practice this was a condition of customs clearance. Before the Czech Republic entered the EU, however, these provisions were amended by Act 94/2004 of 29 January Customs officers are no longer allowed to block the importation of packaging or packaged goods at the frontier if it does not comply with the Essential Requirements they must allow it in, and inform the environmental inspection authorities. The new measure extends the obligation to comply with the Essential Requirements to packaging components, and Czech producers have complained that it is no longer clear whether it is the packaging manufacturer or the packer/filler who is legally responsible for compliance. The discussion above on the conflict between the British and French allocation of legal responsibility suggest that this may not create any problems in practice, but much depends on how the Czech enforcement system operates. A second trade barrier remains. Decree No. 115/2002 on Treatment of Packaging prescribes the European (CEN) standards and reports, and in two cases Czech standards, as the only way of fulfilling some of the legal requirements. 45 Standards are supposed to be voluntary, but Czech law gives producers, including foreign producers exporting to the Czech Republic, no option of finding another way of fulfilling the requirements. However, on 7 April 2005 the Czech authorities notified a draft Act amending Act No. 477/2001, which will bring the provisions relating to the Essential Requirements into line with the Directive. The proposed amendment says that if the packaging for a certain product is produced in accordance 44 An example of such a declaration is given in an annex to the Act this says that the packaging specified has been designed and manufactured in compliance with the effective technical standards, namely the CEN standards EN EN The Decree supports the Packaging Act by prescribing the method of determining the lowest weight and the lowest volume of packaging materials ČSN EN and ČSN EN 13428; the method of determining the concentration of substances on the List of Classified Dangerous Chemical Substances the list is contained in Act No.157/1998 as amended, and the methodology is laid down in ČSN EN 13428; the limit of the sum of the quantity of lead, cadmium, mercury and hexavalent chromium in packaging the limits are as specified in the EC Packaging and Packaging Waste Directive and in Commission Decisions 1999/177/EC and 2001/171/EC, and the methodology is laid down in the technical report ČSN CR ; the method of determining the recoverability of packaging ČSN EN on material recovery, ČSN EN on energy recovery and ČSN EN on organic recovery; the extent and method of marking packaging materials Czech standards ČSN and ČSN ; the requisites of the measures facilitating the re-use of packaging and the method of reusable packaging ČSN EN

80 52 with the harmonised Czech technical standards, the requirements shall be considered to have been satisfied Stakeholder views There are conflicting views among industry as to whether enforcement of the Essential Requirements in only two of the 15 Member States (before May 2004) has put French and UK producers at a competitive disadvantage. Some argue that it has; others say that French and UK producers have had an advantage in that other Member States were not allowed to exclude their products (the only practical significance of this was in the Czech Republic before May 2004). Another view expressed is that enforcement has arguably been an advantage to French and British producers, in that it has encouraged a systematic approach to packaging minimisation which may have helped them identify possible cost savings. EUROPEN notes that Directive 2004/12/EC has revised Article 4 of Directive 94/62/EC, requiring the Commission to present proposals for measures to strengthen and complement the enforcement of the Essential Requirements, and calls for a robust, deeper and wider investigation of this question. For instance, What institution or government agency within each member state is or should be responsible for enforcement of the Essential Requirements? How such an institution or agency is or would be funded to carry out the enforcement? What training has or will be offered to member state officials responsible for this enforcement and who will conduct the training? What is the estimated cost for each member state to enforce the Essential Requirements? What is the estimated benefit that full enforcement of the Essential Requirements legislation would bring? In parallel, EUROPEN calls upon the Commission to carry out a detailed, large-scale study of industry practices, to determine: to what extent the Essential Requirements are being respected, how companies are complying with them, and if companies are not complying, what is the reason. This research should include canvassing the opinion and suggestions of environmental NGOs which have criticised the Essential Requirements. EEB has also asked for a deeper analysis of the impact of the Essential Requirements and of the resources necessary and those available for their proper enforcement. EEB suggests a proper investigation of the enforceability of the CEN standards in relation to the Internal Market and of the consequences of unenforceability. We strongly support these recommendations.

81 The future: Implications of publication of the references Publication of the references to the CEN standards may change things. We understand that the French authorities intend to step up enforcement of the Essential Requirements, and it may be that other Member States will put an enforcement regime in place for the first time. 46 A wider range of legal requirements may generate new conflicts between different sets of national rules. One answer might be for a Directive to be adopted setting out a Conformity Assessment Procedure. It is generally felt within industry that the procedures set out in the Commission s now-abandoned proposal for a Directive on Marking and Conformity Assessment were not really appropriate, as they were taken off-the-peg from modules designed for engineering standards, but it would be perfectly possible to draw up something applicable to the packaging standards on the basis of experience with enforcement up to now. On the other hand, when this was discussed at the responsible CEN committee 47 on 14 April 2005, a majority of the delegations felt that there was no need for this, since the umbrella standard 48 sets out clearly where within the packaging supply chain responsibility should lie for each of the compliance assessments that need to be made. We share the view that there is no proven need for a Conformity Assessment Procedure at this stage. No conflicts between national requirements have arisen as yet, and until they do, we cannot know what it is that needs to be harmonised. This may be an issue in the future, but for the sake of harmonisation we share industry s hopes that national authorities and stakeholder bodies will as far as possible build on what has already been done rather than striking out in any new directions. As the Swedish body Miljöpack has pointed out, different requirements in different countries could place operators in smaller Member States at a competitive disadvantage, since they are often more export-dependent. This, says Miljöpack, underlines the importance of Article 18 of the Directive in ensuring that a pack accepted in one Member State may not be banned in another. 49 To be able to rely on Article 18, a company must be able to show that its packaging complies with requirements in the Member State where it is produced. Miljöpack, together with the Swedish national authority, is working on a compliance certification scheme. This model has already been applied successfully in Sweden in relation to food-contact packaging. A certification scheme would only be needed if there were concrete evidence that the enforcement authorities in some Member States were not prepared to accept the level of enforcement in place in others. If such a problem did arise, the idea that exporters could take the initiative and apply for certification from the authorities in their home country is an attractive one, but Commission officials do not believe that it would be effective. Unlike a Commission Decision, it would not have legal validity at EU level, and without this it would pose a legitimacy problem (who has the right to define an assessment procedure?) and would not add value to existing guides such as that published by EUROPEN. 46 Wider enforcement of the Essential Requirements is not a necessary consequence of publication of the references to the standards, but it is a possibility, since some officials have previously said that the EU framework would not be complete until the standards had been endorsed by the Commission through publication of the references. 47 CEN TC261/SC4. 48 EN 13427:2004, Packaging Requirements for the use of European Standards in the field of packaging and packaging waste. 49 As noted in section above, this principle of mutual recognition is already a part of UK enforcement procedures for the Essential requirements.

82 Impact of the Essential Requirements on producers Existing studies Two studies have been carried out on how companies have been complying with the Essential Requirements. One, 50 commissioned from Perchards by the UK Department of Trade and Industry, examined implementation in the UK by 22 large and medium-sized businesses; the other 51 was commissioned from FFact Management Consultants by EUROPEN, and reviewed implementation across Europe by 17 production units from ten international companies in membership of EUROPEN. Although Perchards and FFact were both involved in the preparation of this report, those two studies were carried out entirely independently of one another. In the FFact survey, 65% of respondents were using the CEN prevention standard or procedures based on it, and 12% were using internal procedures not based on the CEN standard. The Perchards figure was 55%, but in the UK there is also the INCPEN/BRC Responsible Packaging Code, 52 and only 27% were using neither the standard nor the Code. This was remarkably close to the 24% non-users identified by FFact, but all but one of the operations which FFact found not to have assessment compliance procedures were based on countries which did not join the EU until May Further details of the findings of these studies are set out in Annex D. They were both quite small-scale surveys of companies known to be giving serious attention to the Essential Requirements they did not purport to be an analysis of the impact of the Essential Requirements on the market as a whole. Nevertheless, the studies showed how actions permeate through the supply chain. In the UK, companies must show "due diligence". This means that to demonstrate that they have taken all reasonable steps to comply with the Regulations, companies must have an appropriate system of control, operate the system properly, document it, and identify all reasonable steps and take them. Companies must audit suppliers' quality systems and undertake random testing of packaging materials. The French arrangements are similar. Many retailers and packaged goods companies have written to all their suppliers drawing attention to the Essential Requirements and asking for guarantees that all packaging supplied is in conformity with the national legislation in force. Anybody challenged has to prove that their products are in conformity, and the practice is to delegate as much as possible up the supply chain. That means that a distributor would expect its packaged goods suppliers to have obtained all the necessary information on heavy metals minimisation, recyclability and so on from their packaging suppliers, while the packaged goods suppliers themselves demonstrate that the total packaging system has been minimised. Thus commercial pressures reinforce the legal obligations, and Essential Requirements legislation becomes largely self-policing. It could never be certain whether decisions have been made as a direct result of implementation of the Essential Requirements or whether the same decisions would have been made anyway, but 18 of the 22 respondents to the UK study said that application of the procedures had resulted in changes to their packaging. 50 Perchards: Impacts of the Packaging (Essential Requirements) Regulations a brief survey, Department of Trade and Industry, October FFact Management Consultants: Compliance with the Packaging and Packaging Waste Directive s Essential Requirements for Source Reduction a survey of best practices of EUROPEN member companies, EUROPEN, December Responsible Packaging Code of Practice for optimizing packaging and minimising waste, 2 nd edition, INCPEN, March 2003.

83 55 The survey showed that enforcement of the Essential Requirements had encouraged discussions between the enforcement authorities and companies producing or distributing packaged goods. This had been valuable in helping local authorities understand the technical and commercial realities which underlie packaging design, and improving companies understanding of how their packaging is perceived by the outside world Compliance with the Essential Requirements in the context of the Internal Market The FFact study demonstrated that the Essential Requirements are not only having an effect in countries where they are being enforced. Also, Perchards asked respondents whether their method of implementation of the Essential Requirements was specific to the UK or pan-european. Most were operating the same system across Europe, though two distributors and four packer/fillers had systems designed specifically for the UK. Two of the packer/fillers with UK-specific systems were foreignowned. As both consultancies noted, compliance is not confined to Europe. We have received numerous enquiries from US companies seeking guidance on practical interpretation of the Essential Requirements and the CEN standards, and a considerable number from Asia and the Arab world. Visy, the largest packaging company in Australia, uses the CEN standards to help guide packaging design towards more environment-friendly and recyclable outcomes. 53 The CEN standards are becoming de facto world standards. This notwithstanding, it is clear that many European companies, particularly those working at a national level rather than EU-wide, are taking no action to ensure compliance with the Essential Requirements. Two stakeholders commented that industry is not making use of the CEN standards in Germany. PRO Europe and UNESDA/CISDA both stressed the need for clear guidelines at EU level to ensure that there is a harmonised approach to the Essential Requirements in all Member States in order to avoid market distortions and barriers to innovation. The issue of a possible EU-wide guide to implementation of the CEN standards and/or the Essential Requirements has been discussed. We are not convinced that it would be possible to produce an official guide to compliance and enforcement aimed at regulators and industry alike, given the different cultures and structures of legislation and enforcement to be found across the Community, though a detailed handbook has been published by OPTI-PACK, 54 a joint project of the Nordic countries Denmark, Finland, Iceland, Norway and Sweden which was funded by the Nordic Innovation Centre. On the other hand, we do believe that there is value in providing detailed guidance for companies on how to implement the standards, as advice for companies on how to adapt their management systems is generic rather than country-specific. EUROPEN s existing guide 55 has performed a useful service, and we welcome EUROPEN s decision to update this guide in 2005 to take account of industry s practical experience of working with the standards and the issue of the revised CEN standards. 53 The Visy report National Packaging Covenant, Environment and Community 2003/ Process-oriented environmental assessment of packaging regarding compliance with the Essential Requirements of EU Directive 94/62/EC, 2005 (downloadable from 55 The Essential Requirements for packaging in Europe How to Assess Compliance of Packaging with the EU Packaging and Packaging Waste Directive (94/62/EC) with reference to the CEN standards, revised edition January 2003 downloadable from

84 TRADE BARRIERS AND DISTORTIONS OF COMPETITION The notification procedure Article 16(1) of the Directive says that before adopting measures transposing the Directive, Member States shall notify the Commission of drafts of measures which they intend to adopt within the framework of this Directive, excluding measures of a fiscal nature, but including technical specifications linked to fiscal measures which encourage compliance with such technical specifications. These notifications are then processed according to a procedure first laid down in Directive 83/189/EEC and now governed by Directive 98/34/EC. 56 This procedure aims at providing transparency and control by enabling the Commission and the Member States to evaluate the Internal Market implications of national measures while they are still in draft form. There is a mandatory three-month standstill during which time the Member State may not definitively adopt its proposal. If no reaction is forthcoming, the notified draft may be adopted as soon as the three months have expired. If one or more Member States and/or the Commission issue comments on the notified draft, the measure may still be adopted once the three-month standstill is over, but the Member State responsible for the draft must take these comments into account as far as possible when finalising the text. If on the other hand this consultation gives rise to negative comment in the form of a detailed opinion, adoption of the regulatory draft is postponed by a further three months, so that the Member State concerned can amend its text to remedy the defects identified. If a Member State which has already notified a draft measure makes substantial changes to it which render the text more strict as regards scope, timetable or content, it must be renotified. The initial standstill period of three months then starts again Infringement proceedings Measures can also be challenged after they have come into force. Anyone may lodge a complaint with the Commission against a Member State about any national measure or administrative practice which he/she considers incompatible with Community law. However, it is for the Commission to decide whether or not to take further action on a complaint in the light of the Commission s own rules and priorities. When the Commission decides to pursue a complaint, it sends a letter of formal notice setting out the Commission s initial legal assessment of the facts and inviting the Member State to present its response. If the Commission is not satisfied with the response, or if no reply to the letter of formal notice is received, it sends a reasoned opinion expressing the Commission s view that an infringement exists and asking the Member State to remove it within a stated time limit. If the Commission receives no reply to the reasoned opinion from the Member State, or if the reply is unsatisfactory, the Commission will usually refer the case to the European Court of Justice (though it is not obliged to do so). 56 Directive 98/34/EC of the European Parliament and Council of 22 June 1998 laying down a procedure for the provision of information in the field of technical standards and regulations (OJ No. L204, ).

