BILL ANALYSIS Ó
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Bob Wieckowski, Chair
2015 - 2016 Regular
Bill No: SB 732 Hearing Date: 4/15/2015
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|Author: |Pan |
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|Version: |4/6/2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant|Rebecca Newhouse |
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Subject: Beverage container recycling
ANALYSIS:
Existing law, under the California Beverage Container Recycling
and Litter
Reduction Act (Act):
1. Requires the Department of Resources, Recovery and Recycling
(CalRecycle) to establish a processing payment for a beverage
container covered under the program that has a scrap value
less than the cost of recycling, to be determined as
specified, that is at least equal to the difference between
the cost of recycling and the scrap value of the material.
2. Requires CalRecycle to establish a processing fee to be paid
by beverage manufacturers set at specified percentages of the
processing payment which are reduced as the container type
recycling rate increases. This percentage ranges from 65% of
the processing payment for a container type with a recycling
rate of 30% or less to 10% of the processing payment for a
container type with a recycling rate of greater than 75%.
3. Prohibits CalRecycle from imposing a processing fee on
polyethylene terephthalate (PET) beverage containers if a
willing purchaser offers to purchase empty PET containers at a
voluntary artificial scrap value that is equal to the
processing fee.
4. Requires every glass manufacturer in the state to use at least
35% of postfilled glass in the manufacturing of their glass
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food, drink or beverage containers, as specified.
This bill:
1. Deletes the provisions prohibiting CalRecyle from imposing a
processing fee on PET beverage containers for which there is a
willing purchaser.
2. Requires every manufacturer of a beverage sold in any plastic
container to demonstrate to CalRecycle that each type of a
plastic beverage container sold in this state contains, on
average, not less than 10% postfilled material on and after
January 1, 2017.
3. Prohibits CalRecycle from reducing the processing fee
requirements for any beverage manufacturer for any beverage
sold in the state unless the manufacturer demonstrates to
CalRecycle that the container is manufactured at a facility
that meets or exceeds a specified percentage of recycled
content, regardless of whether the container is manufactured
in this state.
Background
1.Background on the Bottle Bill Program.
The Bottle Bill program is designed to provide consumers with a
financial incentive for recycling and to make recycling
convenient to consumers. The centerpiece of the Act is the
California Redemption Value (CRV). Consumers pay a deposit,
the CRV, on each beverage container they purchase. Retailers
collect the CRV from consumers when they buy beverages. The
dealer retains a small percentage of the deposit for
administration and remits the remainder to the distributor, who
also retains a small portion for administration before
remitting the balance to CalRecycle. When consumers return
their empty beverage containers to a recycler (or donate them
to a curbside or other program), the deposit is paid back as a
refund.
2.Processing Fees, Payments and Offsets.
The Program requires container manufacturers to internalize the
cost of recycling the empty beverage containers they
manufacture. If the cost of recycling these materials exceeds
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the fair market value of the materials (or scrap value), the
Department assesses a processing fee on beverage manufacturers
that is in turn distributed to recyclers to cover their costs
for recycling that material (termed a processing payment).
Processing fees are currently assessed on glass, plastic and
bimetal beverage containers because their scrap value is not
sufficient to cover their recycling costs. Aluminum beverage
containers are not assessed a processing fee because the scrap
value of aluminum exceeds its recycling costs.
However, the processing fees actually paid by beverage
manufacturers are reduced pursuant to a statutory formula that
depends, in part, on the recycling rate for that material type.
If the recycling rate for a particular material is greater
than 75%, the processing fee is reduced to 10% of the
processing payment. For recycling rates less than 35%, the
processing fee is 65% of the processing payment. Beverage
manufacturers pay the processing fees to the Department. The
Department distributes the processing payments to processors
who, in turn, pass them on in their entirety to recyclers.
The Department offsets the difference between what the beverage
manufacturers pay in processing fees and what is paid out to
recyclers in processing payment. This subsidy is termed
processing fee offsets and comes from unredeemed CRV payments
from the fund.
The statute regarding processing fees allows manufacturers to
artificially increase the scrap value of polyethylene
terephthalate (PET) plastic which would subsequently reduce the
total amount of the processing fees they eventually paid.
However, processing fee offsets (enacted subsequently)
subsidizes the processing fees manufactures pay to a degree
that negates the need for manufacturers to artificially prop up
scrap prices. SB 732 repeals the provisions from the Act
allowing manufacturers to artificially increase the scap value
of PET.
3.Structural Deficit and Department and Auditor's
Recommendations.
