Plastic Packaging Tax - chemical recycling and adoption of a mass balance approach

Question 1

Summary

Accepted Answer

Subject of this consultation

This consultation explores the application of a mass balance approach to determine the amount of chemically recycled plastic in a plastic packaging component for the purposes of the Plastic Packaging Tax (PPT). It seeks views on whether a mass balance approach should be accepted as a way of allocating recycled plastic content to packaging, and, if so, the controls and standards that should be adopted to ensure the integrity of the tax.

Scope of this consultation

HM Revenue and Customs (HMRC) is consulting on the impacts of chemical recycling for plastics and the potential use of a mass balance approach to account for chemically recycled content for PPT.

Who should read this?

Businesses (including those in the plastics value chain such as petrochemical businesses and mechanical recyclers), individuals, tax advisers, non-governmental organisations (NGOs), academia/research, certification, trade and professional bodies and other interested parties.

Duration

The consultation will run for 12 weeks from 18 July 2023 to 10 October 2023.

Lead official

The lead official is Mark Palmer of HM Revenue and Customs (HMRC).

How to respond or enquire about this consultation

The best way to respond is to download and complete the response template. Responses or enquiries should be sent by 10 October 2023, by email to indirecttaxdesign.team@hmrc.gov.uk or by post to:

Mark Palmer
Plastic Packaging Tax Policy Team
HMRC
4th Floor Trinity Bridge House
2 Dearmans Place
Salford
M3 5BS

Additional ways to be involved

To engage with groups who would be affected by the proposals and issues under discussion in this consultation, the government will be consulting key stakeholders and interested parties who specialise in this policy area on the proposals during the consultation process. If you would like to be included in a consultative meeting, please contact us via the email above as soon as possible.

After the consultation

The government will aim to analyse responses and publish a formal response document as soon as possible after the end of the consultation period.

Getting to this stage

PPT was introduced on 1 April 2022 and was informed by two policy consultations in 2019 and 2020. Chemical recycling is a recognised method of recycling plastic waste for the purposes of PPT. However, following constructive engagement with stakeholders from across the plastics value chain, the government understands that it is sometimes not currently possible for businesses to use chemically recycled plastic in packaging and not pay the tax. This is because in some cases it is impossible to distinguish between plastic from virgin and recycled sources when this type of recycling is used.

HMRC engaged with various key stakeholders during Summer 2022 to gather evidence and improve knowledge about mass balance and chemical recycling. Aspects of chemical recycling were also discussed during HMRC’s regular industry engagements, which focussed on the implementation of the tax.

Question 2

Foreword

Accepted Answer

The Government has ambitious plans to tackle the global issue of plastic waste which impacts our countryside and wildlife, pollutes our oceans and contributes to carbon emissions. That’s why the 25 Year Environment Plan aims to minimise waste and reuse as much as we can, and includes an ambition to eliminate avoidable plastic waste by the end of 2042.

The UK’s world-leading Plastic Packaging Tax – introduced in April 2022 – is helping tackle the scourge of plastic waste by encouraging businesses to include more recycled plastic in packaging, which helps create the right conditions for investment in alternatives to virgin plastic.

The chemical recycling industry is developing innovative ways to recycle more types of plastic waste and produce high-quality recycled plastic, capable of being used in a range of industries, from food and drink to pharmaceuticals. This means it has the potential to complement mechanical recycling and reduce the amount of plastic waste sent for incineration and landfill.

We are proud that £20 million investment from UK Research and Innovation Industrial Strategy Challenge Fund has supported cutting edge research, development and deployment of new and advanced recycling technologies, which are helping to tackle the problem of plastic waste globally.

We remain committed to supporting innovation in the waste management and recycling sector in the UK, including ensuring the Plastic Packaging Tax helps support green growth and investment in the UK.

This consultation is designed to help us do just that by exploring how a mass balance approach for calculating the recycled content in packaging made from chemically recycled plastic can be used, for the purposes of the Plastic Packaging Tax.

Informed by your views in response to this consultation, the Government aims to develop an approach that supports business, innovation and growth while maintaining the integrity of the tax – to create a cleaner future for our country and reap the economic rewards of green growth.

Gareth Davies
Exchequer Secretary to the Treasury

Nusrat Ghani
Minister for Business and Trade

Rebecca Pow
Minister for Environmental Quality and Resilience

Question 3

1.  Introduction

Accepted Answer

At Budget 2018, the government announced that it would introduce a world leading tax on plastic packaging from April 2022, to provide a clear economic incentive for businesses to use recycled plastic in the manufacture of plastic packaging, which would create greater demand for this material. In turn this would stimulate increased levels of recycling and collection of plastic waste, diverting it away from landfill or incineration.

Previous consultations include:

Call for Evidence (March 2018)
Plastic Packaging Tax Policy Design Consultation (February 2019)
Plastic Packaging Tax Policy Design Consultation (March 2020)

Plastic Packaging Tax is not charged on plastic packaging components which contain at least 30% recycled plastic. Both mechanically and chemically recycled material can contribute to meeting this requirement. However, the way that chemical recycling is sometimes carried out means that it is not always possible to determine the actual amount of recycled material in a specific output from the process.

Some chemical recycling processes break down plastic to a molecular level to produce a recycled feedstock capable of replacing virgin fossil based raw materials in the production of plastic. This recycled feedstock can be mixed with virgin feedstock to make the chemical compounds which are used to make plastic. Once the virgin and recycled feedstocks are mixed, it is no longer possible to differentiate between the two substances, and the respective outputs cannot be sold separately.

