Ben Zielinski

Scotland’s new Deposit Return Scheme (DRS) is due to come into force on 16 August 2023 as a result of the Deposit and Return Scheme for Scotland Regulations 2020.

Its laudable aim is to build a circular supply-chain for the estimated 2.5 billion recyclable drinks containers used in Scotland every year. The scheme will have an impact on businesses, large and small, across the beverage supply-chain in Scotland. This will include producers, importers, retailers and consumers.

The DRS isn’t without controversy. Consequently, with implementation of the DRS only 6 months away, it’s important to consider both the steps affected parties need to take to conform to the new legislation and some of the key issues presented by the DRS.

Obligations of the ‘scheme’

The cost for transforming the supply chain will be borne by producers and sellers of drinks in glass bottles, cans or PET plastic containers containing 50 ml – 3 litres of liquid and consumed off premises (“scheme articles”). By following an article through this new supply chain, affected businesses can better understand their new obligations.

Starting at the beginning of the supply chain, producers or importers of scheme articles must pay a 20p deposit per item to the scheme administrator, Circularity Scotland (CSL). Notably, producers and importers must register with CSL by 1 March 2023. They must also pay a registration fee with SEPA, via CSL of £360 if they have taxable annual turnover of over £85,000.

The producer or importer will then sell their articles to a wholesaler, charging the wholesaler the additional 20p per item. When wholesalers then sell articles to retailers, they also charge the additional 20p deposit per item.

Retailers

Retailers have several obligations. They can only sell drinks from registered producers and importers and must do so with the 20p deposit attached. Retailers must also make it clear to consumers the deposit is in place, the amount of the deposit and a consumer’s right to return an article to earn a 20p refund. To facilitate this return, retailers must – with certain exceptions - run a return operation facility.

When an article is returned more obligations need to be met by the producer or importer. They must pay a handling fee to the return point operator to cover the cost of running the service. Eventually the CSL will collect the articles and process them for reuse.

There are no exceptions to taking part in the scheme. However, in certain circumstances smaller retailers can apply for exemption from having to implement a return operations facility. This includes taking account of environmental and health and safety risks. Non-compliance with the scheme will see parties liable to be fined.

Issues with the Deposit Return Scheme (DRS)

The environmental benefits of the DRS should be evident. However, like any new scheme and its supporting legislation there can be challenges and issues that must be addressed. Indeed, concern among some retailers that the handling fee (in the scheme) won’t cover significant administrative costs is now the subject of a judicial review and scheduled to be heard in March.

• Items for the Scottish market will need to be repackaged with different labelling and a different barcode. Alternatively, if producers wish to retain existing UK-wide barcodes, they will have to pay a surcharge to CSL. This will account for the additional risk and cost arising from the fact that packaging of items bought elsewhere in the UK could be returned in Scotland and see the deposit “refunded” despite not being paid in the first place. This is particularly burdensome on small producers. In addition to the packaging, there will be a further administrative burden to differentiate between which products are to be sold in Scotland.
• There are practical challenges for small to medium sized retailers required to operate a return point. There is little certainty surrounding exemptions for (bottle) return points. The current guidance suggests that only the smallest shops will be granted an exemption on the basis of space. For small / medium shops, practical challenges to operate a return point include having adequate storage space and concerns about environmental health. For example, consumers are under no obligation to clean out their containers before taking them to a return point.
• There is a lack of clarity in how the deposit return scheme regulations will interact with other requirements. This includes minimum alcohol pricing (ie is the deposit part of the price for the purpose of the minimum unit price?) and price labelling. The interplay between the DRS requirements and price labelling requirements may result in product labels being seen to provide misleading information to consumers. Notably, it could be harder to make price comparisons between single containers and multi-packs.

Of course, the scheme may be further affected by the forthcoming judicial review and decisions made following the imminent change of leadership in the Scottish Government.

Summary

The rationale for the Deposit Return Scheme (DRS) and the necessary steps to be taken by affected businesses in order to conform, have been outlined. We have also considered some of the key issues with the scheme – including the burden on small producers, the concerns of retailers about the administrative costs and space requirements and the potential for consumer confusion about price.

By building circularity into the off-premises beverage supply chain, the Scottish Government is hoping to emulate the successful German scheme. The cost for this change will primarily be borne by producers, importers and retailers and it’s imperative that affected businesses prepare now to ensure compliance when the new legislation comes into force.

Ben Zielinski is a principal associate in Glasgow and Alice Gray is a trainee solicitor at Shoosmiths