2023 PRN Revenue Expenditure
A review of the expenditure of revenue generated through PRN’s in 2023
Accompanying the latest release of the final packaging recycling figures for 2023 (verified for Q4), the Environment Agency (EA) has unveiled comprehensive data detailing the expenditure of revenue generated from PRN sales throughout the year. Notably, 2023 marked a significant milestone as the UK witnessed its highest PRN revenue since the inception of the system.
Just a quick reminder: the PRN system is designed to encourage accredited reprocessors and exporters in the UK to recycle more packaging waste, especially during periods of market pressure and high prices as there is potential for additional financial benefits. The elevated prices are also likely to attract new reprocessors and exporters into the market. The overarching aim of this strategy is to strengthen the recycling of packaging and therefore, supply of PRNs to align it with the demand, thereby mitigating the original price pressures on the market. The idea being that heightened recycling activities will result in a more balanced PRN supply and therefore ensure sustainable and efficient management of packaging waste across the UK.
Trends and Totals
The market dynamics of 2022 highlighted significant challenges encountered by various materials in the UK, particularly Plastic, Glass, and Aluminium. While it's not unprecedented for individual materials to face difficulties in recycling and achieve concerningly low level recycling rates, the periodic releases of recycling data throughout 2022 revealed an overall shortfall in the tonnage of all materials being recycled compared to their ambitious annual targets. The substantial obligation and subsequent demand for PRNs in 2022 were propelled by heightened packaging usage and shifting consumer behaviours during the lockdown periods in the preceding calendar year of 2021. This surge in demand led to a sharp and sustained increase in PRN prices across almost every material, with some reaching peaks of over £500 per tonne.
Nonetheless, the PRN system effectively incentivised an uplift in recycling, ensuring compliance by the end of the year. This was achieved through the utilisation of all carry-in PRNs from December 2021 and nearly every PRN generated in 2022. As a result, there were little to no carry-in PRNs available for the upcoming challenge in 2023. Essentially, 'carry-in' or 'carry-over' PRNs are the tonnage generated in December each year, which can be used in either the current compliance year or, if the recycling target has been met, carried over into the subsequent compliance year. Historically, the UK has consistently exceeded its recycling targets, accumulating a buffer that acts as an insurance policy when recycling rates dip precariously low. However, the demands of 2022 resulted in virtually every material starting the 2023 compliance year on the back foot.
The way the 2022 compliance year ended applied significant pressure on recycling rates for 2023, meaning a swift start was vital with minimal margin for error. DEFRA announced that they would freeze recycling targets in response to 2022, acknowledging the challenges faced by the struggling market. Despite this freeze, concerns lingered about the UK's ability to meet the impending task without adjustments to the requirements.
Due to the way the PRN system is designed, the UK’s initial obligation is not released until May. This uncertainty of progress contributed to the high prices in the first half of the year which saw the majority of PRN prices remaining at extremely high levels. As producers’ submissions were being completed across the UK, it appeared likely that there was going to be a significant reduction in packaging handled and therefore the requirement of PRNs needed.
The initial obligation release in May did indicate a reduction and with recycling rates sustaining high levels throughout the first two quarters, prices began to slowly reduce and paint a more hopeful picture for the UK. Pressure was starting to be alleviated but prices didn’t begin to fall more aggressively until Q3 due to speculation over the validity of the figures. Unfortunately, in recent history there have been cases of large producers failing to submit their data until late in the year, causing a lot of confusion and debate on the progress made at several points in the year. This uncertainty fuels speculation around pricing and can affect the market by prices fluctuating unnecessarily.
The industry feared a repeat scenario in 2023, but as the UK's stance became clearer, prices adjusted accordingly. Fortunately, the UK achieved compliance for 2023, with carry-in figures returning to levels closer to what we have come to expect compared to previous years. This placed the industry in a much more secure position as stakeholders geared up to tackle the challenges of 2024.
Figure 1: Total PRN revenue 2015 – 2023
Figure 1 illustrates recent consecutive PRN revenue years, with 2023 surpassing the £489 million recorded in 2022 by an additional £106 million. While previous years have faced obstacles resulting in high prices, the comparison over the last seven years underscores the exceptional nature of both the 2022 and 2023 compliance years, marked by prolonged periods of peak prices across various materials.
Despite price hikes across all materials, Plastic, Glass, and Aluminium PRNs retained their status as the most valuable, contributing significantly to the overall PRN revenue.