A mass balance approach is a chain of custody model that is used by industries to track materials through a complex value chain. It enables recycled or sustainable inputs which are mixed with virgin material during the process to be allocated to particular outputs. The approach is commonly used in sectors such as timber and cocoa, to allocate sustainably sourced material to products. In sectors such as biofuel, the use of chain of custody models has helped drive the development of renewable production processes and increase the overall share of renewable energy.

Chemical recycling can complement the use of mechanical recycling technologies by enabling more types of plastic to be recycled and by producing a higher grade of recycled plastic, which can be used in regulated sectors such as food contact packaging. This can support ambitious targets set by the government, such as achieving zero avoidable plastic waste by 2042 and meeting recycling targets.

The plastics waste hierarchy, endorsed by Defra, confirms that recycling can be either a mechanical or chemical process.

Chemical recycling offers a complementary route to mechanical recycling, where it is not economically or technically feasible to mechanically recycle plastic waste. Mechanical recycling should be used where it is possible to do so. Both approaches are typically preferable to sending waste to landfill or energy from waste facilities.

The Department for Transport has also recently consulted on supporting recycled carbon fuels through the Renewable Transport Fuel Obligation. This work complements the proposals made here, as source material for fuel must be unsuitable for mechanical recycling. The whole range of outputs from chemical recycling, including those unsuitable for producing plastic, can be used to create fuel.

This consultation concerns whether a mass balance approach should be a permitted method of accounting for chemically recycled plastic used in packaging, for the purpose of PPT. Adopting a mass balance approach for the purposes of PPT would be a departure from the current accounting requirement, which requires the calculation to be based on the actual amount of recycled plastic in the packaging component. Allowing a mass balance approach could help create the right economic incentives for businesses to use chemically recycled plastic in packaging, making it possible to demonstrate this type of packaging potentially meets the 30% recycled plastic threshold. In turn, this could help drive investment in chemical recycling infrastructure and increase the overall share of recycled plastic material in circulation.

The government is seeking views on whether a mass balance approach should be approved as a method of allocating recycled content for the purpose of PPT, and if so, what controls would be required. Allowing a mass balance approach would require legislation. The government’s view on these issues will be informed by the need to:

preserve the integrity of the tax
ensure that the tax continues to meet its objectives
encourage investment in recycling infrastructure to increase the amount of recycling

During the 12-week consultation period, HMRC will engage with industry and professional bodies to gain necessary insights.

Scope

The scope of this consultation is whether businesses should be allowed to use a mass balance approach for calculating the recycled content in chemically recycled plastic, for the purposes of PPT. The consultation will also seek views on what controls would be necessary to ensure that the use of mass balance approach is robust, well-regulated, and capable of being appropriately evidenced should the government decide to allow it for PPT.

Objective

The objective of this consultation is to explore the potential application of a mass balance approach to PPT. This includes how a mass balance approach could be used for the purposes of PPT, the way in which certification schemes could be used, and identifying the controls and standards which should be applied to maintain the integrity of the tax if this approach were adopted.

Question 4

2.  Plastics manufacture and recycling

Accepted Answer

The feedstock used to produce plastics is most commonly derived from fossil-based resources, such as crude oil and natural gas. The procedure for turning this raw material into the finished product is complex and includes several stages and processes. This section gives an outline of these stages and defines key terms used elsewhere in this document. It also looks at the different ways that plastic can be recycled, particularly chemical recycling processes, and seeks views on the types of recycling to which it is appropriate to apply a mass balance approach.

Overview of how plastics are made

The first stage in the manufacturing process is to break the crude oil or natural gas into different components by heating it in a furnace. This generally takes place at a refinery, and produces products like petrol, fuel oil, paraffin, ethane and an oil called naphtha. Naphtha and ethane are the main feedstocks used for plastic production. Naphtha or ethane is then put through a process known as cracking to produce ethylene as well as other chemicals.

Note: All references to ‘cracking’ in this document refer to this process of producing ethylene and other products used to make plastic from naphtha or ethane feedstock.

It is at this point that a refined feedstock made from chemically recycled plastic may be mixed with the virgin feedstock to feed into the cracking process. The cracking process is highly sensitive, so the proportion of recycled feedstock must be carefully controlled to generate the desired products and avoid causing adverse reactions. To produce plastic entirely from chemically recycled material would require significant investment in separate infrastructure just for this purpose and unlikely to be economically viable.

During the cracking process the feedstock is heated to break it down into several different products, such as ethylene and chemicals used to make fuel, which are then compressed and refined. When ethylene is produced, it may be distributed through a network of pipelines. As crackers work continuously and the pipelines may combine products from different production sites, it becomes impossible to trace the specific outputs from recycled feedstock used in the cracking process alongside virgin feedstock.

The final process after cracking is to use heat, pressure, and an initiator to start a chemical reaction. This turns the ethylene into polymers and forms a thick plastic resin which can be used to make different types of plastic.

Antioxidants and stabilisers are then mixed with the resin, and it is ground to make plastic pellets. These pellets are then used to make plastic products.

How plastic is recycled

The simplest way to recycle plastic is to clean it, grind it into small pieces and melt it to produce pellets or film. This is known as mechanical recycling.

Mechanical recycling is the most energy efficient method of recycling plastic. However, the quality of the outputs is highly dependent on the material being recycled. Subject to a few exceptions, it is difficult to mechanically recycle plastic to a high enough quality to meet legal requirements for certain contact sensitive applications such as packaging for food and medicines. Some types of plastic, such as thin films, are rarely recycled in this way as the material is often contaminated as well as being difficult to mechanically recycle.

