ACOR paper outlines recycling market policy incentives

An independent policy discussion paper has recommended a better targeting of annual waste levies and a new Plastic Reduction Offset Scheme, to improve Australia’s chance of meeting ambitious national recycling targets.

Earlier this year, the Australian Council of Recycling (ACOR) commissioned economics policy expert Peter Crone to develop a discussion paper on potential incentives to support recycling manufacturing in Australia.

While acknowledging recent policy strides, the paper reaffirms the challenge of meeting the National Waste Action Plan recycling targets, including 70 per cent of Australia’s plastic packaging waste to be recycled or composted by 2025.

“Market failures and negative externalities are particularly significant in the waste sector. There is a well-established range of policy instruments that can help address this, including through taxes, the imposition of fees and charges, direct subsidies and tradable offset schemes,” the paper reads.

“In an ideal world, prices for waste disposal, virgin material and manufactured goods should reflect the full costs involved, including environmental and social externalities.”

ACOR CEO Pete Shmigel said new policy and unprecedented industry innovation and investment are starting to deliver more results-based recycling. But to get to the next level, he said Australia needs to be prepared for further reforms that address market constraints, such as the difference between the cost base of imported virgin plastic and domestically produced recycled resin.

“A Plastics Reduction Offset Scheme where companies earn valuable certificates for using recycled content would increase demand for non-virgin plastic and make recovered material more cost-competitive over time,” Shmigel said.

“Unlike taxes that consumers ultimately bear, it is a positive and more affordable way to stimulate domestic manufacturing for an industry already generating 50,000 regional jobs.”

According to the paper, materials-based targets for the use of recycled content should be set and supplemented by a flexible implementation mechanism in the form of a tradable offsets scheme, with certificates or credits issued for use of recovered materials.

Under this arrangement, once an overall target is established for the recycled content of production, individual manufacturers who are using a higher level of recycled content than specified by the standard, would generate ‘offsets’ which could be sold to others.

The purchaser of the offsets would be entitled to use these credits as evidence of contributions towards meeting their targets.

“The offsets would be expected to achieve a value in the market that was linked to the marginal additional cost of integrating recycled content into production i.e. the cost differential between virgin material and recyclate,” the paper reads.

The paper also recommends a 50 per cent waste levy discount on residual waste materials that “burden the legitimate resource recovery activities of recycling companies.”

If implemented, the paper estimates the policy would cost between $50 to $80 million per annum in forgone levy proceeds to the states.

“Given current budgetary outlooks, states may be reluctant to agree to this. However, recognising the national interest considerations in supporting the recycling industry, the Commonwealth, as part of a ‘grand bargain’ could contribute to replacing this lost revenue with direct payments to the states,” the paper reads.

Earlier this year, Prime Minister Scott Morrison noted that only 8 per cent of the $2.6 billion collected in waste levies in the last two years was being reinvested by state and territory governments in recycling infrastructure.

“On top of that, applying waste disposal levies on residual waste from legitimate recycling operations imposes high costs on domestic recyclers and remanufacturers, especially compared to overseas competitors who also have lower energy and labour costs, and restricts their own domestic infrastructure investment capacity,” Shmigel said.

“It’s truly unproductive to penalise and limit the capabilities of Australian companies that are being proactive and wishing to invest in recycling technologies, especially when there are public policy targets to meet and COAG-decided waste export bans to deal with.”

The paper proposes a cross-funding arrangement whereby waste levies on residual waste materials are removed, such as the Queensland precedent, in return for Federal-to-State funding of around $120 million, as well as commitments from industry to invest in new processing and remanufacturing technology and transparently accredit their operations.

“Recycling is clearly on the state and Federal Governments’ agendas, and that is very welcome. However, the current policy conditions need to be evolved so that Australians can truly take full responsibility for their waste,” Shmigel said.

“Recycling needs bold policies to match its bold targets and bold export bans, and we look forward to working with governments to make some of these recommendations a reality.

“It’s not only good for the environment, but further turbo-charges a home-grown manufacturing industry.”

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