Deposits on covered beverage containers are remit to CalRecycle
and deposited into the Beverage Container Recycling Fund
(Fund). The Fund's expenditures fit into two primary
categories: 1) CRV reimbursements to recyclers and 2) program
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expenses, including administration, statutorily mandated grant
programs, education and outreach, as well as processing fee
offsets, are all funded by unredeemed CRV. Higher recycling
rates reduce the amount of unredeemed CRV to fund program
expenses. With the current structure of the program's
statutory expenditures, the "breakeven" recycling rate where
expenditures equal revenues is about 72%. LAO, in their
Overview of the Beverage Container Recycling Program from March
12, 2015, reports the recycling rate for the program at 85% and
the projected structural deficit for 2015-16 fiscal year at $72
million.
The single largest expenditure category from the fund, after
CRV payments, is processing fee offsets, paid to recyclers from
unredeemed CRV as processing fee offsets. The LAO projects
these payments will exceed $80 million in the next fiscal year.
In early 2014, the Department submitted a budget change
proposal for what they termed "phase II" reforms to restructure
the program and eliminate the structural deficit. Their
proposal eliminated the processing fee offsets, requiring
beverage manufacturers to pay fees equal to the processing
payment (which, as noted above, is the difference in cost
between the cost of recycling and the scrap value of the
material). This, in combination with other Fund expenditure
reduction measures was projected to have resulted in
elimination of the structural deficit. According to the
Department in this proposal:
"Processing fees were imposed in California in order to send
accurate price signals to consumers and beverage
manufacturers regarding the "true" ("internalized") costs of
reusing/recycling a container ("net of the used container's
scrap value"). Without the Processing Fees, beverage
dealers and manufacturers would be completely isolated from
the costs of recycling since, under the California's
Beverage Container Recycling law, beverage dealers and
manufacturers otherwise bear no responsibility for the costs
of recycling containers. The advent of the Processing Fee
Offsets (paid from unredeemed CRV), which reduce the amount
paid by beverage manufacturers, weakened or eliminated the
price signals intended by the original Processing Fee. In
addition, funds used for the Offsets are not available for
other uses. As a result, CalRecycle believes that
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expenditures for Offsets are both unsustainable and
undesirable and proposes a phased elimination of the use of
unredeemed CRV to pay for those Offsets."
Additionally, last year the Joint Legislative Budget Committee
requested the State Auditor conduct an audit of the Bottle Bill
program. Their audit report, released in November 2014, noted
the following:
"A variety of revenue enhancements and expenditure reductions are
available that we believe the Legislature may want to consider.
For example, the most financially significant proposal is
reducing or eliminating the State's subsidies to beverage
manufacturers and requiring them to pay the full cost of
processing fees. State law requires beverage manufacturers to
pay a processing fee, which the State then uses to make
processing payments to recycling centers (and other entities) to
encourage them to recycle certain beverage containers, such as
glass and plastic; however, the beverage program currently
subsidizes more than half of these processing fees. By requiring
beverage manufactures to pay the full cost of the processing fee,
the beverage program could collect additional revenue ranging
between $60 million and $80 million annually."
Comments
1. Purpose of Bill.
According to the author, "This measure is aimed at updating
and creating a dual purpose of the Bottle Bill's existing
collection incentives to support increased utilization of
recycled materials in manufacturing. The bill requires
manufacturers of specified beverage containers to demonstrate
their containers meet or exceed the recycled content
provisions specified in Public Resources Code Section 14549,
as a condition of qualifying for a reduction in recycling fees
mandated under the Bottle Bill.
"Drastic drops in oil prices have had the effect of
undermining the demand and price for California-generated
recycled materials-California recycled material processors and
recycled product makers are starting to lose market share to
out of state/country 'virgin' producers, especially in the PET
plastic market.
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"As for glass, there is an environmental benefit for increased
use of recycled content. For every 1% increase in recycled
content, there is a 1% decrease in GHG emissions at factories,
as well as reductions in mining and processing virgin inputs.
"California glass container manufacturing facilities produce
1.2 million tons of glass bottles and employ about 2600
workers, down from more than 3,000 workers in 2001.
Californians consume about 1.6 billion tons of glass
containers. Many of California's former glass container
manufacturing jobs have moved to Mexico and overseas.
"This bill is needed because it will help incentivize
increased utilization of recycled materials in manufacturing
and protect California's 125,000 recycling-related jobs during
a time of market instability."
2. Recycled Content of 10, 25, or 35%?
The bill requires beverage manufacturers to demonstrate to
CalRecycle that the beverage container is manufactured at a
facility that meets or exceeds the percentage of recycled
content specified in another section of the code. The section
that is referenced requires a recycled content in glass
beverage containers manufactured in the state to have at least
a 35% recycled content, or 25% if they are using mixed-color
cullet.
It is unclear whether SB 732 is referring to the 35%, or the
25% value, both referenced in the section.
Additionally, it is unclear whether the bill also requires
plastic beverage containers to meet the 35 or 25% value to
qualify for reduced processing fees, since the bill's language
refers to "any beverage manufacturer for any beverage
container sold in this state." This is further confused by
the requirement in a separate section of the bill that
manufactures of beverages in plastic containers demonstrate
that their plastic beverage containers have no less than 10%
recycled content.