Chemical recycling is a blanket term used for several different processes. Technologies such as chemical depolymerisation and dissolution involve using chemical processes to break material back down into base polymers. As this method produces recycled polymers which can be measured when they enter a production process, they can already be classed as recycled for the purpose of PPT. Therefore, a mass balance approach is not needed for this type of chemically recycled plastic.

Note: The remainder of this document will use the term ‘chemical recycling’ to refer to processes which produce a recycled feedstock that can be used in the cracking process alongside or in place of virgin feedstock made from fossil fuels. This includes processes such as pyrolysis and gasification where different methods are used to break plastics down into several constituent parts. Some of these can be used to produce new plastics through cracking, while others may be burnt to produce energy, either directly or following conversion to transport fuel. Burning waste to recover energy, in whatever form this takes is not considered to be a recycling activity under the waste hierarchy.

Question 5

3.  Mass balance approach

Accepted Answer

A mass balance approach is a chain of custody model that is used by industries to track materials through a complex value chain. In principle, it allows the inputs, such as feedstock produced from recycled plastic waste, to be allocated to the outputs from a production process.

Question 1: Do you agree that it is possible to determine actual recycled content in products using the outputs of chemical recycling processes which produce a polymer, such as depolymerisation and dissolution? Please give reasons for your answer.

Question 2: How should chemical recycling be defined for the purpose of using a mass balance approach for PPT?

Question 3: Do you agree that the production of a recycled substitute for virgin feedstock to a cracker is the correct test for when calculations using a mass balance approach should be accepted for the purposes of PPT? If not, what test should be used?

Question 4: Are there other chemical recycling methods or processes for which a mass balance approach is required to account for the recycled content in the outputs? Please provide details and examples.

In very simple terms, if 10% of the inputs to a process are recycled feedstock, a mass balance approach can be used to either designate 10% of the outputs as being from 100% sustainable sources, 20% of the outputs as being 50% from sustainable sources, or any other combination as long as the volume of outputs allocated to sustainable inputs do not exceed the total amount of sustainable inputs.

Plastic packaging which contains at least 30% recycled plastic is not subject to PPT. Under the current legislation, calculations of recycled content must reflect the actual amount of recycled plastic in packaging. Due to the nature of chemical recycling it is not possible for businesses to evidence actual recycled content. This means that packaging which contains chemically recycled plastic is subject to the tax. PPT therefore does not currently provide the intended price incentive to use more chemically recycled plastic in packaging.

The rationale for a mass balance approach

The growth of the chemical recycling sector is largely driven by the need to recycle plastic waste that cannot be processed via mechanical recycling technologies, and the demand for recycled material of the same quality as virgin products.

Current mechanical recycling methods can be less efficient than chemical recycling processes at removing additives and contamination from plastic waste – these difficulties are particularly evident with flexible plastics and films. Mechanical processes also degrade the polymer over time lowering the quality of recycled material. As a result, mechanically recycled plastic will almost always be of a lower quality than virgin material. This can make it difficult to use mechanically recycled plastic content in some contact sensitive applications.

In the absence of advanced recycling routes, plastic waste unsuitable for mechanical recycling is typically sent to energy from waste, or landfill – the typically least desirable options, according to the plastics waste hierarchy.

Chemical recycling potentially offers a solution which can address the limitations of mechanical recycling. These technologies are able to ‘clean’ the plastic waste by effectively breaking down the polymers to their chemical building blocks, creating a feedstock that can be used in the cracking process to make virgin grade material. However, as outlined in chapter 2, the nature of the cracking process is that outputs from virgin and recycled feedstock are indistinguishable and cannot be identified and traced in the end product produced. As the primary objective of the PPT is to help tackle the pressing global issue of plastic waste, chemical recycling and a mass balance approach have a role to play in this.

These are immature and rapidly developing technologies, and there is relatively little data available about the environmental and carbon impacts of chemical recycling on a commercial scale. The government would welcome information about the environmental impact of chemically recycled plastic and evidence on the carbon impact of chemical recycling compared with different end of life treatments such as landfill or energy from waste. The government is not seeking information on waste to fuel gasification or pyrolysis processes.

Questions 5: What evidence are you aware of regarding the overall environmental impact of chemical recycling and use of the mass balance approach?

Questions 6: How does the carbon impact of chemical recycling compare with the impact of using virgin material to produce plastic, and with disposing of waste plastic through landfill or energy from waste?

Questions 7: What is the current and planned UK capacity for processing plastic waste through chemical recycling of your business or the supply chains that include your business?

Impacts on UK investment in chemical recycling and waste industry

The government’s plan is to become a world leader in using resources efficiently and reducing the amount of waste we create as a society. The government wants to prolong the lives of the materials and goods that we use and move society away from the inefficient ‘linear’ economic model of ‘take, make, use, throw’. In England we know and understand what materials are collected and have a legally binding waste hierarchy that determines how collected materials should be treated. PPT was the first tax of its kind anywhere in the world, and plastic waste continues to be addressed through a range of policies. The government intends to keep building on this progress, and for the UK to remain a global leader in recycling technology and innovation.

These changes could increase demand for chemically recycled plastic and make it more price competitive, relative to virgin plastic, when used in plastic packaging. The government is committed to supporting enterprise and investment across the UK and ensuring the tax system provides the right incentives to support investment in UK-based chemical recycling infrastructure and cutting-edge UK-based research and development into new and emerging technologies. The government recognises plastic waste is a global problem which requires a global solution, so the proposed changes would also apply to imported plastic packaging components which include chemically recycled content produced and allocated using a mass balance approach overseas.