It's worth noting that recycling targets remained frozen from 2022 to 2023, reflecting DEFRA's attempt to curb further demand in a system already stretched to its limits. As depicted in the graph, achieving compliance came at record-breaking costs for producers, and DEFRA's decision to freeze targets may have played a role in enabling this achievement.
Table 1: PRN revenue contribution by material 2023
Table 1 provides an overview of the total revenue generated, with plastic emerging as the highest contributor, accounting for 51% of the total. This is due to its comparatively higher price point, which remains resilient even during periods of perceived lower demand. After Plastic, Paper and Glass stand out as the next two highest contributors.
The relatively high recycling targets for Paper (83%) and Glass (82%) indicate the substantial number of PRNs required to meet the UK obligation for these materials. In 2023, over 3.5 million PRNs were needed for paper to achieve its recycling target, making a significant contribution to the overall revenue despite a lower average PRN price compared to most other materials. Similarly, Glass, with its high obligation and typically higher average PRN price than Paper, significantly contributed to the total revenue.
Investment into the UK recycling ‘system’
The report also includes details on the categories of reinvestment, as mandated by the Environment Agency (EA). Accredited UK reprocessors and exporters are obligated to disclose how the funds generated from PRN sales are reinvested back into the UK recycling system. Compliance with these regulations is essential, requiring all revenue to be reinvested appropriately. Failure to report or engaging in fraudulent practices regarding PRN generation or investment reporting can result in severe penalties for reprocessors or exporters.
Figure 2.1: Total 2023 PRN revenue investment channels for UK Reprocessors and UK Exporters
Figure 2.2 - Total PRN revenue investments by activity 2023
Similar to previous years, reprocessors and exporters are required to label their investments from the revenue gained through the sale of PRNs. This information is presented in Figures 2.1 and 2.2, with the categories remaining classified as:
- Infrastructure and capacity
- Funding collection
- Reduction in price and developing new markets
- Cost of complying with the regulations
- Retained for future investments
- Developing communication strategies
The latest reporting on PRN revenue investment shows that, like in the previous years, the three most significant categories for reinvestment are still 'Infrastructure and capacity', 'Funding collection' and 'Reduction in price and developing new markets' as illustrated in Figure 2.2. Despite the difficulties encountered in 2023, it seems that as the recycling levels and expenditure increased, the investment channels and areas of focus for the generated revenue remained similar.
There are differences between the investment strategies of approved UK reprocessors and approved exporters, as they operate with different business models and often require varying degrees of input and cost.
Figure 3.1 - Exporters PRN revenue investments by activity in 2023
Figure 3.2 - UK Reprocessors PRN revenue investments by activity in 2023
Investment behaviours of both reprocessors and exporters have remained largely consistent. As shown in figures 3.1 and 3.2, both reprocessors & exporters of PRN sellers continue to prioritise their investment in the same top three channels as the last few years, with exporters focusing more on 'funding collection' and UK reprocessors directing the majority of their investment into 'infrastructure and capacity'. These investment channels are crucial for the success of the current PRN system.
Summary
In 2023, there was a higher amount of PRN revenue generated compared to 2022, which can be attributed to various factors. These include the minimal carry-in figures and the absence of regular, reliable data illustrating progress, leading to uncertainty, volatility, and sustained high PRN prices throughout the year.
For the PRN system to remain effective and function as intended, the additional PRN revenue and its subsequent reinvestment should contribute to enhancing packaging recycling efficiency and volume in 2024. If this goal is achieved, it's likely that markets would become more stable.
It’s also important to look further afield and bear in mind that Extended Producer Responsibility (EPR) is now active and is acclaimed to start adding a new source of cost to packaging compliance from 2025, in the form of fees for household packaging items, alongside retention of PRN requirements. It remains to be seen how PRN prices and therefore how total compliance costs may be affected, but we do know that EPR will introduce an additional cost for some producers.
Beyondly Members
Our packaging and procurement teams remain committed to capitalising on opportunities within the current PRN market to minimise your compliance costs. We will also keep you fully informed on market trends and pricing through our monthly PRN communication available on the 'PRN Centre' section of the member login area on our website. Additionally, we host regular PRN update webinars, with the next one taking place on 23rd May at 10am.
If you have any further questions regarding 2023 PRN revenue expenditure, please don't hesitate to contact our procurement team at wayne.g@beyond.ly / 01756 702556 or ash.c@beyond.ly / 01756 706578. We hope that this overview has been helpful and informative, providing greater transparency for producers regarding their PRN spend.