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5 min read

Setup of deposit return scheme

Blue pet bottles

Deposit return systems are already established in many countries where they are helping to reduce litter and improve recycling rates. Find out more about the setup and functioning of DRS, as well as costs and timelines.

How are deposit return schemes set up and funded?

More and more countries are introducing deposit return systems (also known as deposit return schemes or DRS) as a means to reduce plastic pollution and help protect the environment. If you’re new to the concept, you may be wondering how these systems are set up and funded. A deposit return system is typically established through legislation passed by state or national governments. Over 40 regions around the world operate a scheme, and calls are increasing for other countries across the world to follow suit. 

Countries that have adopted deposit return systems are setting a great example. Bottle and can recycling schemes are helping to reduce plastic waste in locations such as Norway, Germany, Lithuania, several Australian states, 10 US states, nearly all of Canada, and more. Thanks to this, there are plenty of models to follow when setting up an effective deposit return system. Taking inspiration from other countries and adopting best practices will help to ensure high performance is achieved.

How deposit return schemes work

Deposit return systems for beverage containers work by adding a small extra deposit on top of the price of a beverage – such as those in plastic/glass bottles and aluminium cans – which is refunded to the consumer when they return the empty drink container for recycling. Also known as container deposit schemes or bottle bills, they are typically established through legislation passed by state or national governments. 

A high-performing system

In a well-designed, high-performing DRS, consumers have an incentive to participate through a meaningful deposit value, convenient return locations, and broad scope of beverage containers. Container redemption is made easy through a convenient network of return locations, often legislated as grocery retail sites (if a store sells beverage containers it is required to take them back) or other recycling facilities.

The beverage industry is encouraged to centralize some common DRS responsibilities under a non-profit entity, known as the Central System Administrator (CSA). Stakeholders align to design an effective system to reach a legislated collection target. Trust is built into DRS processes through system integrity measures, including transparent management, a data-driven clearing house and reliable redemption technology.

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Timelines in implementing a deposit return scheme

Deposit return roll-out

It typically takes 12-18 months to set up a deposit return system – from the time of the selection of the Central System Administrator, to the date the deposit system “goes live” and consumers can begin returning containers. This period allows time for beverage producers to get in place labelling for their eligible drink containers, and the CSA to conduct community education around participating in the DRS. The roll-out of deposit return infrastructure can be achieved in a shorter timeframe, with markets such as New South Wales (Australia) and Lithuania installing bottle and can recycling technology across the entire regions in four months or less.

Deposit return results

Well-designed deposit return systems are able to achieve results quickly. For example, after Lithuania implemented its return-to-retail-based DRS, beverage container return rates rose from 34% to 92% in less than two years.¹ Within one year of the launch of the deposit return system in New South Wales, the volume of eligible drink container litter was down by 44%, and the initiative had contributed to a 48% reduction in the total volume of litter across the state.

Funding for deposit return schemes

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How is a DRS financed? 

No contribution is required from the public purse to fund a deposit return system. A DRS is typically set up and operated by retail and beverage producers, making it an example of Extended Producer Responsibility (EPR). The DRS is usually run on a not-for-profit basis, so the aim of the system is to operate cost efficiently, while meeting high standards for consumer convenience and environmental impact.

A deposit return system is financed through 1) unredeemed deposits from containers that are not returned, and 2) the revenue from the sale of the collected materials (glass, aluminum, PET and liquid paperboard). If this revenue is less than the cost of the DRS, a small EPR fee (also known as an "administration fee") is charged for each container placed on the market (paid by the beverage producers) and adjusted yearly. These form three revenue streams for the DRS.

Extended Producer Responsibility fees

EPR fees can be set based on the full cost of handling and recycling the container material type that the producer places on the market (known as “eco-modulated” EPR fees), so the fees vary between material types. It therefore gives an extra incentive for producers to use container packaging that is designed for recyclability.

Reinvestment of unredeemed deposits and commodity revenue back into the system is a key element of high-performing deposit return systems, given it helps to make deposit systems dramatically more cost efficient for producers while enabling reinvestments in program improvements.

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Compensating redemption providers

In many regions, providers of redemption locations are paid for their participation, in the form of a “handling fee”. Retailers and recycling facilities are compensated for their work, investment, loss of space and consumables – the cost to provide a good return solution. Eight of the top-10 performing deposit systems across the globe pay a handling fee.³ Typically, the handling fee is determined by the DRS’s Central System Administrator (which manages the system’s overall finances), and paid out by the CSA on a per-container basis. The CSA decides on this standard fee, based on analysis of container collection, storage and transportation costs. Redemption data, from the online connectivity of return technology, enables the CSA to calculate these ongoing reimbursements.

Spotlight: Norway

Unredeemed deposits and material revenue are enough to cover over 90% of Norway’s DRS costs: 49% are offset by unredeemed deposits, 35% from material sales, and 8% from other revenues. Only 8% of DRS costs needed to be covered through an EPR fee from producers.⁴ Norway’s EPR fees are based on the recycling cost and value of each container material type, even differentiating between clear vs colored PET. Aluminum cans carry no additional EPR cost, because their inherent commodity value plus unredeemed deposits outweigh the cost to recover and process the cans.

The Central System Administrator, Infinitum, uses a variable handling fee incentivize the use of reverse vending machines (RVMs) that can compact /flatten collected containers. This is due to cost-saving benefits of transportation efficiencies (compaction saves space and therefore transportation costs during material pick-up). As such, sites with compacting RVMs are paid a higher handling fee than those without compaction or those that offer only manual collection.

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Is a deposit return scheme a tax?

A container deposit in a deposit return system is not a tax, because it is refunded to the consumer when they return their empty beverage container for recycling. In order to fulfill that promise, producers, retailers and the government in the DRS have an obligation to provide a convenient network of redemption points that makes it easy for consumers to return their containers. Otherwise, a deposit does potentially run the risk of becoming a tax or “eco-fee”. To help reinforce that a container deposit is not a tax, the deposit should be separate from the price of the beverage when charged to consumers at purchase and should be exempt from value-added or sales taxes.

What are the costs involved in purchasing return infrastructure?

Many redemption providers offer reverse vending machines, for more efficient and convenient container returns, compared to manual handling. RVMs range in size (from standalone machines with a footprint as little as 0.9m², to through-the-wall machines with multiple storage cabinets for large sites) and capability (like number of storage areas and material types that can be accepted). So, the right choice and associated cost of an RVM depends on the size of a redemption location and the container types included in the DRS. For redemption providers, RVMs might be financed through outright purchase, rental or leasing. In some markets, providers can get access to an RVM up front and pay it off with a small amount for each container accepted (known as a "throughput lease").

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