Feedback from the plastics industry following the introduction of PPT has been that recognition of chemically recycled plastic allocated using a mass balance approach is required before significant investment in this technology will be made in the UK.

Question 8: How would the adoption of a mass balance approach for chemically recycled content for PPT purposes impact on investment in chemical recycling in the UK?

Question 9: To what extent is any potential investment in chemical recycling in the UK dependent on the specific details of how a mass balance approach may be implemented?

Question 10: Are you aware of any other factors or policies that could also impact on inwards investment into UK chemical recycling infrastructure?

Question 11: Do you agree that increased use of chemical recycling of plastic waste would complement the existing mechanical recycling sector, and not disincentivise further investment in mechanical recycling? Please give reasons for your answer.

Question 12: What controls need to be put in place to ensure material which is suitable for mechanical recycling continues to be recycled in that way, if a mass balance approach for chemically recycled plastic is adopted for the purposes of PPT?

Pre-consumer plastic waste

Currently PPT allows for both pre- and post-consumer plastic waste to be reprocessed and treated as recycled plastic. These generally require very different levels of recycling, with post-consumer waste needing significantly more sorting and processing to produce usable recycled material with associated higher costs in comparison with pre-consumer waste.

In most cases it is more cost effective and efficient to recycle pre-consumer waste even without the exemption from PPT, and it has a better environmental outcome than disposal by way of landfill or incineration. As such, reuse of pre-consumer waste is already built into many production processes. The inclusion of pre-consumer waste for the purposes of PPT therefore provides very limited incentive for businesses to invest in better waste management and recycling infrastructure or divert waste from landfill or incineration.

The introduction of chemical recycling using a mass balance approach would present further opportunities for otherwise difficult to recycle post-consumer material to be reused. However, it is likely to further emphasise the cost differential between recycling pre- and post-consumer waste. This could lead to unfairness in the tax system as some businesses would be able to meet the 30% threshold at a substantially lower cost and without making a contribution to the environmental objectives of the tax, when compared to businesses investing in more advanced recycling technologies which could have a big impact on diverting waste from landfill and incineration.

In addition, to ensure a level playing field between UK manufactured and imported packaging, the requirements for evidencing the use of recycled material need to be applied consistently. HMRC is aware of differing interpretations of what constitutes pre-consumer waste being applied. This presents compliance risks that are difficult to enforce, both with UK manufactured packaging and in particular with imported packaging products, which are claimed to be manufactured using pre-consumer waste. The inclusion of pre-consumer waste therefore presents a significant risk of non-compliance with the tax, which undermines the environmental aims of PPT.

If a mass balance approach for chemically recycled plastic is introduced for PPT, the government is considering removing pre-consumer waste as a source of recyclate for PPT. This would remove the disparity in costs between recycled pre-consumer waste and post-consumer waste, including post-consumer waste which can only be chemically recycled. It could also further drive investment in recycling infrastructure to minimise the amount of plastic waste going to landfill or incineration, and increase the supply of recycled plastic from the new methods of recycling permitted. It would also assist with ensuring that imported and UK manufactured plastic packaging using recycled material are assessed on a level playing field.

Question 13: Do you agree that pre-consumer waste should be phased out as being classed as recycled material for PPT if chemically recycled plastic using a mass balance approach is permitted? Please supply information and comparative costs of recycling to support your answer.

Plastic packaging used for human medicinal products

At present, there is an exemption in PPT for the immediate packaging of licensed human medicines. This is because the stringent regulatory requirements for this packaging and the testing required before it can be placed on the market currently makes it very difficult to use recycled plastic in this way. However, as chemical recycling can produce recycled plastic which is indistinguishable from virgin plastic, the policy justification for this exemption may diminish as more chemically recycled plastic becomes available.

Question 14: Do you agree that chemically recycled plastic using a mass balance approach is likely to meet the regulatory requirements for the immediate packaging of human medicines?

Maintaining consumer confidence in recycled plastic

It is vital that the public has confidence in claims made about the recycled plastic in packaging. A mass balance approach can be challenging in this respect, as an individual item may not physically include the recycled content which it claims to have, although may contain traces of recycled plastic.

The benefits of a mass balance approach as set out previously in chapter 2 would need to be balanced alongside the controls needed to maintain consumer confidence. Communication is key, and the mass balance approach can be difficult to explain in simple and brief terms. It will be important to be able to explain how packaging which is claimed to include 30% recycled plastic may not actually do so because of the way that the mass balance approach works. Explaining this clearly and transparently will be important to avoid consumers questioning other claims about recycling and environmental credentials.

Question 15: How can businesses communicate the recycled plastic content to consumers in a way that does not undermine confidence in claims about recycled content?

Question 16: Given the issues identified and questions raised in this chapter, do you agree that chemically recycled plastic allocated using a mass balance approach should be treated as recycled plastic for the purpose of the PPT? Please provide reasons and supporting evidence for your response.

Question 6

4.  Mass balance models

Accepted Answer

A mass balance approach is a chain of custody model that is used by industries to track materials through a complex value chain. In principle, it allows the inputs, such as feedstock produced from recycled plastic waste, to be allocated to the outputs from a production process. The mass balancing calculation is generally conducted at the cracking stage, or whenever recycled feedstock and virgin feedstock are blended.

Used in conjunction with certification schemes, a mass balance approach has the potential to verify and trace recycled materials through the plastics value chain.

