EVALUATING THE COSTS AND BENEFITS OF INTRODUCING A CONTAINER · PDF fileINTRODUCING A...

EVALUATING THE COSTS AND BENEFITS OF

INTRODUCING A CONTAINER DEPOSIT SYSTEM FOR

NEW ZEALAND

Funded by The Packaging Forum’s Public Place Recycling Scheme

Published March 2016

SUMMARY OF ANALYSIS

AUTHORSHIPTim Denne and Louis [email protected] | 09 916 1960

© Covec Ltd, 2016. All rights reserved.

DISCLAIMERAlthough every effort has been made to ensure the accuracy of the material and the integrity of the analysis presented herein, Covec Ltd accepts no liability for any actions taken on the basis of its contents.

CONTAINER DEPOSIT SYSTEM ANALYSIS 2016

1

Households in New Zealand produce significant amounts of waste, some of which

is recycled via kerbside collection schemes or drop off recycling programmes. A

number of countries operate container deposit schemes (CDSs) that can deliver high

rates of recycling for beverage containers, e.g. an estimated return rate of around

80% in South Australia1 compared to an estimated return rate of 69% for glass,

plastic and aluminium beverage containers via kerbside recycling in New Zealand2.

The NSW Government, in its Discussion Paper 3, states “In general, consumers cover

the cost of the scheme in the price of the drink when purchasing it. In this regard,

CDSs are based on the ‘polluter pays’ principle, shifting waste management and litter

collection costs away from local councils and land managers and on to consumers.”

In 2008 Covec analysed the costs and benefits of a CDS in New Zealand and

suggested that it would yield net costs to New Zealand4. This is because of the high

additional costs for infrastructure and household costs for returns, spread across

the benefits from a small potential increase in recycling rate above that achieved

with kerbside schemes. In 2016 Covec has updated that analysis using recent data

including taking account of new cost benefit analyses (CBAs) conducted in Australia.

This summary report provides an overview of the costs and benefits associated with

the introduction of a container deposit system.

1 epa.sa.gov.au/environmental_info/container_deposit

2 WasteNot Consulting (2016) Recovery Rates of Beverage Containers through Kerbside Recycling

3 State of New South Wales (2015) NSW Container Deposit Scheme: Discussion paper

4 Covec (2008) Potential Impacts of the Waste Minimisation (Solids) Bill: Update Report. Prepared for Packaging Council of New Zealand

INTRODUCTION


2

New Zealanders consume around 2.1 billion beverage containers each year.

An estimated 69% by weight of beverage containers are recycled in New Zealand (glass bottles, aluminium cans, HDPE and PET drinks containers).

Overall a CDS might be expected to increase beverage recycling levels to 82% by weight; but

Place a net cost of $75m each year on New Zealand society.

This equates to a cost of approximately $2,200 per additional tonne recycled.

A handling fee of 3.5 cents per container which would likely be passed on at least in part to consumers through higher prices.

SUMMARY OF COST BENEFIT ANALYSIS

12

3456


3

A CDS is expected to result in greater recycling

rates, increasing the revenue from material sales

and reducing quantities of waste and litter. The

two main costs are the costs of household time

in making returns and the costs for installing and

running collection infrastructure, such as reverse

vending machines. These beverage industry costs

are likely to be passed on to households in beverage

prices. Households that do not return their bottles

for refunds will bear the cost of the deposit but this

will become a benefit for someone else: possibly the

beverage industry or the government.

Benefits - $22 Million per year

A CDS is estimated to bring a benefit of $22m per

annum to New Zealand’s society

The most significant benefit of a CDS would be

increased sales revenue from recycling materials,

estimated to be $10m. The value of unredeemed

deposits paid by visiting tourists would produce an

additional $5.5 million. Other benefits would include

the cost savings from diverting containers from

landfill and litter streams.

Costs - $97 Million per year

The analysis estimates the costs of establishing

and operating a CDS would be $97m per year,

outweighing its potential benefits. Like in the recent

Australian CDS studies, the key costs are estimated to

be those associated with establishing and operating

the collection infrastructure ($61m per annum) and

household participation ($33m per annum).

Overall, taking account of the costs and benefits, a CDS is expected to place a net cost of $75m per year to New Zealand’s society.The distribution of those costs across different

sectors is shown in the table on page 4. Much of the

cost estimated to be borne by beverage producers

is likely to be passed on to households also via

increased beverage prices.

