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The importance of eco-modulation for EPR
Efforts on the part of Defra to provide industry with further clarity on eco-modulation for packaging EPR fees, or ‘modulated fees’ have been gathering pace. But what are modulated fees, when are they being introduced, and importantly, what role do they play within the EPR packaging reforms? Henry Smith explains all in his latest blog...
Since 2018, when the Resources & Waste Strategy for England was first announced, to encourage producers to make more sustainable design, production, and purchasing decisions, modulated fees have been a central aspect of the future EPR reforms.
Eco-modulation is not a novel concept. It already exists in many EPR systems, ensuring the fees paid by producers are increased or decreased based on certain chosen criteria to encourage specific design choices and discourage others.
In some uses, modulated fees give EPR producers reimbursements on their producer responsibility fees when they make desirable choices. In others, penalty fees are paid in addition to standard fee rates when undesired choices are made.
Increasingly, eco-modulation mechanisms are being integrated into extended producer responsibility schemes to maximise the likelihood of a desirable environmental outcome for the item at end-of-life and when in use. A good example can be seen in France, where producers placing white goods on the market can incur penalties if the items have poor energy efficiency.
Direction of travel in the UK
Defra aims to introduce eco-modulation to the second year of EPR fee payments. This means that modulation is due to be first applied to fees paid every quarter across the 2026/27 financial year, based upon the packaging supplied to the UK market during 2025.
Across 2023, Defra has contracted third-party consultants to undertake further work in helping to shape how the policy ambition behind eco-modulation will be realised. One strand of work is to develop an EPR Recyclability Assessment Methodology (RAM), which will help determine the recyclability of packaging and apply modulation factors. The second is to develop the specific criteria upon which modulated fees will be applied; crucial to setting the reporting EPR requirements that producers will be subject to in the future. The RAM model will not be ready to inform the payment structure behind modulated fees during the first year of its implementation. As a result, a simpler system, where only a few packaging materials and designs are discouraged, will be implemented initially – the ‘Early Years’ mechanism.
What we know so far
Defra has confirmed that at least initially, eco-modulation will vary EPR fees based on the recyclability of packaging; more easily recycled packaging will incur a lower fee than packaging deemed difficult to recycle. It remains to be seen whether ‘recyclability’ will be defined in terms of theoretical recyclability, or actual recyclability, acknowledging the availability of appropriate recycling infrastructure in the UK. During the recent consultation on the draft main EPR Regulations, the former was proposed, although it remains uncertain whether this will be taken forward.
Modulated fees will therefore see producers of materials classed as difficult to recycle paying a penalty fee on top of the material-specific EPR fee. This will have a profound impact on fees for similar packaging materials, as EPR payments made by producers are to cover the cost of local authority household waste management operations. The result is that the sum of the penalty fees paid by all producers due to eco-modulation will be used to subsidise the EPR fees charged for other packaging within the broader material category deemed not to be difficult to recycle.
Shortlists are coming
This Autumn, Defra released a shortlist of materials that could be deemed difficult to recycle and therefore subject to eco-modulation in the first year of modulated fees applying to EPR (2026). The shortlisted materials include:
- Plastics containing carbon black
- Some polystyrene (details TBC)
- Some plastic films (details TBC)
- Compostable and bio-degradable plastics
- Non-polyolefin foamed plastics
- High wet strength paper and card (details TBC)
- Some coated papers (details TBC)
- Paper and card with too much foiling/embossing (details TBC)
- Some fibre-based composites (details TBC)
- Glass with attached ceramics
- Some packaging in the ‘wood’ and ‘other’ material categories (details TBC)
- Paper and card with double-sided lamination (details TBC)
Defra intends to return to the industry at the start of 2024 with clearer definitions and a confirmation of the list to be utilised in modulation year 1.
The long-term setup of the eco-modulation system still needs to be determined across 2024. Following stakeholder engagement, Defra is open to exempting packaging materials deemed difficult to recycle when they are demonstrated to be necessary and irreplaceable – PVC packaging used for pharmaceuticals could benefit from this exemption but that remains to be confirmed.
Looking to the future
Whilst eco-modulated fees are not due until 2026 at the earliest, this does not leave the industry much time to prepare, especially given all the other EPR developments they will need to keep abreast of in the intervening period.
Producers are keen to adapt their packaging from penalised materials to more easily recyclable formats as soon as possible and are urgently calling for greater clarity on both the initial phase and the longer-term structure of modulated fees within EPR reforms.
The increased engagement between Defra and packaging producers is an encouraging sign that hopefully we can achieve a modulated fee system that encourages the best environmental outcomes whilst removing barriers for producers reporting data and placing goods onto the UK market under EPR.
If you are looking for ways to reduce compliance costs ahead of the introduction of eco-modulation, our Packaging Analysis services can help your business do just that!
Utilising our extensive product and packaging database, which contains over 44 million SKUs, we can evaluate your packaging compared to similar products and set performance benchmarks.
By comparing your packaging to industry averages and best practices, we can identify areas for improvement and provide guidance on making impactful changes. Not only will this help your business achieve best-in-class packaging, but it can also lead to potential reductions in compliance costs, especially for Extended Producer Responsibility (EPR) for packaging obligations.
Find out how our assessments can drive your business towards more sustainable and cost-effective practices! To learn more, download our white paper, visit our web page, or contact one of our friendly environmental compliance advisors by calling 03450 682 572 or emailing [email protected]