BILL ANALYSIS �
AB 2467
SENATE COMMITTEE ON ENVIRONMENTAL QUALITY
Senator Jerry Hill, Chair
2013-2014 Regular Session
BILL NO: AB 2467
AUTHOR: Nestande
AMENDED: May 5, 2014
FISCAL: No HEARING DATE: June 18, 2014
URGENCY: No CONSULTANT: Rebecca Newhouse
SUBJECT : PLASTIC MARKET INCENTIVE PAYMENTS
SUMMARY :
Existing law , under the California Beverage Container Recycling
and Litter Reduction Act (Act), requires beverage containers sold
in this state to have a California redemption value (CRV) of 5
cents for containers that hold fewer than 24 ounces and 10 cents
for containers that hold 24 ounces or more and requires a
distributor to pay a redemption payment to the Department of
Resources Recycling and Recovery (CalRecycle). These funds are
continuously appropriated to CalRecycle for the payment of refund
values and processing fees. The Act also:
1) Requires CalRecycle to certify recycling centers and
processors that participate in the program.
2) Authorizes CalRecycle to award up to $10 million annually for
market development payments for empty plastic beverage
containers to certified entities or product manufacturers.
3) Defines "certified entity," for purposes of the plastic market
development payments, as a recycling center, processor, or
dropoff or collection program certified by the department, and
defines "product manufacturer" to mean a person who
manufactures a plastic product in the state.
4) Authorizes CalRecycle to allocate an amount greater than $10
million after 2012, as prescribed.
5) Specifies that CalRecycle may set different payment amounts
for certified entities and product manufacturers, not to
exceed $150 per ton, according to the following
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considerations:
a) The minimum funding level needed to encourage in-state
washing and processing of empty plastic beverage containers
collected for recycling;
b) The minimum funding level needed to encourage in-state
manufacturing that uses empty plastic beverage containers
collected for recycling; and
c) The total amount of funds projected to be available for
plastic market development payments and the desire to
maintain the minimum funding level needed throughout the
year.
6) Sunsets the plastic market development payments on January 1,
2017.
This bill :
1) Authorizes the department to pay a market development payment
to both certified entities and product manufacturers for empty
plastic beverage containers.
COMMENTS :
1) Purpose of Bill . According to the author, recently CalRecycle
has been entertaining discussions about eliminating the
payments to certified entities via the emergency regulatory
authority granted to the Department citing fund insolvency.
The author also notes that when the sunset of this program was
extended to 2017, it was with the intent that the payments
would continue to both certified entities and manufacturers.
The author notes that discussions about eliminating payments
to certified entities have been ongoing for several months and
those changes have been proposed to have been done through the
use of emergency regulations.
The author also states that elimination of this payment to
certified entities will be detrimental to businesses that have
developed a business model that is supported by those payments
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and that in order to allow those businesses time to
restructure their business plan, the traditional regulatory
process should be followed.
According to the author, the goal of the program was to
incentivize increased recycling within the state, but
eliminating the payment stream to certified entities is
contrary to that intent.
2) Background . The Act 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.
The Fund . Deposits on covered beverage containers are remitted
to CalRecycle and deposited into the Beverage Container
Recycling Fund (BCRF). The BCRF's expenditures fit into two
primary categories: 1) CRV reimbursements to recyclers and 2)
program expenses, including administration, grants and
incentive programs, and education and outreach that are funded
by unredeemed CRV. Higher recycling rates reduce the amount of
unredeemed CRV to fund program expenses.
PMDP . The Plastic Market Development Payments (PMDP) were
established by AB 3056 (Chapter 907, Statutes of 2006) and are
one of the incentive programs paid for out of the fund from
unredeemed CRV. The PMDP is designed to encourage in-state
recycling of plastic beverage containers to be used as
feedstock for manufacturing in California.
AB 1149 (Chapter 486, Statutes of 2011) extended the sunset of
the PMDP to 2017.
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Incentive payments through the PMDP are provided to certified
entities (recycling centers and processors that are certified
by CalRecycle) for the washing and production of plastic
feedstock, such as flake, pellet, or other forms of processed
plastics.
In order to receive payments under this program, the processed
plastic must be derived from redeemed empty plastic beverage
containers.
Product manufacturers are also eligible for these incentives
for the manufacture of plastic products in the state.
Existing law specifies that CalRecycle may expend up to $10
million annually for these payments, with the ability to
expend an amount greater than $10 million annually if
CalRecycle makes specified determinations. Current law also
requires that PMDPs not exceed $150 per ton, and specifies
that CalRecycle must consider the amount of funds projected to
be available and "the desire to maintain the minimum funding
level throughout the year" for the determination of incentive
payment amount.