85 57 Findings by the European Court of Justice do not resolve individual cases, but they oblige the Member States concerned to bring their national measures into line with Community law. These are the formal stages of proceedings, but nothing prevents the Commission from negotiating with the Member State throughout the entire infringement procedure. During the stakeholder consultations on this report, EuPC complained that the procedure is too slow, and that this undermines the credibility of the Internal Market, for which legal certainty is essential. We sympathise, but do not agree. Whilst recognising the need to reach a conclusion as quickly as possible, we believe that it is important not to reduce the time allowed for bilateral negotiations aimed at achieving a satisfactory and workable outcome. A Court ruling should be considered as a solution of last resort if negotiation fails Measures subject to infringements and measures amended during the notification procedure Below is a review of the national measures that are being or have been challenged because they are (or were) deemed to give rise to barriers to trade. The review covers both measures that were/are the subject of infringement proceedings (whether or not the cases were referred to the European Court) and measures that were amended during the notification process because of comments or detailed opinions submitted by the Commission and/or other Member States. The review therefore includes both measures that were amended before they took effect because it was anticipated that they could give rise to barriers to trade and those that were challenged after they had taken effect, once evidence was available of trade barriers. Also included are measures that we believe should be considered further, regardless of whether they have been formally challenged. A detailed overview of these cases and the issues concerned, showing the outcome of proceedings or notification, can be found in Annex E. Marking issues are summarised separately, in Annex F. We have also prepared an analysis of how quickly the issues were resolved (the lead-time between introduction of the measure, the initiation/conclusion of proceedings, and removal of the trade barrier or distortion of competition). The cases can be classified into the following categories those where the Directive brought about change in national policy in favour of free movement of goods, those where the case was concluded in the Member State s favour, those where the Directive failed to bring about change in national policy in favour of free movement of goods, those where proceedings still continue. We have also considered fiscal measures which are prima facie a barrier to trade and/or distortion of competition, but where the EU has limited power to intervene.

86 58 In Tables we have classified the issues as follows: In 16 issues (59% of the total), intervention brought about removal of the trade barrier or distortion of competition. In 8 of these 16 issues (50% of the issues in this category), the proposed national measure was amended or abandoned before coming into force. By contrast, the Danish can ban was in force for 25 years for soft drinks and 21 years for beer. Malta has been given an adjustment period of 2½ years to replace its beverage container restrictions The remaining issues were resolved after about 2 years. In 2 issues (7% of the total), the case was resolved in favour of the Member State concerned. 5 issues (19% of the total) were fiscal measures, where the EU or EFTA Surveillance Authority has only very limited power to intervene (i.e. where the technical specification underlying the tax infringes EU rules). These taxes remain in force. The EFTA Surveillance Authority did pursue the Norwegian case for some time, but eventually dropped it. However, there were two cases where intervention achieved some success. Although the Belgian eco-tax came into force, its exemption provisions were amended as these were classified as technical regulations. The one issue where intervention achieved removal of the tax was in the case of the Italian tax on polyethylene. 4 issues (a further 15% of the total) are still unresolved. All of these issues (64 % of the issues in this category) concern beverage containers, either mandatory deposits or restrictions on market access for non-refillables. These percentages exclude the issue of mandatory requirements on material identification in some of the new Member States. Owing to a lack of clarity in the EU provisions, 57 it was not understood that under EU rules material identification is supposed to be optional. Some of the Member States concerned have already corrected their legislation, and it can reasonably confidently be expected that this problem will be resolved before too long. Table 27a: ISSUES WHERE THE DIRECTIVE BROUGHT ABOUT CHANGES IN NATIONAL POLICY IN FAVOUR OF FREE MOVEMENT OF GOODS Austria Belgium Czech Republic Denmark 2002/280/B 2002/494/B 2002/495/B 2002/496/B Mandatory material identification marking requirement on plastic packaging since 1992 Requirements relating to eco-taxes for beverage containers Amendment notified that will bring marking requirements into line with EU rules. Proposals amended before coming into force in 2004 N/A Ban on PVC packaging Resolved during accession negotiations ban repealed ECJ ref Ban on cans for carbonated soft Resolved after 8 years from start of infringement C-246/99 drinks (since 1977) and beer (since proceedings ban repealed after ECJ Advocate 1981) General s opinion Denmark 2002/98/DK Mandatory deposit requirements Amended before implementation Order revised to address concerns 57 Directive 2004/12/EC amending the Packaging and Packaging Waste Directive, which has to be read in conjunction with Commission Decision 97/129/EC.

87 59 Table 27b: ISSUES WHERE THE DIRECTIVE BROUGHT ABOUT CHANGES IN NATIONAL POLICY IN FAVOUR OF FREE MOVEMENT OF GOODS Finland ECJ ref C-13/04 Return system for beverage containers Case withdrawn following satisfactory amendment of the Waste Act Germany ECJ ref Market share quotas for refillable Case resolved after 6 years C-463/01 beverage containers Italy Tax on polyethylene Repealed 1997, and replaced by a consortium to promote recycling and recovery Luxembourg 1995/438/L Proposal for market share quotas Proposal withdrawn following Formal Notice and possibly mandatory deposits on non-refillable beverage containers Malta Carbonated soft drinks must be sold in refillable glass bottles or through dispensing systems Act of Accession allows this to continue only until 2007 Netherlands 2002/228/NL Market share quotas and mandatory deposits for refillable beverage containers if litter reduction targets not met Portugal 1996/264/P Market share quotas for refillable beverage containers sold to households, and catering outlets to sell beverages in refillables only Portugal 1997/3/P Mandatory to mark all reusable packaging and packaging covered by a recovery organisation Portugal 1997/777/P Transposition of the Essential Requirements Alternative arrangements agreed between Dutch Government and industry in summer 2004 Measure repealed and replaced in 1998 Requirements amended 2000 Proposal amended in response to comments Slovakia N/A Ban on PVC packaging Resolved during accession negotiations ban replaced by substitution programme requirement Spain Ban on sale of beverage cans in catering outlets in the Canary Islands Resolved after 22 months ban repealed in 2000 before coming into force Czech Republic, Slovakia Informal request from Commission to amend rules Mandatory to mark: EU s material identification codes and/or EU s proposed reusable/recyclable symbols and/or tidyman logo on diverse pack types. Requirements predated membership of the EU. Amendment of legislation to bring it into line with EU rules is underway. Table 28: ISSUES RESOLVED IN FAVOUR OF THE MEMBER STATE CONCERNED Netherlands Packaging Covenant II No collection, recovery and recycling system Netherlands 2001/406/NL Mandatory use of KCA logo on selected products Case closed July 2003 Requirement still in force Table 29: ISSUES WHERE THE DIRECTIVE OR OTHER EU LEGISLATION HAS FAILED TO BRING ABOUT CHANGE IN NATIONAL POLICY IN FAVOUR OF FREE MOVEMENT OF GOODS Denmark 1999/29/DK Tax on PVC Tax remains in force Denmark 1999/30/DK Taxes on beverage containers and on Taxes remain in force sales packaging of specified food and non-food products Ireland 2001/387/IRL Tax on plastic carrier bags Tax remains in force Malta Eco-tax since September 2004 on Tax remains in force containers for certain beverages Norway Taxes on beverage containers with preferential rates for refillables Taxes remain in force

88 60 Table 30: ISSUES UNRESOLVED / CASES STILL PROCEEDING Germany ECJ ref C- 309/02 Market share quotas and mandatory deposits for non-refillable beverage containers Germany 2003/2133/D Mandatory deposit arrangements for non-refillable beverage containers Germany 2004/446/D Amendment to the Packaging Ordinance (superseded to replace refill quotas by mandatory 2003/232/D) deposits on all environmentally unsound non-refillable beverage containers Netherlands 2002/163/NL Authorisation requirements for certain non-refillable beverage containers Latvia, Poland Informal request from Commission to amend rules Mandatory to mark: EU s material identification codes and/or EU s proposed reusable/recyclable symbols and/or tidyman logo on diverse pack types. The ECJ ruling of 12/04 established some criteria, but it did not answer all of the questions raised by the German court. Case ongoing since Oct 2003 Case ongoing since original notification in July 2003 Case ongoing since November 2003 Requirements predated membership of the EU, but still in force Belgium Eco-tax measures for beverage containers Eco-taxes were imposed in Belgium in 1993 on a range of products, including beverage containers. In the early years there was an exemption from the eco-tax provided that minimum recycling rates were achieved. In practice, this eco-tax was not paid because recycling targets were achieved through FOST Plus, the packaging recovery organisation that handles all types of household packaging waste, including beverage containers. In 2001 Belgium started to amend these eco-taxes, with the aim of bringing about a price difference between reusable and non-reusable containers large enough to have a dissuasive effect comparable to that of deposits. In July 2002 Belgium notified a Draft Act amending the eco-taxes. It was proposed that the eco-tax would apply to non-refillable containers unless they met minimum recycled content requirements, but the tax would not apply to refillable containers (provided they met certain conditions). The text contained requirements that both packs subject to the eco-tax and those exempt from the eco-tax (high recycled content or reusable) must be marked. Companies placing drinks containers on the market had to register with the Belgian tax authorities and had to mark their registration number on the containers. The Commission issued a detailed opinion which challenged the requirement to mark the tax registration number on the containers. The Law started its passage through the Belgian Parliament in September In December 2002 Belgium notified to the Commission three implementing decrees establishing rules related to the eco-taxes: a draft decree setting minimum recycled content criteria for exemption from the tax. This was categorised as a fiscal measure and so the standstill period was not extended, even though several Member States submitted comments and detailed opinions and the Commission issued a detailed opinion; a draft Decree dealing with marking of packaging exempt from the packaging tax; a draft Decree on registration and other administrative requirements.

89 61 These last two were both considered Internal Market measures and the standstill period was extended for them because several Member States submitted comments and detailed opinions, and the Commission also issued detailed opinions. Decree setting recycled content criteria: As notified, the Decree would have provided for an exemption from the eco-tax for containers only if they contained not less than 70% recycled material in the case of coloured glass or 50%, in the case of other materials. The Commission challenged the procedures for demonstrating that specific containers met the recycled content threshold. All packs had to be assessed within Belgium, making it harder and more expensive for producers outside Belgium to obtain the necessary exemption certificate necessary to demonstrate to the Belgian authorities that they had met the conditions for exemption from the tax. The Commission also challenged the requirement that producers who place approved containers on the Belgian market must tell the Belgian authorities each how many containers they had bought from approved producers was also harder for producers outside Belgium to meet. The Commission pointed out that, where Member States offer exemptions or reductions from taxes, this preferential treatment must be extended, without discrimination, to products from other Member States which satisfy the same conditions. Therefore Member States cannot make the award of a tax benefit subject to conditions which products originating from other Member States cannot satisfy due to their place of production or the legislation of the state of production. Nor must the evidence which may be requested by a Member State be more cumbersome for products from another Member State. Decree on marking: The Commission also challenged the proposed requirements to mark containers that were exempt from the eco-tax. It argued that the requirements were liable to be a barrier to trade. The Commission said that it had no information that proved the need to affix a distinctive logo. In the case of containers that were exempt because they were refillable, companies registering with the authorities had to prove that the containers are genuinely reusable before being granted an exemption. The Commission said that the marking was therefore not necessary. Similarly, the Commission argued that, in the case of containers that were exempt because they were above the recycled content thresholds, marking was unnecessary the simple fact that the container is not subject to or is exempt from the eco-tax already suggests to consumers that the product is deemed to have a positive effect on the environment. The Commission commented that it had received many complaints from economic operators affected by the proposed taxes.

90 62 Decree on registration The Commission repeats the comments it made challenging the requirements in the Draft Act that packaging must be marked with the company s eco-tax registration number. The outcome was that the eco-taxes for beverage containers were adopted in December 2003 and took effect on 1 April However the exemption for recycled content was withdrawn, together with the accompanying marking requirements and other administrative measures. The text now in force retains the possibility of introducing exemptions for non-refillable containers containing more than a specified proportion of recycled material, but says that any such exemptions would have to be approved by the European Commission. In this case, the standstill procedure worked effectively in relation to the measures falling within its scope, i.e. the measures relating to certification procedures and marking, but not the taxes themselves. Thus, the eco-taxes are now in force and are being paid on most non-refillable beverage containers. Fillers pay these plus fees for recycling/recovery to FOST Plus. The question now remains of whether Belgian fillers benefit because the tax is not paid on refillables. This is considered further in section Czech Republic Ban on PVC In 1997 the Czech Republic introduced a ban on the production or importation of packaging made from PVC or goods packed in PVC with effect from 2001 (Waste Act 125/1997). This was amended by Act No. 37/2000, which delayed the ban s entry into force until The ban was then repealed in December 2001 by Packaging Act No. 477/2001. Thus, it never actually took effect. When the Czech Republic adopted its PVC ban, it was not yet a member state so did not have to notify draft legislation to the Commission. However, the accession process was well underway and the Waste Act that introduced the ban was adopted to transpose EU waste legislation. We understand that the Czech Republic was encouraged to repeal the ban during the accession negotiations. A ban on PVC would be a barrier to trade in contravention of Directive 94/62, which applies to packaging made of any material. PVC is an interesting example of the interaction between environmental concern and the internal market. PVC (in all its applications, of which packaging is only one) has consistently come under attack from some environmental groups, however the EU has not decided to ban this material. This means that no individual Member State can ban PVC. As far as PVC packaging is concerned, there is no doubt that PVC benefits from the free trade guarantee offered by the Directive because the material identification system (97/129) includes an abbreviation and number for this polymer, and PVC is also referred to in the data tables annexed to Commission Decision 97/138.

