Waste Generation & Resource Efficiency of Packaging

Submission to the Productivity Commission’s 
Waste Generation & Resource Efficiency Inquiry

Submitted by National Packaging Covenant Industry Association
February 2006

The National Packaging Covenant Industry Association
PO Box 2135
Hornsby Westfield NSW 1635
ABN 99 056 538 480
T 02 9527 4298
F 02 9527 4299

Prepared by
Martin Stewardship & Management Strategies Pty Ltd
PO Box 755 Turramurra NSW 2074 Australia
Phone: (02) 9940 3571  Fax: (02) 9940 3491
MS2admin@optusnet.com.au	

	

Contents

Executive Summary
1.0	Introduction
2.0	Policy Instruments for Packaging
2.1	Regulatory Approaches
2.1.1	Self regulation
2.1.2	Co-regulation
2.1.3	Explicit legislation
3.0	National Packaging Covenant
3.1	Initial Covenant
3.2	Revised Covenant
3.3	Allocation of Roles and Responsibilities
4.0	EPR and Product Stewardship
4.1	Advantages and Disadvantages
5.0	Targets and KPIs
6.0	Recycling
7.0	Energy Recovery from Waste
8.0	Litter
8.1	Advantages and disadvantages of CDL
9.0	Pricing Measures
10.0	Market Failures and Externalities
10.1	Resource Extraction and Materials Processing
10.2	Illegal Dumping and Littering
11.0	National Coordination of Policies
12.0	Data Needs
13.0	References

Executive Summary
The National Packaging Covenant Industry Association (NPCIA) has prepared this submission to assist in the Productivity Commission’s Waste Generation & Resource Efficiency Inquiry (Inquiry), with particular emphasis on resource use efficiency and recovery of packaging and Australia’s National Packaging Covenant (NPC or Covenant).
The NPCIA supports the Inquiry’s terms of reference to adopt a life-cycle perspective and note that the Covenant’s use of ‘shared responsibility’ and emphasis on reducing overall life-cycle environmental impacts of packaging makes the Covenant an efficient, cost-effective approach to address waste generation and resource efficiency of packaging, especially when compared to alternative policy options such as extended producer responsibility (EPR). 
The OECD finds that there is no upper limit on costs of EPR, as EPR costs are incurred even if they exceed benefits. Attempts to apply EPR to packaging, especially in Europe, have introduced significant social and economic costs, yet environmental results may be viewed as mixed at best. Recent reports for the review of the European Packaging and Packaging Waste Directive (PPWD) have found that: 
•	European packaging taxes such as those under the PPWD are discriminatory and serve mainly as a revenue source, rather than driving environmental improvements. 
•	European packaging taxes have a significant distortive effect on retail pricing.
•	Related programs implementing EPR and product stewardship for packaging also entail high economic and social costs without delivering significant environmental improvements.
•	There is general consensus that the highest recycling rates that can practically be reached, from both an environmental and an economic point of view, have already been achieved. 
Whilst these last two points may seem contradictory, recycling rates by themselves can represent environmental improvement, but must be understood in context with overall social, economic and environmental impacts, and practicalities of achieving reasonably efficient resource use. Investigations have also found that little of the European gain in recycling and environmental improvement from recycling can be directly attributed to the PPWD (generally 8-9% of improvements). 
Research commissioned by the NPCIA with specific regard to the Inquiry finds that in Australia: 
•	Debate has often confused ends and means, with advocates calling for EPR and artificially high recycling rates rather than seeking reduced overall environmental and social costs by implementing efficient, cost-effective means designed to reduce both the volumes and hazards of solid waste. 
•	Current attempts by advocates to apply EPR to packaging as a means of shifting or spreading waste management costs are inconsistent with OECD principles and objectives for EPR.
•	Given the advanced development of waste and recycling, regulatory approaches are likely to involve high marginal costs for little gains in recycling or other environmental objectives. 
•	Alternative policy models to the Covenant that are intended to introduce EPR for packaging would likely result in significant economic and/or environmental distortions.

This research has further found that in contrast to EPR, product stewardship or ‘shared responsibility’ approaches such as the recently strengthened Covenant provide an appropriate balance of resource use efficiency and recovery throughout the life-cycle of packaging and therefore warrant continued Government support for a variety of reasons:
•	Australia has packaging recycling rates comparable to those of far more costly EPR and product stewardship schemes in other countries, where the highest practical recycling rates have been achieved.
•	The Covenant emphasises reduced overall environmental impacts and shared responsibility across the packaging supply chain, consistent with relevant and informed approaches to EPR and product stewardship. In contrast, ‘traditional’ EPR focuses predominantly on producers and end-of-life management of hazardous or difficult to manage products. 
•	Given the diverse nature of the Australian manufacturing industry, shared arrangements provide capacity and flexibility for companies to innovate and invest where they can make a difference, whilst minimising the costly impost of regulation. 
•	The new Environmental Code of Practice for Packaging (ECoPP) is a key component of the new Covenant. Its strengthened requirements and linkages to the Covenant provide stronger incentives for ‘design for environment’ (DfE) than alternative EPR approaches. 
•	Strengthened reporting requirements, use of key performance indicators (KPIs) and a designated data collection system under the new Covenant will provide better data on performance and feedback to address impacts of packaging than alternative approaches. 
•	European debate has shifted away from EPR as an end in itself and more toward Integrated Product Policy (IPP). Under this approach a range of instruments are targeted to the various stakeholders (such as producers, consumers and governments) in an attempt to send the right signals about environmental performance to each stakeholder and reduce overall environmental impact. The Covenant is therefore broadly consistent with more progressive and relevant IPP principles currently being pursued. 
It is important to note that the current overall Australian packaging recycling rate of around 50% under the Covenant and other current approaches is comparable to the European packaging recycling rate of 55% overall, which incorporates material recycling rates viewed by most stakeholders as the highest recycling rates that can practically be reached, from both an environmental and an economic point of view. The Covenant calls for an overall packaging recycling rate of 65% to be achieved by 2010. As Australia pushes up against the point of diminishing returns for packaging recycling, marginal costs of achieving higher recycling rates will continue to increase significantly. Such costs will surely be passed on to consumers. The full social, economic and environmental costs of ‘pushing the envelope’ therefore warrant serious consideration. 
For regulatory intervention to be justified, a market failure must exist and the benefits of intervention must outweigh its costs. The case has not been made that market failure currently exists in Australia with regard to packaging recycling. In fact, market conditions are especially favourable in that there are no distorting legislation and/or mandatory requirements that dictate inaccurate market conditions. The case for intervention other than to provide underpinning legislation has also not been made. 