COST BENEFIT ANALYSIS


4

ESTIMATED NET IMPACT OF A CDS

Beverage Producer Households

Councils/ Government Un-allocated Total

Costs

Recycling collection $71,032,948 -$10,206,274 $60,826,673

Transport & Processing $11,095,808 -$9,993,835 $1,101,973

Overheads $1,800,000 $500,000 $2,300,000

Household costs $32,596,170 $32,596,170

Total Costs $83,928,755 $32,596,170 -$19,700,110 $96,824,816

Benefits

Value of materials $30,374,033 -$20,226,859 $10,147,175

Unredeemed deposits -$55,064,508 $8,449,033 $52,105,475 $5,490,000

Litter clean-up savings $938,141 $938,141

Reduced costs of waste collection

$2,084,197 $2,084,197

Avoided landfill costs $3,401,967 $3,401,967

Total Benefits $30,374,033 -$55,064,508 -$5,353,521 $52,105,475 $22,061,480

Net Costs/Benefits -$53,554,722 -$87,660,679 $14,346,589 $52,105,475 -$74,763,337

A CDS FOR NEW ZEALAND

The current estimated recycling rate of beverage

containers in New Zealand is 69% by weight of

materials (see table page 5). A CDS would seek to

increase this rate by providing a financial incentive to

households to return their containers.

69%


5

NEW ZEALAND’S CURRENT BEVERAGE CONTAINER RECYCLING RATE

Glass Aluminium PlasticLPB

Tetrapak Total

ContainersConsumed

(No. millions) 1,025 410 641 51 2,126

(tonnes) 214,156 6,139 25,753 2,100 248,148

CurrentRecycling

(No. millions) 744 194 300 0 1,240

(tonnes) 155,567 2,889 12,058 0 170,524

Rate (No.) 73% 47% 47% 0% 58%

Rate (tonnes) 73% 47% 47% 0% 69%

Source: Waste Not Consulting (2016) NZ beverage container recovery 2016. Container numbers have been computed using containers per tonne estimates from BDA Group & Wright Corporate Strategy (2010) Beverage container investigation revised final report

Note: The data for plastic containers excludes returns from the commercial/hospitality sector.

HOW DOES A CDS WORK?The elements of a CDS are

shown in the figure shown right,

including estimates of quantities

of containers and the flow of the

deposit and refund.

RETAILER

BEVERAGE PRODUCER

CONTAINER PRODUCER

MANAGINGAGENCY

MATERIALSPROCESSOR

WASTE /LITTER

KERBSIDERECYCLER

RETURN FACILITY

3.5c ($54m)handling fees

ELEMENTS OF A CONTAINER DEPOSIT SYSTEM

ENDUSER

0.4b

0.2b

1.5b

1.5b

0.2b

3.5c ($54m)handling fees

2.1b

2.1b

2.1b

10c

10c

10c

10c

10c

billion containers

deposit/refund passing through system

1.7b

CONSUMER


6

If a CDS were introduced to New Zealand, we would

expect its design be similar to that of the South

Australian CDS.

• The deposit amount (10c) is charged to

the retailer by the beverage producer who

subsequently forwards the deposit amount to

the managing agency;

• A beverage producer pays the managing agency

a management fee (estimated to be 3.5c) to

cover the net cost of the entire scheme. It is likely

that a significant portion of this would be passed

on to households in beverage prices;

• The managing agency pays a container handling

fee to the return facilities where consumers

claim their refunds on used beverage containers.

These may include facilities at retail stores,

separate depots and reverse vending machines

(RVMs). The revenue to pay for this is assumed

to come from income from sales of materials.

The managing agency also refunds the return

facilities for the deposits paid out.

• The ‘unredeemed deposits’ (from containers

not returned via the CDS but put in kerbside

collections or sent to waste) represent a

significant total value (over $50 million). These

could be used to offset costs, but allowing

beverage producers to retain them might

be perceived as providing an incentive for

an inefficient scheme. These might also be

redirected to councils or central government

effectively operating as a “tax”.

• Materials processors pay for the delivery of the

used containers and process them for sale to

container producers or other end use markets.

South Australia’s recent change in deposit/refund value

has enabled us to predict the relationship between

deposit value and CDS return rates. The return rates

increased significantly after South Australia (SA)

doubled its deposit/refund value in 2008. We have

predicted New Zealand CDS return rates of 82% by

weight or 79% by number of containers. However,

the SA system developed before kerbside recycling

was widespread, whereas we predict that a significant

percentage (10% of 82%) would continue to be

returned through the kerbside system.