91 Denmark Ban on beverage cans and other requirements for beverage containers Under Regulations of 1981 refillable bottles of an approved design were mandatory for beer and carbonated soft drinks. In 1984 the rules were amended to the effect that non-refillables except cans were permitted up to a maximum of 3,000 hl per producer, in order to test the market. The Commission challenged the requirements as a barrier to trade. Denmark argued that the requirements were justified on the grounds of environmental protection. The case was referred to the European Court of Justice in In its judgment issued in 1988, the ECJ confirmed that environmental protection could be used to justify measures that limit the application of Article 30 of the Treaty. 58 It then considered whether the Danish measures were proportionate, i.e. whether the objectives sought could be attained by measures that were less restrictive of Community trade. The Court accepted the requirement to participate in a deposit system for reuse, because a deposit and return system was an essential element of a system that aims to ensure the reuse of packaging. However, it did not accept the requirement (which had already been repealed) that containers must be approved by the Danish authorities. The authorities could reject containers used by importers. They could thus have to use containers of an approved design, making it difficult to import to the Danish market. The Court also considered that the restriction to 3,000 hl per producer per annum was disproportionate. The requirements were subsequently amended again on several occasions. Thus, domestic production had to be in bottles of an approved design. Imported drinks in non-refillables had to participate in a deposit/return system. In practice, the only deposit system handled refillables but not non-refillables, since domestic drinks had to be in refillables. Denmark banned cans for carbonated soft drinks in 1977, and for beer in The Commission opened infringement proceedings against the can ban in Following further exchanges of correspondence with Denmark, in November 1998 the Commission sent Denmark a Reasoned Opinion that challenged both the can ban and the other restrictions on drinks containers. The Commission referred the case to the ECJ in July In its Reasoned Opinion, the Commission argued inter alia that: the Directive requires Member States to ensure free access to packaging that meets the essential requirements. Metal drinks cans and non-refillable packaging meet the essential requirements because metal cans can be recovered and recycled. Thus, the Directive establishes full harmonisation for Member States rules for packaging and packaging waste. No Member State can ban a particular category of packaging that meets the ERs. The Commission rejects Denmark s position that the free market guarantee would not take full effect until agreement had been reached on harmonised standards and a procedure for demonstrating compliance with the ERs. Article 5 of the Directive permits Member States to promote reuse systems in conformity with the Treaty. This does not allow them to ban certain types of drinks packaging Now renumbered as Article 28. Letter of Formal Notice of

92 64 The obligations arising from the Directive apply without distinction to beverage containers produced in Denmark or in other Member States. All return systems, such as deposit systems for beverage containers, must be established so as to avoid barriers to trade and distortions of competition. The Advocate-General s Opinion was published in September However before the case was concluded, the Danish government which had been newly elected in November 2001 announced that the can ban would be repealed. The Advocate-General s Opinion supported the Commission s position that the ban was a barrier to trade. He rejected Denmark s claim that the Packaging Directive is too imprecise and that Member States are therefore entitled to set their own hierarchies between reusable and single-use packaging. He agreed with the Commission that the Directive establishes full harmonisation of national measures relating to the management of packaging and packaging waste. Denmark must respect not only the Directive s environmental objective, but also the equally important second objective of removing barriers to trade and avoiding distortion or restriction of competition. The Advocate-General noted that Denmark obviously considers that beverage cans fulfil the Essential Requirements of the Directive, since cans are used on the domestic market for products other than beer and carbonated soft drinks, and because a significant volume of Danish beer is exported in cans. One cannot claim that cans are not a suitable pack for beer, that they do not fulfil all safety and health requirements or that they are not recyclable nor recoverable. He rejected Denmark s scenario that refillables would be totally replaced by one-way containers. Deposits could be introduced to bring about a high collection rate, and he added that high recycling rates were also achieved in countries where cans are sold without a deposit. The outcome was that the can ban was repealed in January 2002, and new legislation was adopted instead introducing mandatory deposits (see below). Canned beer and carbonated soft drinks finally appeared in retail stores from September Orders establishing deposit systems In January 2001 Denmark notified a draft Act establishing the operating principles for a deposit/return system. The Act established rules for deposit/return systems, primarily to improve the existing system for refillables, but also in anticipation of handling non-refillable beverage containers. Key economic operators in Denmark had established a new deposit/return system in The Act was adopted in May This was followed by a draft Order, notified in February 2002, which established more detailed rules for operating the deposit system. It required that all non-refillable containers of beer and carbonated drinks participate in Dansk Retursystem (DRS), the deposit and return system. The Commission did not raise any objections during the initial three-month notification period (which was extended until August because of detailed opinions received from other Member States). However, in August 2002 the Commission issued comments because of concern expressed by economic operators and because of further information received from the Danish authorities. In its comments, the Commission expressed concern about the registration requirements including the administrative requirements and fees and marking requirements. The Commission indicated that it would monitor the practical operation of the arrangements to ensure that they did not create barriers to trade for imported products.

93 65 Concerns expressed by other stakeholders were that the arrangements favoured local producers because the requirements to register with the system and pay fees and to mark containers placed an unreasonable cost and administrative burden on exporters. The requirement to provide market data to the system was unsatisfactory as it could lead to breaches of commercial confidentiality. The draft Order was adjusted in response to the comments and detailed opinions received during the notification process and comments made during passage through the Danish Parliament, but the new text also took account of the repeal of the can ban. The Order was amended to address these concerns as follows: The requirement to mark containers with a unique code for Denmark remains, but marking requirements were made more flexible. Containers may be marked either with the standard international bar code plus a special code for Denmark, or fillers can use adhesive labels. Beverage sales are not reported directly to Dansk Retursystem but to an independent firm of auditors, which supplies aggregated data to DRS. Registration fees were capped at DKK 2000 ( 268) per annum. This change was to address the concern about the cost of registering each product line, particularly for smaller companies. The amendments made to the Danish system provide some useful insights into concerns in relation to d eposit systems. These are discussed further in Chapter Taxes on beverage containers and selected other packaging Denmark has taxed beverage packaging since 1978 in order to reduce the consumption of disposable containers and stimulate recycling. Industry organisations submitted complaints about the taxes, arguing that the beverage container tax is disproportionately high and therefore distortive, and that being based on volume, it does not provide any incentive for reducing packaging weight. It has further been suggested that the beverage container tax constitutes an illegal state aid, in that it does not apply to exports. Moreover, some containers are supplied to shops just over the border where they are bought tax-free by Danish consumers and reimported to Denmark. Denmark also introduced weight-based taxes for sales packaging and secondary packaging for a wide range of specific food and non-food products with effect from January In April 2001, the weight-based taxes were adjusted and the tax rate for each material established on the basis of results from an LCA covering relative environmental impact. The taxes were notified in 1999 as a fiscal measure. Complaints were submitted to the Commission, which argued that the LCA on which the taxes were based used outdated figures and had not been subjected to peer review. Furthermore, the taxes discriminated against certain materials by offering discounts for some recycled materials but not others. Denmark also adopted a tax on certain types of PVC in This was also notified as a fiscal measure. When Denmark notified the tax to the Commission, it argued that the tax was not a barrier to trade because neither PVC nor the alternatives were produced in Denmark. In its response, the Commission said that it was inclined to believe that the fact that there is no production of soft PVC in Denmark was not sufficient to establish a breach of Article 90 of the Treaty.

94 66 The issue of whether the measures are justified on the basis on environmental considerations will have to be evaluated in the light of the future Community strategy on PVC. The Commission also commented that Member States are entitled to give fiscal advantages to certain product groups over other product groups on the basis of objective criteria such as environmental considerations and irrespective of the origin of the goods. The powers of the Commission to take action against taxes such as these are therefore limited Finland Return system for beverage containers Finland already had requirements for beverage containers when it joined the EU. They were not amended when Finland transposed the Directive, and remain in place today. Non-refillable containers of beer and carbonated soft drinks are taxed at 0.67 per litre. The tax is reduced to 0.16 per litre if the containers participate in a deposit system that achieves a return rate of at least 95%. A deposit system operates for cans. The Commission investigated Finnish arrangements for beverage containers in response to complaints received by economic operators. The Commission opened infringement proceedings in 2002, on the ground that Finland has failed to transpose the requirement of the Packaging and Packaging Waste Directive that return, collection and recovery systems be open and non-discriminating. In its letter of formal notice of 30 January 2002, 60 the Commission points out that Finland does not appear to have transposed Article 7.1 of the Directive and that there is no evidence that the Finnish authorities are supervising the operation of the system. Specifically, they are not ensuring open participation by all economic operators so as to avoid barriers to trade and distortions of competition. The Commission also highlighted that the only deposit system for refillable containers that operates nationwide is operated by the Finnish Federation of the Brewing and Soft Drinks Industry. Complaints received by the Commission indicated that the board of the federation can make decisions about membership and participation in the system and about participation fees. Further, the operators of this system can determine what volume and what type of packaging shall be used and they can also reserve certain recoverable packaging for existing members. However, membership of the federation is reserved for domestic companies. The Commission letter also said that operators who dominate the Finnish market for beer and other drinks can also influence who can participate in the deposit system for cans, operated by Palpa. The Commission called on Finland to ensure that Article 7.1 is correctly transposed. This case was referred to the European Court in July 2003, but the Commission withdrew it in November An amendment to the Finnish Waste Act took effect in September Among its provisions is a section (18g) governing recovery organisations. This says that producers may meet their obligations by joining a producer organisation. Duties within a producer organisation shall be distributed Ref: 1998/4811 (English translation from version in Swedish by Perchards). Law no. 452/2004 amending Law 1072/1993.

95 67 between the producers and other potential operators equitably and so as to avoid barriers to trade or distortions of competition. These organisations must admit a new producer as a part owner, member or contractor on the same conditions as apply to existing producers Germany This section discusses only the infringement issues that have arisen from German legislation; in C hapter 4 we discuss the market impact of these measures Refill quotas in relation to mineral waters Packaging Ordinance 1992 (as amended 1998 and 2001) sets market share quotas for refillable beverage containers, with mandatory deposits on non-refillable containers for any drinks category that does not meet the quotas. There have been many complaints about the provision since it was first introduced, which can be summarised as follows: National rules that require a proportion of all beverages to be in refillables favour local producers, distort competition and are a barrier to trade. Refilling makes environmental and economic sense only where transport distances are short. The environmental impact of transporting empty containers over long distances for refilling outweighs any benefits in terms of reduced waste. A preference for refillables is therefore not justified on environmental grounds. Singling out beverage containers for special rules is discriminatory. The Directive requires that a proportion of all packaging, including beverage containers, is recycled or recovered. From the environmental point of view, it makes no difference whether a can contained a drink or other food product. The Commission opened infringement proceedings in 1998, but during the course of its discussions with Germany, it decided to limit the case to natural mineral waters. This is undoubtedly the sector with the strongest case against refill quotas, since these products must be filled at source to comply with the relevant Directive on quality standards. 62 However, all other beverage sectors covered by the refill quota consider that they also have a strong case. 63 In 2001 the Commission referred the case to the ECJ. The Advocate-General issued his Opinion May 2004, and in December 2004 the ECJ issued its ruling. 64 in 62 Council Directive 80/777/EEC of 15 July 1980 on the approximation of the laws of the Member States relating to the exploitation and marketing of natural mineral waters (Official Journal No. L 229, ). 63 These products can be filled locally, but, stakeholders say, as there is an EU Single Market, why should they have to be? A multinational company might set up a filling plant in Germany, but this will probably not be feasible for a small company. The Commission s response is that most of the other beverages are indeed filled locally. Marginal cases such as quality beers have been discussed, but the Commission concluded that there should be no major problems for such cases as they serve very specialised markets and it is unlikely that they would be de-listed just to achieve the refillables quota. 64 Case C-463/01, Commission vs. Federal Republic of Germany.