1.0	Introduction
The National Packaging Covenant Industry Association (NPCIA) has prepared this submission to assist in the Productivity Commission’s Waste Generation & Resource Efficiency Inquiry (Inquiry), with particular emphasis on resource use efficiency and recovery throughout the product life‑cycle of packaging. The NPCIA represents eight peak industry bodies and all company signatories to Australia’s National Packaging Covenant (NPC or Covenant), currently numbering around 350 member companies. 
The NPCIA submission and accompanying report (MS2 2006) provide an overview of the Covenant, complementary mechanisms and alternative approaches in context with resource efficiency, extended producer responsibility (EPR) and product stewardship principles. The report recommends appropriate courses of action for strengthening packaging product stewardship in Australia based on this research.
The commonly used working definition of EPR is provided by the Organization for Economic Co-operation and Development (OECD) which defines EPR as ‘an environmental policy approach in which a producer’s responsibility for a product is extended to the post-consumer stage of a product’s life-cycle’ (p.9, OECD 2001). EPR is also intended to increase recycling rates and to provide incentives to producers to incorporate environmental considerations into the design of their products, an approach called ‘design for environment’ (DfE) (OECD 2005).
In contrast to EPR’s emphasis almost exclusively on producers, ‘product stewardship’ involves sharing responsibility through the life-cycle of products. This includes the environmental impact of the product through to and including its ultimate disposal (EC n.d., NPCC 2005). This approach may also be referred to as ‘extended product responsibility’ (USEPA 1998, Walls 2003). 
The NPCIA supports the Inquiry’s terms of reference (TOR) to adopt a life-cycle perspective to waste management, particularly as it applies to packaging. The Covenant’s use of ‘shared responsibility’ and emphasis on reducing overall life-cycle environmental impacts of packaging clearly makes the Covenant the most efficient, cost-effective approach to address waste generation and resource efficiency relating to packaging when compared to alternative policy options such as EPR (MS2 2006). 
Where appropriate, questions from the Commission’s Issues Paper (PC 2005) have been highlighted in bold italics in this submission to facilitate discussion. 
In addressing packaging waste generation and efficiency, it is important to first understand the importance of packaging as an environmental issue, and in context with other environmental issues. The Australian Food and Grocery Council (AFGC) Environment Report 2003 provides useful background to help provide Australia-specific context for food and groceries. For example (AFGC 2003, p.5), 
‘The most water intensive process in the food and grocery supply chain is primary production, followed by use and consumption in the home. The relative water intensity of these two stages is, respectively, about 100 and 10 times more water intensive than most processing and packaging’ 
and (from recent life-cycle work undertaken by Dairy Australia) (AFGC 2003, p.27),  
‘About 85 per cent of greenhouse gas emissions are farm related, of which 74 per cent are on-farm emissions. Packaging is estimated to contribute about 4 per cent to total emissions’. 
Packaging has supply chain environmental implications. For example, a UK packaging supply chain study (INCPEN 1996) found that 
‘Environmental gains in other parts of the food chain are often achieved by increasing packaging which itself has a relatively small environmental impact in relation to that of food production and distribution’. 
Australian studies, including life-cycle work recently completed for Dairy Australia, previous CSIRO research and the AFGC (2003), show similar findings. Similarly, packaged foods can often generate less total waste than fresh foods. The environmental impact of packaging is relatively small compared to functions of preventing waste, losses and spoilage.
Demographic trends including smaller household size, higher disposable income and other factors such as consumer safety and convenience have direct impacts on packaging that may run contrary to waste reduction.  Such factors have led to a 7% increase in packaging waste generated across the EU as a whole from 1997 to 2001. This is despite the presence of stringent packaging requirements and producer responsibility schemes during that period.
 “How effective has the mix of policy instruments been in achieving efficient levels of waste? What policies have produced the most efficient outcomes?”
The current mix of policy instruments, including the original Covenant, has been very cost effective at promoting recovery to divert packaging from landfill. A report commissioned by the NPCIA to help inform discussions on development of the Covenant’s overarching targets identified the 2003 levels of packaging recovery by material type shown in Table 1. With subsequent adjustment of paper and cardboard (to 64% recovery) and glass (to 35% recovery) estimates, the estimates in Table 1 have become viewed as the most accurate current estimates of packaging recovery in Australia. The 48% rate of total recovery has been adopted as the baseline estimates for the Covenant. It is encouraging to note that given the identified shortcomings of the previous Covenant, around half of the packaging generated in Australia is being recycled under approaches that are largely voluntary in nature. This voluntary/co-regulatory approach has been improved and strengthened in the new Covenant to ensure that the performance continues to achieve and provide cost effective and tangible results.
Table 1: 2003 Australian Recovery for Packaging Materials
	Kerbside/Municipal Recovery	Away from Home Recovery	Overall Recovery	
Material	 Tonnes	%	 Tonnes	%	 Tonnes	%	
Paper/cardboard	333,300	42%	1,200,000	94%	1,533,300	74%	
Glass	320,000	68%	30,000	4%	350,000	30%	
Plastics	92,500	28%	42,400	13%	134,900	21%	
Steel cans	46,200	44%	46,200	44%	92,400	44%	
Aluminium cans	18,000	79%	11,000	48%	29,000	63%	
Total	810,000	47%	1,329,600	54%	2,139,600	51%	
Source: Reproduced with permission by MS2 and NRS 2005

