Deposit return scheme: good or bad?

Scotland is set to introduce a deposit return scheme to recycle drinks bottles and cans. While the plan is supported in principle, producers are up in arms about the specifics.

*This feature was first published in the January 2023 edition of The Spirits Business magazine.

On 16 August 2023, Scotland is set to become the first country in the UK to adopt a deposit return scheme (DRS). Under the proposed DRS, consumers will pay a 20p deposit when purchasing a drink in a single-use container made from polyethylene teraphthalate, glass, steel, or aluminium, sized between 50ml and three litres.

This deposit will then be refunded by the drink’s producer when the container is returned for recycling at one of 30,000-plus return points.

The programme is “one of the most environmentally ambitious” in Europe, according to Lorna Slater, minister of circular economy, and will increase recycling, reduce litter and cut emissions.

But for many in the drinks trade, the initiative presents a complex web of challenges in an already difficult trading environment – one affected by Covid-19, Brexit, ongoing supply chain issues, rising energy prices, and the cost-of-living crisis. Industry members have raised concerns over the scheme’s structure, costs and lack of clarity, with fears the DRS will hinder the industry’s sustainability efforts rather than help them.

“It is important to say that we completely support the concept of increasing recycling rates, and that there are many examples of successful deposit return schemes in Europe and further afield,” said Annabel Thomas, founder and CEO of Nc’nean Distillery, which in 2021 became the first UK whisky distillery to achieve net-zero carbon emissions. “The issues are to do with the design and very last-minute implementation of the scheme.”

Scotland’s DRS was set to launch in July 2022, but was postponed in December 2021 after an independent review found it “not achievable”, and in need of “urgent action”. Blair Bowman, an Edinburgh-based whisky consultant and broker, said the situation remains the same today. “[Scotland’s DRS] is literally unworkable as it stands, and it will cause businesses to fail. There are all of these implications that haven’t been worked out,” he said.

Source of tension

One major source of tension is the Scottish initiative’s lack of alignment with the rest of the UK. Schemes in England, Wales and Northern Ireland aren’t likely to launch until at least late 2024, causing concern that Scottish consumers may look to purchase drinks without deposits in the north of England, among other issues. “A simple UK-wide scheme would have been pragmatic, cheaper for consumers, and better for the environment,” said Miles Beale, chief executive of the Wine and­ Spirit Trade Association (WSTA).

In addition, Scotland and Wales will be the only countries to include glass in their programmes. “This disjointed approach continues to raise significant concerns for the industry, including reducing the availability of recycled clear glass used by Scotch whisky producers,” a spokesperson from the Scotch Whisky Association (SWA) said.

To comply with Scotland’s DRS, drinks producers must register with the scheme by 1 March 2023. They must report the number of containers they place on the Scottish market, and track their products with barcodes. “One of the biggest issues we’re going to face is around the administration and cost of specialised labels,” said Alex Bruce, managing director of Adelphi Distillery. “The cost behind it is crippling, and I think everyone needs to know and question that.”

Each product must also be registered under DRS six weeks before coming to market – a requirement that could potentially “stifle innovation” for agile small-batch producers, Bowman noted, with some potentially choosing not to trade in Scotland at all. Indeed, the proposed DRS is expected to have a “disproportionate impact” on small- and medium-sized enterprises, said Beale.

All retailers that sell drinks covered by the scheme must operate as a return point, implementing a reverse-vending machine or an in-person setup; online retailers must provide an online takeback service. While some exemptions are available, this means drinks producers with a distillery shop or an online store must have return services – “a real challenge from a cost and logistics point of view, and also from a sustainability point of view”, said Thomas. “The idea of vehicles collecting individual drinks containers that have been bought online is unsustainable in a scheme that is meant to be about sustainability improvements.”

For a remote distillery like Nc’nean, located 11 miles down a single-track road in the Morvern peninsula, operating as a deposit point also “appears to be creating a huge number of additional road miles by introducing a parallel waste-collection system”, Thomas explained.

Drinks producers, importers, retailers, and wholesalers all have responsibilities in the scheme, and other sectors will feel its impact too. “Because there are so many elements, it affects each sector differently,” said Bowman.

The hospitality industry, for instance, must gather and store scheme containers sold on their premises for collection by the scheme administrator separate from other recycling.

Leon Thompson, executive director of trade body UK Hospitality Scotland, said: “Scotland members continue to be concerned about secure storage, the theft of containers and the breakage of glass, all of which will result in the loss of deposits – a situation that would hit businesses hard.”

Hospitality venues selling takeaway drinks in scheme containers must serve as return points as well, creating further complications.

In November 2022, more than 520 industry professionals signed an open letter to Lorna Slater SMP voicing an “urgent demand to pause, revise and redesign” the DRS with industry input. Organised by Bowman, the letter highlighted the “key flaws” of the scheme: risk of fraud; loss of revenue; loss of investment in the Scottish economy; and unknown financial and environmental implications for local authorities.

Financial uncertainty

In response to the letter, Slater wrote: “I fully understand the scale of the financial uncertainty being brought about by the cost crisis and as a result of the pandemic, and the Scottish government has committed to considering all options for regulatory action to limit increases in costs for businesses. To that end, I have been engaging very closely with industry to ensure that pragmatic and efficient approach to implementation.”

She noted the specific concerns raised in the letter had been taken into account, pointed to guidance on retailer exemptions, and said further updates on online takeback requirements would be issued “shortly”.

WSTA’s Beale said: “The Scottish government are still making changes to their own plans… The scheme administrator needs more time. It’s all too little – or rather, too much – too late. The ideal DRS would take account of existing complicated labelling requirements, particularly for alcohol, and would be introduced gradually.”

In mid-December, another independent review, Gateway Review, concluded ‘that a fully functioning and compliant DRS cannot be in operation for the revised August 2023 schedule’.

Slater also penned a letter with further updates and proposals, outlining details about exemptions for takeback services: “I am proposing to bring forward amendments to the regulations so that initially only the largest grocery supermarkets will be obliged to provide a takeback service; all other businesses will be exempt.”

Clearly, this is a developing issue, one that looks set to be an ongoing point of discussion in 2023.