A mass balance approach needs to be robust and include a set of requirements that are consistently applied across the plastics value chain to ensure transparency and fairness and mitigate the risk of it becoming a tool for greenwashing. If a mass balance approach is adopted for the purpose of PPT, HMRC does not intend to introduce its own certification scheme, but any business seeking to use a mass balance approach for the purposes of PPT would need to use an independent certification scheme that meets these objective requirements. This may require existing schemes to alter their requirements.

The key components of any mass balance approach are the:

level of mass balance,
allocation method,
balancing period,
units of measurement

There are variations within each of these components, which can determine how a business can allocate the recycled feedstock to its output products. The approach a business uses is often determined by the requirements of the certification scheme it chooses its products to be certified under.

Level of mass balance

The level of mass balance is the system boundary or geographical area a mass balance approach calculation can be applied to. This can be at:

batch level
site level
group level (also known as company level)

When using the batch level calculation, the actual amount of recycled plastic input into the cracking process is allocated to the output products from that same process. This is the strictest level of calculation, ensuring that the process the output products are produced from contain recycled material in its inputs. This level of calculation provides the strongest possible level of physical link between the inputs and outputs compared to the other levels of mass balance.

Business using a batch level calculation would need to complete a calculation after each batch is produced, along with completing the corresponding documentation for its chosen certification scheme. As such, the level of administrative burden on the business would be higher than under the other levels of mass balance.

Under the site level calculation, only the proportion of recycled feedstock that enters a business’s individual site is capable of being allocated to the output products produced from the same site. With this calculation, the proportion of recycled feedstock entering and leaving the site is known. However, as sites can run multiple cracking processes, the proportion of recycled material input in the cracking process may vary, which means the proportion of recycled material in the output products from that process is not known.

With the site level calculation, a business cannot claim that the output products leaving its site, contain more recycled material than the amount of recycled feedstock received at the site during a set timeframe. This timeframe is known as a balancing period.

The group level calculation can apply to businesses with multiple sites, sometimes spread across various geographical locations. With this calculation, the group’s head office records the total amount of recycled feedstock received for input into its cracking processes, across all of its sites. A proportion of the recycled feedstock can then be allocated to the output products produced across the company or group’s cracking processes. The group level calculation also requires a balancing period.

Analysis of mass balance levels

The group level calculation provides the weakest physical link between the recycled feedstock inputs and outputs. With this calculation, there is no guarantee the output products from a particular cracking process or site would contain any recycled feedstock. This is because a site may receive no recycled feedstock, but a proportion of the recycled feedstock the group receives can still be allocated to the output products produced from that site, providing another site has received recycled feedstock that has been accounted for by the group head office. For this reason, the government proposes to exclude the use of the group level calculation if a mass balance approach is introduced for the purposes of PPT.

The batch level calculation provides the strongest possible physical link between the recycled feedstock inputs and outputs, and potentially reduces both the risk of false claims of relief from the tax and greenwashing. This is because the cracking process that the output products have been produced from would contain some recycled material in its inputs. However, once the outputs from the cracking process enter the ethylene pipeline network, it may be difficult to maintain the physical connection.

The site level calculation provides a stronger physical link between the inputs and outputs compared to the group level calculation, whilst offering a balance between administrative burdens on business, compliance with the requirement of the tax, and reducing risk of greenwashing.

Question 17: Do you agree with the government’s suggested approach to not allow businesses to use the group level calculation? Please provide reasons and supporting evidence for your response.

Question 18: Do you foresee any practical barriers or risks to using the batch or site level calculations? Please provide details of what those barriers or risks are.

Question 19: To what extent do the batch and site levels of mass balance support the objectives of PPT and incentivise investment in chemical recycling in the UK? Please provide reasons and supporting evidence for your response.

Allocation method

The output products from the cracking process can be used for a range of products including fuel. There are currently 4 known allocation methods that can be used to allocate the recycled feedstock input into the cracking process, to the output products. The allocation methods that can be used are:

free allocation
proportional balance (also known as technical balance)
fuel exempt
polymer only

The free allocation method offers the greatest flexibility as it allows businesses to allocate all the recycled feedstock input into the cracking process to any of the output products. In practice, a business can allocate the proportion of recycled feedstock that goes towards output products used in the production of fuel to output products that would be used in the production of plastic packaging to reduce their PPT liability. Figure 1 demonstrates how the free allocation method can be used to allocate the recycled feedstock to any of the output products. This example does not include any deductions for process losses.

Figure 1: Free allocation method

With the proportional balance allocation method, the proportion of recycled feedstock input into the cracking process is allocated equally to all of the output products. Figure 2 demonstrates the proportional balance allocation method. This example does not include any deductions for process losses.

Figure 2: Proportional balance allocation method

With the fuel exempt allocation method, the proportion of recycled feedstock input into the cracking process that goes towards outputs for fuel production is removed from the calculation and cannot be allocated to the other output products. However, the business can freely allocate the remaining proportion of recycled feedstock to the remaining output products. Figure 3 demonstrates the fuel exempt method. This example does not include any deductions for process losses.

Figure 3: Fuel exempt allocation method

The polymer only allocation method is the allocation method most closely aligned to the aims of the PPT. This is because the proportion of recycled feedstock that is used to manufacture non-polymer output products, such as fuels and pharmaceuticals, are removed from the calculation, and cannot be allocated to polymer output products. The remaining proportion of recycled feedstock can then be freely allocated between the output products that are used to manufacture polymers. Figure 4 demonstrates the polymer only allocation method. This example does not include any deductions for process losses.

