What is the financial set-up for Return and Earn?
The scheme coordinator, Exchange for Change, is responsible for the financial management of the NSW Container Deposit Scheme, Return and Earn.
All funds managed through the Scheme Coordinator are part of a closed financial loop, with all funds accounted for and reconciled. There is also independent audit oversight over multiple elements of the scheme.
How are funds managed for Return and Earn?
The scheme has been designed as a cost recovery model. This means beverage suppliers only pay to cover the costs of the scheme and the funds collected from suppliers can only be used for container refunds and the cost of operating the scheme.
- Beverage suppliers are invoiced a month in advance for the number of eligible containers the Scheme Coordinator, Exchange for Change, expect will be returned in the following month. The amount invoiced to individual beverage suppliers is directly proportional to their market share. Suppliers are invoiced in advance so that there are always enough funds available for the NSW community to collect their refunds when they take a container to a collection point and for refunds paid to Material Recovery Facilities/Councils for containers returned in kerbside collections.
- At the end of the month, when the actual number of containers collected during the month is known, then the actual cost is compared against the funds that were paid in advance by suppliers and any difference is either deducted or added to the next month’s invoice.
A similar reconciliation process is undertaken each quarter for containers in kerbside collections.
This reconciliation process is called the ‘true-up’ and it ensures that beverage suppliers only pay for the actual cost of collecting containers and paying refunds through the scheme.
This funding model is designed so there is no pool of unclaimed refunds. The aim is to only collect and hold the funds needed to cover the actual costs of the scheme.
- Refunds for containers collected via kerbside are paid to the companies that sort the recycling - Material Recovery Facilities (MRF). These refunds are shared with councils, based on negotiated refund-sharing arrangements.
How is the financial operation regulated?
The Waste Avoidance and Resource Recovery Act 2001 ensures transparency from the Scheme Coordinator who must provide an annual report to the government on the performance of the Scheme, to be tabled in parliament.
There is also independent audit oversight of multiple elements of the scheme and contractual obligations that both the Scheme Coordinator and Network Operator must meet.
Financial roles and responsibilities – who does what?
- Beverage suppliers pay all costs of the scheme: refunds paid to the community for containers returned through collection points; refunds paid to Material Recovery Facilities/Councils for containers returned in kerbside collections; and administration/operating costs. Individual Beverage suppliers are invoiced monthly in advance by the Scheme Coordinator based on the estimated recovery rate of all containers and their estimated market share (expected proportion of the total number of containers supplied into NSW).
- Consumers receive the 10 cent refund when they return their eligible containers to a collection point, or they can elect to gift their containers/refunds to someone else to get the refund, such as charities, schools or local community groups. Alternatively, they can continue to use the kerbside yellow bin recycling service.
- Collection point operators pay refunds to consumers who exchange containers. They receive a float from the Network Operator to cover consumer refunds and a small handling fee to cover the cost of providing this service to the community. Operators must be approved by the Environment Protection Authority.
- Material Recovery Facilities (MRF) are responsible for separating household recyclables by material type from kerbside yellow bin recycling systems and selling these materials to recyclers. Under the Return and Earn scheme, MRF operators are able to claim processing refunds from the Scheme Coordinator quarterly. The claims are based on statistically valid audits of the number of containers in each material stream. The MRF receives the 10 cent refund per container minus the cost of audits. They also retain the recycling value of materials as per their existing contracts. However, unlike collection points, they do not receive any other fees from the scheme, since the cost of their services are already covered by their existing contracts. To ensure that the refunds come back to the community, MRFs must enter into a refund-sharing arrangement with the council, within one year of scheme commencement, or they are no longer eligible to claim processing refunds. The refund-sharing arrangement is to cover refunds from the commencement of the scheme.
- Councils can negotiate to share in refunds paid by the Scheme Coordinator to Material Recovery Facilities, who collect their kerbside recycling, as part of a refund-sharing arrangement. This arrangement must be made within one year of scheme commencement and cover all refunds received by the MRFs from commencement. The council must use these funds to put back into their local community for the benefit of their rate payers. This will help to keep downward pressure on council waste charges.
- The Network Operator, TOMRA Cleanaway, sets up and runs the collection point network. They receive a Network Operator fee fortnightly from the Scheme Coordinator, which covers the costs they need to pay for running the collection services, including the handling fee to collection point operators and the cost of collecting and transporting the containers to recyclers. The fee also allows them to provide a float to ‘over the counter’ and automated depot operators, so they can give out cash refunds to consumers. The Network Operator separates and bales containers by material types before they go to recyclers. The Network Operator pays the refunds to consumers for containers returned to the scheme at collection points. This money is paid upfront by the scheme coordinator based on the estimated recovery rate and is reconciled based on actuals.
- The Scheme Coordinator, Exchange for Change, manages the scheme finances and collects the fees from beverage suppliers to run the scheme. They pay: refunds to customers through the Network Operator; the network fee to the Network Operator: processing refunds to Material Recovery Facilities; a small scheme compliance fee to the NSW EPA; and claim a Scheme Coordinator fee for their services. All funds collected from suppliers are held in a trust account that can only be used for scheme costs. The Scheme Coordinator fee is fixed and set through a competitive tender process. The Scheme Coordinator cannot take any additional funds from the scheme. In addition to managing the scheme finances, the scheme coordinator is also responsible for auditing, communications and marketing for the scheme.
- NSW EPA receives a monthly scheme compliance fee from the Scheme Coordinator to manage the scheme from the NSW Government’s perspective. This includes ensuring all suppliers are participating in the scheme and all eligible containers are captured. It also includes ensuring that collection points are operating correctly and paying customers the correct refund amount. The EPA also receive a one-off bottle registration fee directly from beverage suppliers to register individual eligible containers for use in the scheme. This application fee is capped for small suppliers to only the first 40 applications. Registering containers allows the EPA to ensure that all eligible containers are captured in the scheme.
Costs of the Scheme
The NSW Government has tasked the Independent Pricing and Review Tribunal (IPART) to monitor the impacts of the scheme on beverage prices and competition. IPART is monitoring
- the effect of the scheme on container beverage prices
- the performance and conduct of suppliers, and
- any other market impacts on consumers relating from the scheme.
A progress report was released by IPART on 24 April 2018 which found that the price of beverage containers to date has increased in line with or less than the estimated direct costs of Return and Earn.
The progress report also identified some draft recommendations to improve the scheme’s transparency and to assist businesses, and the EPA will look at how best to address these, on top of the assistance currently being provided in this area.
Submissions on the Progress Report are open until 8 June 2018.
For more information on the financial management of Return and Earn, by the Scheme Coordinator Exchange for Change, including estimated costs and methodology, and an explanation of true-up and invoicing visit http://www.returnandearn.org.au/suppliers.