These impressive results cannot be directly attributed to any one approach. A variety of factors including, but not limited to, policy instruments is responsible:
•	strong public support for, and participation in, recycling programs, including kerbside recycling;
•	concentration of population in and adjacent to capital cities and other major cities;
•	implementation of the original Covenant;
•	provision of recycling collection and processing infrastructure by local governments and industry;  
•	generally strong end use markets for recovered materials, including overseas markets; 
•	procurement policies and practices by industry and all levels of Government; and 
•	reasonable jurisdictional support to help optimise recycling programs.
2.0	Policy Instruments for Packaging
Policy instruments for packaging consistent with EPR and product stewardship principles are provided in Table 2, and examined in detail in the accompanying MS2 (2006) report.
Table 2: Overview of Policy Instruments Consistent with EPR and Product Stewardship 
Policy Instrument	Comments	
Take-back requirements
•	Mandatory product take-back
•	Voluntary or negotiated take-back programs
	•	Take-back is viewed as the purest form of EPR 
•	Often associated with reuse and/or recycling targets
•	Responsibilities may be discharged through participation in a Producer Responsibility Organisation (PRO), the approach usually preferred by industry due to lower cost and greater control
•	Australia’s National Environment Protection Measure (NEPM) on Used Packaging requires take-back for brand-owners not signing or not in compliance with the Covenant	
Standards 
•	Minimum recycled content standards (often referred to as ‘rates and dates’)
•	Industry funding organisations (IFOs) 	•	Recycled content standards have generally been intended to increase local recycling markets
•	Recycled content standards must deal effectively with the large volume of imports into respective jurisdictions
•	IFOs solely address funding, not other responsibilities	

Table 2: Overview of Policy Instruments Consistent with EPR and Product Stewardship (continued)
Economic Instruments
•	Deposit-refund schemes such as container deposit legislation (CDL)
•	Advance disposal fees (ADFs, increasingly referred to as advance recycling fees, ARFs)
•	Taxes and/or subsidies
•	Upstream combination tax/subsidy (UCTS)
•	Tradeable resource recovery certificates (RRCs)	•	Economic instruments provide a direct financial incentive to take desired action(s) 
•	Some CDL programs are viewed as full EPR, rather than as economic instruments 
•	The OECD (2001) states that an ADF does not constitute EPR per se, even though it may serve to recover costs for EPR initiatives; however, ADFs may be viewed as EPR if they transfer sufficient physical or financial responsibility to producers (OECD 2005)
•	Material taxes aim to reduce the use of virgin or difficult to manage materials in favour of recycled or less difficult materials
•	Economic instruments may also be referred to as market-based instruments (MBIs) 	
Other industry-based measures
•	Covenants
•	Industry Codes of Practice 
•	Leasing	•	May be co-regulatory (such as the Covenant) or used in conjunction with other approaches
•	Leasing is impractical or impossible for products with relatively short life-cycles, such as packaging	
Source: MS2 2006.
2.1	Regulatory Approaches
“What are the advantages and disadvantages of the different regulatory options for setting up extended producer responsibility or product stewardship schemes: self regulation, co-regulation and explicit legislation?”
2.1.1	Self regulation 
In broad terms, self-regulatory approaches provide significant flexibility for progressive companies but can lead to market distortions due to ‘free riders’, or ‘non-participants’ that gain unfair competitive advantage by not participating in EPR or product stewardship schemes and thus not contributing an appropriate share of the costs of such schemes despite their contribution to the waste stream. In schemes affecting a large number of companies or where responsible parties are difficult to track, free riding can threaten the financial viability of entire schemes (EPHC 2004, OECD 2001).
2.1.2	Co-regulation 
Co-regulatory approaches help to address free riders through underpinning legislation such as the NEPM for Used Packaging and the NEPM for Product Stewardship currently under development by the Environment Protection and Heritage Council (EPHC). Co-regulatory approaches such as the Covenant provide an equitable and effective balance of industry initiative and regulatory underpinning to address free riders, as addressed in Section 3.  
The OECD (2005) has found that co-regulatory approaches or market-based instruments (MBIs) such as tradable recycling credits allow greater flexibility, help to ensure goal achievement cost-effectively and provide greater transparency, in contrast to explicit legislation such as mandated targets. 
2.1.3	
Explicit legislation
Regulation and enforcement of explicit legislation is by far the most expensive of the regulatory approaches considered. Further to this, explicit legislation is not inherently more effective at reducing negative social and environmental externalities. Explicit legislation and mandatory take-back programs generally occur where:
•	products contain toxic or hazardous substances (such as certain waste electrical and electronic equipment (WEEE));
•	the products are integral to established recycling programs; and 
•	affected industries have failed to respond effectively to Government pressure to accept an appropriate level of responsibility for their products. 
A significant disadvantage of explicit legislation such as EPR is that there is no upper limit on costs of such approaches, as EPR costs are incurred even if they exceed benefits (OECD 2005). Attempts to apply EPR to packaging, especially in Europe, have introduced significant social and economic costs, yet environmental results may be viewed as mixed at best. Recent reports for the review of the European Packaging and Packaging Waste Directive (PPWD) have found that (Perchards et al 2005, PIRA and ECOLAS 2005): 
•	European packaging taxes such as those under the PPWD are discriminatory and serve mainly as a revenue source, rather than driving environmental improvements. 
•	European packaging taxes have a significant distortive effect on retail pricing.
•	Related programs implementing EPR and product stewardship for packaging also entail high economic and social costs without delivering significant environmental improvements.
•	There is general consensus that the highest recycling rates that can practically be reached, from both an environmental and an economic point of view, have already been achieved. 
Whilst these last two points may seem contradictory, recycling rates by themselves can represent environmental improvement, but must be understood in context with overall social, economic and environmental impacts, and practicalities of achieving reasonably efficient resource use. In 2001, the EU-15 recycled 30.7 million tonnes out of 56.3 million tonnes of packaging waste, for a 55% packaging recycling rate overall. However, in 2001 only 9% of total packaging recycling in the EU-15 could be directly attributed to the PPWD and of environmental improvements due to packaging recovery, only 8-9% was directly related to the PPWD (PIRA and ECOLAS 2005). The remainder came from industry initiative and efficiencies undertaken within companies such as lightweighting and innovation, as well as pre-existing recycling programs.
The total ‘financing need’ (funding necessary to make recycling happen) for recycling packaging for the EU-15 has increased from €2.9 billion ($4.7 billion) per year in 1997 to €3.7 billion ($6.1 billion) per year in 2001. PIRA and ECOLAS (2005) found that the compliance costs to industry in 2001 varied significantly by member state, with costs to industry of:
•	Germany: €12.5 million ($20.5 million) per % point of recycling;
•	France: €6.8 million ($11.1 million) per % point of recycling; and 
•	UK: €2.4 million ($3.9 million) per % point of recycling.