Figure 4: Polymer only allocation method

The government proposes to exclude the use of the free allocation method if a mass balance approach is introduced for the purposes of PPT on the basis that this method provides too broad a scope, by allowing businesses to allocate the proportion of recycled feedstock to any output products, including those used to make fuel. The free allocation method is least aligned with the aims of the tax, which is to encourage the use of recycled plastic in new plastic packing components.

Question 20: Do you agree with the government’s suggested approach to not allow businesses to use the free allocation method? Please provide reasons and supporting evidence for your response.

Question 21: To what extent do the proportional balance, fuel exempt or polymer only allocation methods, support the objectives of PPT and incentivise investment in chemical recycling in the UK? Please provide reasons and supporting evidence for your response.

Question 22: What are the relative advantages with the proportional balance, fuel exempt and polymer only allocation methods? Please provide details of what those advantages are.

Question 23: What risks or practical challenges do you envisage with the proportional balance, fuel exempt and polymer only allocation methods? Please provide details of what those risk and challenges are.

Question 24: To what extent would the requirements and standards need to be tailored to address the different risks associated with proportional balance, fuel exempt and polymer only allocation methods.

Balancing period

The balancing period is the maximum period a business is allowed to equate the proportion of recycled feedstock it receives for input into its cracking process, to the claims it makes for the proportion of recycled material in its output products. Some certification schemes currently allow a business to have a negative balance within the balancing period, but this must be compensated by the end of the balancing period. A negative balance is when a business claims to have more recycled content in its output products than the amount of recycled feedstock it has received.

Some of the more widely recognised certification schemes allow a maximum 3 months balancing period, which can be extended to a maximum of 12 months, but only in extenuating circumstances. This could, for example, be where a business is new to operating within the plastic value chain and has little to no experience of mass balance approach calculations.

Question 25: If a mass balance approach was adopted and taking into account the impact it may have on the amount of PPT chargeable on businesses’ quarterly tax returns, what would be a reasonable balancing period for businesses to equate the amount of recycled feedstock received, to the claims made around recycled content in output products? Please provide reasons for your response.

Question 26: Do you agree or disagree that businesses should be allowed to have a negative balance during a balancing period for a mass balance calculation allowable under PPT? Please provide reasons and supporting evidence for your response.

Measurement units

A reliable unit of measurement is needed to calculate the inputs and outputs from a cracking process. We have identified 3 units of measurement that can be used for a mass balance approach calculation. These are:

mass
molecular units
lower heating value

The mass unit of measurement uses the weight of inputs, for example in kilograms, and compares it to the weight of the outputs. This measurement unit doesn’t consider the different compositions of the recycled and virgin feedstocks input into the cracking process. These differences can affect processing losses and the proportion of recycled to virgin material in the final output product.

The molecular unit of measurement can, for example, measure the carbon input into the cracking process versus the carbon outputs.

The lower heating value unit of measurement measures the energy produced by combusting fuel, taking into consideration energy losses such as water vaporisation. This is a common unit of measurement used within the chemical and fuel industries.

One factor which may determine which measurement unit is used, is the composition of the plastic waste used for the recycled feedstock, along with the targeted output products. Where the different materials have virtually identical compositions, the mass measurement unit may be used. If the materials are a complex mix with varying compositions, a business may choose to use the lower heating value measurement unit.

Businesses may also need to consider process losses resulting from the cracking process in their calculations. These process losses can be due to, for example, contamination within the feedstock or for the fuel used to operate the process itself. The level of process losses can be dependent on the quality of feedstock input in the cracking process.

Question 27: What are the benefits and disadvantages of the different measurement units for a mass balance calculation if it is adopted for PPT purposes?

Question 28: Which measurement unit best supports the environmental aims of the tax?

Question 29: Should the government exclude any of the measurement units from being used in a mass balance approach calculation which is allowable under PPT? If so, please state which measurement units should be excluded, provide reasons, and supporting evidence for your response.

Question 30: Do you think businesses should be required to deduct process losses from a mass balance approach calculation which is allowable under PPT? Please provide reasons and supporting evidence for your response.

Question 7

5.  How certification would operate

Accepted Answer

This chapter outlines the role of certification bodies and certification schemes, and how certification would operate in the context of a mass balance approach for the purpose of PPT. It also considers the frequency and nature of audits, and the role of national accreditation bodies. If a mass balance approach is adopted for the purpose of PPT, HMRC does not intend to introduce its own certification scheme, but any business seeking to use a mass balance approach for the purposes of PPT would need to use an independent certification scheme that meets these objective requirements set out in legislation. It would be the responsibility of the business concerned to ensure that the plastic it was claiming as recycled for the purpose of PPT was properly certified under a scheme that met the requirements specified by HMRC.

Roles of certification bodies and certification schemes

A certification scheme is a third-party scheme that provides a set of clear and measurable requirements that a business must comply with if it wants to make specific claims about its products. In the context of chemical recycling, this would be how much chemically recycled plastic is in a packaging component. A scheme’s requirements can be developed and set by government departments, businesses, certification bodies, NGOs, and national standard bodies such as the British Standards Institution. The owner of the certification scheme is responsible for managing and maintaining the scheme, and ensuring it remains fit for purpose.

A certification body is an independent third party that manages the certification process, providing audits and issuing certification to businesses who demonstrate compliance with a certification scheme’s requirements. During the audits, the certification body assesses a business’ processes, quality management systems and documentation, against the scheme’s requirements. With respect to chemical recycling, it also includes assessing the mass balance approach used to account for chemically recycled plastic. Once the business has demonstrated it has complied with all the requirements of the scheme, the certification body issues the certification and the business can include the certification scheme logo or badge on its products.