96 68 The Court found that the German deposit requirements are a barrier to trade for imported mineral water, because they affect imported products more than domestically produced mineral water. 65 Although the requirements for beverage containers in the Packaging Ordinance apply to all producers and distributors operating in national territory, they do not affect the marketing of natural mineral waters produced in Germany and that of drinks from other Member States in the same manner. Importers use more non-refillables than domestic producers, and they incur higher costs than domestic producers if they use refillables. A producer established in another Member State who exports to Germany is compelled to adapt the distribution of his products to the specific requirements of the German market. The Court then considered Germany s argument that the legal requirements were justified on the grounds of environmental protection. It concluded that deposit systems for non-refillables do contribute to environmental protection in that - they ensure a high return rate and more precise sorting of non-reusable containers, which facilitates recycling, - they help to prevent litter by providing an incentive for consumers to return the empty containers, and - by encouraging the use of refillables, they promote waste prevention. However, the Court went on to conclude that the German measures were disproportionate because they did not allow a sufficient transitional period to enable producers and distributors to adapt to the requirements of the new system. The period of six months between the announcement that a deposit and return system must be established and the entry into force of such a system is not sufficient to enable producers of natural mineral water to adapt their production and their management of non-reusable packaging waste to the new system It went on to say that even after the announcement, there was much uncertainty as to whether a deposit system would in fact be established because it depended on new market surveys about the market share of refillables and also on whether the German Government would actually decide to publish the results The Court said that the replacement of a global packaging collection system with a deposit and return system is such as to hinder the placing on the German market of natural mineral water imported from other Member States. 66 As the Commission has observed, without being contradicted by the German Government, producers of natural mineral water which originates from other Member States use considerably more non-reusable plastic packaging than German producers. According to a study carried out in June 2001 by the Gesellschaft für Verpackungsmarktforschung, in 1999 German producers used approximately 90% reusable, and 10% nonreusable, packaging, while those proportions were reversed for natural mineral water sold in Germany by foreign producers, with a use rate of approximately 71% for non-reusable plastic packaging. Case C- 463/01, 60.

97 69 Germany is now proposing to repeal the market share quotas and replace them with a mandatory d eposit of environmentally unfavourable containers (see section ). To address the ECJ s argument about the transitional period being too short, the proposal has been amended. The transitional period for the deposit provisions has been extended from six months to one year. There has been some uncertainty as to whether the mandatory deposit applies to mineral waters until the revised version of the Ordinance has been adopted. The German authorities argue that the deposit remains in force, but lawyers acting on behalf of mineral water importers argue that the ruling should suspend the deposit for mineral waters. The German authorities brought a successful prosecution early in 2005 against a retailer who was not charging a deposit. Thus, in practice, the current deposit requirements will remain in force until the Ordinance has been amended German beverage provisions challenge by Austrian importers A separate ECJ case relating to all beverages, not just mineral waters, involves two Austrian companies that export drinks to Germany, Radlberger Getränke GmbH & S. Spitz KG. They challenged the deposit provisions in the Stuttgart Administrative Court (in Land Baden-Württemberg), whi ch referred the case to the ECJ. These companies argued that the imposition of mandatory deposits on non-refillable containers represents a restriction of their exports to Germany that is incompatible with Community law. They pointed out that they were participating in DSD, which ensures regular collection and recycling of their containers. T he Stuttgart Court had asked four specific questions in relation to specific articles of the Directive. 1) Are Member States prohibited by Article 1(2) of the Directive from promoting reuse systems, such as the German refill quota linked to deposit systems. The Court interpreted this as: Does Article 1(2) of the Packaging Directive prevent a Member State from promoting systems for the reuse of packaging, such as that prescribed by the German Packaging Ordinance? The ECJ replied that the Packaging Directive does not prevent the adoption of reuse measures, provided that they are consistent with the Treaty. Nor does the Directive establish a hierarchy between reuse and recovery of packaging waste. However, it did not specifically provide an answer as to whether the German refill quotas are acceptable. 2) Are Member States prohibited by Article 18 of the Directive from impeding the placing on the market of drinks in non-refillable containers by removing the possibility of participating in a Dual System if the refill quota is not reached? The ECJ did not reply to this question see reply to question 4. 3) Do producers and distributors of drinks in non-refillable containers have a right under Article 7 of the Directive to continue to participate in an existing recovery organisation as a way of meeting a statutory obligation to charge a deposit on non-refillable drinks containers and accept the return of these containers? The ECJ ruled that producers and distributors do not have a right to continue to participate in a specific packaging recovery organisation. The Court said that Article 7 of the Directives leaves it up to Member States what type of packaging collection system to set up for non-reusable packaging a deposit system, a global packaging system, or a combination of the two.

98 70 However, the Court went on to say that, if a member state replaced a close-to-home collection system for packaging with a deposit and return system, such replacement must comply with certain conditions : - The new system must be equally appropriate for the purpose of attaining the objectives of the Directive. If the new system is a deposit and return system for non-reusable packaging, the member state must ensure that there are a sufficient number of return points so that consumers who have been charged a deposit can recover the deposit even if they do not go back to the initial place of purchase. The current requirements governing refund of the deposit seem ambiguous, comments the ruling. - The changeover to the new system must take place without a break and without jeopardising the ability of the economic operators affected to participate in the new system as soon as it enters into force. Member states are responsible for ensuring that the producers and distributors concerned have access to a packaging waste management system at all times and without discrimination. (48) 4) Under Article 28 of the Treaty, are Member States permitted to establish a refill quota linked to an exemption from the obligation to charge a deposit on non-refillables that participate in a global packaging recovery system? The Court interprets this question as does Article 28 preclude national rules. under which the proportion of reusable packaging in the sector concerned determines whether producers and distributors using non-reusable packaging may fulfil their deposit, return and recovery obligations by participation in a global collection system. The Court concludes that replacing a global packaging collection system with a deposit system in respect to non-reusable packaging is a barrier to trade for imported drinks. The Court says that the requirements do not affect domestic producers and importers in the same manner. It notes that importers use more non-reusable packaging than German producers and notes the observation made by the Stuttgart court that recourse to reusable packaging incurs higher costs for importers than for domestic producers. H owever, the ruling does not specifically answer whether the German refill quotas are compatible with Article 28. As to whether the measures are justified on environmental protection grounds, the Court concludes, as in the mineral waters case, that deposit systems can have environmental benefit. It specifies the same criterion for assessing whether the German requirements are disproportionate, namely whether the transitional period is adequate to allow all producers and distributors to participate in an operational system Implementation of mandatory deposits on certain beverage containers In recent years the market share of refillable containers has dipped below the quota levels, which triggered the introduction of mandatory deposits on non-refillables (except beverage cartons) in Jan uary 2003 for beer, waters and carbonated soft drinks. Implementation of the deposit in Germany has been piecemeal and there is still no national deposit system operating. This is largely due to legal uncertainty, 67 which deterred economic operators from making the significant investment in the infrastructure needed to operate a deposit system. Also, the Bun deskartellamt (German competition authority) expressed concerns about the operation of a financial clearing house to balance differences in deposits paid out and redeemed among the various 67 Challenges in the ECJ to the refill quotas as they apply to mineral waters, numerous legal challenges in the German courts, and the Federal Government proposal to amend the deposit legislation.

99 71 retail chains. In addition, a provision in the Ordinance allows individual companies using a unique design of container to handle only their own containers, known as island solutions. This encouraged some retailers, particularly the discount chains, to operate return systems only for their own products, using unique packaging. The result has been that several different deposit systems operate in competition with each other, and there are several island solutions. This means that consumers cannot get their deposit refunded at any retail outlet, as island solutions restrict take-back to the specific retail chain or group of retail chains. Red Bull has also established an island solution for its cans which are identified with a blue ring pull. This has caused significant disruption in the market. For example, cans have largely disappeared off the market. It appears that the trippage rate for refillables has also fallen as consumers, who find it hard to get the 25 eurocent deposit refunded on non-refillables, are buying refillable bottles instead because the deposit is lower, but then not returning them. In October 2003 the Commission opened infringement proceedings relating to the way the deposit system currently operates in Germany. The Commission argues that there is no nationwide deposit/return system, as the only systems operating nationwide have a market share of just 12%. The island solutions adopted by a number of discount chains also pose a problem for intra-community trade, because they require producers to supply distinctive packaging. In October 2004 the Commission decided to refer the case to the ECJ. This case is still pending. However an amendment has been proposed to the revised deposit provisions to remove island solutions (see section below), and the Commission has put the referral on hold Proposal to delink deposits from refill quotas The German Federal Government acknowledges that the current refill quota and deposit provisions are unsatisfactory and in July 2003 notified a proposal to amend them. For example, the potential yo-yo effect, whereby the deposit imposed on drinks categories that do not meet the refill quotas would be lifted if the drinks categories again met the quota, creates legal uncertainty. Germany has proposed to repeal the refill quotas and instead impose deposits on all containers of key beverages which are not classified as environmentally advantageous (i.e. on all non-refillables except beverage cartons, PE pouches for milk, and aluminium pouches for soft drinks). The draft legislation also requires that 80% of all beverages are in environmentally advantageous containers. The categorisation of containers as environmentally advantageous was made following LCA studies, but the legislative proposal does not define this term. A revised proposal was notified to the Commission in November The new proposal addresses the objections made by the Commission to island solutions. Under the new proposal, retailers would no longer be able to refund the deposit only on the containers that they sell. They would have to take back any containers of the same material, including those sold by other retailers. Several Member States issued detailed opinions challenging this proposal. The measure is considered to be a barrier to trade that discriminates against imports and is not justified on environmental grounds because it is disproportionate. Others have challenged the proposed distinction between environmentally advantageous and other packaging. The meaning of this term is unclear and is 68 In February 2005, the Commission issued comments in Germany s proposed amendment.

100 72 incompatible with the Directive. 69 The Commission has issued comments on the proposal but not a detailed opinion, its main concern being the provisions that allowed island solutions. The original proposal also came under attack from opposition parties in Germany (among others) because it does not contain an innovation clause, a provision opening the way for other packs to be designed as environmentally advantageous in future if they meet environmental criteria. Although there is widespread support for the repeal of the quotas within Germany, the proposal is controversial. However, since the Bundesrat finally approved the original proposal in October 2004, it is expected to approve the revised version Ireland Tax on plastic carrier bags Ireland imposed an environmental levy of 15 eurocents per unit on plastic carrier bags with effect from March The justification for the tax was that plastic bags are a visible and persistent component of litter pollution Reusable bags sold for 70 eurocents or more each and certain bags used for fresh produce are exempt. The tax is charged by retailers, who must pass it on in full to consumers. The government wanted the tax to change consumer behaviour by reducing the use of plastic carrier bags. This has been successful in that the number of bags used has decreased by around 90%. Any revenue from the tax goes to an Environmental Fund. When the tax was notified, the Commission issued comments that requested further information from the Irish authorities to justify a possible exemption for biodegradable plastic bags which have a more favourable environmental impact than other plastic bags (the text as notified refers only a possible exemption for certain bags by reference to their composition ). The Commission also reminded Ireland that monies in the Environmental Fund, depending on how they are used, could be subject to the rules on state aids. The levy took effect in March 2002 with no exemption for biodegradable bags. The objective sought for this tax was litter reduction, which is discussed further in section Italy Tax on PE A tax (10% of invoice value) on polyethylene material used to manufacture plastic films for the Italian market came into effect in It was intended to fund collection and reprocessing and research into new end-use markets. Point-of-sale packaging and farm films were the categories mainly affected. The Commission objected to the tax because taxing imports for the benefit of recycling research in Italy distorted the market in favour of Italian companies. Also, while Italian producers paid the tax on the raw material, foreign companies paid it on the value of the products made from PE. The tax was abolished in 1997 and was replaced by the establishment of a consortium for producers and converters of PE products other than packaging. The consortium was to promote take-back of used PE-based products for recycling and recovery. 69 One industry stakeholder, BCME, has pointed out with particular vigour that various Member States (through the notification procedure) and complainants have rightly argued that Member States are not allowed to introduce such distinctions which undermine the backbone of harmonization, namely strict compliance with the definitions laid down in the Packaging Directive. There is no room for alien concepts, especially if arbitrary.

101 Luxembourg Proposed rules for beverage containers In 1995 Luxembourg notified a bill to the Commission that required that all parts of the chain take back used beverage containers of the capacity and brands they sell. Producers and distributors must ensure that consumers have the option of buying refillables. There would be a take-back obligation, recycling targets and refillable market share quotas. There would also be an eco-tax on nonrefillables, but this would not be payable if the refillable market share target and recycling targets for non-refillables were achieved. The eco-tax was to be paid by individual companies if they are outside a registered recovery organisation. If they were members of such an organisation, responsibility for failure to meet the targets would be collective. Five Member States submitted comments or detailed opinions on the proposal. The Commission also issued a detailed opinion, arguing that since Luxembourg producers used refillables to a much greater extent than for imported products (90% and 30% respectively), the costs of coping with the preference given to refillable packaging would fall almost exclusively on foreign suppliers and would seriously hamper the free movement of goods. The Commission also noted that dairy products in Luxembourg had little competition from imports, were marketed in one-way packaging, and were not covered by the mechanism introduced by the draft. The Commission further argued that Luxembourg had not sufficiently justified its preference for refilling, particularly since, in the explanatory memorandum, Luxembourg had indicated the recycling possibilities for the materials reviewed. The Commission said that it cannot be shown that, as a general rule, refilling presents ecological advantages as compared with recycling. A case-by-case evaluation should in fact be made where each product presents details with particular regard to origin, regulation government mandatory bottling at the source or at the place of production, the needs of the consumer, the presence of reutilisation circuits in the vicinity of the place of consumption and the appropriate nature of these circuits with regard to the product concerned, the journey to be made from the place of production, and the proximity of recycling or indeed incineration centres. The Luxembourg authorities should also show that the environmental objective cannot be attained by other methods which do not have detrimental effects on the internal market. Luxembourg withdrew its bill Malta Preference for refillables Under the Non-alcoholic Beverages (Control of Containers) Regulations, LN 158/98, carbonated soft drinks may only be sold in refillable glass bottles or through premix or postmix dispensing systems. These regulations do not apply to other beverages, and waste arises in Malta from discarded plastic mineral water bottles, beer cans and glass bottles from imported beer and wine. Under the Act of Accession, Malta is permitted to keep these restrictions until 2007, but it is already working on replacing them. Under consideration is a mandatory deposits system that would apply to all beverage containers and to all types of bottle and can.