According to the author, and the sponsor, the intent of the
bill is to require 10% recycled content for plastic beverage
containers, in order for beverage manufacturers of plastic
beverage containers to qualify for reduced processing fees.
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If the committee feels this bill is necessary, these
percentage requirements should be clarified as the bill moves
forward.
3. Policy Considerations.
A. Where to set the threshold? CalRecycle estimates the
average recycled content for glass beverage containers is
about 50%. Current law requires in-state glass
manufacturers to achieve a 35% recycled content level for
glass packaging. SB 732 requires that all beverages sold
in the state, whether or not manufactured in California,
meet that 35% (or 25%) value in order to qualify for
reduced processing fees. The author notes that some
companies import beverage containers that have
substantially less recycled content. However, it is
unclear what the average recycled content is for glass
beverage containers manufactured out of state.
For plastic containers, it is not clear what the average
recycled content is for plastic containers manufactured in
state and out of state. Depending on the beverage
manufacturer, there is a range of recycled content for PET
packaging. For example, Coca Cola uses on average 6%
recycled content for their PET packaging, Pepsi Co reports
they are at 10% for beverage containers, and Nestle states
that five of their brands use anywhere from 50 to 100%
recycled PET content in their packaging.
As plastic recycled content values for PET containers vary
significantly, and the level of recycled content in other
types of plastic beverage containers is unknown, it is
unclear whether 10% recycled content for plastic beverage
containers is an appropriate value to make significant
gains from the status quo of recycled content in plastics.
Will this level of recycled content help bolster in-state
recycling markets?
B. Enforcement is Costly. The bill ties reduced processing
fees for beverage manufacturers to recycled minimum content
requirements for any beverage container sold in the state.
Beverage containers sold in the state may be manufactured
all over the world. It is likely that ensuring the
requirements of SB 732 are met will involve significant
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administrative costs. These potential costs are especially
salient in light of the program's structural deficit
projected at $72 million for the next fiscal year.
C. Processing Fee Offsets Concerns. As noted in the
background, both CalRecycle and BSA have proposed
eliminating the processing fee offset to increase
sustainability of the Fund. CalRecycle also believes the
offsets weakens price signals intended to encourage
beverage manufacturers to use materials that are more
readily recyclable.
Is it appropriate to set up a structure reinforcing
processing fee offsets when it is likely that the program,
and processing fee offsets, as one of the largest Fund
expenditures, will likely undergo some large-scale
restructuring to address the Fund's structural deficit?
SB 732 would require significantly increased administrative and
enforcement burden, for a program that already has a structural
deficit, to ensure a level of recycled content in beverage
containers that may or may not significantly encourage in-state
recycling markets or provide real benefits in recycling beyond
the status quo. Additionally, by linking minimum recycled
content to processing fee offsets, SB 732 bolsters the current
structure of the program, considered by many to be untenable,
where unredeemed CRV offsets shield the full cost of recycling
from beverage manufacturers.
The Committee may wish to consider whether the bill is structured
to achieve the author's goals and therefore warrants (1) the
significant expense and (2) the use processing fee offsets as
incentives to achieve those goals.
SOURCE: Californians Against Waste
SUPPORT:
California Association of Local Conservation Corps
California League of Conservation Voters
CR&R
Environment California
Inland Empire Disposal Association
Los Angeles County Waste Management Association
Napa Recycling & Waste Services
Recology
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Solid Waste Association of North America
Solid Waste Association of Orange County
Strategic Materials, Inc.
Verdeco Recycling, Inc.
Waste Management
Zanker Recycling
OPPOSITION:
California Nevada Beverage Association
Glass Packaging Institute
ARGUMENTS IN SUPPORT:
Supporters notes that the bill would ensure more used glass and
plastic beverage containers are recycled into new containers in a
closed-loop system, instead of ending up in domestic landfills or
being exported with unknown outcomes. Supporters also note that
the bill would lead to significant reductions in greenhouse gas
emissions, energy use and pollution associated with the mining
and processing of virgin materials, and that while incentives in
the bottle bill program have succeeded in achieving a 75%
collection rate of used beverage containers, there are no
effective incentives encouraging the actual recycling and
utilization of those beverage containers.
ARGUMENTS IN OPPOSITION:
The Glass Packaging Institute states, among other opposition
arguments, that the current processing fee relief was carefully
negotiated and has helped lead to high recycling rates and that
minimum recycled content is a separate issue . They also state
that California glass container manufacturers are already using
as much quality cullet as possible.
Among other concerns, the California Nevada Beverage Association
states that the bill's recycled content mandates raises serious
logistical questions and federal commerce clause questions, and
that ensuring compliance is incredibly complex for multi-facility
in-state beverage manufactures. They also note significant
health and safety issues regarding the use of recycled content in
food grade containers.
-- END --
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