After a long period of study that began on September 28, 2021, finally the Council of Ministers, at the request of the Ministry of Ecology and Demographic Challenge (MITEVO), has published the Royal Decree on Packaging and Packaging Waste on December 28, 2022.
Producers will be responsible for the packaging placed on the market, including commercial and industrial packaging. They will have to assume mandatory targets, with traceability of packaging being of vital importance.
The law focuses on the concept "the polluter paysThe law focuses on the "polluter pays" concept, through extended producer responsibility, which establishes that the producers, who are the ones who place packaging on the market, are responsible for meeting the costs of packaging management.
The Royal Decree on packaging and packaging waste establishes targets for producers for reuse and recycling of packaging for 2030 and 2050. With the aim of aligning with the European Union and to advance in the transition from a linear economy to a circular economy.
Objective of the Royal Decree:
This new law aims to facilitate the transition from a linear economy, based on consume and throw away, to a circular economy, where we use packaging and its materials in a more sustainable way.
It makes the producer, or failing that, the first company or person to place the product on the market, responsible for the costs generated by the management of packaging waste placed on the market.
Until now, the packer (in the case of household and industrial packaging) passed on the responsibility to the customer, with the latter being responsible for the management of the packaging.
With this new decree, producers become the responsible parties: they must cover the costs, inform about the packaging they put on the market and create plans to minimize the packaging they produce, giving priority, according to the waste hierarchy, to aspects such as prevention, preparation for reuse, recycling, energy assessment and disposal.
In any case, the concept of "reuse" is ahead of the concept of "recycle".
Registration is required:
Companies that have to comply with extended producer responsibility will have to register in a register, where they will be provided with a code that they will have to incorporate in their invoices.
In addition, they will have to state which system or systems of extended responsibility they are participating in: SIRAC or SCRAP (see below what this means).
Extended Producer Responsibility (EPR):
Industrial and commercial packaging, hitherto excluded from extended product responsibility, will have to rely on one of these two options to meet the obligations to bear the costs of packaging placed on the market:
- SIRAP: Individual Producer Responsibility System.
- SCRAP: Collective System of Extended Product Responsibility
Companies will now have to pay more for the "pallets", packing boxes, etc. that they send to their customers, whether they are industrial or commercial.
The producer must choose which system to join (SIRAP or SCRAP) BUT can only be registered in one system per type of waste (plastic, cardboard) and per waste category (domestic, industrial or commercial).
Be careful, because being a member of a SCRAP (collective) does not exempt the company from responsibility, nor from the obligations that derive from its process as a waste producer; it is NOT worth paying and forgetting about it!
The traceability of packaging waste is of particular importance in this law, since the company will have to create an annual report with all the packaging placed on the market.
Obligation to provide information on the characteristics and composition of packaging.
Article 16, point 2 of the Royal Decree also states that the year 2021 (retroactively) must be reported in the registry first and 2022 thereafter,
It must be reported within the period established in the packaging section of the Product Producers' Register as from its registration in said section in accordance with the provisions of article 15. Likewise, product producers must submit the information related to reusable packaging that was in circulation in 2021. Once the above deadline has expired, the producers shall send the information corresponding to the year 2022 within the three months following said deadline.
In addition... A series of objectives are set:
Until now, product producers could fulfill their responsibility by joining a SCRAP, such as ECOEMBES in the case of household packaging.
Now, they also have to meet certain objectives and if SCRAP does not do well, they still have responsibility.
- It is established that companies will have to establish waste minimization plans if they exceed one ton per year.
- When we register as a producer, we have to state whether our containers are single-use or returnable.
- If we choose the returnable option, we will have to establish a mandatory DRS for industrial packaging .
- By 2025, packaging made from polyethylene terephthalate (PET) will have to be at least 25% recycled plastic, calculated as an average of all PET packaging placed on the market.
- By 2030, plastic packaging will have to be made of at least 30% recycled plastic, calculated as an average of all plastic packaging placed on the market.
How will these producer and manufacturer responsibilities affect the inherent risks arising from liability and environmental damage claims?
