Of the states that have passed extended producer responsibility laws for packaging, Oregon just became the first to approve a round of administrative rulemaking.
The Oregon Environmental Quality Commission on Nov. 16 adopted the first of two major, multi-topic administrative rule sets for the Plastic Pollution and Recycling Modernization Act.
David Allaway, policy analyst in the Solid Waste Program of the Oregon Department of Environmental Quality (DEQ), said that the accomplishment is exciting because “these are the first administrative rules for packaging EPR in the U.S.”
The presented rules, which were revised in response to public comment received between May and July, cover standards for compensation of local governments, requirements for producer responsibility organizations (PROs), standards for responsible end markets and the first iteration of the statewide recycling acceptance lists. They also deal with convenience standards, performance standards and collection targets that the PROs must achieve.
Under the newly adopted rules, the Portland metro area will see some materials – shredded paper, aerosol cans, aluminum foil and foil products – delisted and no longer accepted for collection in on-route programs. The rest of the state will see an expansion of the on-route collection list and drop-off list, including more than 150 collection points for compressed gas cylinders and block white EPS by 2028.
In addition, some materials that the DEQ was urged to include, such as PET thermoforms, are largely excluded for now due to unresolved concerns about social and environmental impacts of the reclamation infrastructure, Allaway said.
“The producers are paying into the system and they want to have a say and have more material accepted, generally,” he said. “A number of materials were presented that we don’t think are right, but with the right investments we’d be open to considering, and that’s the beauty of EPR.”
If the PRO can provide evidence that it has resolved the concerns the DEQ has, then “there’s a pathway for investments and improvement,” Allaway added. “It will be exciting to see that pathway play out over the next couple years.”
Justin Gast, a natural resources specialist at DEQ, said the rules also define responsible end market standards and require the PROs to propose methods of calculating the transportation reimbursement cost.
Those standards state that an end market must be compliant with and permitted to local, state and national laws and treaty obligations; transparent with its chain-of-custody documentation; environmentally sound and audited and/or monitored for outdoor air, water and land emissions and disposal; and capable of achieving adequate recycling yields of at least 60% of each material listed in the recycling acceptance lists.
“A number of materials were presented that we don’t think are right, but with the right investments we’d be open to considering, and that’s the beauty of EPR.” –David Allaway, policy analyst in the Solid Waste Program of the Oregon Department of Environmental Quality (DEQ)
Allaway said the four standards are designed “to protect the integrity and the public confidence in the environmental benefit of the recycling system.”
“These are among the most significant rules in this rulemaking because … recycling is all about the market,” Allaway said. “It is the market where all the environmental benefits of recycling occur or don’t, it’s the market where recycling actually happens or doesn’t.”
Gast added that the responsible end market standards will also be significant because they will “require collaboration from the one entity that’s really been non-transparent, which has been brokers.”
“Knowing that responsible management, to us, goes down to the final destination of that material, there’s going to be some work on behalf of the brokers,” Gast said. “They’re going to have to produce some information … that’s always been an issue in this industry, even outside of Oregon.”
Nicole Portley, the EPR program plan lead at DEQ, said she hopes that other states with similar responsible end market requirements will follow Oregon’s lead.
“There’s a need for a standard that markets that receive these materials are held to,” Portley said. “We can’t, as a state government, restrict where materials go. That’s not in the reach of state law, but we can hold all entities to the same standard.”
Portley said the first set of rulemaking also set how the PRO will verify entities against standards, and “they’re going to have a pretty significant workload on that front.”
While the DEQ may later approve a third-party certifier that the PRO could use, “at present there is no such certification in the recycling industry that checks all of our boxes.”
The rule sets the program plan review fee at $150,000, to be paid by a PRO when submitting an initial or renewal program plan program plan, and an annual administration fee of up to $4 million per year paid for the first four program years (2025-28) and up to $3 million paid per following year, from 2029 onward. A staff report noted that DEQ anticipates that up to three PROs will initially operate in the system. Initially, four PROs had indicated interest, Allaway said, but that number has since dropped to two. Prospective plans are due March 31, 2024.
The staff report also noted it anticipates PROs will pay between $24 million and $35 million in costs annually to meet convenience and performance standards.
And if DEQ determines that a PRO’s market share has fallen below the 10% threshold required for it to operate the EPR system, the DEQ will notify the PRO of its intent to revoke its plan and begin a 60-day review process to give the PRO the chance to describe how it will again exceed the 10% threshold. If the PRO cannot, then the DEQ will revoke the plan and give the PRO’s members 60 days to transition to another PRO.