How some of the existing certification schemes work with certification bodies can vary dependent on the scheme. Currently, some certification schemes provide training to certification bodies and would only allow a certification body to complete audits once it has successfully completed the training. Some of the more widely used certification schemes also include processes for quality checking the audits carried out by certification bodies.

Certification process

The process a business must follow to obtain certification typically involves several steps. Once a business has identified which certification scheme it wants to be certified under, the first step is to choose a certification body who is competent to complete the audits against the requirements of the scheme. Some of the existing certification schemes publish a list of certification bodies that are accredited to the required International Organization for Standardization (ISO) standards. Businesses must also sign contracts with the certification body and register with its chosen certification scheme.

Prior to the initial audit by a certification body, the business would need to evaluate its operations to determine its level of compliance with the scheme’s requirements. This would include an internal audit of its processes and documentation. The business must prepare the required documentation for evaluation by the certification body.

The initial audit of a business’s operations usually takes place via an on-site visit by the certification body. During the initial audit, a certification body may interview the business’ employees as well as reviewing its processes and documentation. If during the initial audit the certification body identifies any areas of non-compliance with the scheme’s requirements, it would document them in the audit report. The business would then have a set period to take corrective actions to ensure full compliance.

When a business has successfully passed the initial audit, the certification body would issue the certification to the business and notify the certification scheme. The business must then ensure they continue to comply with the requirements of the scheme to maintain its certification. This includes submitting to further audits by its chosen certification body, keeping documentation used in audits for the required period, paying fees, and ensuring any claims made on its products comply with the requirements of the certification scheme.

The process of certification may differ depending on the role of the business in the plastics value chain. For example, a manufacturer may need to demonstrate compliance with standards related to the production process, while a retailer may need to demonstrate compliance with standards related to the environmental impact of their operations.

Frequency and nature of audits

Certification schemes may have different requirements for the frequency and nature of audits. After the initial audit, different certification schemes take different approaches. Whilst all require re-certification audits, some certification schemes use a risk rating to decide the length of time a certificate is valid. This means that in some cases, a re-certification audit can be completed between 12 months to 5 years after the initial audit.

Risk ratings are also used by some certification schemes to decide the nature and frequency of subsequent audits. A business risk rating is assessed against the standards and requirements of the scheme. Businesses that are assessed as being low risk would not be audited as often as higher risk business. They may also only require desk-based audits or their compliance check against a limited number of standards and requirements.

As outlined in chapter 4, if a mass balance approach is permitted, the government will require businesses to use a certification scheme that meets certain minimum requirements to ensure the integrity of the tax, uphold its environmental objectives, and to provide a degree of consistency across the plastics value chain. These requirements would also apply to the frequency and nature of audits. As this would inevitably increase the administrative burden on business the government would welcome views on how these can be minimised, without undermining compliance with the requirements.

Question 31: Do you foresee any barriers or risks with introducing a requirement for businesses to use certification schemes to verify compliance with a mass balance approach, if it is adopted for PPT purposes? If so, please provide details and supporting evidence.

Question 32: In what circumstances and at what frequency should a certification scheme check the quality of audits completed by certification bodies? Please provide reasons for your response.

Question 33: Do you agree with the government’s suggested approach of introducing a minimum requirement for the frequency and nature of audits? Please provide reasons and supporting evidence for your response.

Question 34: If a mass balance approach was adopted for the purposes of PPT, do you have any suggestions for minimising the administrative burdens on business while ensuring compliance with the minimum requirements.

Status of certification

A certification body can suspend or withdraw a business’ certification if it fails to comply with the requirements of the scheme, if issues with a business’ processes or documentation are identified during an audit, or if the business fails to take the necessary corrective action to resolve the issues within the prescribed timeframe. If a business’ certification is suspended or withdrawn, it can no longer claim that its products contain recycled material certified by that certification scheme. Businesses would need to check the validity of the certification of the businesses that supply it with the recycled material. Some of the current certification schemes require all businesses operating within a supply chain to be a certified member of the scheme, or they cannot operate within it. Other certification schemes would accept certification from another scheme but only if its requirements are comparable to its own.

Question 35: Should all businesses in a supply chain from the recycler to the packaging manufacturer be certified under the same scheme to enable the recycled material to be taken into account for the purposes of PPT?

Accreditation of certification bodies

The minimum requirements for certification schemes specified by the government would also include requirements for certification bodies to demonstrate that they have the required competence, technical expertise, integrity, and impartiality to perform the audits and issue certification.

Whilst a certification scheme would ensure the certification bodies are applying the minimum requirements consistently across the plastics value chain when they complete an audit, one way to ensure the certification bodies are meeting the minimum requirements and have the correct systems in place, is to require UK based certification bodies to be accredited by the national accreditation body. Figure 5 illustrates how the national accreditation body, certification schemes, certification bodies and business may interact if a mass balance approach was adopted for the purposes of PPT.

Figure 5: Accreditation and certification

The United Kingdom Accreditation Service (UKAS) is the government appointed national accreditation body for the UK. UKAS accreditation enables certification bodies to demonstrate their competence, impartiality, and capability to perform audits and issue certification.

UKAS is part of an international network of national accreditation bodies and signatory to recognised international multilateral arrangements of the International Accreditation Forum and International Laboratory Accreditation Cooperation. This means that reports and certificates produced by bodies accredited by UKAS are accepted as technically equivalent to reports and certificates issued in the countries of all other signatories. Alternatively, UKAS can provide accreditation to overseas certification bodies, observing any international agreements on cross border accreditation arrangements and working in partnership with the national accreditation body where required.