In comparison, targets under Australia’s NPC call for the overall packaging recycling rate to increase from a baseline in 2003 of 48% to 65% in 2010, for a difference of 17 % points of recycling. Applying the above rates, the programs would cost $348 million, $189 million and $66 million to achieve the Covenant’s overarching target for the German, French and UK approaches, respectively. The financial commitment to Australian industry to assist in achieving the Covenant targets is $3 million every year over the Covenant’s 5-year term (not including costs for data and time), with this commitment matched by Governments (MS2 2006). 
The NPCIA agrees with and supports the claim by the OECD (2005) that recycling targets which sometimes accompany EPR schemes lack cost transparency and that targets are not required under EPR. 
3.0	National Packaging Covenant
“How effective has the National Packaging Covenant (in both its initial and subsequent forms) been in promoting optimal levels of packaging wastes?”
The Covenant has been, by far, the most effective national policy instrument for dealing with the management of packaging waste. With more than 600 signatories to the first Covenant and about 350 signatories to the current Covenant, these commitments far exceed material specific agreements prior to the Covenant that covered less than 30 company signatories. Moreover, the Covenant approach has involved all sectors in the packaging supply chain, whereas its predecessors focused on material-specific and/or product-specific bases. The fundamental policy principles underpinning both Covenants are those of continuous improvement and mutual cooperation between all the players – governments, local governments, industry groups and companies.
It is particularly important to note that the Covenant allows those involved to focus on an entire suite of issues – design, production and distribution, as well as the recycling and recovery aspects. Moreover, the Covenant gives scope for influence to be exerted and pressure to be applied throughout the entire packaging supply chain to ensure that all components play a role and practice product stewardship.
3.1	Initial Covenant
The initial Covenant was effective in raising awareness of packaging-related issues within corporations, providing a framework for packaging product stewardship and increasing supply chain collaboration.  Whilst the full extent of this awareness is difficult to measure, despite the initial Covenant being the first of its kind, over 600 companies became signatories. This large number of signatories is a compelling indicator of the extent of change brought about by the initial Covenant. 
The initial Covenant was not necessarily a strong driver for optimising packaging waste management. A significant number of stakeholders, especially local governments, were not engaged in the process. Reviews of the initial Covenant consistently found that it also failed to provide effective data and feedback in order to reflect its achievements. There was so much inherent flexibility for companies that progress could not be measured effectively. It was also felt that while the NEPM was an effective regulatory safety net for signatories, the NEPM enforcement would need to be more visible and rigorous (ISF 2004, Nolan-ITU 2004). 

The NPCIA (2004) commissioned an independent review of representative Action Plans submitted under the original Covenant. The review found that more than two thirds (68%) of the Plans reviewed made a clear effort to deliver against at least some of the objectives set out in the Covenant. The review also found that around 20% of Action Plans were good or outstanding but in contrast, 29% of Action Plans adopted a relatively basic response of going through the motions of developing a plan but demonstrating little understanding or commitment to the process.  Five plans (2.5%) were considered unacceptable. These findings suggest that nearly 70% of company signatories to a voluntary process (underpinned by a regulatory NEPM) have taken the process seriously as reflected by their efforts in developing and reporting Action Plans under the original Covenant.
3.2	Revised Covenant
It is too early into the revised Covenant to effectively quantify its impacts and progress against overarching targets. However, the NPCIA is of the view that in contrast to EPR, ‘shared responsibility’ approaches such as the recently strengthened Covenant are clearly the most efficient and effective vehicles. The available evidence proves the Covenant provides a realistic and appropriate balance of resource use, efficiency and recovery throughout the life-cycle of packaging. Such a valuable and equitable mechanism therefore warrants continued Government support for a variety of reasons:
•	Australia has packaging recycling rates comparable to those of far more costly EPR and product stewardship schemes in other countries, where the highest practical recycling rates have been achieved.
•	The Covenant emphasises reduced overall environmental impacts and shared responsibility across the packaging supply chain, consistent with recent approaches to EPR and product stewardship. In contrast, ‘traditional’ EPR focuses predominantly on producers and end-of-life management of hazardous or difficult to manage products. 
•	Given the diverse nature of the industry shared arrangements provide capacity and flexibility to innovate and invest where they can make a difference, without the costly impost of regulation.
•	The Environmental Code of Practice for Packaging (ECoPP) and its strengthened linkages to the Covenant provide stronger incentives for DfE than alternative EPR approaches. 
•	Strengthened reporting requirement and use of key performance indicators (KPIs) under the Covenant and steps being undertaken by the NPCIA are likely to result in better data and feedback to address impacts of packaging than alternative approaches. 
•	The Covenant has considerable industry and company support and engagement, which allows investment and innovation and provides industry with flexibility to undertake measures they know will reduce impact across the life-cycle perspective.
•	European debate has shifted away from EPR as an end in itself and more toward Integrated Product Policy (IPP). Under this approach a range of instruments are targeted to the various stakeholders (such as producers, consumers and governments) in an attempt to send clear signals about environmental performance to each stakeholder and reduce overall environmental impact. The Covenant is therefore broadly consistent with IPP principles currently being pursued elsewhere. 
An independent review of the Covenant’s regulatory impact statement (RIS) carried out by ACCESS Economics found that despite several concerns about the robustness of the RIS and the setting of overarching targets, the Covenant “seems to ACCESS Economics to constitute a prudent evolutionary approach to tightening industry performance requirements” (ACCESS 2005, p.1).
3.3	Allocation of Roles and Responsibilities
 “What should be the relative roles of industry and government in the development of such arrangements (as the Covenant)?”
Schedule 1 of the Covenant details appropriate obligations for the packaging supply chain and for governments. Whilst industry must adopt product stewardship principles, jurisdictional governments are responsible for enforcing the NEPM and governments at all levels have responsibilities consistent with achieving Covenant objectives. All participants in the Covenant process have specific obligations to help achieve the overarching targets and KPIs detailed in Schedule 2 of the Covenant. The NPCIA supports the current allocation of roles under the revised Covenant.  
The NPCIA strongly supports a whole of system approach to the revised Covenant. The achievement of the targets established under the new Covenant will require each signatory to undertake action and make improvements. This includes governments. The likelihood of achieving the targets will be significantly enhanced if all stakeholders in the process remain committed to the Covenant as the primary policy instrument for packaging waste management.
4.0	EPR and Product Stewardship
For this discussion, this submission will draw heavily on the MS2 (2006) report commissioned by the NPCIA to assist in responding to the Inquiry. The report provides a detailed literature search and strategic approach for approaching EPR and product stewardship in Australia, specifically as it relates to packaging. 
4.1	Advantages and Disadvantages
“What are the advantages and disadvantages of extended producer responsibility and product stewardship schemes?” and “Which products are most amenable to these arrangements?”
This submission and the accompanying report have focused on performance against the two principal objectives common to most EPR programs (OECD 2005):
•	providing DfE incentives for producers; and 
•	increasing recycling rates. 
Whilst EPR is often touted as a means of shifting or spreading waste management costs, applying EPR to packaging (as opposed to hazardous or difficult-to-manage wastes) is inconsistent with OECD principles and objectives for EPR, and has therefore not been examined in this submission.
Collection and disposal of non-hazardous end-of-life products from households are generally the responsibility of municipal governments and funded through general taxation such as rates or through user charges for households and/or businesses. The system and societal costs that may result from the introduction of problematic materials into such systems are significant, and it therefore makes sense to establish through EPR separate, controlled channels for toxic or hazardous products such as tyres, batteries and mercury-containing products (OECD 2005). 

