Considerable uncertainty surrounds Scotland’s Deposit Return Scheme (DRS). The DRS, having originally been set to be implemented in July 2022, August 2023 and then March 2024, is now (7 June 2023) delayed until October 2025 ‘at the earliest’. While subject to change, once introduced the DRS will introduce a 20p deposit payable by consumers on all eligible containers, repaid at the point of return. With penalties for producers and retailers who fail to comply with the scheme requirements and uncertainty around how and if the scheme will be implemented, businesses will want and need to know: just what are they required to do?
Current position (June 2023: glass and the Internal Market Act)
Currently, containers made from metal, glass or PET plastic (but not HDPE “milk-carton” plastic), with a capacity of between 100ml (increased from 50ml by a recently announced change) and 3L, marketed for sale or sold in Scotland, will be eligible for the scheme. Prior to the delay announced on 7 June 2023, there was speculation as to whether glass may be removed from the scheme to bring it in line with the DRS schemes planned for the rest of the UK.
Given the UK Government has only approved a partial exemption to the Internal Market Act, stipulating that glass could not be part of the Scottish DRS, it is inevitable that glass will be removed from the Scottish DRS when the Regulations are next amended by the Scottish Parliament.
That conditional agreement by the UK Government also requires agreement between the four nations on a maximum cap for deposits and that customers can return their DRS contains in all four nations.
Overview
The DRS defines eligible containers as “scheme containers” and products contained in those containers as “scheme articles”.
The scheme administrator, Circularity Scotland Ltd, will oversee the scheme and handle deposits.
Obligations are categorised into producer obligations (also applicable to most importers) and retailer obligations (also applicable to most wholesalers and hospitality businesses, with some exceptions).
Under the scheme:
- The producer / importer pays the deposit to Circularity Scotland when the scheme container is first produced or imported for sale in Scotland.
- The retailer pays the deposit to the producer when purchasing the scheme container. The customer then pays the retailer (with exceptions for some hospitality businesses).
- The customer returns the scheme container to an approved return point and is refunded by the return point operator.
- The deposit is refunded to the return point operator by Circularity Scotland.
The deposit is paid each time the scheme container is sold and then when returned, making the deposit cost-neutral for all parties, though as discussed further below, there are concerns that the overall scale of the operation will increase costs for businesses across the DRS.
Producers
Producer registration is currently open until 12 January 2024 (an updated date is awaited following the delay to the scheme). Only registered producers may sell scheme containers under the DRS; sale of eligible containers by unregistered producers is an offence for both producer and retailer.
Producers must:
- Register annually, before 1 March, to sell products in that registration year (1 March - 28 February);
- Charge a deposit when selling scheme containers;
- Keep sale and return records for four years; and
- Accept return of scheme containers sold to retailers or wholesalers, or collected by return point operators, and pay a sum equal to the deposit upon return.
Small producers, with an annual turnover of less than £85,000, are required to register as a producer under the DRS but will not require to make payment of the registration fee (which is £365 for in-scope producers). In a recently announced change, producers that sell fewer than 5,000 units per year will be exempt from all requirements of the scheme. This announcement is said to benefit a range of craft and small-batch producers.
Retailers
Retailers must pay the deposit to the producer / wholesaler and charge it to the consumer. Retailers must display information at the point of sale to consumers as to whether a container is a scheme container or not. For scheme containers, the retailer must display information about the deposit, where the container can be returned, and how the deposit can be redeemed.
In addition to charging deposits to customers, most retailers will also need to operate return points for scheme containers. The deposit is refunded to the customer when the container is returned. Exemptions can be applied for in specific circumstances, such as where alternative return points are available nearby.
Return point operators can either accept returns over the counter, or install a ‘reverse vending machine’ (i.e. automatic machines accepting returns directly from customers), and provide the refund either through cash or vouchers.
Most online sellers must operate a ‘takeback service’, collecting containers directly from customers. SEPA, who are responsible for enforcing the DRS, previously indicated that this requirement would apply to all online sellers by 2025. It is yet to be confirmed whether this requirement will now be imposed on all retailers from October 2025, or whether it will first only apply to online sellers. The takeback service operator may temporarily charge the customer a small fee for materials involved in providing this service. This fee must eventually be refunded along with the 20p deposit so that overall, the service is free of charge to the customer. There is no guidance yet as to how this will operate in practice.