FORECAST AN ADDITIONAL 34,020 TONNES OF CONTAINERS RECYCLED PER YEAR

Glass Aluminium PlasticLPB

Tetrapak Total

Kerbside Recycling

(No. millions) 86 36 43 3 169

(tonnes) 18,070 535 1,727 122 20,454

CDS Recycling (No. millions) 778 322 387 26 1,521

(tonnes) 162,634 4,812 15,544 1,098 184,089

TotalRecycling

(No. millions) 864 357 439 29 1,690

(tonnes) 180,705 5,347 17,271 1,220 204,544

Rate (No.) 84% 87% 68% 58% 79%

Rate (tonnes) 84% 87% 68% 58% 82%

Extra CDS Material

(No. millions) 120 164 138 29 450

(tonnes) 25,138 2,448 5,213 1,220 34,020

FORECAST BEVERAGE CONTAINER RECYCLING RATE


7

Collection Costs = $61 million per year

We have examined the relative costs of different

return options, including reverse vending machines

(RVMs), separate depots and returns to retailers. The

latest Australian studies estimate RVMs to have the

lowest costs5 and around 40% of CDS containers

worldwide are recycled through RVMs6. To estimate

costs, we assume that 80% of household returns

directly to collection facilities would be through

RVMs located in retail areas, and 20% would be

through collection depots, located within current

refuse transfer stations. This is a low cost estimate; If

there was less usage of RVMs, total costs would be

greater than estimated.

Collection costs are also based on the assumption

that 90% of total CDS returns would be retrieved

directly by households to collection points and the

remainder returned through kerbside recyclers; 50%

of household’s beverages sent to kerbside recyclers

are assumed to be redeemed for its refund value (the

remainder being too contaminated or broken).

Using Australia’s most recent RVM and depot costs,

we estimate total collection capital and operating

costs to be around $71m or 4.4 cents per container

recycled through the CDS.

These costs would be offset by a reduction in

kerbside collection costs. We predict a CDS would

reduce kerbside collection of recyclables by 150,070

tonnes per annum7. The basic costs for a commingled

collection is estimated at approximately $110/

tonne collected. However, the costs of bins will not

be saved and costs will not fall exactly with tonnes

collected (there are still some fixed costs of collecting

from each property). The reduction in costs is

estimated to be $68 per tonne.

Total reduction in kerbside costs is around $10m per year and net collection costs to be around $61m.

SUMMARY OF COSTS

5 Marsden & Jacob Associates (2013) op cit. page 726 NSW Environment Protection Authority (2015) NSW Container Deposit Scheme: Discussion paper. Retrieved from epa.nsw.gov.au/ 7 Current recycling of 170,524 tonnes less new kerbside recycling of 20,454 tonnes


8

Transport & Processing = $1 million per year

The estimated cost of picking up returned containers

from collection points and taking them to a materials

recovery facility (MRF) is $1,104,536. This cost applies

to containers returned to collection depots and RVMs

as we assume kerbside collectors would continue

to transport their CDS material directly to a MRF.

We estimate the costs associated with transporting

additional processed materials from the MRF to the

recyclers (above that collected currently) would be

$646,374.

Despite an increase in the tonnes collected, we predict

that a CDS would provide a cost saving in the order

of $648,937 per year in processing costs. This cost

saving can be attributed to cleaner recycling streams

produced by a CDS relative to commingled kerbside

collection.

PROCESSING COSTS: CURRENT, CDS AND NET (2015 PRICES)

Costs per tonne km

AverageDistance

AverageCosts Tonnes Total Cost

Collection to MRFs $0.129 50km $6 184,0891 $1,104,536

MRFs to Recycler $0.129 150km $19 34,0202 $646,374

Total Costs $1,750,910

Source: Ministry of Transport (2005) Surface Transport Costs and Charges: Main Report. Table B4.21 Costs applied only to containers directly returned by households. 2 Costs applied only to additional containers recovered over current levels

Type Total

Base Case Commingled (t) 136,419

Source separated (t) 34,105

Total cost ($) $8,389,032

Base Case Kerbside (t) 20,454

Household returns(t) 184,089

Total cost ($) $7,740,095

Net Costs ($) -$648,937

Source: Commingled and source separated costs from Covec (2008) (adjusted for inflation)

Total transport and processing costs of a CDS –

additional to the base case – are estimated to be $1.0m

per year ($1.75m of additional transport costs less

sorting cost savings of $646,374). This is made up of a

cost for beverage producers of $11m less savings for

kerbside recyclers of $10m.


9

Overheads = $2.3 million per year

The CDS would need to be monitored and

enforced by a public organisation responsible for

administering the receipt of deposits from brand-

owners and the payment of deposits to collectors.

This would impose a cost on the government

and taxpayers. We expect this cost would be

approximately $0.5 million per year. In addition,

there will be a requirement for auditing: the number

of deposits paid by retailers to individual producers,

the quantity forwarded to the managing agency,

the number of returns to collection centres and

the performance of the managing agency. These

auditing costs are expected to fall on the beverage

producers; we use an estimated cost of $1 million

per year.