102 74 Meanwhile, Malta has introduced an eco-tax on plastic, glass and metal containers of key beverages, and on empty beverage containers of the same materials. The tax took effect on 1 September Neither measure has been notified the deposit because it is still under discussion and the tax because it is a fiscal measure Netherlands Packaging Covenant II The Netherlands notified a draft packaging decree in June 1996, which transposed the main provisions of the Directive. However, it provided for an exemption from some legal obligations for companies that signed up to the second Packaging Covenant. This is the voluntary agreement which a vast majority of Dutch companies joined. In its letter of formal notice of 9 June 1998, 70 the Commission identified various problems with the measures notified. For example, the definitions of recycling and recovery did not fully correspond with those in the Waste Framework Directive, there was no reference to harmonised standards to assure conformity with the Essential Requirements, there were no measures to promote use of recycled material, and no measures for informing packaging users. In relation to the obligation to set up a collection and recovery system for packaging, the Commission argued that the measures taken were insufficient municipalities had to set up separate collection of at least glass and paper/board, while producers could make arrangements with municipalities to collect other packaging materials separately. The Commission also questioned the voluntary nature of the Covenant. The Commission is concerned as to whether the Dutch authorities have sufficient powers to take action should the targets not be met. Do the legal obligations in the Packaging Regulations provide an adequate legal safety net? The Commission also took issue with the indication in the Decree that the statutory recovery and recycling targets (at the maximum rates permitted by the Directive) could be exceeded through the Covenant. The Commission expresses concern that this arrangement could circumvent the requirement that targets exceeding the Directive s maxima must be subject to prior scrutiny. In the light of this, the Netherlands are unlikely to fail to meet the Directive s targets, which suggests that the Commission s challenge on the voluntary approach is a technical challenge. In August 2000 the Commission sent the Netherlands a reasoned opinion. This indicated that, following further correspondence with the Dutch authorities, the Commission maintained two of its objections: The definition of recycling does not correspond to the one in the Directive (the Dutch definition does not explicit include organic recycling nor explicitly exclude incineration with energy recovery). Insufficient measures for collection and recovery systems. The Dutch argued that such systems already operated in practice so legal underpinning was unnecessary. The Commission argued that this was a key requirement of the Directive and should be transposed even if appropriate systems operated. 70 Case reference 1997/2230.

103 75 The Commission closed the case on 9 July The definitions in Covenant III correctly transpose the definitions of recovery and recycling. The Commission has also accepted the Dutch approach of combining legal obligations with a voluntary agreement Beverage container provisions of Covenant III In June 2002 the Netherlands notified a third Packaging Covenant, establishing revised recovery and recycling targets, and other targets to be met by The text also contained some proposed restrictions for beverage containers aimed at protecting existing refill systems. The principle was that existing refillable packaging systems for beer, soft drinks and waters should not be replaced by non-refillables. There are no restrictions for product/pack combinations already on the market in December 2002, but there are restrictions on new pack/product combinations. Producers and importers are permitted to use new product/pack combinations to replace existing refill systems only subject to certain conditions (they must demonstrate that the new pack would not increase environmental impact; or not exceed 2% of the total volume of that drink category on the Dutch market). The Commission issued a detailed opinion that challenged the special authorisation requirements for certain drinks packs. The Commission argued that all packs that meet the Essential Requirements should have free market access. It also argued that the provisions are a de facto refill quota which tends to discriminate against importers. There are certain criteria for exemption, but these favour producers already established in the market and they also favour traditional glass bottles over new types of packaging. The Commission also commented on the recovery and recycling targets, which are higher than those in the revised Directive (not adopted at that stage), and reminded the Dutch authorities that they must officially notify the Commission. Despite these challenges, the Covenant was duly signed. However in November 2003 the Commission opened infringement proceedings, and in January 2005 referred the case to the ECJ. The Dutch authorities have now decided to allow large non-refillable PET bottles onto the market from 2006, albeit with a mandatory deposit system and new producer responsibility requirements. On 28 January 2005, the Government announced that these proposals will be taken forward in a new Packaging Decree, which is to be published shortly. Meanwhile for non-refillable PET bottles of up to 0.75 litres, there will be a temporary mandatory recycling levy of 2 eurocents per bottle. The revenue will be used to set up pilot projects to collect used bottles for recycling through a bring system (these bottles are often consumed out of doors). If the system works well, no mandatory deposit will be imposed on them. This proposal was notified to the Commission on 30 September As it was notified as a fiscal measure, there was no standstill period Penalties for beverage containers linked to litter reduction targets A draft Decree on the management of packaging, paper and board, notified in April 2002, provided that, if litter was not reduced by two-thirds by the end of 2004, a mandatory deposit and refill quota would take effect on selected beverage containers. Industry would also have to fund the segregated collection of packaging (and non-packaging paper and board), currently a municipal responsibility in The Netherlands. The Commission and some Member States issued detailed opinions during the notification procedure. The Commission challenged the refill quotas that would take effect for glass and plastic (above 0.5

104 76 litre) beverage containers if the litter reduction target were not met. The Commission argued that fillers in other Member States would have to establish refill systems. This would entail additional costs, particularly for importers of mineral waters, which have to be bottled at source. The measures would thus breach Article 5 of the Directive, Article 28 of the Treaty and the Mineral Waters Directive. The Commission also sought clarification about the provisions on the collection of packaging and non- requirements, on which the authorities packaging paper and board. Producers and importers would have to submit information to the Dutch authorities about how they proposed to meet the collection could impose restrictions and conditions. The Commission sought assurances that any restrictions imposed would not give rise to barriers to trade and that the requirement to submit information did not amount to a requirement to obtain prior authorisation to place a product on the market. Such a requirement would be a barrier to trade. The Commission and some Member States also expressed concerns about the proposed deposit requirements and associated requirement to mark packaging. In the decree which will be published very soon, there will no longer be an automatic imposition of the quota and deposit if the litter reduction target is not met the Environment Minister can decide whether to impose any or all of the measures Norway Packaging taxes Norway long since taxed non-refillable containers of beer and carbonated soft drinks. Since 1994 there has been a basic tax on non-refillables. An additional tax is also payable, but is discounted depending on the return rate achieved through deposit and return systems. In August 1995 the EFTA Surveillance Authority (EFTA SA) issued a formal challenge to the preferential tax treatment for refillables. Norway s defence was that the tax was motivated by environmental concerns to maximise use of refillables in order to minimise beverage container waste. That it affected imports more was a consequence, not an aim of the tax. Norway also argued that repeal of the tax would destroy the Norwegian glass industry and thus make it impossible for Norway to recycle glass, prompting Norway to propose exempting glass from the tax. In November 1996 the EFTA SA sent a Reasoned Opinion arguing that the basic tax was discriminatory because most domestic production fell outside its scope whereas most imported beverages were subject to the tax. EFTA SA also pointed out that ECJ jurisprudence holds that a differentiated tax system is compatible with EU law if it is based on objective criteria and if the detailed rules avoid any form of discrimination. This defence was inapplicable since the tax exempted milk in non-refillables, which were almost exclusively domestically produced. The Norwegian government subsequently recommended repealing the tax in the 1997 budget, but the Parliament rejected the proposal. The EFTA SA did not pursue the issue, pending clarification of EU policy on priority of reuse over recycling, and in June 1999 informed Norway that it had decided to drop the case. The taxes remain in force, but in 2000 they were restructured. The basic tax on non-refillables remains but the additional tax was replaced by a packaging material tax, with different rates for different materials. The discount on the new packaging material tax relating to the return rate remains in force. The new tax takes account of the likelihood of the containers to end up in litter. Containers of squash and juice are exempt in addition to milk because they are usually consumed in the home

105 77 since for nutritional reasons they belong to the daily diet. Conversely, non-carbonated soft drinks, previously benefiting from a low rate of environmental tax, now attract the same tax rates as carbonated drinks. The rates of tax are also differentiated according to the perceived harmfulness when littered. The rate for glass is the highest because it has a long lifespan as litter and can cause injury. Metals and plastics were originally both charged at the same rate but metals are now charged at the same rate as glass. Beverage cartons are charged at the lowest rate because they are biodegradable Portugal Market share quotas for refillable beverage containers Decree no. 313/96 for Implementation of the Packaging and Packaging Waste Law, published in July 1996, set market share quotas for refillable beverage containers sold to households, and required catering outlets to sell soft drinks, beer and bottled water in refillables only. Several Member States challenged these restrictions and the Commission concluded that Portugal had failed to justify the 100% refill requirement for catering outlets. Portugal had argued that refill rates were already high in these outlets, so the requirements made little difference. However it had not provided any data on reuse levels for each drink category that would have enabled the Commission to assess the proportionality of the proposed measure. Portugal withdrew the text and replaced it with a new measure, Implementation Decree 29-B/98. This retained the 100% quota for catering outlets as one option, but it offered them the alternative of selling beverages in non-refillables provided they either recycle them or take them back. The Green Dot organisation SPV has set up a subsidiary, Verdoreca, to ensure the recovery of beverage containers from catering outlets. The text also contains requirements that the market share of refillables sold to households is maintained, and later increased. All retailers selling drinks in non-refillables must also offer the product categories in refillables. same Marking requirements In the same detailed opinion, the Commission also challenged the draft Decree-Law s proposed requirement that reusable packaging must be marked with a logo (which would be determined later). The Commission referred to Decision 97/129/EC of 28 January 1997 on identification of packaging materials, which said that marking and material identification should be voluntary. The requirement to mark reusable packaging was adopted and remains in force. However, since no logo for reusable packaging has been devised, the requirement causes no problems in practice. The draft Decree-Law also made it mandatory to mark all packaging participating in a recovery organisation. Some economic operators challenged this because it created a conflict with requirements in other Member States where the Green Dot on-pack symbol was used. The Portuguese Green Dot recovery organisation, Sociedade Ponto Verde (SPV), handled both sales and transport packaging, but transport packaging was not handled by recovery organisations in some other Member States. Hence the Portuguese requirement caused problems for products traded in several Member States. This requirement is still in force for sales packaging, but since 2000 marking has been voluntary for secondary and transport packaging.

106 The Essential Requirements The Commission argued that the Decree failed to transpose the requirement that all packaging must meet the Essential Requirements. Portugal argued that the requirements were too costly and administratively burdensome for economic operators. The Commission rejected this position financial and organisational difficulties cannot justify a Member State adopting a measure which derogates from a Community directive. The Essential Requirements and heavy metal limits were eventually transposed by Decree-Law no. 407/98 of December Slovakia Ban on PVC Waste Act No. 223/2001, which came into force in July 2001, provided for a ban on the manufacture, import and export of PVC and PVC-containing products with effect from January The Packaging and Packaging Waste Act adopted in August 2002 amended this, requiring manufacturers of packaging or products using PVC to develop a prevention programme containing measures leading towards a gradual minimisation and substitution of PVC by other types of plastic or other materials. In our view, the prevention programme has the potential to result in a barrier to trade for PVC. Whether it does or not depends on how it is implemented and enforced in practice Spain Ban on beverage cans in the Canary Islands In January 1999 the Parliament of the Canary Islands adopted a law banning the use of non-reusable metal packaging of liquids by hotels and restaurants, except where alternative packaging could not be used for hygiene and health reasons, and except for products sold in vending machines. A number of industry sectors submitted complaints to the Commission, arguing that the main purpose of the legislation was to protect local beverage producers from foreign competition. The Commission opened infringement proceedings in July In its letter of formal notice, the Commission pointed out to the Spanish authorities that the measures should have been notified prior to adoption, without prejudice to whether the measure was compatible with the Directive. The Commission subsequently challenged the ban because it infringed the free access provisions for all packaging that meets the Essential Requirements. The Canary Islands first argued that they were a special case. The Canary Islands Government then announced that implementation of the can ban, which was to come into effect in November 1999, would be delayed to give the authorities time to review the situation, and in October 2000 it was finally repealed.

107 Sweden Competition implications of deposit and return systems Non-refillable PET bottles are permitted in Sweden only if they participate in a deposit and return system that achieves 90% recycling while aluminium beverage cans are exempt from duty if they participate in a deposit system. In June 2004 Sweden notified a proposal to the Commission that would expand the scope of the deposit requirements to all cans and plastic packaging. The proposal also contains new requirements that all commercial distributors of drinks in the affected containers must participate in a deposit system, and that a deposit system in dominant market position must ensure that its rules do not discriminate and that its requirements for participating containers are reasonable. The standstill period ended on 15 December 2004, and the Swedish proposal is expected to be adopted soon Marking requirements Commission Decision 97/129/EC and Directive 2004/12/EC Several of the new EU-10 Member States have made it mandatory to use the EU material identification system set out in Commission Decision 97/129/EC, and some have also mandated use of the reusable and recyclable logos proposed in COM(96) 191 final, but never adopted by the EU, and n ow withdrawn. Annex F contains an overview of the marking requirements. Directive 2004/12/ EC has updated Directive 94/62/EC somewhat ambiguously, which makes the legal position even less clear. Whereas the original Packaging and Packaging Waste Directive, which predated Decision (7/129/EC, said that packaging shall indicate for purposes of its identification and classification by the industry concerned the nature of the packaging material(s) used, the amending Directive says that packaging shall indicate for the purposes of its identification and classification by the industry concerned the nature of the packaging material(s) used on the basis of Commission Decision 97/129/EC. There has been some discussion as to whether this means that the voluntary nature of the provisions of Decision 97/129/EC are carried forward by Directive 2004/12/EC or whether the Directive makes them mandatory, but the Commission has now taken the view that national rules which diverge from Decision 97/129/EC are not allowed. Further discussion of marking requirements can be found in section Marking rules in EU-15 Austria: Ordinance 137/1992 on the marking of plastics packaging has required plastics packaging (with certain exceptions) to be marked or labelled with the full name of the polymer or an abbreviation. This was contrary to Commission Decision 97/129/EC, at least until Directive 2004/12/EC came into force, but a proposed amendment to the Packaging Ordinance notified on 24 November 2004 provides that if packaging is marked, the markings should be in line with Decision 97/129/EC. Thus, the Austrians ensured that whatever was decided at EU level on whether or not the marking system remains voluntary would automatically be transposed into Austrian law.