Hospitality businesses only selling drinks for consumption on-site must pay the deposit on a container to the producer or wholesaler but will not need to charge a deposit to the customer or provide a return point. The deposit is then paid at the point of return. Hospitality businesses selling the majority of their drinks products for consumption on the premises will be exempt from acting as a return point.
Failure to comply
Offences for businesses failing to comply with DRS obligations may, in most cases, attract fines of up to £10,000. For serious offenders, the fine is unlimited. Offences include failures to pay or charge deposits, or to display information regarding the deposit and information on where containers can be returned.
With potentially high penalties, businesses need to know and comply with the requirements applicable to them. As we approach the scheduled go-live date in or around October 2025, potential changes to the scheme may affect those requirements.
Reaction to the DRS
While Scotland’s DRS is not the first of its kind, with similar types of schemes existing in countries such as Germany and Denmark, controversies around the implementation of the DRS have caused concern amongst producers and retailers as to the operation and costs of the scheme. Some criticism has been raised as to the necessity of such a scheme given the already effective recycling system in Scotland, with recycling rates steadily increasing over the past decade (with the exception of 2020 at the height of the COVID-19 pandemic). With that being said, the latest SEPA statistics (which do not contain specific statistics for in-scope containers) estimate current household waste recycling rates at around 47%. For comparison, the equivalent DRS in Denmark has increased recycling rates for in-scope containers to as high as 92%. Supporters of the DRS have pointed to this potential for improvement as a clear need for its implementation.
Producer sign-up
On 1 March 2023, prior to the previous postponement of the scheme, Circularity Scotland reported that 650 producers, representing 95% of all scheme articles sold in Scotland, had registered for the DRS.
Producers concern by the costs of bringing products to market with the DRS.
While the deposit itself is intended to be ‘cost-neutral’, producers have highlighted that extra machinery and materials needed for producing scheme packaging and labelling, producer fees to be paid by the producer to the scheme administrator for each scheme article produced, along with the extra administration required to record necessary DRS statistics, will increase prices of most if not all scheme articles.
Pressure on producers
In response to producer concerns, a £22 million ‘small producer support package’ was announced by Circularity Scotland, intended to alleviate pressures on smaller producers complying with the scheme. This package includes removal of certain charges, along with credit terms available to producers to ease compliance with the scheme. This package is available to producers who produce less than 3,000,000 scheme articles for the Scottish market per year. It has been suggested that some small producers may be made exempt (in addition to those small producers already exempt), at least in the initial years of the scheme, though this is yet to be confirmed.
Cash flow concerns for retailers
Retailers are concerned by the return services which they must provide under the scheme. Returned scheme containers must be stored securely to ensure that the return point operator is able to reclaim the deposit. While the deposit is paid immediately to the consumer, the retailer will not be repaid until it in turn has the container uplifted. Depending on the lead time between refunding the consumer and the retailer being refunded, there may be cash flow concerns for the retailer. In addition, retailers operating return points may need to pay for uplift of returned container. While return point operators will be paid a handling fee by Circularity Scotland, there are concerns that these handling fees are not enough to cover the full cost of operating the return point.
Impact of the Internal Market Act
The DRS only applies in Scotland, albeit a similar scheme to the DRS is set to be implemented in the rest of the UK in 2025 (notably, this will not accept glass containers which differs from the originally planned Scottish DRS). Drinks producers selling scheme articles cross-border within the UK have expressed concerns at how this will work in practice. Different requirements may be applicable to containers in different parts of the UK, contrary to UK internal market rules. An application by the Scottish Government to Westminster allowing the DRS was only partially granted, which has been cited by the Circular Economy Minister as the reason for the further delay to the scheme.
Deposit Return Schemes play an important part in reducing carbon emissions, though just how Scotland’s will be implemented remains very much open to interpretation and may be subject to change. If you or your business have any queries about the DRS, its implementation and your obligations under it, please contact Kevin Clancy or Jamie Yule.