PwC and WCS (2011) estimate that a public

education programme would require an A$8.8m

upfront cost and ongoing cost of $A0.5m per year8.

The annualised and NZ-scaled equivalent would be

about NZ$800,000 per year.

Cost to Households = $88 million per year

Households face costs regardless of their

participation in the CDS. Participants face costs of

returning their materials to obtain a refund; non-

participants face costs because of the deposits paid

for which they do not obtain refunds.

Participating costs are the costs of time and transport

to return containers. These costs are why a refund

is paid to encourage returns: it compensates for the

costs. We know there is a cost of returns because

return rates increase when the level of the refund

increases. The additional returns that result from

increasing the refund provide evidence of the size

of the costs that households bear and that result in

their choosing not to return containers when the

refund is lower.

All participants (including those returning containers

as part of another trip) have an estimated time

requirement of 4 seconds per container (close to the

maximum speed suggested by RVM manufacturers)

plus a minute per return trip (for an average of 40

containers returned) to cover time spent queuing

and walking to and from the RVM.

In addition, using South Australian container return

rate data on the change in return rates that resulted

from an increase in deposit value, we can estimate

the amount that people need to be compensated

to overcome their costs of returning containers.

This applies largely to those returning containers

who do not currently recycle. This analysis suggests

that a 10c refund would yield an 82% overall CDS

return rate by weight (or 79% by numbers of

containers) in New Zealand (and a 5c refund would

yield a 76% return by weight or 71% by number).

This relationship is used to estimate the costs of

additional returns.

From these two components, the total cost incurred

by households is estimated to be $33m per annum.

The household sector also faces costs as a result of

the deposits paid when refunds are not obtained. We

estimate that 26% of household’s containers would

not be returned to obtain a refund, including 21%

included in the waste stream and the remainder

returned via kerbside recycling. This results in a total

household cost of $55m which might be retained

by the beverage industry where it risks providing

an incentive for an inefficient CDS with poor return

rates, or passed to the government or councils.

Combining household’s participation costs and

unclaimed deposits, the total cost imposed on

households is $88m per annum.

Total reduction in kerbside costs is around $10m per year and net collection costs 8 PricewaterhouseCoopers & Wright Corporate Strategy (2011) op cit.

page 43


10

Collection Costs = $61 million per year

The incentive of obtaining a refund under a CDS

would both reduce the amount of CDS material

disposed as litter and result in beverage containers

being removed from litter. The benefits of litter

reduction are very significant in the Australian CBAs,

and the recent proposal for a CDS in New South

Wales specifies that litter reduction is the primary

objective.9

According to the New Zealand National Litter

Survey, drinks packaging accounts for 14.6% of New

Zealand’s total litter stream.10 Northern Territory

statistics show a 46% fall in beverage container

litter after the CDS was introduced.11 We might

expect a similar reduction in CDS material from New

Zealand’s litter stream if a CDS were introduced,

with some being discarded as broken containers or

too contaminated to be returned, this would bring a

6.7% reduction in national litter volumes.

Auckland Council’s litter clean-up costs are around

$5 million per year.12 For a population of 1.6 million,

Auckland’s average litter clean-up cost per person

is $3.13. Applying a 6.7% reduction to estimated

current litter clean-up costs, and assuming that $3.13

per person applies nationally, suggests a potential

nation-wide avoided costs of litter clean-up to be

$0.9 million.

An Australian study suggests Australian households

are willing to pay A$4.15 per year for a 1% reduction

in litter volumes, although this only applies if litter

reductions are more than 10% of the total volume.

Using the Australian value, adjusted to NZ dollars

using GDP per capita, suggests New Zealand

households would be willing to pay $23.40 per

household for a 6.7% reduction in litter volume, a

total of $39.5m over 1,691,000 households.

These values are not high enough to provide a

positive benefit for the CDS and are highly uncertain;

they beg the question that, if communities do place

significant amenity values on litter reduction, would

a CDS be the most cost-effective policy instrument

to reduce litter and increase public space amenity?

A recent study of recycling policies in Australia,

which investigated over a dozen potential recycling

initiatives, predicted CDS options to be the least cost-

effective policy solutions.13 If high litter benefits are

assumed, it would suggest that a more widespread

analysis be undertaken in New Zealand of optimal

litter reduction measures. An amenity value benefit

has not been included, reflecting the threshold and

the uncertainty.

