Subordinate Legislation
Item 1 on the agenda is the Producer Responsibility Obligations (Packaging Waste) Amendment (Scotland) Regulations 2000 (SSI 2000/draft). It is accompanied by an Executive cover note and committee covering note TE/00/30/1. The instrument was laid on 17 November 2000. The Parliament has designated us as the lead committee for consideration of the instrument.
The draft order is laid under the affirmative procedure, which means that the Parliament must approve the order before it comes into force. The time limit for parliamentary action expires on 20 December; the committee is required to report formally by 18 December. The Subordinate Legislation Committee considered the instrument on 28 November 2000 and reported that the attention of the Parliament need not be drawn to it.
I will briefly outline the procedure for dealing with SSIs. Before the motion is moved, the minister will have an opportunity to make introductory remarks. At that stage we can allow questions to the minister and his officials; those should be technical questions to clarify any points relating to the instrument. After that period of questioning, the minister should formally move motion S1M-1402, which may be debated prior to a decision. Executive officials may not contribute to the formal debate after the minister has moved the motion; only MSPs may take part in that debate, which must last no longer than 90 minutes. I invite the minister to make introductory remarks on the instrument.
The committee will be aware of European directive 94/62/EC on packaging and packaging waste. It requires member states to recover 50 per cent to 65 per cent and recycle 25 per cent to 45 per cent of packaging waste. Those requirements were transposed into UK law by the Producer Responsibility Obligations (Packaging Waste) Regulations 1997. The regulations require companies with a turnover of more than £2 million and that manufacture or use 50 tonnes of packaging materials or products a year to reprocess certain proportions of the packaging waste for which their position in the packaging chain makes them liable. That entails their registering with the Scottish Environment Protection Agency, or the Environment Agency in England and Wales, to supply data on the nature and extent of their packaging use and to demonstrate through a system of packaging recovery notes that they have ensured the recycling or recovery of the tonnage of packaging waste that is attributable to them. The regulations specified progressively increasing interim targets to be met each year in the run-up to the directive deadline of 30 June 2001.
The 1997 regulations have been under review more or less constantly since they were introduced. A review in 1998 led to amendments in 1999, which—among other things—increased the registration fees for companies and compliance schemes, reapportioned the percentages for which each sector of the packaging-using industry was responsible and increased the national recovery targets for 1999 and 2000. The 1998 review also held out the prospect of increasing the targets for 2001, but it was decided not to make any changes pending further data collection.
The draft regulations that are before the committee today are the result of that further consideration. They do two things. First, they discontinue the existing scale fee for compliance schemes and replace it with a flat rate charge of £460. Secondly, they increase the interim recovery target for 2001 from 52 per cent to 56 per cent and material-specific recycling targets from 16 per cent to 18 per cent.
The change to the registration fee for compliance schemes is being made for two reasons. First, when the packaging recovery scheme was put in place, it was anticipated that the environment agencies would benefit from economies of scale as compliance schemes grew larger and assumed the burden of collecting data from their members. The assumption was that the agencies would benefit from lower costs if they had to process only a small number of consolidated returns rather than the individual returns of each member of the scheme. To some extent, that has been the case. However, their experience has been that savings are being achieved only in relation to the submission of data reporting—the submission of data on packaging used and waste packaging reprocessed. The system has not saved them any money on what is arguably their most important function, which is to monitor packaging use.
Irrespective of whether an obligated company is a member of a scheme or is registered direct, the agencies will inspect it and conduct an audit of its packaging use. SEPA's target is to inspect all companies that are registered with it at least once every three years, or more frequently if a visit, a company's returns or other information suggest that increased vigilance is warranted. Auditing a company is the most expensive element of the registration, as it entails a visit to the company's office.
The second reason for adopting a flat-rate fee has been a growing awareness by Government that the steep discounts that are available to very large schemes are potentially anti-competitive. The Office of Fair Trading supports that view. The existing scale fee prescribes a registration fee of £760 per member for schemes with a membership of up to 500, but only £126 per member for schemes with more than 3,000 members. Replacing the scale fee with a flat-rate fee enables smaller schemes to compete against larger ones on the basis of the level and quality of support offered by each without the distortion that is introduced into the market by a deep discount on the fee.