While the number of certified entities receiving payments has
remained fairly constant, the number of product manufacturers
has more than doubled since the beginning of the program.
In 2013, eight certified entities and 46 manufacturers
received the PMDP. Five companies are both certified entities
and product manufacturers, which enables them to receive the
PMPD for both processing and manufacturing.
The current level of incentive funding for the recipients of
these payments is set by CalRecycle at the maximum value of
$150 per ton, for an annual expenditure amount of $10 million.
3) Workshop on PMDP . At a workshop on October 29, 2013,
CalRecycle proposed plans to enact emergency regulations to
issue PMDP payments to product manufacturers, only, and stop
payments to certified recyclers and processors.
Current law authorizes the payment by CalRecycle of plastic
market development payments, subject to the availability of
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funds, to a certified entity or product manufacturer, and
authorizes the payments to certified entities and product
manufacturers to differ, with neither payment type to exceed
$150 per ton.
AB 2467 requires that, if CalRecycle elects to make plastic
market development payments, then they must provide them for
both certified entities (recyclers and processors) and product
manufacturers.
4) Structural deficit . As noted above, higher recycling rates
reduce the amount of unredeemed CRV to fund program expenses,
such as the PMDP. The "break-even" recycling rate where
expenditures equal revenues is about 72%.
According to CalRecycle, the Bottle Bill (Act) is currently
operating under an approximately $100 million annual
structural deficit, where program expenditures exceed program
revenues under the current mandated expenditure and revenue
structure, mainly caused by historically high recycling rates,
along with mandated program payments and outstanding General
Fund loans.
When the Bottle Bill does not have adequate funding,
CalRecycle is required to "proportionally reduce" many of the
program's expenditures evenly among program participants, with
the exception of CRV redemption for consumers.
According to the most recent Quarterly Report from CalRecycle,
"Based on the cash balance projection, CalRecycle would need
to implement a minimum 40 percent proportional reduction in FY
2015-2016 and a minimum 90 percent proportional reduction in
FY 2016-2017 in order to maintain the solvency of the
Recycling Fund." The report notes that, if proportional
reduction is implemented, funding will decrease from $10
million in FY 2014-2015 to $6 million in FY 2015-2016, to $1
million in FY 2016-2017, for the plastic market development
program.
5) The PMDP seems to be working . As noted above, the PMDP was
created to develop in-state recycling markets. According to
CalRecycle, the program has been successful in accomplishing
that goal. They state, "The number of manufacturers has
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increased since the program began when there were typically 15
to 20 product manufactures to over 30 product manufacturers
each year. There were also just four or five certified
entities when the program began, compared to today's ten."
Data on the tons of plastic recycled in the state shows that
since 2008, the weight of recycled PET used by manufacturers
has more than quadrupled in 2013.
AB 2467 would continue the current system of providing
payments to both certified entities and product manufacturers,
subject to the availability of funds.
6) The Issue . As noted earlier, the author cites the fact that
"elimination of this payment to certified entities will be
detrimental to business that have developed a business model
that is supported by those payments."
However, CalRecycle states that, "by making PMD payments to
product manufacturers only, the program encourages the
development of new end use markets for California recycled
plastic as feedstock, creates and keeps jobs in state, follows
the intent and spirit of current statute, and fulfills
'Closing the Loop' principles. Also, CalRecycle can make PMD
payments throughout the calendar year by limiting payments to
product manufacturers only."
A question arises - by removing departmental discretion in
terms of what types of entities can receive these plastic
market development payments, do we effectively eliminate a
tool that the department has to use the limited funds in the
most effective way to achieve the goals of the program?
7) Consideration for future program reauthorization . The PMDP
sunsets on January 1, 2017. Should the bill move forward,
there are effectively two more years where the program exists,
and where payments are required for both certified entities
and product manufacturers. It is likely that there will be
fundamental changes to the bottle bill program before that
time in order to ensure long-term sustainability of the
program.
Should there be a proposal to reauthorize the PMDP as it
currently exists prior to the sunset of this program in 2017,
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the Legislature should evaluate, as part of any
reauthorization of this program, whether it is appropriate to
require CalRecycle to make payments to both certified entities
and product manufacturers, or whether the department should be
given the discretion to structure their payments in a way
CalRecycle determines best achieves the goals of promoting
in-state plastic recycling markets.
8) Double Referral to Senate Appropriations Committee . If this
measure is approved by the Senate Environmental Quality
Committee, the do pass motion must include the action to
re-refer the bill to the Senate Appropriations Committee.
SOURCE : Author
SUPPORT : None on file
OPPOSITION : None on file