BENEFITS

9 State of New South Wales (2015) NSW Container Deposit Scheme: Discussion paper10 Waste Not Consulting Ltd (2015) National Litter Survey 2014-2015 Summary of Results. 11 West D, Angel J, Kelman R, Lazarro A (2013) op cit. page 1612 Auckland Council (2011) Auckland Council Waste Assessment (Produced under the auspices of the ATA) Notified October 2011. 13 Marsden Jacob Associates (2013) op cit.


11

Reductions in Waste Collection Costs = $2 million per year

A CDS would reduce total household waste.

Assuming the cost of waste collection is $61 per

tonne,14 and that an additional 34,020 tonnes of

containers would be diverted from landfill under

a CDS, the total avoided cost of waste collection is

estimated to be $2m.

Reductions in Landfill Costs = $3 million per year

Reductions in waste volumes collected will also

mean less waste is sent to landfill. Applying our

estimate of tonnes of recyclable material diverted

away from the waste stream, and an estimated

average disposal cost of $100 per tonne, we arrive

at a total reduction in landfill cost of $3m.

Value of Materials = $10 million per year

The additional 34,020 tonnes of recyclable material

collected for recycling and the improvement in

value of some existing tonnes, because of reduced

contamination, would produce a total additional

market value of $10m.

Unredeemed Deposits = $5.5 million

Unredeemed deposits from international tourists

would be a benefit. They are an additional payment

for beverages for which costs are borne by non-New

Zealanders. New Zealand hosts around 3 million

international tourists each year,15 staying on average

20 days.16 If on average, tourists consume 1.22

beverages per day (based on average consumption

rates by New Zealanders), their total beverage

consumption would be around 73 million per year,

or 3.4% of containers sold per annum.17 Assuming

25% of tourists’ used beverage containers would

be redeemed, the remaining 75% would result in a

financial benefit to New Zealand. This would raise

$5 million under a deposit value of 10c per bottle

(including GST).

Other unredeemed deposits represent a cost to

households and an offsetting benefit to someone

else. Total unredeemed deposits total $60.5m in

value, $8.5m of which goes to kerbside recyclers

if 50% of kerbside material is redeemed for its

refund value. If the remaining unredeemed deposits

(approximately $52m in value) were retained by

beverage producers they would provide a strong

14 PPI adjusted value from Covec (2007) Recycling: Cost Benefit Analysis Prepared for Ministry for the Environment

MaterialExisting but now CDS (t)

Premium1 ($/t)

ExtraMaterial

New Value ($/t) Value

Glass 146,532 25,138 $75 $1,885,333

Aluminium 2,364 2,448 $1,706 $4,177,461

PET 6,071 $100 3,545 $505 $2,397,153

HDPE 5,124 $100 1,669 $549 $1,428,503

LPD Tetrapak - 1,220 $212 $258,725

Total Costs 160,690 34,020 $10,147,175

VALUE OF ADDITIONAL MATERIALS RECOVERED

Source: Values for Aluminium, PET, HDPE & LPB: Statistics New Zealand trade export data1 HDPE and PET values include a $100 premium due to cleaner material produced by the CDS system

15 www.stats.govt.nz/infoshare/16 Ministry of Business, Innovation and Employment (2014) New Zealand Tourism Forecasts 2015-2021. 17 20 days (average length of stay) x 1.22 beverages x 3,000,000 tourists


12

incentive for discouraging returns. The revenues

might instead be redirected to central government

or to councils, with the money used for some

other purpose (including offsetting taxes or rates).

However, where this revenue is spent on some other

activity, the costs of this activity are a net cost to the

community if the benefits of that expenditure do not

exceed the expenditure.

Net Costs to Beverage Producers = $54 million per year

Total operating and communication costs of a CDS

are estimated to be $84m per year. After subtracting

the total value of recycled materials ($30m), net CDS

costs to the beverage industry are estimated to be

$54m or 3.5 cents per container recycled.

Covec (2016)

Cents per container 3.5c

Total (NZ$m pa) $54

If a handling fee were to be charged based on our

net costs to industry, a fee in the order of 3.5 cents

per container would apply. This is low by comparison

with handling fees charged in other countries.

In practice, a significant portion of these costs will

be passed on to households as an increased price

of beverages. The amount passed on will be limited

by the expectation of reduced sales in response

to price increases and the targeting of particular

prices, e.g. $0.99/bottle. Thus a significant portion of

this $54 million is likely to be an additional cost to

households.


13

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THE PACKAGING FORUM INCPO Box 58110Botany, Manukau 2163Auckland

phone 09 271 [email protected]

EVALUATING THE COSTS AND BENEFITS OF INTRODUCING A CONTAINER · PDF fileINTRODUCING A...

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