Focus on end-of-life management of household wastes by EPR may be misplaced. For example, it is estimated that the social costs of landfilling waste represent less than 5% of the total societal cost of production and consumption of goods, since a large volume of the waste stream consists of inert or non-harmful materials (MMA and BDA Group 2003). Similarly, landfill benefits of recycling account for less than 2% of the total benefits of recycling (Nolan-ITU and SKM 2001). 
The NPCIA especially notes the OECD (2005) finding that there is no upper limit on costs of EPR, as EPR costs are incurred even if they exceed benefits. The primary objective for EPR and product stewardship schemes is to attain an efficient level of the environmental externality (in this case waste management and landfill) in question, and to do so cost-effectively (Walls 2003). The NPCIA find that the conditions required to justify introduction of EPR are not applicable to packaging in Australia. Attempts to apply EPR to packaging, especially in Europe, have introduced significant social and economic costs, yet environmental results may be viewed as mixed at best. Put simply, packaging waste does not justify EPR instruments, either from an economic or an environmental perspective.
5.0	Targets and KPIs
“How are targets being set? What consideration is given to the social, environmental and economic costs of achieving these targets? How should targets be set to optimise social, environmental and economic outcomes?”
With regard to the Covenant, the NPCIA suggests that targets to a large extent and KPIs to a lesser extent were set based primarily on political reality rather than full consideration of their social, economic and environmental costs and benefits. This was also noted in an independent review of the Covenant’s RIS carried out by ACCESS Economics, which stated that the true costs of the proposed Covenant had not been taken into account. Despite concerns about the robustness of the RIS and the setting of overarching targets, the Covenant, “seems to ACCESS Economics to constitute a prudent evolutionary approach to tightening industry performance requirements” (ACCESS 2005, p.1).
Access Economics suggest that the prescribing of over-arching recycling targets, divorced from consideration of how, and at what cost, they are to be achieved at the business-specific level, ranges from being ineffective to, at worst, generating net costs to the community rather than net benefits. The NPCIA strongly supports the argument made by Access that unless targets are linked to practical business specific actions, there are significant questions posed as to how anybody can be sure they will be achieved, and most importantly, at what (social, environmental and economic) cost?
Access Economics suggest that the implementation of targets as contained and reviewed in the RIS associated with the revised Covenant to be completely inconsistent with the spirit and intent of the RIS process itself. This supports the NPCIA view that the setting of targets and the consideration of the social, environmental and economic impacts were not linked to business-specific actions. Accordingly, a robust and rigorous cost benefit analysis, as required under the RIS process, was not undertaken. The targets were set based on inaccurate and shallow (at best) investigation into the actual impacts on business.

