State payment shortfalls: California beverage container redemption centers lost $20m

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Source: Container Recycling Institute

Los Angeles, California / USA — California’s approximately 2,100 certified beverage container redemption centers lost $20 million in 2015 due to inadequate state payments received – for a total of $42.7 million since 2012 – due to an outdated compensation method used by CalRecycle (California Department of Resources Recycling and Recovery) per state law. A new report from the nonprofit California Recycling Institute (CRI) analyzes the reasons for the payment shortfalls and provides suggested fixes – particularly by revising the state statute to allow for adjustments in the timeframes CalRecycle uses to account for changes in scrap material values and thus determine payments to the centers.

Overall, California operates a successful beverage container deposit return program, with certified centers handling nearly 90 percent of the 18 billion bottles and cans recycled annually in the state. Under the program, CalRecycle pays per ton “processing payments” to supplement the revenues that redemption centers earn from the scrap values for PET (plastic), glass and aluminum, enabling the centers to cover their operating costs and ensure a reasonable profit.

Closure of at least 269 redemption centers

However, with a four-year trend of rapidly declining scrap prices for these commodities, the state payment shortfalls have forced the closure of at least 269 redemption centers so far this year, leaving only about 1,800 centers still standing. According to the CRI, this threatens the state’s beverage recycling infrastructure and, contrary to the California Beverage Container Recycling and Litter Reduction Program, reduces consumers’ ability to easily access sites (typically required within a half-mile radius of a supermarket) to recover beverage container refund values (CRVs).

The state payment formula currently uses 12-month averages from the previous year, with a minimum three-month lag time, and don’t account for real-time changes in scrap value prices. For example, CalRecycle’s PET processing payments for July-September 2015 were based on the average price from April 1, 2014-March 31, 2015. However, the actual scrap value for the July-September 2015 period was $100 lower than the value calculated under the back-dated formula.

Heavy toll on the smallest centers

This formula takes a particularly heavy toll on the smallest redemption centers, many of which are located in rural areas. CRI President Susan Collins said that “when it comes to falling scrap prices, these small redemption centers are the proverbial ‘canaries in the coal mine.’” Data shows that the average recycling costs at the smallest centers can run twice as high on a per-ton basis as at the largest centers due to economies of scale, leaving the smaller sites operating at a loss and even more prone to closure.

Although CalRecycle recently announced an increase in processing payments, they still will leave a shortfall for centers. To address these issues, CRI recommends re-evaluating the processing payment calculation method, perhaps by tying payments more closely to recycling centers’ real-time revenues. CRI also proposes a tiered payment mechanism to distribute the program’s resources more equitably and help smaller centers remain open.

Deposit return program creates a boon

Collins said that California’s beverage container deposit return program “creates a boon to the state’s economy, directly employing at least 3,000 people, generating $8 million to $9 million annually in state tax revenues, and channeling a million tons of premium-quality scrap material away from landfills and into the products of U.S. manufacturers.”

She added: “If the current downward commodity pricing trend continues without structural adjustments to the state’s processing payment formula, recycling centers’ cumulative net losses will inevitably force more of them out of business. Additional closures will mean not only more job losses and lost recycling opportunities, but a real loss to the people of California, to the sustainable economy and to the environment.”

The report on “Integrity of California’s Beverage Container Deposit System Threatened by Processing Payment Shortfalls” can be downloaded under container-recycling.org

Source: Container Recycling Institute