2020 compliance year review

In 2019, plastic and aluminium PRN prices reached levels rarely seen and the 2020 target increases for these two materials (3.6% and 4.9% respectively), meant that 2020 was guaranteed to be an interesting year, even without the Covid-19 pandemic.

The 2020 compliance year has been unprecedented but despite the increase in targets and the other challenges presented by the pandemic, the UK is on track to achieve its 2020 obligation for every individual packaging material, for recycling and overall recovery. Significant surpluses are likely to be carried into 2021 for some materials. This has resulted in notably lower PRN prices across all materials towards the end of 2020, with prices for some materials at administrative levels.

Except for wood and paper, recycling of every packaging material and recovery has been higher in Quarters 1-3 2020 relative to the same period in 2019, with aluminium performing particularly well.  For both paper and wood, the highest recycling volumes in 2020 to date have been achieved in Quarter 3. Wood recycling plummeted in Quarter 2 as a consequence of the UK going into lockdown, resulting in a slowdown  of the construction industry and the closure of Household Waste Recycling Centres where household DIY material is deposited.  Wood volumes in Quarters 1 and 3 2020 have been reasonably constant and in line with 2019 tonnages. Paper volumes have been lower in every quarter in 2020 to date than in 2019, particularly with respect to exports; potentially as a consequence of Chinese import quotas continuing to decrease.

2021 targets

The targets set by Defra for 2021 remove the recovery target and replace this with an overall recycling target. The targets for glass, steel and paper exceed the overall recycling target, whilst the target for wood has reduced considerably, bringing it closer to the EU target. Producers handling mainly wood and packaging materials with targets lower than the overall recycling target, may require  fewer PRNs in 2021 than in 2020.

2020 and 2021 target achievement

The UK should comfortably achieve its 2020 obligation and provided current recycling levels are sustained; the UK 2021 obligation should also be achieved for all materials.  This is positive for producers since PRN prices should be notably lower at the start of the 2021 compliance year than they were at the start of 2020. The graph below shows the proportion of the 2020 UK obligation^[1] achieved in Quarters 1-3 this year. The target uplifts in 2021 have been applied to the 2020 obligation to demonstrate that, all other things being equal, the 2021 targets are likely to be achieved.

2020

The graph shows, that more than 75% of the 2020 obligation has been achieved for every packaging material in Quarters 1-3 of 2020.

2021 outlook

Projecting the UK 2021 obligation from the 2020 obligation, multiplied by the 2021 target uplift, it is estimated that more than 75% of the increased 2021 obligation would be achieved in three quarters.

It is difficult to predict both the 2021 obligation and 2021 recycling performance. Business failures, and companies falling below the threshold may reduce the UK obligation for some materials, whilst the shift to online shopping and increased packaged beverage consumption at home may increase the obligation for others. Similarly, with respect to recycling, low PRN prices may depress recycling rates, particularly for plastic since price support continues to be needed for this material.

Until we have sight of the first published 2021 obligation data in May 2021, it is difficult to predict how the 2021 compliance year will evolve.

[1] Based on data published by the Environment Agency on 27^th November 2020.