The Covenant calls for an overall packaging recycling rate of 65% to be achieved by 2010. This is despite  the current overall Australian packaging recycling rate of around 50% being  comparable to the European packaging recycling rate of 55% overall. The European material recycling rates are viewed by most stakeholders as the highest recycling rates that can practically be reached. As Australia pushes up against the point of diminishing returns for packaging recycling, marginal costs of achieving higher recycling rates will continue to increase significantly. It is inevitable given the current challenges facing manufacturers of fast moving consumer goods in Australia in terms of increases in input costs and pressure on margins from the retail sector, that such costs will surely be passed on to consumers.
The NPCIA accepts the targets embodied in the revised Covenant, but view their initial establishment as less than desirable. The primary rationale for this view is that most EPR and product stewardship approaches have moved away from mandated targets toward more encompassing approaches addressing a wider range of environmental impacts. The imperative for targets and KPIs under the revised Covenant resulted primarily from the lack of effective monitoring and accountability consistently noted in reviews of the original Covenant.
The NPCIA was fully involved in the development of targets, in close consultation with jurisdictional and Commonwealth representatives. The process was disruptive and disjointed, with advocacy groups seeking target proposals based on unrealistic, unsubstantiated and inaccurate representations of the current state of packaging recovery in Australia and inappropriate comparisons against other programs, especially those in Europe. 
The NPCIA developed detailed modeling, based on the best available information, of target recycling rates that could be achieved with substantial effort by industry. Despite the best efforts of the NPCIA, these estimates were only marginally taken into account during the actual establishment of targets. This was largely due to the lack of recognition by some stakeholders involved in the process that Australia performs especially well against world standards for packaging recycling and that the upper limits of practical recycling are being achieved for most packaging materials. 
Based on the above experience, the NPCIA cautions against the use of targets based on less than a full consideration of social, economic and environmental costs and benefits, and against failure to understand practical realities of what can be achieved. Where targets are established, they should be reasonable, achievable with an appropriate effort and industry should be allowed the flexibility to achieve the targets in the most cost-effective and resource-efficient manner.
The NPCIA views the ‘top down’ setting of ‘over-arching’ targets as was undertaken as part of the revised Covenant as poor policy development. Without consideration of a practical mechanism linking business/consumer/government actions to the achievement of such targets, there is no practical way of assigning responsibility for their achievement or failure to participants in the revised Covenant.
In this respect, NPCIA supports the finding of Access Economics that the RIS itself has been forced to assume specific environmental outcomes in order to evaluate particular policy options in place of the current Covenant. In addition, policy makers have not examined ‘the implementation steps, practicality or desirability of achieving (the targets)’. The NPCIA are of the view that any targets should be developed from the ‘bottom up’ rather than from the ‘top down’. By engaging industry participation in their development, and aggregating any ‘over-arching targets’ from individual targets and actions, all of the practical shortcomings identified will be considered. It is possible to develop waste management policy that ‘pushes the envelope’ but in a cost-effective, practical manner.
6.0	Recycling
“How useful is full life‑cycle analysis in determining the environmental and economic costs and benefits of recycling various products?”
Full life-cycle analysis (LCA) is useful in driving improvements over time for individual products. We do not, however, support the use of LCA to develop policy, as framing and assumptions are easily called into question and policies based primarily on LCA would fail to adequately account for product innovation and changes over time. Policies should be based on full considerations of social, economic and environmental costs and benefits, within which LCA can have a complementary role.  
“Are there particular products or locations for which disposal rather than recycling might be a more efficient option?”
In locations where low collection quantities are likely or where transport of recovered materials to end use markets is cost-prohibitive, recycling might not be the preferred option. In such cases, NPCIA preference is for local recycling markets or, where available, energy recovery consistent with the Waste Management Association of Australia’s Sustainability Guide (WMAA 2005). 
“How has government procurement policy affected recycling levels? How important is the demonstration effect of government actions?”
Government and business procurement are equally fundamental to creating stable demand for recovered materials and to demonstrating leadership by example. Procurement will be increasingly important to stimulate demand for increased recovery under the Covenant as it strives to achieve the overall targets. The NPCIA acknowledges the success of existing procurement policies and programs and supports their improvement and expansion. 
7.0	Energy Recovery from Waste
“What is hindering the greater use of recovering energy from waste in Australia?”
Strong arguments can be made for the use of energy from waste (EFW) or alternative waste technologies (AWT) on economic and environmental grounds. This is despite low gate fees for landfill and relatively low feedstock densities potentially causing these approaches to not be competitive in some areas. Public perceptions and misunderstandings about such approaches, fuelled by some environmental advocates, appear to be the major hindrance. 
“Are there particular products or locations for which recovering energy from waste would be the most efficient approach to waste management?”
For residual materials remaining after cost-effective recycling, the NPCIA supports energy recovery and resource utilisation through EfW or AWT consistent with the WMAA (2005) Sustainability Guide. 
The NPCIA further supports efforts to better quantify the amount of packaging disposed through EfW or AWT processes in order to better understand packaging material flows, consistent with the NPCIA’s Gap Analysis (MS2 and NRS 2005).
8.0	Litter
8.1	Advantages and disadvantages of CDL
“What are the advantages and disadvantages of container deposit legislation in reducing litter and increasing recycling? What part do they play in optimising waste management outcomes?” 
The NPCIA concurs with the Inquiry’s observation that “container deposit schemes can lead to higher levels of recycling for selected products, but can lead to costly duplication of collection systems and adversely affect the viability of kerbside collection for other recyclable materials” (PC 2005, p.30). The NPCIA views CDL as a potential costly and inefficient threat to current recycling activities, without resulting in increased optimisation of waste management and only limited positive impacts on litter. 
Various studies have found that there is no direct link between the presence of CDL and optimised waste management outcomes such as increased overall recovery, reduced packaging to landfill or reduced environmental impacts of landfilling (C4ES 2000, Perchards et al 2005). In their review of the PPWD, Perchards et al (2005, p.130) found that, 
“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.” 
CDL can be effective in increasing beverage container recovery and decreasing beverage container litter, which generally accounts for 8-10% of the litter stream, but has no effect on other litter types. However, CDL increases the supply of recovered materials without increasing demand for the materials and requires the establishment of separate, competing systems (C4ES 2000, Perchards et al 2005). These conditions introduce market distortions that reduce the cost-effectiveness of recycling programs. Florida repealed CDL provisions due to take effect, in favour of a market-based ADF to promote recycling markets to address this specific concern (MS2 2006). 
