EVALUATING THE COSTS AND BENEFITS OF INTRODUCING A CONTAINER · PDF fileINTRODUCING A...
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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
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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
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CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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%
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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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
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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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
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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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
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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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.
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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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
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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.
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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.
CONTAINER DEPOSIT SYSTEM ANALYSIS 2016
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THE PACKAGING FORUM INCPO Box 58110Botany, Manukau 2163Auckland
phone 09 271 [email protected]