SEPA was involved in calculating the new fee and agrees to both the flat rate structure and the amount of £460, which is a more accurate reflection of the agencies' costs of monitoring and auditing compliance scheme members. The figure compares with a registration fee of £950 for a directly registered company. Subject to Parliament's approval, the new fee will apply to registrations and reregistrations from 1 January 2001.
The second element of the draft regulations increases the national recovery target from 52 per cent to 56 per cent and the material-specific recycling targets from 16 per cent to 18 per cent. As I indicated, increases in the national targets for 2001 were put in abeyance pending collection and analysis of more reliable data and the outturns for 1999.
The 1999 UK performance was a recovery rate of 39 per cent and an overall recycling rate of 33 per cent. Although the overall recycling rate comfortably meets the directive's targets, there is concern that increases in recovery rates are not progressing quickly enough to ensure compliance with the directive next year. There is also some concern that not all the material-specific recycling targets will be met unless further action is taken.
In retrospect, it is clear that the original assumptions that were used to determine the UK's progression towards achievement of the directive targets were flawed. That is not surprising, as until the advent of the packaging directive there had been no need to compile data on packaging, manufacture and use. The development of more robust data collection and modelling since 1997 has shown how far off the mark those assumptions were.
The original projections overestimated the number of obligated businesses in 2000 by 65 per cent—estimates were for 19,000 compared with an actual figure of 11,500. The original projections also estimated the amount of packaging used by non-obligated companies to be about 10 per cent, whereas latest estimates put it at about 11.1 per cent. On year 2000 volumes, that equates to about 101,000 tonnes of packaging waste generated by companies below the registration threshold.
On the most recent information that is available to Government—allowing for a margin of error and variations in reporting—the proposed new recovery target of 56 per cent for obligated businesses will deliver an overall recovery rate of 51 per cent. That would just comply with the mandatory directive target of 50 per cent, with the small 1 per cent margin of error.
Members may have noticed that I have been using expressions such as "information available to Government" and "awareness within Government" and they may suppose from that that the Executive is not advancing its separate argument for making those changes. I have to concede that the package recovery scheme was established in pre-devolution days and was designed, in close collaboration with industry, to apply in a unitary way across Great Britain.
The Executive and the Department of the Environment, Transport and the Regions have attempted to disaggregate meaningful Scottish data from the UK totals, but it has not proved practicable to do so. The difficulty is that Scottish companies may be registered with the Environment Agency in England and English or Welsh companies may be registered with SEPA. Many companies will operate across the border.
As obligated companies are not required to disaggregate their packaging data by administrative jurisdiction and there is no definition of what constitutes Scottish, English or other UK packaging in a cross-border context, it is not possible accurately to quantify the extent of Scotland's obligations under the directive or to measure its compliance with it.
However, we are acutely conscious that quantifying accurately the extent of Scotland's obligations under the directive or measuring our compliance with it will have to be addressed sooner rather than later. The European Commission is set to review the directive targets next year. We expect that much tougher targets will be set for 2006. We also expect that there will be further consultation within Government about how the new targets should be met. It seems to the Executive that that will be a good time in which to seek changes to companies' reporting requirements, which will enable SEPA and the Executive to explain the position in Scotland much more definitively than is the case at present.
The packaging regime is a far from simple system. Nevertheless, it appears to be delivering improvements in our ability to recycle packaging waste, albeit not as quickly as was originally thought and certainly not as quickly as we would have liked. The changes that the Executive is proposing will ensure that sufficient packaging waste is recovered to enable the UK to meet its European directive obligations and that the Environment Agency's monitoring and auditing costs are recovered fairly from those who give rise to those costs.
I will be happy to answer questions about the amendment regulations or to clarify any points about the packaging system.
My life appears to be going full circle. I was involved with this matter in nineteen-canteen when I worked for the Institute of Wastes Management and now it comes back to me in another guise. However, that is a pleasure for me.
I understand the difficulties that the minister talks about in relation to information, particularly the projections that were made in the early days of the discussions about how to implement the directive. We need to meet our objectives and recover costs, but the bottom line is that we need to improve our environmental performance.
There seems to be a staggeringly large discrepancy between the original estimate of obligated companies, which was 19,000, and the actual figure of 11,000. Can that be accounted for?