C4ES (2000) first pointed out that, prior to the introduction of CDL in Germany, CDL had always been introduced first and then comprehensive waste management and recycling programs could be designed around the CDL programs, thus reducing conflicts with recycling programs and contracts.
Germany introduced CDL on top of their comprehensive waste management and recycling program in order to penalise the beverage industry for failure to achieve an arbitrary 72% reuse quota for refillable beverage containers. As a result, the introduction of CDL cost the German industry PRO (DSD) over €300 million (currently around $490 million) in 2003 and led to a net loss of 9,530 jobs (EUROPEN n.d.). The program has also resulted in a net increase in environmental impacts and significant market distortions. To avoid the additional deposit, consumers frequently buy less expensive refillable bottles, then litter them (Perchards et al 2005). 
Introducing CDL on top of comprehensive recycling programs such as those in Australia would entail significant conflict. These conflicts are highlighted as recycling programs increase their recycling rates and reduce their costs. For example, C4ES (2002) found that the introduction of CDL in the Australian Capital Territory (ACT) could at best result in a 10% increase in beverage container recovery. However the marginal cost for recycling would increase from $110 per tonne to $900-$1,900 per tonne for a 10% recycling rate increase. Council recycling costs would therefore not go down, even though less material would be recovered. Importantly the evidence suggests council rates could actually rise if CDL was implemented in top of comprehensive recycling programs (C4ES 2000).
Even studies that disagree in their recommendations on CDL are remarkably consistent in estimating that introducing CDL in Australia would double or triple the cost per household of kerbside recycling in Australia (C4ES 2000, EPA Victoria 2003, ISF 2001). 
C4ES (2000) further found significant difference in CDL collection depot viability between urban and rural areas. C4ES modelling showed that for NSW rural areas to try to achieve the same coverage as the South Australia CDL system would require $123 million in establishment costs alone to create 500 depots, despite only 30-60 of the depots being commercially viable on their own. This raises important policy issues – namely introducing CDL in Australia would either require significant subsidisation in rural areas or charging consumers deposits they may not actually be able to redeem. 
Although in theory deposit-refund schemes such as CDL can be effective in addressing illegal disposal, they are not suited to high volume waste streams (MMA and BDA Group 2003). The impacts of CDL are also highly dependent on the deposit providing enough incentive to warrant the extra effort to redeem the containers, and the ability of CDL to provide incentives for return is debatable. For example, return rates are especially low for reusable agricultural and veterinary chemical containers, even though they can carry deposits of $350 or $1,000 and users can return the containers to the same stores where they purchase new supplies. To keep up with inflation, CDL deposits would have to be in the order of 20-30 cents per container. The question is whether people would redeem containers, and if so, how? Given the strong support for kerbside recycling in Australia and 85-95% access to kerbside recycling, it is less likely that people will go out of their way to redeem containers (MS2 2006).
Martin (2005a, 2005b) has highlighted the potential for significant diversion of revenues from recycling programs under CDL if consumers are motivated to return the containers. Martin (2005a) found that materials covered under CDL contribute 54% of the volume, yet 77% of the financial value of kerbside recycling in Tasmania. In addition, Martin (2005b) found that materials covered under CDL contribute 33% of the volume, yet 59% of the financial value of kerbside recycling in Northern Queensland. Economic viability of such programs would be threatened to the extent that consumers redeem containers through CDL collection depots rather than through kerbside. 
9.0	Pricing Measures
 “Where unit pricing has been introduced, has this proved efficient and effective? Has it lead to a reduction in waste disposal and/or an increase in recycling?”
The NPCIA supports the implementation of unit-based pricing (UBP) to send appropriate signals to consumers about waste reduction where viable recycling opportunities are accessible. 
10.0	Market Failures and Externalities
The NPCIA understands that one of the Inquiry’s objectives is to identify policy options to address market failures and externalities associated with the generation and disposal of waste. The NPCIA strongly support the Inquiry’s view that ‘government intervention can be costly and can introduce its own distortions. Taking this into account, government intervention is only warranted when the benefits it is likely to provide are greater than the costs involved’ (PC 2005, p.19).
The NPCIA does not believe that market failures and resulting externalities currently exist on any significant scale for packaging in Australia. Packaging is an integral part of municipal recycling programs and provides significant revenue to offset costs for implementing such programs. 
Non-paper packaging is generally inert in landfill and therefore externalities are limited. Paper that goes to landfill may introduce some externalities, and the volume of paper going to landfill is significant. However, it is important to acknowledge existing paper recovery efforts such as commercial and residential recovery of paper and cardboard, efforts by the Publishers National Environment Bureau to increase newsprint recovery, and current and pending paper industry product stewardship schemes. 
Industry funding to increase packaging recovery and litter reduction is an integral component of the Covenant, as is commitment by company signatories to reduce overall life-cycle impacts of packaging.  Government intervention is therefore best directed to enforcing the current NEPM for Used Packaging, thus reinforcing effectiveness of the Covenant, and to increasing responsible management for products that are potentially hazardous in nature, difficult to manage or where industries have failed to accept an appropriate level of responsibility for their products (MS2 2006). 
10.1	Resource Extraction and Materials Processing
“To what extent do negative externalities associated with resource extraction and materials processing (and other stages of the product life‑cycle) result in non-optimal levels of waste?”
It may be worth investigating whether virgin material or related subsidies create any unfair bias against recovered materials and if so, move toward reduction and/or elimination of such subsidies to ensure they are not ‘perverse’ subsidies that are damaging to both the economy and the environment. The OECD (2005) notes that proper pricing of virgin resources to accurately incorporate externalities could result in greater encouragement of DfE and greater use of recycled materials where there is a social case for doing so. We note that the Covenant’s strengthened ECoPP is intended to effectively achieve these objectives. 
10.2	Illegal Dumping and Littering
“How large a problem is illegal dumping and littering? What types of waste cause most of the problems?”
Illegal dumping and littering, especially for marine debris, represents a potentially significant yet largely unquantified matter worthy of further consideration. The NPCIA supports a comprehensive and coordinated national approach to litter.
“What are the most cost effective policy and enforcement mechanisms for limiting illegal dumping and littering?”
With regard to packaging litter, the NPCIA supports improved litter reduction education and provision of public place/special event recycling and strengthened anti-litter legislation and enforcement resources, coupled with financial support for anti-littering projects and organisations as cost-effective policy and enforcement mechanisms.  
The Covenant contains a number of features intended to reduce environmental impacts from packaging that is illegally dumped or littered:
•	Funding through Covenant contributions for litter projects approved by the National Projects Group (NPG).
•	One of the ECoPP’s DfE provision specifically addresses propensity to become litter. 
•	Covenant KPIs contain specifically address measurement of consumer packaging in the litter stream and improvements in littering behaviour, and the NPCIA will continue to work with jurisdictions to help measure and achieve these KPIs. 
11.0	National Coordination of Policies