108 80 Netherlands: It has been mandatory since 1994 to mark the KCA logo (see right) on specified items that must not be put in the household waste bin, because they are collected separately for special disposal. The designated items include the packaging of specified chemical products (pesticides, solvents, paints, etc). Imported products must also be marked with the logo, unless they bear a mark designated by the government of another member state relating to the separate collection of small chemical waste. Although this logo relates to the contents rather than the packaging, it is in effect an instruction to consumers on how to dispose of packaging waste. Arguably, therefore, it falls within the scope of Directive 94/62. The Dutch requirement that these packs be marked in a specific way could thus be seen as a barrier to trade.

109 81 4. NATIONAL RULES SPECIFIC TO BEVERAGE CONTAINERS 4.1 POLICY OBJECTIVES Many of the cases discussed in section 3.2 relate to beverage containers. Early national packaging policy focused on beverage containers, when traditional refill systems began to be replaced by new forms of non-refillable packaging that were better suited to new distribution and retailing methods. However, Germany moved away from this narrow emphasis when it adopted recycling targets for all packaging in its pioneering Packaging Ordinance 71 in 1991, while maintaining special rules for beverage containers. When other Member States started to follow Germany by adopting requirements for all packaging, some (such as Austria 72 and Belgium 73 ) retained special rules for beverage containers, but others (France 74 ) did not. Directive 94/62 clearly applies to all packaging without distinguishing between the product a pack contains nor the material from which it is made. The only reference to beverage containers is to repeal the Directive on containers of liquids for human consumption. Thus, the Directive does not provide any specific justification for any special measures for packaging of specific product categories. On the other hand, Article 5 of the Directive does permit Member States to encourage reuse systems for packaging. The market for beverages in refillable containers has been in decline for many years, and Article 5 has been used as a justification for supporting refillables by introducing special measures to limit or reduce the competitiveness of non-refillable beverage containers. More recently, the need to combat littering has been used as a justification for special measures against non-refillable beverage containers, though litter is not specifically mentioned in the Directive. These issues are discussed below. 71 Verordnung über die Vermeidung von Verpackungsabfällen (Verpackungsverordnung VerpackV) vom 12/6/ Verordnung des Bundesministers für Umwelt, Jugend und Familie über die Festsetzung von Zielen zur Vermeidung und Verwertung von Abfällen von Getränkeverpackungen und sonstigen Verpackungen, BGBl. Nr. 646/1992, subsequently amended by Verordnung des Bundesministers für Umwelt, Jugend und Familie, mit der die Verordnung über die Festsetzung von Zielen zur Vermeidung und Verwertung von Abfällen von Getränkeverpackungen und sonstigen Verpackungen geändert wird, BGBl. Nr. 649/1996 and later by Verordnung des Bundesministers für Land- und Forstwirtschaft, Umwelt und Wasserwirtschaft, mit der die Verordnung über die Festsetzung von Zielen zur Vermeidung und Verwertung von Abfällen von Getränkeverpackungen und sonstigen Verpackungen geändert wird, BGBl. Nr. 426/ Loi ordinaire du 16 juillet 1993 visant à achever la structure fédérale de l Etat/ Gewone wet tot vervollediging van de federale staatsstructuur. 74 Décret du 1er avril portant application pour les déchets résultant de l abandon des emballages de la loi N du 15 juillet 1975 modifiée relative a l élimination des déchets et à la récupération des matériaux (J.O. du 3 avril 1992).

110 MARKET SHARE QUOTAS AND OTHER REFILL PROTECTION MEASURES Germany The German Packaging Ordinance of 1991 set ambitious targets for the collection and sorting of used packaging. For beer, waters, soft drinks, juices and nectars, still wines (except dessert wines), and for detergents, cleaning agents and emulsion paints not packed in "flexible refill packs" or "cardboard reinforced flexible packaging", a mandatory deposit would be applied if the collection and recycling targets were not met. Even if the Dual System achieved the collection and sorting targets laid down, a mandatory depositand-return system would be imposed nationally on packaging for beer, soft drinks and still wines if the market share of refillable containers in these sectors falls below 72% 75 and the market share of refillable containers in any given sector falls below the 1991 level. Pasteurised milk had its own separate refillables quota of 17%. In addition, mandatory deposits would be imposed in any Land where the market share of refillables fell below the 1991 level which in some cases was well above 72%. 76 Under the revised Ordinance which came into force in 1998, the refill quotas apply nationwide rather than being monitored in each Land; 77 beverages are now grouped into major sectors (beers, waters etc). Each sector is monitored individually, and sanctions are applicable only to a beverage sector which falls below the 1991 levels; and pasteurised milk is exempt from mandatory deposits if at least 20% of market volume is packed in 78 refillable bottles or PE pouches. Official figures show the following evolution of market shares for refillable beverage containers and milk pouches: 75 The national market share of refillables at the time the Ordinance was introduced. 76 Verordnung über die Vermeidung und Verwertung von Verpackungsabfällen (Verpackungsverordnung VerpackV) vom 27/8/ This change had the effect of re-establishing a Single Market within Germany. The pre-1992 market penetration of non-refillable beverage containers had been lowest in the south of Germany and highest in the former GDR, where the established distribution system collapsed once the market was opened up to western products. The original provision that the exemption from mandatory deposits may be revoked if the market share of refillables fell in any given Land therefore served not only to protect Bavarian brewers against foreign competition but also to protect them from the larger brewers of Northern Germany. 78 The revised Ordinance refers to refillables and PE pouches as environmentally favourable packaging, but this term is not defined.

111 83 Table 31: MARKET SHARE OF REFILLABLE CONTAINERS IN GERMANY, % 1994 % Mineral waters Still soft drinks & juices Carbonated soft drinks Beer Wine ALL BEVERAGES (except milk) Milk (refillable) Milk (pouches) ALL MILK Source: BMU (Federal Environment Ministry) In 1997 the market share of beverages sold in refillable containers fell below the 72% quota for the first time. According to the revised Ordinance, if the market share was still below 72% 12 months after the announcement was made (it was made on 19 November 1998), mandatory deposits would be imposed six months later on the beverage categories whose market shares were below 1991 levels. The deposit would apply to all non-refillable containers in the beverage sectors affected. These containers would have to be returned in-store and could no longer be collected through DSD. In April 2000, the results of the 1998 survey were published, and the reuse rate had fallen further. The retailers said that if mandatory deposits had to be introduced, the installation of reverse vending machines for the return of used beverage containers would cost between 1500 and 2000 million. The retailers and fillers claimed that the only way to make beverage sales profitable under those circumstances would be to delist refillables altogether. By autumn 1999 it was widely accepted that the current arrangements were based on outdated assumptions and needed reforming. The BDI, the Association of German Industry, argued that the situation had completely changed since adoption of the Packaging Ordinance in DSD s success in developing recycling meant that the original waste problem, the rising quantity of beverage container waste, had been solved. The contribution beverage containers were making to Germany s overall environmental burden was only marginal, and the enormous cost of introducing a deposit system would be disproportionate to the environmental benefits. In any case, the 1998 drop of 1.87% below the 72% quota was within statistical margins of error. Refillables are always privileged, independent of how well they are organised; non-refillables are always discriminated against, no matter how good or bad they are. A packaging policy which is viable for the future must see that the most important indicators of environmental performance are optimised in all refillable and non-refillable systems. This is the decisive potential for the avoidance of environmental impact, not from shifting from non-refillables to refillables, said the BDI. The Environment Ministry was unwilling to accept this point of view, and in June 2000 it announced that as German industry had been unwilling to come up with or agree to realistic alternatives, the mandatory deposit provided for in the Packaging Ordinance would take effect if the next survey showed that the 72% refill quota has been missed for a second consecutive year. After many further discussions on political alternatives and numerous court cases, mandatory deposits were finally imposed from January Mandatory deposit systems are considered in section 4.3 below. Here we consider market share quotas per se. It is generally accepted that refilling makes better sense when distribution distances are short, so measures reserving a large share of the market will inevitably restrict competition from more distant producers, especially foreign companies. The question is whether the environmental benefits of this measure are large enough to justify the restriction. The German authorities have argued that they are 1997 % 1998 % 1999 % 2000 % 2001 % 2002 %

112 84 necessary if consumers are to continue to buy local, which is in the interests of the environment. The German Refill Alliance agrees. Many other commentators believe that the benefits are marginal, and 79 are outweighed by the substantial breach in Internal Market principle s which this measure entails. This study is concerned with Internal Market issues, s o we make no judgements on proportionality. It is for others to make the se judgements: we see k only t o draw attenti on to the issues that need to be taken into account. One feature of the legislation which is clearly unjust i s that t he penalty for fai ling to m eet the refill quotas the imposition of mandatory deposit s has applied to all prod ucers active o n the market, irrespective of their individual policies. Many companies ma y have done the ir utmost to respect the quotas, but th e actions of others and, let us not forget, the purchasing decisions of consumers have led to them being penalised along with those which moved a greater proportion of their production into non-refillables. Infringement proceedings have been underway since 1998 (see section 3.2.8), but during the course of its discussions with Germany, the Commission decided to limit the case to natural mineral waters. This is undoubtedly the sector with the strongest case against refill quotas, since these products must be filled at source to comply with the relevant Directive on quality standards. 80 However, all other beverage sectors covered by the refill quota also have a strong case. On 14 December 2004, the European Court of Justice delivered its judgement in the case brought by the Commission which challenges Germany s refill quotas in relation to mineral waters. The outcome was described in detail in section , but can be summarised as follows: the Directive does not establish a hierarchy between the reuse of packaging and the recovery of packaging waste i.e. reuse is not automatically superior; and the German deposit requirements are a barrier to trade for imported mineral water, since they compel foreign producers to adapt their packaging for the German market; the German measures were disproportionate because they did not allow a sufficient transitional period to enable producers and distributors to adapt to the requirements of the new system; but deposit systems for non-refillables do contribute to environmental protection. In a parallel case, 81 where a ruling was also given on 14 December 2004, the ECJ said that the Directive does not establish a hierarchy between reuse of packaging and the recovery of packaging waste. However, the Court went on to conclude that the Directive does not prevent the adoption of reuse measures, provided that they are consistent with the Treaty. 79 BCME, for example, has commented that national requirements promoting the use of refillable beverage containers mean in practice that the deciding factor behind establishing a factory is the immediate proximity to consumption. In their view this was against the spirit of the Internal Market. BCME accepts EEB s argument that major international companies are able to set up in Germany in order to supply the market with refillables, but says this would not necessarily be possible for small operators. 80 Council Directive 80/777/EEC of 15 July 1980 on the approximation of the laws of the Member States relating to the exploitation and marketing of natural mineral waters (Official Journal No. L 229, ). 81 Case C-309/02, Radlberger Getränkegesellschaft mbh & Co. and S. Spitz KG vs. Land Baden-Württemberg.

113 85 The ECJ did not specifically say whether refill quotas are acceptable. Meanwhile on 4 November 2004 Germany notified a proposed amendment to the Ordinance which would abandon the market share quotas and replace them with mandatory deposits on all beverage containers except refillables and ecologically favourable non-refillables. Ecologically favourable non-refillable beverage containers are defined as cartons (including gable-tops), polyethylene pouches and foil pouches Portugal As noted in section above, Portugal withdrew its original legislation setting market share quotas for refillable beverage containers sold to households, and requiring catering outlets to sell soft drinks, beer and bottled water in refillables only. The replacement measure, Implementation Decree 29-B/98, came into force on 8 January This retained the 100% quota for hotels and restaurants as one option, but offered the alternative of selling beverages in non-refillables provided they either recycle them or take them back (which may be done by means of participation in a recovery organisation). The outcome was that the Green Dot organisation SPV set up a separate system, Verdoreca, to collect beverage containers from the catering sector. Verdoreca was approved in September 1999 and by the end of 2002, 5190 catering outlets, more than half of the total, had signed up for this system. Verdoreca membership is free of charge to the outlets concerned. A contract is granted provided the outlet either has an ecoponto ( bring facility) nearby, or is covered by kerbside collection. The outlet must undertake to sort all its waste, not just beverage containers, and take it to the ecoponto. When Implementation Decree 29-B/98 was introduced, the market share quotas for refillables sold to households remained unchanged. These were: Table 32: PORTUGUESE MARKET SHARE QUOTAS FOR REFILLABLES SOLD TO HOUSEHOLDS and thereafter Soft drinks 15% 20% 30% Beer 70% 75% 80% Packaged waters 5% 8% 10% Table wine (except regional and VQPRD wines) 55% 60% 65% All retailers selling these products in non-refillable packaging must also offer the same product categories in refillables. Producers and NGOs both say that these quotas have not been enforced. This means that the legislation has not up to now presented any practical problems for the Internal Market, but it also means that the share of refillables has been in steady decline (see section 2.5.2). According to the Portuguese NGO Quercus, refillables represented 66% of the overall market for carbonated soft drinks in 1992, 36.4% in 1999, when the legislation was adopted, and 30.9% in In the case of mineral water, the share of refillables declined from 28.2% in 1996 to 23.3% in 1999 and to 14.9% in However, the information supplied to us is not sufficient to enable us to determine whether or not the market share quotas for refillables sold to households have been achieved.

