UK Government announces plans for £200/tonne plastic tax during Budget 2020

LONDON (ICIS)–The UK Government has announced plans to implement a £200/tonne tax on virgin plastics during Budget 2020 on Wednesday.

The consultation, which will run until 20 May 2020, proposes a Plastics Packaging Tax which “will apply at a rate of £200 per tonne of plastic packaging which does not contain at least 30% recycled plastic. This will apply to plastic packaging which has been manufactured in, or imported into, the UK,” according to the policy consultation document.

“The government will keep the rate of the tax and the 30% recycled plastic threshold under review to ensure that the tax remains effective in increasing the use of recycled plastic,” the document added.

While the tax, which will begin in April 2022, is intended to encourage recycling in the UK, there is concern that the UK market simply is not set up to process the volumes of material needed to meet the 30% recycled content set out by the government.

“The introduction of such as tax is intended to boost the use of recycled material.  However, in the case of the UK the capacity to produce recycled plastics is not sufficient to meet 30% recycled target,” said Helen McGeough, Senior Analyst, Recycling at ICIS.

Looking at the recycled polyethylene terephthalate (R-PET) market as an example, quality and availability of post-consumer bottles is a major issue in many countries, including the UK.

“The capacity to recycle bottles [in the UK] was 140kt in 2018.  However the available domestic feedstock was just over 60% of that capacity, making the country reliant on imports.  Added to this is the poor quality of bales which saw the yield at 58%, equating to almost half of the available bale lost due to contamination,” McGeough said.

UK recycled high density polyethylene (R-HDPE) food grade and natural pellet prices, for example, are currently commonly trading at up to £260/tonne above virgin blow-moulding pellets price, without factoring in transport costs for R-HDPE pellets (R-HDPE pellets are typically sold on an ex-works basis while virgin blow-moulding are typically sold on a free delivered basis).

R-PET food grade pellet prices, meanwhile, are currently commonly trading at up to €650/tonne above virgin PET values across Europe. These high differentials for common grades of recycling used in plastic packaging are the result of increased commitments to sustainability among Fast Moving Consumer Goods (FMCG) companies, at a time when recycled markets are structurally undersupplied. If these differentials remain at or near their current levels, it is difficult to see how this tax would be sufficient to incentivise players away from virgin material.

An additional concern seen with similar taxes in countries such as Italy is that, by introducing a tax on virgin plastics, consumers in that country may simply move away from plastics altogether, preferring to use alternative packaging materials without knowing their real environmental impact.

“It would be more encouraging if the UK government were to announce reforms, and in particular harmonisation, of the collection and sorting systems within the UK to produce higher more recyclable waste streams,” McGeough said.

Additional reporting by Mark Victory