“When is it appropriate to implement uniform national approaches and when is it appropriate for the jurisdictions to pursue their own agendas?”
Companies in the packaging supply chain produce for national and international markets, rather than for individual Australian States and Territories. Lack of a uniform national approach will add to costs and undermine the competitiveness of Australian companies and their packaging products, both within Australia and overseas.
Nationally consistent policy approaches are critical to limiting compliance costs of companies and in recognition that viable trade generally shows little regard for jurisdictional boundaries. The NPCIA also supports jurisdictions working with industry leaders in innovative environmental initiatives and where jurisdictional action is necessary to support underpinning legislation such as NEPMs. However, jurisdictional efforts should be complementary to, rather than undercutting, nationally consistent initiatives and be based on a full understanding of social, economic and environmental considerations. 
12.0	Data Needs 
“To what extent is the lack of disaggregated data (that is, the lack of information about quality and composition of waste) a problem?” and “What are the most significant data gaps?”
The NPCIA recognised the significant lack of effective data and feedback frameworks and the impacts of data gaps on effective policy development and commissioned the attached Gap Analysis (MS2 and NRS 2005) to identify and document the gaps and inconsistencies in the collection, storage and analysis of packaging materials flow data in order to help inform discussions during revision of the Covenant. 
The Gap Analysis (MS2 and NRS 2005, p.ii) found that ‘fundamental changes are needed to provide reasonably accurate, independently verifiable data to determine progress’ against Covenant targets and KPIs and that ‘the use of current datasets and methodologies to determine compliance would clearly be open to considerable challenge for virtually every area examined’. 
The NPCIA has supported NPG projects to identified gaps and has committed to conducting an annual Gap Analysis to address problem areas. 
“What countries collect and use data on waste more effectively than we do and what are the lessons for Australia?”
The NPCIA has experienced the misuse of differing waste data and inappropriate data comparisons to other countries to advance particular agendas. For example, the Boomerang Alliance claimed that Australia lagged well behind international standards in recycling (BA 2005). Well-respected UK consultancy Perchards reviewed the document and responded that the claims were “based on a comparison with Europe which is inaccurate and misleading” (Perchards 2005). 
In this report, Perchards further refuted many of the claims made by the Boomerang Alliance and supported many of the comparisons made by the NPCIA, as well as refuting claims about excessively high waste generation in Australia.
We further refer the Inquiry to our discussion in Section 5 of data use and misuse relating to the establishment of Covenant targets. 
13.0	References
ACCESS Economics (ACCESS 2005), Prudent evolution: review of the Regulation Impact Statement for the revised National Packaging Covenant, report for the National Packaging Covenant Industry Association, Canberra. 
Australian Food and Grocery Council (AFGC 2003), Environment report 2003, Canberra.
Boomerang Alliance (BA 2005), The pathetic package, available at www.tec.org.au/ index.php?option=com_docman&task=doc_download&gid=113, accessed January 2006.
Centre for Environmental Solutions (C4ES 2000), Impacts of container deposit legislation on New South Wales recycling and litter management programs, prepared for Beverage Industry Environment Council, Sydney.
C4ES (2002), Impacts of implementing container deposit legislation in the ACT, report for ACT NoWaste, Sydney.
Environment Canada (EC n.d.), Extended producer responsibility & stewardship: Glossary of terms, available at http://www.ec.gc.ca/epr/en/glossary.cfm, accessed December 2005.
EPA Victoria (2003), Container deposit legislation – financial impacts. Prepared by Nolan-ITU, Melbourne.
Environment Protection and Heritage Council (EPHC 2004), Industry discussion paper on co-regulatory frameworks for product stewardship, Adelaide. 
EUROPEN (n.d.), Mandatory deposits on non-refillable beverage containers in Germany: The economic, environmental and social effects, available at http://www.europen.be/issues/casestudy.pdf, accessed July 2005, confirmed January 2006.
INCPEN (1996), Environmental impact of packaging in the UK food supply system, London.
Institute for Sustainable Futures (ISF 2001), Independent review of container deposit legislation in New South Wales, Sydney.
ISF (2004), Review of the National Packaging Covenant, report for Nature Conservation Council of NSW, Sydney.
Martin, R (2003), To extended producer responsibility and beyond, WMAA News, Spring 2003.
Martin, R (2005a), CDL in a contemporary context – Implications for Tasmania, presented to the Joint Standing Committee Environment, Resources and Development, Hobart on 21 April, 2005.
Martin, R (2005b), CDL in a contemporary context – Implications for LAWMAC Region, presented to LAWMAC Conference 2005, Cannonvale on 28 July, 2005.
Martin Stewardship & Management Strategies (MS2 2006), Strengthening packaging product stewardship in Australia, report for the National Packaging Covenant Industry Association, Sydney. 
Martin Stewardship & Management Strategies Pty Ltd and New Resource Solutions (MS2 and NRS 2005), National Packaging Covenant gap analysis: Final report, report for the NPCIA, Sydney.
McLennan Magasanik Associates Pty Ltd and BDA Group (MMA and BDA Group 2003), The potential of market based instruments to better manage Australia’s waste streams – Part 1 report: Identifying instruments for investigation, report for Environment Australia, Canberra.
National Packaging Covenant Council (NPCC 2005), The National Packaging Covenant: A commitment to the sustainable manufacture, use and recovery of packaging – 15 July 2005 to 30 June 2010, available at http://www.deh.gov.au/settlements/publications/waste/covenant/covenant.html #download, accessed December 2005. 
National Packaging Covenant Industry Association (NPCIA 2004), Action plan review: Public report, Sydney.
Nolan-ITU (2004), Evaluation of the Covenant volume 1 executive summary and main report, report for the National Packaging Covenant Council, Melbourne. 
Nolan-ITU and SKM Economics (Nolan-ITU and SKM 2001), Independent economic assessment of kerbside recycling in Australia: Final report – volume 1, report for National Packaging Covenant Council, Sydney.
Organisation for Economic and Cooperative Development (OECD 2001), Extended producer responsibility: A guidance manual for governments, Paris.
OECD (2005), Analytical framework for evaluating the costs and benefits of extended producer responsibility programmes, Paris.
Perchards (2005), What’s wrong with the pathetic package, available under “archive links” at http://www.packcoun.com.au/, accessed February 2006. 
Perchards, FFact Management Consultants and SAGIS Ltd (Perchards et al 2005), Study on the progress of the implementation and impact of Directive 94/62/EC on the functioning of the internal market: Final report, volume 1 – main report, available at http://europa.eu.int/comm/enterprise/ environment/reports_studies/studies/report_packaging_direct.pdf, accessed July 2005.
PIRA International Ltd and ECOLAS N.V. (PIRA and ECOLAS 2005), Study on the implementation of Directive 94/62/EC on Packaging and Packaging Waste and options to strengthen prevention and re-use of packaging: Final report, available at http://www.europa.eu.int/comm/environment/waste/ studies/packaging/050224_final_report.pdf, accessed July 2005.
Productivity Commission (PC 2005), Waste generation and resource efficiency: Productivity Commission issues paper, Melbourne. 
US Environmental Protection Agency (USEPA 1998), Extended product responsibility: A strategic framework for sustainable products, available at http://www.epa.gov/epaoswer/non-hw/reduce/epr/ docs/eprbrochure.pdf, accessed December 2005.
Walls, M (2003), The role of economics in Extended Producer Responsibility: Making policy choices and setting policy goals, Resources for the Future, Washington.
Waste Management Association of Australia (WMAA 2005), Sustainability guide for energy from waste (EfW) projects and proposals, Sydney.
West, D and Hogarth, M (2005), Extended producer opportunity: Making EPR & zero waste work for business and society, report for the Boomerang Alliance, Melbourne. 

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