114 Austria When Austria first adopted its legislation on packaging in 1992, it established special requirements for beverage containers. The Objectives Ordinance 82 set a series of beverage-specific combined reuse/recycling targets. This meant that operators could choose freely between using refillable containers or non-refillables, provided that they were recycled. However, in 2000 the Government replaced these with a single 80% reuse plus recovery target for all beverage containers. This change arose from the findings of a study undertaken by GUA 83 which had been jointly commissioned by the Environment Ministry, the national recovery organisation ARA and the beverage industry. The study had been prompted by a switch away from refillables towards oneway PET in the mineral water sector. Sales had risen by 20%, but the Government was concerned about the environmental implications and suggested this study. GUA carried out a cost-benefit analysis comparing one-way and refillable beverage packaging, which concluded that there was a huge benefit in using 1.5 litre PET bottles for mineral water in place of one-litre refillable glass. Replacing 1.5 litre refillable PET for mineral water and soft drinks with 1.5 litre non-refillable PET produced smaller but still clearcut benefits, and there were also marginal benefits in substituting half-litre aluminium or steel cans for half-litre refillable glass. There was no difference between the one-litre refillable polycarbonate milk bottle and the one-litre carton. However, the legislation was repealed following a legal procedural challenge, 84 and in 2000 it was replaced by a voluntary agreement. In the agreement industry undertook to ensure inter alia that drinks would continue to be available in both refillables and non-refillables while beer would be supplied predominantly in refillables. Signatories also undertook to recycle 50% of non-refillable PET by 2005 (through ARA). According to the report on implementation of the agreement in 2003, published in June 2004, participants in the agreement represent 80% of all beverage containers placed on the market. The recycling rate for PET in 2003 was 46.8% of the quantity licensed, up from 42% in With regard to the commitments on refillables, however, the Environment Ministry expressed concern that their mark et share had fallen to just 48%: 82 Verordnung des Bundesministers für Umwelt, Jugend und Familie über die Festsetzung von Zielen zur Vermeidung und Verwertung von Abfällen von Getränkeverpackungen und sonstigen Verpackungen, BGBl. Nr. 646/1992, subsequently amended by Verordnung des Bundesministers für Umwelt, Jugend und Familie, mit der die Verordnung über die Festsetzung von Zielen zur Vermeidung und Verwertung von Abfällen von Getränkeverpackungen und sonstigen Verpackungen geändert wird, BGBl. Nr. 649/1996 and later by Verordnung des Bundesministers für Land- und Forstwirtschaft, Umwelt und Wasserwirtschaft, mit der die Verordnung über die Festsetzung von Zielen zur Vermeidung und Verwertung von Abfällen von Getränkeverpackungen und sonstigen Verpackungen geändert wird, BGBl. Nr. 426/ Gesellschaft für Umweltfreundliche Abfall-behandlung, or Company for Environmentally Friendly Waste Treatment. 84 The Federal Constitutional Court upheld a complaint by Vienna s regional government that the Federal Government was not entitled to relax the product-specific beverage container targets without data to show that these targets had been met in 2000.

115 87 Figure 9: % market share of refillable beverage containers in Austria, Beer Mineral water Soft drinks Fruit juices Thus in autumn 2004, that agreement was replaced by a new one, which set out new objectives for the period : 80% of all beverage containers to be either refilled or recycled (this is the same as the legislative target, now repealed); 50% of all PET bottles to be recycled as material each year from 2005 (an extension of the target in the earlier agreement); PET beverage bottles must be produced using 30% recycled material by To this end, the agreement sets targets for the tonnage of recycled PET to be used in bottle-to-bottle recycling 500 tonnes in 2005, 2,500 tonnes in 2006 and 6,000 tonnes in 2007; fillers, distributors and importers of waters, beer, soft drinks and juices undertake to continue to supply them in refillables, whilst beer must predominantly be supplied in refillables (as in the earlier agreement). The agreement also set out detailed implementation methods to ensure that the objectives are achieved. These include: At least 75,000 to be spent per year on consumer campaigns to increase awareness about refillables and their environmental aspects. A standard logo for refillables was to be developed. To facilitate price comparisons, the price of drinks was to be indicated per litre or per half litre as appropriate. Industry was to increase the attractiveness of refillables to the consumer by increased advertising, in-store promotion (price promotions, etc.). Refillables were to be used at large events, including refillable glasses. If non-refillables were used at such events, convenient bins should be available. Each participating company would sign up individually. Participation is open to fillers, wholesalers and retailers, importers and other distributors, packaging producers and collection and recovery systems for beverage containers.

116 88 Given the conclusions of the GUA study, it is hard to justify the conclusion of this agreement, which establishes a clear preference for refillable containers. On the other hand, the use of a voluntary agreement rather than legislation could provide a flexible method of promoting reuse. We understand that Austria was keen to avoid the problems encountered with the German deposit requirements. The agreement contains some objectives and some innovative market-based measures that could not been introduced through legislation. However, stakeholders outside Austria have expressed concern that the agreement could give rise to barriers to trade if domestically produced drinks in refillables are given preference over imported products. And, given the absence of penalties, it remains to be seen whether the agreement will achieve its objectives. Market conditions may deter individual operators from making the necessary adjustments to their marketing and pricing policies.

117 DEPOSIT SYSTEMS FOR BEVERAGE CONTAINERS Introduction Article 15 of the Directive says that in the absence of economic instruments established at Community level to promote the implementation of the objectives set by this Directive, Member States may adopt national measures to implement those objectives provided they are in accordance with the principles governing Community environmental policy and with the obligations arising out of the Treaty. The most controversial use of economic instruments in the field of packaging has been the imposition of mandatory deposits on beverage containers. As section has shown, many of the infringement proceedings launched so far have related to this issue Deposit systems for refillable beverage containers Deposit systems for refillable containers continue to operate in many Member States. The use of refillable containers for beverages intended for home consumption has been gradually declining since the advent of non-refillable containers (see section 2.5.2). In some national markets, such as France and the UK, refillables have largely disappeared from the market. However, refillables are more common for drinks consumed in cafés, hotels and restaurants Deposit and refill systems operated voluntarily by industry Traditional refill systems have usually involved a deposit to ensure that containers are returned for refilling. 85 The fillers took the initiative voluntarily to charge a deposit to avoid the cost of replacement bottles. The deposit was typically the value of a replacement bottle. Industry continues to operate some deposit systems for refillables on a voluntary basis. We have concluded that systems operated voluntarily are unlikely to give rise to barriers to trade. Either each filler operates his own discrete system, or else there is a pooled system, in which participation is voluntary. Operators usually benefit from logistical efficiency if everyone participates in the pool, but any operator who feels disadvantaged is free to leave it. We received no input from stakeholders to suggest that there are any barriers to trade or competitive distortions from such voluntary deposit arrangements. A voluntary refill system with a pool is unlikely to disadvantage new entrants to the market as they are more likely to choose non-refillables. This is because non-refillables have fewer upfront capital costs than a refill system, are more appropriate for test marketing a new product in selected retail outlets, and therefore represent a lower financial risk for a new market entrant. GRA argues that private businesses voluntarily establish refill systems for numerous reasons, above all environmental, but also economic. However, we are not aware of any refill systems for beverage containers that have been established voluntarily by industry in recent times. We see the legislative measures taken by some Member States to protect existing refill systems as evidence that today s market conditions are not conducive to the establishment of new refill systems. It is true that refill remains strong in the brewing sector, but even here it is in decline The British doorstep milk delivery system is a notable exception. In this system, the milk is delivered in refillable bottles to consumers homes regularly, usually every day, so a deposit is unnecessary. The empties are collected from the doorstep when the milk is delivered. 86 Does consumer preference for locally brewed beer favours industry s use of refillables, or does the use of refillables promote the consumption of locally produced beer?

118 Deposit and refill systems supported by legislative measures As new types of non-refillable container became available, some Member States decided to adopt legislation to protect existing refill systems. They took the view that non-refillable containers generate more waste than refillables, so these measures were justified on environmental protection grounds. Measures to protect refill systems took a variety of forms, as discussed in section Most of the measures focused on protecting refill systems rather on regulating deposit arrangements per se. It was usually assumed that fillers would automatically operate deposits if they were using refillables. Further discussion of the implications for the Internal Market of legislation designed to promote reuse can be found in section 4.2. We have identified only a few examples of national legislation that specifically governs deposits for refillable beverage containers: Austria the deposit rate for refillable beverage containers is set by legislation. 87 We are not aware of any problems with this requirement, which serves only to ensure that all operators of refill systems use the same deposit rate. Denmark a 1981 requirement said that beer and carbonated soft drinks had to be supplied in refillable bottles of a design approved by the Danish authorities. The Commission challenged the requirement as a barrier to trade and referred the case to the ECJ. 88 In 1988 the Court ruled that a requirement to participate in a deposit system for reuse was acceptable, because deposits were an essential element of a reuse system. However, it said that the requirement to use approved containers was a barrier to trade (this specific requirement had been repealed before the ruling was issued). This case is widely cited as confirming that deposit systems are in principle compatible with EU rules. So far as we are aware, Denmark is the only Member State where fillers are legally required to participate in the sole deposit/refill system approved by the authorities, Dansk Retursystem (DRS). The operating rules for DRS, which also handles non-refillable beverage containers, were notified to the Commission in Certain amendments were made in response to comments received, and the rules were approved. The Dansk Retursystem is described in detail below Deposit systems for non-refillable beverage containers Deposit systems for non-refillable beverage containers currently operate in four Member States, Denmark, Finland, Germany and Sweden. A similar system also operates in Norway. Norway is not an EU Member State, but it has been included in our assessment because the existence of a deposit system in Norway affects the operation of systems in neighbouring countries and there is significant cross-border shopping between Norway and neighbouring countries, particularly for alcoholic drinks from Sweden. Also, as a signatory to the Treaty on the European Economic Area, Norway must comply with the Directive. In the Netherlands, it has been agreed that large non-refillable PET bottles will be allowed onto the market from 2006 provided they are subject to a deposit system Ordinance 440/2001, updating legislation adopted in Case C-302/86 discussed further in section PET bottles larger than 50 cl are currently permitted only if refillable.

119 Legislative requirements None of the existing deposit systems for non-refillables came into existence at the voluntary initiative of fillers and retailers. They were all established in response to national legal requirements specific to beverage containers: Denmark: the sole deposit system, Dansk Retursystem (DRS), was originally established to handle refillable containers. Now, since beverage cans were allowed onto the Danish market in 2002, all containers of beer, carbonated water and carbonated soft drinks must participate, whether refillable or non-refillable. The non-refillable container types handled are aluminium and steel cans, and plastic and glass bottles. Denmark also levies packaging taxes on all beverage containers, at rates that vary depending on the type of drink and type of packaging material. Finland: non-refillable drinks containers are subject to taxes, with a discount if a deposit system operates. The deposit system handles aluminium and steel cans (in practice only aluminium are on the market), but there are no non-refillable PET or glass bottles for beverages in Finland. 90 Germany: there is a mandatory deposit on non-refillable containers (except beverage cartons) of the drinks that failed to meet the refill quotas in the Packaging Ordinance, namely beer, waters, and carbonated soft drinks. The deposit took effect on 1 January Companies selling drinks in a unique design of packaging are not required to take back and refund the deposit on other containers, a provision that has encouraged some operators, particularly discount retail chains, to operate their own discrete deposit arrangement, which have become known as island solutions. 91 Germany has notified proposed new deposit provisions to the Commission. A deposit would be imposed on environmentally unfavourable beverage containers, essentially most non-refillables (except beverage cartons and certain laminated pouches). The new deposit would apply on containers of all beers, waters, soft drinks and mixed drinks containing less than 15% alcohol or less than 50% wine, but not on juices, drinks at least 50% milk or milk-based products, or beverages for particular nutritional uses. The provisions that have permitted island solutions would be revised. Norway: non-refillable beverage containers are subject to a packaging tax, and a second tax is levied on all beverage containers, with discounts for containers that are part of a deposit system. The level of the tax discount depends on the return rates achieved each year. Sweden: users and importers of non-refillable PET must have a licence, which is granted only if they participate in a deposit system. Aluminium cans are exempt from duty if they participate in deposit system. 92 In all the above countries except Denmark, a separate recovery system operates for other (non-deposit) packaging to ensure that the Directive s recycling targets are met. The respective general packaging a 90 A proposal to reform the tax has recently been notified to the Commission. The scope of the tax will be expanded to some non-carbonated drinks. It is also proposed to replace the discount for deposit-bearing containers with an exemption from the tax in 3 years time. This should make it viable to include non-refillable PET in the deposit system. 91 The ECJ challenged the link between failure to meet refill quotas and the deposit on non-refillables in two rulings of 14 December The Commission has argued that island solutions are a barrier to trade because their operators insist on a unique design of container. 92 A proposal to extend the deposit requirements to all metal and plastic packaging has been notified to the Commission.