To ensure certification bodies are impartial, competent, and have the required systems in place to provide consistent and robust audits against the minimum standards, the government proposes to require UKAS accreditation for certification bodies before they can audit businesses applying for certification.

Question 36: Do you agree with the proposed accreditation requirement for certification bodies who complete the certification scheme audits? Please provide reasons and supporting evidence for your response.

List of accredited certification bodies

Under the government’s suggested approach, businesses who are applying for certification would need to apply to a certification scheme that offers the minimum requirements and choose a certification body with accreditation from UKAS.

To help business identify which certification bodies they can choose from, some of the current certification schemes publish a list of certification bodies that are accredited to the requirements of the scheme. It would be the responsibility of a business seeking certification under a scheme to ensure that the certification body they appoint has been accredited in line with HMRC requirements.

Question 8

6.  Understanding commercial practices

Accepted Answer

The government welcomes any further information which could be relevant to the possible implementation of a mass balance approach for calculating the amount of chemically recycled plastic in plastic packaging for PPT. This includes information about the records and accounts which businesses should be required to hold to demonstrate the provenance of chemically recycled material.

Question 37: Unless already covered in your responses to other questions within this document, please tell us how you think your business would be impacted by being permitted to use chemically recycled plastic accounted for using a mass balance approach as recycled for the PPT, including additional administrative burdens?

Question 9

7.  Assessment of impacts

Accepted Answer

Summary of impacts

There is very limited evidence to estimate impact of the potential measures covered in this document. Any future estimates will be informed by this consultation.

Exchequer Impact Assessment

Any Exchequer impact will be estimated following the final design of the measure and will be subject to scrutiny by the Office for Budget Responsibility.

Impacts	Comment
Economic impact	The proposed changes may increase demand for chemically recycled plastic and help drive investment in an emerging sector.
Impact on individuals, households and families	The proposed changes are not expected to impact on individuals, or impact on family formation, stability or breakdown.
Equalities impacts	The proposed changes are not anticipated to impact on groups sharing protected characteristics.
Impact on businesses and Civil Society Organisations	While there are no impacts at present, the proposed changes could enable businesses to reduce their liability for PPT, but with an associated administrative burden to become certified and provide evidence of the recycled content. Views on how this burden can be kept to a minimum will be welcome. Any future impacts will be fully examined and detailed.
Impact on HMRC or other public sector delivery organisations	The proposed changes may require changes to HMRC compliance approach to check the veracity of recycled plastic claimed under the mass balance approach. This will be incorporated into existing compliance work on PPT.
Other impacts	The changes proposed may support business cases for investment in chemical recycling infrastructure and may increase overall demand for recycled material.

Question 38: Do you have any comments on the assessment of equality and other impacts in the Tax Impact Assessment?

Question 10

8.  Summary of consultation questions

Accepted Answer

Mass balance approach – chapter 3

Question 1: Do you agree that it is possible to determine actual recycled content in products using the outputs of chemical recycling processes which produce a polymer, such as depolymerisation and dissolution? Please give reasons for your answer.

Question 2: How should chemical recycling be defined for the purpose of using a mass balance approach for PPT?

Question 3: Do you agree that the production of a recycled substitute for virgin feedstock to a cracker is the correct test for when calculations using a mass balance approach should be accepted for the purposes of PPT? If not, what test should be used?

Question 4: Are there other chemical recycling methods or processes for which a mass balance approach is required to account for the recycled content in the outputs? Please provide details and examples.

Question 5: What evidence are you aware of regarding the overall environmental impact of chemical recycling and use of the mass balance approach?

Question 6: How does the carbon impact of chemical recycling compare with the impact of using virgin material to produce plastic, and with disposing of waste plastic through landfill or energy from waste?

Question 7: What is the current and planned UK capacity for processing plastic waste through chemical recycling of your business or the supply chains that include your business?

Question 8: How would the adoption of a mass balance approach for chemically recycled content for PPT purposes impact on investment in chemical recycling in the UK?

Question 9: To what extent is any potential investment in chemical recycling in the UK dependent on the specific details of how a mass balance approach may be implemented?

Question 10: Are you aware of any other factors or policies that could also impact on inwards investment into UK chemical recycling infrastructure?

Question 11: Do you agree that increased use of chemical recycling of plastic waste would complement the existing mechanical recycling sector, and not disincentivise further investment in mechanical recycling? Please give reasons for your answer.

Question 12: What controls need to be put in place to ensure material which is suitable for mechanical recycling continues to be recycled in that way, if a mass balance approach for chemically recycled plastic is adopted for the purposes of PPT?

Question 13: Do you agree that pre-consumer waste should be phased out as being classed as recycled material for PPT if chemically recycled plastic using a mass balance approach is permitted? Please supply information and comparative costs of recycling to support your answer.

Question 14: Do you agree that chemically recycled plastic using a mass balance approach is likely to meet the regulatory requirements for the immediate packaging of human medicines?

Question 15: How can businesses communicate the recycled content to consumers in a way that does not undermine confidence in claims about recycled content?

Question 16: Given the issues discussed and questions raised in this chapter, do you agree that chemically recycled plastic allocated using a mass balance approach should be treated as recycled plastic for the purpose of the PPT? Please provide reasons and supporting evidence for your response.

Mass balance models – chapter 4

Question 17: Do you agree with the government’s suggested approach to not allow businesses to use the group level calculation? Please provide reasons and supporting evidence for your response.

Question 18: Do you foresee any practical barriers or risks to using the batch or site balance calculations? Please provide details of what those barriers or risks are.