Fees for commodity risk and contamination removal
Initial results from a report by Crowe LLP exploring what compensation for MRF operators’ commodity risk and contamination removal will be have also been published. The preliminary results, based on 2022 facility data, found that the initial base cost of the Processor Commodity Risk Fee (PCRF) is $121 per ton and the initial base cost of contamination removal and disposal is $191 per ton, which are then further adjusted. Crowe is currently refining the preliminary results, so all figures are subject to change.
The difference between the PCRF and the average commodity value of marketed recyclables is what the PRO will be responsible for paying to commingled recycling processing facilities. Payment of the PCRF may not be required more frequently than once per month. DEQ will update the average commodity value on a monthly basis using commodity pricing indices recommended by Crowe.
The base rate is found by taking the total eligible processing cost of recycling Oregon commingled recyclables, which is roughly $34.50 million overall – or $121.00 per ton. Crowe recommended adding in a financial return of 11% on an earnings before tax basis as a component of eligible processing costs defined in the law. Once that is added in, the eligible processing cost is $38.30 million ($134.03 per ton).
Not included in that estimate are “anticipated program costs” associated with complying with new requirements contained in the law. These include achieving capture rates, bale quality standards and reporting and ensuring disposition to responsible end markets.
Also not included are the costs of providing workers with “living wages and supportive benefits,” a requirement that goes into effect in 2027. Crowe is still in the process of estimating these costs, which will then be added to the estimated processing costs above.
The Crowe report noted an Oregon average commodity value of $67.49 per ton of commingled recyclables, which includes a 2.77% adjustment upwards that accounts for the difference between published market pricing and the average price paid to Oregon commingled recyclable processing facilities. DEQ will apply that same upwards adjustment to the market average commodity values to determine the monthly PCRF payments.
The report also notes that the PCRF, by definition, is “very sensitive to market prices.”
For the Contamination Management Fee, Crowe separated the cost of contamination removal and disposal from total Oregon processing costs using a combination of direct cost and labor allocations, and then used DEQ’s preliminary 2023 Inbound Commingled Recycling Study findings to determine that 44.8% of inbound commingled contamination is covered product.The costs associated with removing and disposing of all contaminants is then built into the PCRF.
The report also noted that there are still “several outstanding items to incorporate into the results as rulemaking continues and additional data is available.”
“The fees will be further determined and refined over the next several months for presentation to DEQ’s Rule Making Advisory Committee in January 2024,” the report added.
Data came from EFI Recycling Portland, EcoSort, Far West Recycling Portland and Far West Recycling Hillsboro, Garten Services Recycling, International Paper, Kahut Waste Services/K.B. Recycling, Pioneer Recycling Services, Recology Eel River, West Vancouver Materials Recovery Center and WestRock Recycling Facility.
“Our methodology essentially consists of peeling away layers of costs that are not part of processing commingled recyclables, aggregating costs across all facilities, and then, to the extent possible, splitting apart the total costs of commingled recyclables into smaller components,” the report stated.
“There’s a need for a standard that markets that receive these materials are held to,” Portley said. “We can’t, as a state government, restrict where materials go. That’s not in the reach of state law, but we can hold all entities to the same standard.” –Nicole Portley, EPR program plan lead at DEQ
As part of the fee report, Crowe found that on average, labor is the largest cost category for Oregon MRFs, at 31%. The second largest cost category is transportation at 13%, followed by benefits and payroll taxes at 10% and then depreciation at 9% and maintenance at 6%. The remaining 31% can be attributed to supplies, rent, fuel, utilities, insurance, taxes and other costs.
The report also had information on what kind of processing equipment there is in the state. Across 11 commingled facilities, there are 18 paper screens, 16 balers, nine OCC screens, seven magnets, six robots dedicated to paper, five robots dedicated to containers, five eddy currents, four OCC and paper optical sorters, three container optical sorters, three glass screens and one unders recovery system.
To upgrade the 11 facilities with more high-tech equipment, the report suggested an additional per-ton cost of $79.64.
“The assumption provides a rough estimate of the potential scale of additional equipment costs,” the report noted. “If we instead assumed a ten-year depreciation and allocated only 1/10th of the costs per year to anticipated program costs, the per ton costs would be reduced ten-fold. In addition, it does not take into account potential reduction in labor and grants that might reduce overall costs incurred by facilities, additional interest costs that would be associated with borrowing to purchase equipment and maintenance of new equipment.”
Moving forward, Crowe plans to do more research on administrative systems, facility plans regarding accepting and sorting new materials, what equipment and operational changes would be needed to meet statute-ordered performance standards in coming years, and the cost of meeting the coming living wage and supportive benefit requirements.
A second round of rulemaking is also already underway. Gast said it will have “a little of everything and anything,” including living wage and supportive benefit work, permitting for commingled processing facilities, disclosure requirements for large producers, outbound contamination levels and the contamination management fee and the risk fee.