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The European Union’s (EU) Packaging Levy has been proposed under the Green Deal in Europe. It allows countries to develop taxation or penalty fee systems to increase the amount of plastics that are recycled at end of life.
Here, we unpack what the levy is, how it will differ across Europe and what businesses should do to prepare.
What is the EU Packaging Levy?
The EU Packaging Levy was published in 2020 and covers all EU member states. For each kilogram of plastic packaging waste that is not recycled at end of life, Member States must contribute €0.80 (€800 per tonne) (based on average Eurostat data in respective base years). It is expected to raise between €6 and €8 billion for the NextGenerationEU recovery plan. Each Member State must either cover these costs via the national budget or pass these through to industry, for example through:
- Implementation of a new ‘Plastics Tax’ on the non-recycled plastics
- Integration with existing policy or taxes
- An additional fee system that would add to existing measures (such as CO2 taxation, Extended Producer Responsibility (EPR), Deposit Return Scheme and other packaging related fees/taxes)
- Other fiscal measures like reduced subsidies or tax and fee exemptions used in that country
As some countries will already have fees and taxes in place, these could be diverted to pay for the levy. This could have a negative effect as it could divert money from the plastics collection, recycling, and recovery industry.
As well as food packaging, the levy also applies to packaging from textiles, fertilisers and agricultural products, construction and cosmetics and pharmaceutical products. The calculation of the levy will use data from businesses using plastic packaging trading in and with Europe, and if states choose to implement a tax it will also directly cost these businesses. The baseline used to attribute the national levies is mainly related to household packaging, as very little reliable data is available on packaging from other industries throughout the EU. This means that the application of taxes on businesses does not relate clearly to the data that is used in the levy calculation.
At the time of writing, Spain and Italy are the only two EU Member States that have published draft national legislation on this ‘plastic packaging levy’. It is unclear when other Member States could adopt similar legislation, therefore it is important to remain aware of changes.
The EU’s plan is expected to raise €750 billion, of which around €8 billion will come from the plastic packaging levy.
Why has the EU adopted the plastic packaging levy?
In 2020, the EU released a recovery plan that aims to help Europe to ‘build back better’ from the Covid-19 pandemic, including measures to fight climate change and support the circular economy. The plastics packaging levy forms part of these measures with the aim to reduce packaging waste. Revenue generated from the levy will go into the EU Covid-19 recovery fund, which will support businesses across Europe that have been most affected by the coronavirus pandemic. The plan is expected to raise €750 billion, of which around €8 billion will come from the plastic packaging levy.
How does the levy fit within existing policy requirements?
Although the levy may look like another ‘tax on plastic’, it differs from the EPR packaging fees assigned in some countries under the Packaging and Packaging Waste Directive. EPR directly increases recycling infrastructure and influences the use of recycled material or design and material use for recyclability, whereas the levy is a fee that if not implemented in the correct way has very little impact on the secondary materials market.
How are EU Member States reacting so far?
For now, some markets have taken a position to cover the costs of the EU Packaging Levy through their national budgets, including France, Germany, Ireland, Luxembourg, and Slovakia, while they plan for future levies to be paid fully or partially by the private sector. The following countries have announced more detailed implementation plans:
Spain: Spain plans to introduce an additional packaging tax on single-use plastics whereby non-recyclable plastic manufactured or imported into Spain will be subject to a taxation rate of €0.45/kg. It is currently unclear when this legislation is expected to come into force, with progress to potentially resume mid-2022. There is also very little data on which plastics will be deemed as non-recyclable and would be covered under this regulation.
Italy: Italy plans to implement similar legislation where single use plastic packaging items (or non-recyclable plastics packaging are taxed at a rate of €0.45/kg and paid by manufacturers, sellers, purchasers or importers. The implementation of this Plastics Tax is currently delayed until 2023. Similarly, the list of single use items and/or the criteria for recyclable non-recyclable plastics needs to be defined before this can be implemented successfully.
Belgium is considering the integration of the plastic levy into existing EPR fees, which might be a preferred solution for smaller countries for whom it is too costly to set up a separate fee or taxation system in comparison to their annual payments.
As additional Member States may introduce similar taxes to help finance the levy, as well as reducing single use plastics to comply with EU targets, it is possible that differing rates will be seen, depending on the amount that the Member State is planning to fund itself. Germany may be next country to move forwards with producers funding the levy, as new policies are agreed between the new joint federal leadership.
The plastics manufacturing industry, product manufacturers and importers will all need to look closely at how their products are affected and quantify the impact of the levy. The speed at which the legislation has been passed has also challenged Spanish and Italian policy makers who have deferred until 2023 before full implementation, instead of calculating volumes supplied during 2022 and begin charging in 2023.