120 92 recovery organisations in Finland, Norway and Sweden handle both sales and transport packaging. In Germany, one large system operates for sales packaging (with increasing competition from smaller systems), while for transport packaging there are various different recovery systems that operate in competition with each other. These packaging recovery systems are discussed in Chapter 6. The deposit systems in Finland (Palpa), Norway (Resirk) and Sweden (Returpack) started to operate at the same time or soon after non-refillable beverage containers first came on the market and looked set to replace traditional refill systems. The recovery systems that handle other packaging in these countries were established later. The situation in Germany is very different. A recovery organisation started to handle all categories of sales packaging ten years before the deposit took effect. Imposition of the deposit in 2003 was triggered by a provision in the 1991 Packaging Ordinance designed to maintain the market share of refillables at 1991 levels. To encourage consumers to continue to buy refillables, the deposit is set in the legislation at a high rate 0.25 for containers up to 1.5 litres and 0.50 for larger sizes. Legislation does not control deposits on refillables, where the beverage industry operates its own deposit systems. The deposit is 0.15 on glass bottles of water, milk and soft drinks (irrespective of siz e ). The deposit on glass beer bottles is 0.08 and on glass wine bottles The deposit on PET 93 is Description of the systems Table 33 provides an overview of the requirements of deposit systems in the Nordic countries, and in Germany (although German requirements and arrangements are subject to change). There are many similarities in the way that deposit systems work in Denmark, Finland, Norway and Sweden. Those in Finland, Norway and Sweden have been operating with only minor adjustments for several years, and the operating method of the new Danish system is similar. There is a single national deposit system for non-refillables in each country, 94 although in Norway and Sweden there are also some very small, specialist systems (Sweden has recently notified proposed revised requirements to the Commission that would inter alia facilitate the establishment of new systems). The operating 95 arrangements for the Danish system were written into a legislative Order (notified to the Commission), and it has been granted a licence by the Danish government to operate as a monopoly for six years. The Danish system is the only one that handles both refillables and non-refillables. Arrangements in Germany however are very different, and are not finalised. The development of oper ating arrangements has been hindered by uncertainty about the legality of the deposit requirements, and by competition concerns (which hampered the establishment of a clearing house to co-ordinate the different deposit systems). In o ur review of the deposit systems below, we set out the current situation in Germany, together with some possible scenarios once the amended legislation has taken effect. The current arrangements now seem likely to remain in operation until the end of the transitional period after the new requirements have been adopted June 2006 at the earliest. 93 Revised deposit rates provided by GRA. 94 The systems for PET and for cans in Sweden are separate legal entities, but they operate as a single system for both pack types. 95 Statutory Order No. 713 of 24 August 2002 on deposits and collection etc of packaging for beer and certain soft drinks (Deposits and Fees Order) [Bekendtgørelse om pant og indsamling mv. af emballager til øl og visse læskedrikke].

121 93 Table 33a: DEPOSIT SYSTEM REQUIREMENTS FOR NON-REFILLABLE BEVERAG E CONTAINERS, 2004 Country/ System name Denmark/ Dansk Retursystem Finland/Palpa Pack type Admin fee Unit fee Pack tax/ Unit De posit Marking Comments øre / cent øre / cent DKK / cent Alu 0.33l Alu 0.50l Steel 0.33l Steel 0.5 l Plastic 0. 33l Plastic l DKK 2, Mandatory for beer, Plastic 1. 5 l ( 268) per year Logo & special bar code carbonated waters and Plastic l No fee payable if no adhesive labels can be purchased carbonated soft drinks. Glass 0.33 l new packs from 4.5 øre (0.6 Same system also handles Glass 0.5 l registered in any eurocent) each. refillables. year. Plus unit fee for all types/sizes (supplied to retailer) All types/sizes Surcharge for non-standard sizes Alu: 0.5 eurocent Tax on all non-refillable 0.25 l ( surcharge for (reduced rate) Amount of the deposit on can containers of beer, 7,600 one-off 0.33 l non-standard shoulder. carbonated waters and soft joining fee. Plus 0.50 l sizes) Barcode must be unique to drinks, with reduction if in a 550 per bar code Finland. deposit system registered. Steel: 3 eurocent Adhesive labels not permitted. No steel cans currently 0.33l/ 0.50 l (reduced rate) registered with system. PET No non-refillable PET or (full rate) glass on the market. Glass (full rate)

122 94 Table 33b: DEPOSIT SYSTEM REQUIREMENTS FOR NON-REFILLABLE BEVERAGE CONTAINERS, 2004 Country/ System name Germany/ P-Pfand (now works with Vfw) Germany/ Westpfand Germany/ Discount chain island solutions Pack type Admin fee Unit fee Any, but mainly disappeared from the market. PET as cans have largely Currently only cans, but expects to handle PET in future. Mainly private label PET. 1,000 one-off fee per bar code Logistics cost negotiated by each retailer Pack tax/ Unit - - P-Pfand logo mandatory (adhesive labels possible for small operators) 1.5l : 25 c Deposit Marking Comments Mandatory for all non-ref containers of beer, all waters and carbonated soft drinks, but not beverage < 5 l: 4.5 c - Westpfand logo mandatory. > 1.5 l: 50 c cartons. > 5 l: 20 c P-Pfand and Vfw accept (currently paid each other s containers. by filler, but Others operate separately. switch ing to retailer funded) - Individually - 1.5l: 25 c Unique design of bottle required. Accept only their own negotiated containers. > 1.5 l: 50 c Norway/Resirk øre / cent B asic plus Material Tax øre / cent NOK/ cent Alu cans B-89 B Joining fee of NOK M-30 M-3.6 Steel 30,000 ( 3,570) B-89 B plus NOK 5,000 M-30 M-3.6 PET < 0.5 l ( 595) per bar B-89 B code registered. M-52 M-6.2 PET l B-89 B M-52 M-6.2 PET > 1 l B 89 B M-52 M-6.2 Mandatory use of Resirk logo. Usually special bar code (4 øre (0.48 eurocent) surcharge if standard bar code used) For PET: surcharge for coloured bottles and sleeved bottles. Basic tax paid only on non- in 2004, refillable containers. Rate of material tax determined by return rate achieved each year. (93% discount for cans 80% for PET). Taxes and associated deposit requirements apply to all ready-to-drink drinks.

123 95 Table 33c: DEPOSIT SYSTEM REQUIREMENTS FOR NON-REFILLABLE BEVERAGE CONTAINERS, 2004 Country/ System name Sweden/ Returpack Sweden/ Returpack PET Pack type Admin fee Unit fee Pack tax/ Unit Deposit Marking Comments Alu cans öre /0.38 c 50öre/5.5 c Requirements apply to all No joining fee and paid only by (paid by Use of barcode mandatory, ready drinks in alu cans. free registration of importers, converters or Returpack logo and amount of Scope may be extended to bar codes. passed to importers) deposit. steel cans. Returpack. PET 1 l 27öre/2.94 c SEK 1.00/ paid by filler or 11 cent importer) 15öre/1.64 c extra for SEK 10,000 Requirements apply to all No joining fee and Use of barcode mandatory, coloured PET ( 1,090) annual ready drinks in PET bottles. free registration of Returpack logo and amount of PET > 1 l 77öre/8.39 c licence fee to SEK 2.00/ Scope may be extended to bar codes. deposit. (paid by filler or authorities. 22 cent all plastic beverage bottles. importer) 15öre/1.64 c extra for coloured PET

124 96 There are currently two systems which are open to all participants and pack types, P-System and Westpfand : P-System is operated by Lekkerland-Tobaccoland, a wholesaler which distributes to convenience stores (including kiosks, petrol stations, etc) throughout Germany. Vfw, a waste company and recovery system operator which originally operated its own deposit system using return coupons, has now joined forces with P-System, and acts as service provider within the system. Westpfand is connected to Interseroh, a waste management and recovery system operator which runs the logistics and ensures the recycling of the empty containers. The two systems have reached a clearing arrangement so that consumers purchasing containers which are part of either system can in principle get their deposit refunded in outlets participating in P-System or Westpfand. 96 Many highway and convenience shops as well as bakeries, supermarkets, petrol stations, chemists and some chains now participate in one or other of these return systems. GRA reports that more than 25,000 shops, 80 fillers and 300 products of major brands have joined P-System, including 750 motorway service stations. Convenience stores remain the main focus of the system, but the purchasing group Spar now participates and so do some department stores. Although there are a large number of stores participating in P-System and Westpfand, they have a relatively small of the drinks market. The take-back systems are open to all distributors, irrespective of whether they sell national or imported products, and a variety of importers also participate. As a result, drinks in deposit-bearing non-refillables are available in retail outlets throughout Germany, and consumers can get their deposit refunded in any of the participating outlets. Island solutions operate alongside the open systems. These are primarily operated by discount store chains. Operators of island solutions refund the deposit only on the containers sold by the chain in practice usually a PET bottle of a unique design. Although there are relatively few of these stores, they have a large market share for some of the drinks categories subject to the mandatory deposit. We can only speculate wh at type of deposit systems, and how many deposit systems, will be in oper ation onc e the new d eposit rule s take effe ct. It seems likely that several different systems will operate in competition, as the German competition authority, the Bundeskartellamt, has made clear that it will not permit a single system. 97 Under the amended Ordinance, all retail outlets that supply drinks in non-refillables in a given material will be required to refund the deposit on any empty container of that material. Thus, operators of island solutions will be required to refund the deposit of non-refillable PET bottles sold by others. This will requ ire them to participate in a clearing arrangement. We expect that the existing open systems will continue to operate. DSD has also indicated its intention of establishing a return system for deposit containers. The retail chains that currently operate island solutions may participate in these or in new, yet to be established, open systems. Alternatively, they may use their newfound experience in handling returned containers and continue to operate their own systems under the new rules. Some of the mainstream supermarket chains have delisted non-refillables, but we would expect that they will begin to sell them again. Like the discount chains, they would have a choice of participating in one of the existing open deposit systems, or in new ones, or they could establish their own system It is not clear ho w far this arrangement operates in practice, however. The competition implications of deposit systems are discussed further in section

125 97 A robust clearing arrangement would need to be established to handle imbalances between the number of deposits received (on containers sold) and refunded (on containers returned) by each store chain Return arrangements and logistics Automatic versus manual handling at the store In all the Nordic systems, the majority of large supermarkets have reverse vending machines (RVMs), an d consumers can return empty containers and get their deposit refunded on any deposit-bearing container at any supermarket or similar retail outlet. The smaller stores handle containers by hand, either using hand scanners or by visually checking the deposit logo marked on the container. The RVMs count the containers and crush them before they are transported for recycling. In Germany, legal uncertainty has discouraged retailers and deposit systems from investing in RVMs, so manual handling in-store remains common. Many of the retail outlets participating in the P-System are of a type where manual handling would be expected either because the outlets are small and/or because the quantity of containers handled is relatively small. We believe that the Danish and all German systems will have to invest in RVMs in future. RVMs identify deposit-bearing containers (in the Nordic systems by reading the barcode but possibly by scanning a security logo in Germany), and then crush the containers. This reduces the economic and environmental cost of transport and reduces potential fraud (containers retain the value of the deposit until the barcode/logo has been made illegible by crushing). Subsequent handling In Norway and Sweden, the containers are backloaded (i.e. transported on delivery trucks) from the retailer back to the filler, whilst in Finland they are picked up by a waste collector and taken to regional depots for counting and baling before being sent for recycling. In Denmark, all containers are currently transported from the supermarkets uncrushed to DRS s two depots, where they are counted. However in future, RVMs in the large supermarkets will count and crush the containers before they are transported to the DRS depot. In Sweden, fillers used to count any returned containers not counted by the retailers, and then sort and bale all containers. Returpack has now established its own depot to undertake these tasks. The containers are still backloaded to the filler, from where Returpack s contractors collect the containers in boxes or plastic sacks. In the German P-System, the containers are backloaded to one of the system s five depots for counting. This is undertaken by the system s two affiliated service providers, Vfw and Rhenus. As in Denmark, they are transported uncrushed, but cans and PET can be mixed in the same sack. Westpfand uses the contractors affiliated to Interseroh to transport empty containers uncrushed to one its ten depots for counting. Each sack should contain only one type of container (cans separate from PET etc). Westpfand says that non-deposisack, but the retailer will of course not receive any money back. For retailers with limited space to containers of the same material can also be placed in the store the containers, containers are backloaded to the wholesaler, and transported on from there by Interseroh s contractors.

126 Deposit-bearing non-refillable containers in cross-border trade If consumers import deposit-bearing containers from a neighbouring country and then return them in their home country, the containers are accepted by the Nordic systems but no deposit is refunded. The Swedish system currently accepts only aluminium cans, but in future will also accept tinplate cans. DRS says that it accepts German cans (many of which are steel), and uses the revenue from unredeemed deposits (on exported containers) to fund their handling. The direction of flows of cross-border purchases and thus of deposit containers returned to a foreign system are fairly predictable. They are determined to a significant extent by differences in tax and excise duties on alcoholic drinks, and by transport distances and available transport links. Thus, the deposit-bearing containers affected are primarily cans of beer. In Denmark, beer and other alcoholic drinks in glass bottles are also affected because glass is part of the same deposit system. Tax and excise differences mean that containers flow into Norway particularly from Sweden, and into Sweden particularly from Denmark and Estonia. Containers flow into Finland particularly from Estonia and into Denmark particularly from Germany. Figure 10: Direction of beverage container flows The deposit on Swedish cans is roughly half the Norwegian rate, which makes Swedish drinks seem even cheaper to Norwegian consumers. Resirk ensures that all foreign cans received are recycled Funding flows Fees paid by fillers Joining fee arrangements are as follows: The deposit systems in Finland and Norway each charge a flat rate one-off joining fee paid by fillers and drinks importers, regardless of the quantity placed on the market.