You are right in saying that the difference is staggeringly large. As the convener suggested, it can be explained by the lack of originating data. However, data are now building up.
Richard Arnott (Scottish Executive Rural Affairs Department):
We have learned from experience and we are still learning.
Paragraph 10 of the Executive note says that the shortfall this year has been set at £29,250. Why was the charge not set at a level designed to balance the costs? What is intended by the final sentence in that paragraph? It says:
"The effect on SEPA's income and expenditure further into the future will be kept under review."
Does that imply that there will be a policy of balancing costs and income?
The short answer to the second question is yes. I anticipate that we will be monitoring and reviewing the outcome of the revised targets and that SEPA—whose representatives I will ask to respond to the question about the charges that will be levied in relation to their income and revenue needs—will assess the impact of the revised charges annually.
The original costs were set as part of the compliance scheme and have been reviewed in accordance with the first year's operation. The figures in the Executive note are a direct reflection of the original charges. The introduction of the new charge would substantially reduce the cost to business of complying with the directive and, as a consequence, reduce SEPA's income.
I have talked to SEPA about the points that you have raised. Perhaps a representative would like to respond.
Donald Macfarlane (Scottish Environment Protection Agency):
The original charges were based on estimates as we started up in the new business area. We have worked hard to balance our costs against the work that needs to be done. Each year, as the number of companies changes, we will revise our work load planning. I cannot say whether we will change the charges each year but we will consider them on an annual basis.
I do not understand why the flat-rate charge of £460 has been set at a level that will make a budgeted loss. Why was it not set at £480 or whatever sum would ensure that there was no loss?
There was a budgeted surplus in the preceding year that would offset any budgetary impact.
Does SEPA have the right to carry on overspending and underspending?
The situation is not quite like that. We must ensure that, over a three-year period, we charge industry only what needs to be charged.
Did you say that you plan over a three-year period?
We consider whether the burden on industry during what is roughly a three-year period is broadly equal to the costs that SEPA has incurred. We do not carry costs over.
Does the year-end flexibility regime that you work under permit you to do that without losing resources over the three-year cycle?
Yes. We would of course not lose resources over the three-year cycle.
I am sorry, I meant from year to year within the three-year cycle.
In that case, you are correct.
It is also worth noting that the charge would increase in line with inflation annually. It must be set in consultation with the Department of the Environment, Transport and the Regions to ensure that there is a standard charge in Scotland and England so that there is no disparity in the market.
That will prevent the creation of cross-border flows.
The minister touched on the matter that is contained in paragraph 15 of the Executive note when he talked about measuring the statistics for Scotland. I had not appreciated that the implementation of the directive and the achievement of targets was likely to be measured on a Scotland-wide basis rather than a UK-wide basis. Is that standard practice with any European directive that sets targets for volume, quantity and the achievement of objectives? I assume that the situation in Scotland will be a matter for separate determination assessment and possibly separate infraction proceedings.
The answer is not directly yes, as the European legislation applies across the UK. Within the UK, the Government has the power to split the obligations between the devolved Administrations. The implementation of environmental legislation is the Scottish Executive's responsibility. The Executive would be expected to meet its share of the UK total.
The target in the directive is 50 per cent of all the UK's packaging. There is no way of splitting that to allow Scotland to assess its share and demonstrate that it has achieved its share. Under the Scotland Act 1998, Scotland can be allocated a share of the UK total and the UK target. If Scotland did not meet a target that was set under the act, any infraction fines would fall on what I think is called the Scottish consolidation fund. At the moment, however, the target in the directive is a UK target.
How do you intend to report to Parliament on performance? Will you do so through a SEPA report or Executive responses to questions? How will the information come out of the other end of the machine?
At the moment, the Scottish figures are joined with the Northern Ireland figures and the Environment Agency figures; an annual report, which is agreed by all the relevant parties, is produced by the DETR. We would be prepared to provide that report to the Scottish Parliament, if that is what is required.
That would be useful.
I thank our witnesses for answering our questions and ask the minister formally to move the motion.
Motion moved,
That the Transport and the Environment Committee recommends that the draft Producer Responsibility Obligations (Packaging Waste) Amendment (Scotland) Regulations 2000 be approved.—[Allan Wilson.]
Motion agreed to.