The deadline is fast approaching for submissions on the reforms to the PRN/PERN system operating in the UK. If you aren’t involved in recycling of packaging waste in the UK, and are wondering what PRNs and PERNs are – it’s too long a story for here but feel free to contact us.
If you are involved in recycling and haven’t yet made a submission to the government’s consultation process, then I’d urge you to do so. The deadline is 20 May and you can find a link to our submission below. Please feel free to copy and paste any of it in your own submission.
While it is far from perfect, the current system overall functions to support the recycling of packaging waste in most scenarios – whether underlying commodity prices are high or low, and whether recycling volumes are high or low.
While the packaging producers and compliance schemes – the people who buy PRNs - should be applauded for their lobbying, it should be highlighted that they aren’t “industry” in its entirety that the government paper seems to think they are. They are only half of “industry” – and generally the bigger, cash-rich half of industry at that. The other half is made up of smaller reprocessors and exporters – the people who sell PRNs - generally facing more day-to-day commodity price risk and cashflow issues than the PRN buyers. A chunk of the consultation paper seems to have adopted the “poor PRN buyer” cry of the packaging producers and compliance schemes – shouting about volatile (high) prices and almost an inference of market manipulation on the part of the PRN sellers.
If you consider that the reality is that most of the PRNs traded each year are bought by around 20 Compliance Schemes, while in contrast a download of the reprocessors and exporters from the National Packaging Waste Database is 10 pages long and has 526 entries (accepting that some companies registered for different materials appear more than once - but you get the picture!), then which side do you think has the most ability to force the market in a direction of their suiting?? Not the one that the consultation paper seems to think.
The PRN market is a volatile market – driven by the ups and downs of the economy and the global fluctuations in demand & pricing of commodities. There is ample evidence that PRN prices drop (or are driven down by PRN buyers) at different points in the annual cycle. PRN Prices don’t shoot up towards the end of every year (as the PRN buyers would have us believe). A quick look at data available to members of The Environment Exchange (buyers and sellers of PRNs) shows that in the Paper PRN market, 3 out of the last 3 years have ended with lower prices in the final month/quarter than the annual average. Even in the Plastic PRN market, 2 out of the last 3 years have ended with lower prices than the annual average.
The government paper presents a view that every year prices rise towards the end of the year - driven seemingly by collusion between hundreds of small reprocessors and exporters. WRONG!
The key to the reform of the system and its future operation is to ensure there is enough data for all parties to make their own commercial decisions, and also to ensure that the regulators police both sides with more scrutiny and take appropriate action against those not complying.
Requirements to report accurate data more frequently – and for the data to be available to all – should be introduced as part of the reform. This should be a “two-way street” so PRN buyers and PRN sellers should have to show their hand on a monthly or quarterly basis.
However, forcing PRN sellers to sell their PRNs on a monthly basis places all the power with the PRN buyers. Imagine if you had 1,000 tonnes of PRNs that you had counted on being worth £200 per tonne (and paid that £200 to the waste generator already), and there’s 1 day to go to the deadline – after which time they are worth nothing. “Unfortunately” all the PRN buyers buying that day sense there’s a better deal to be had, and as the clock ticks down, the best bid out there is £120 per tonne. Do you sell at £120, and realise a £80,000 loss (£80 x 1,000 tonnes) or do you hold out for another few hours? What if - a few hours later - the PRN buyers are feeling even less generous and the best offer is only £95 per tonne? After all, there’s only a handful of buyers (maybe 6 or 7) running the entire market that day.
Yes some changes are needed – mainly about better data and transparency of data – but the government needs to avoid legislating changes that alter the commercial landscape.
I have compiled my notes on the consultation document and the link below will give you access to them. If they are of any interest please feel free to use any of them for your own submission. You can also access them by clicking here.
I have also provided links on the buttons below to the government consultation:
The overview and access to the survey to submit comments can also be accessed here.
The main document to be reviewed and commented on can also be accessed here.