The UK plastic tax creates a ‘market pull or demand’ at a business level that encourage businesses to reduce their packaging.
Spotlight on the UK Plastic Packaging Tax
In contrast to the EU Packaging Levy, the UK has developed a Plastics Tax that penalizes the use of plastics packaging with less than 30% recycled content starting from April 2022.
This will make the UK the first country to tax virgin plastic packaging. The UK Plastic Tax will charge £200 per tonne (as of 1 April 2022) on only packaging that contains less than 30% recycled content (although all plastic will be declared, only part of it is chargeable).
Under the UK’s Plastic Packaging Tax, only businesses importing or manufacturing over 10 tonnes of finished plastic packaging must register for the tax. Businesses will have requirements to report on the total amount of plastic packaging, plus any evidence that may be required, for example, to support claims that packaging that contains recycled content has been exported, or converted into new components.
The implementation of the UK’s Plastics Tax is a good example, as it creates a ‘market pull or demand’ at a business level that encourages businesses to reduce their packaging as well as increase their use of recycled plastics in packaging. This creates a shift in behaviour as well as promoting the demand for secondary materials, which therefore leads to the increased production of recycled plastics and supports the development and financing of sustainable infrastructure.
Businesses must keep up to date with the changing and complex landscape to ensure compliance.
What do businesses need to do now?
It is crucial to continue monitoring the progress of legislation, as the space continues to develop and change, particularly for those businesses manufacturing, selling, or importing products that are packaged in plastics in multiple countries. Where plastic taxes are implemented, they could potentially have a significant impact on the supply chain, so mitigating the costs of taxes is crucial, whether that be through increasing recycling and collection or using recyclable or non-plastic packaging, or even rethinking packaging in terms of circularity and reuse. It is important for businesses producing or supplying packaged goods in the markets that are implementing plastics taxes to understand these new regulations in the EU and the UK, and how they vary. By assessing which of their markets are impacted, this not only allows businesses to begin budgeting for potential additional costs and review ways to reduce payments but also allows businesses to improve the circularity of their products and packaging.
To comply with the levy across the different country’s approaches, businesses will need a managed approach with internal coordination between finance, product compliance and environmental reporting teams to prepare accurate data. Businesses first need to understand their liability from a supply and cost perspective, before trying to interpret national laws or the limited guidance that has been published so far.
Although most companies will have some system for calculating the volume of plastic handled, it is unclear if this will be directly transferable to the reporting systems within the different countries. It is expected that there will be additional supporting evidence, greater understanding of packaging data sources, and interrogation of methodologies to align financial reporting standards and that of current Packaging and Packaging Waste Directive compliance systems.
As EU Member States continue to develop and update their plans for the implementation of the EU Packaging Levy, businesses must keep up to date with the changing and complex landscape as it develops to ensure compliance.
An approach focusing on the production of materials has high potential to drive change within markets.
What are the potential wider impacts of the upcoming Regulations?
At this stage of the implementation, it is not clear if the state funded packaging levy may lead to large scale changes towards a circular economy and how it will affect businesses across the plastics supply chain.
Ultimately, the plastic levy and associated plastic taxes aim to reduce the amount of plastic waste generated, increase the amount that can be recycled, and improve recycling infrastructure. However, the varied approaches to implementing the levy throughout Europe may mean that it does not have the desired impact on the secondary plastic market and recycling infrastructure. The lack of harmonisation will impact the plastics that are deemed recyclable, the level of aggregation and trading of sorted plastics products across Europe, and the acceptance of plastics waste at recycling plants to produce high value products.
The taxes planned for introduction in Spain and Italy under the EU Plastic Packaging Levy focus on single-use plastics, and taxes are placed on these materials. Such materials are already regulated under the EU Directive on single-use plastics. Therefore, the taxes may not be impactful as they overlap with the bans already required. Also, under the Packaging Levy, payments will be based on plastics that are not recycled according to the average Eurostat data per Member State, which may be paid through general taxation, limiting the potential impact on actual plastic use and disposal within countries.
An approach focusing on the production of materials has high potential to drive change within markets, however, it remains to be seen how effective the implementation of these taxes will be.
How can Anthesis support?
Anthesis has a team of regulatory compliance experts working within the packaging sector that can help to provide guidance and support to businesses which need to comply with upcoming legislation and understanding packaging obligations, including the new UK Plastic Tax and EU Packaging Levy. Anthesis can offer horizon scanning across global markets to ensure businesses are prepared for changing regulations. The differing approaches to EPR fees across Europe and lack of harmonisation in the EU, provides an insight in the level of national variations businesses will have to understand to ensure compliance; Anthesis’ team of experts can improve clarity on this unclear landscape.
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