There is no doubt that this law has substantially increased the liability risks of companies that are susceptible to being insured in the market, and all this through two fundamental insurance products:
- Liability for environmental damage, liability arising from the law of 8/04/2007 for damage caused to the environment The insurance market was driven by the emergence of insurance policies covering not only strict damages caused to the environment by waste managers and generators (which the law contemplated), but also accidental and/or material and personal damages that the law itself does not require but that the insurance market did dare to include when designing the product.
Now with this royal decree and considering that the responsibility for environmental pollution due to untreated, recycled or managed containers falls on the producer and not on the end user (which is what we had until now), it seems to us a substantial change in the risk to be addressed.
The expenses and/or damages derived from contamination to things and people, including the costs of decontamination and remediation for uncontrolled contaminating containers, is something that was not foreseen in insurance contracts, given that from the moment the product was in the hands of the user, the producer's responsibility disappeared, but not now.There is no doubt that contracts will be forcibly changed because claims derived from uncontrolled dumping of containers, or the simple coverage of expenses derived from the cleaning of contaminated land in certain urban and/or rustic sites, could fall like a burden on companies if they are forced to respond to claims from the administration or third parties, whether natural or legal persons, under this law.
Companies will be forced to defend themselves due to circumstances not necessarily attributable to their management, especially when the retroactive nature of the mandatory registration and reporting of packaging in circulation as early as 2021 leaves companies defenseless under current contracts, and it remains to be seen whether they will request this type of extension and retroactivity in their current policies, where the acceptance of the risk by the insurance market is not guaranteed.
For example; a button!
Attached are photographs that I have taken this last weekend of the year 22 taking advantage of my occasional visit by bicycle to a mountainous area of the municipality of BEGUES (Barcelona), specifically next to the Endesa electrical sub-station located at the top of the mountain called "El Montau".
I have been seeing for more than two months abandoned packaging waste in the area next to electrical towers, the result of an assembly of equipment and material for these towers and for the power grid in the area, these packages are composed of wooden boxes and also next to these there is various metal material such as "slingas" necessary for lifting and gripping the installed equipment.
They are totally abandoned! Undoubtedly under the law of containers and packaging approved by the government last December 28, and due to the retroactivity to the year 2021, they are breaking the law, in this case it should be noted that the assembler is a subcontractor of Red Eléctrica but apart from the direct responsibility of the assembler, this does not exempt Red Eléctrica as owner to respond for the costs of cleaning the area and its remediation, more than ever the responsibility of the subcontractor will be in this case much more if possible of the producer or primary owner.
Civil Liability of Directors and Officers (D&O). The liability of directors and officers has also been suddenly increased (and there have been a few since the change of the criminal code in 2015 ....) , as a result of possible direct claims to the directors through corporate civil liability and where negligence with or without fault of acts susceptible to be claimed (mainly cleaning and remediation expenses), will require defenses and interventions of the D&O insurers that until now were not foreseen or at least not under the protection of what is required and that is derived from this Royal Decree.
Let us not forget that, if we refer to potential costs, the regulation stipulates that the SCRAPs for household packaging will finance, in addition to the costs of managing separately collected packaging, the costs derived from the packaging waste recovered from the residual fraction, of the inorganic fraction of the wet-dry systems (when the exception provided for in Law 7/2022 of April 8 does not apply) and of the cleaning of public roads, green areas, recreational areas and beaches, the cost of which will be higher or lower depending on whether the separate collection targets established in the regulation are met.
Some affected organizations have already expressed their views on the law, and not all of them in the same sense.
There are key players involved and affected directly or indirectly by this royal decree and their current positions lead us to believe that the transition period and process for its full and correct compliance will be long and not without risks.
Especially because organizations such as the OCU have already indicated that they will monitor that the packaging regulations are not passed on to consumers in the form of extra costs, something that we consider Utopian if we consider the margins with which today is working in the food industry, as well as the impossibility of absorbing for example; current high levels of inflation resulting from energy and financial costs, and .. where not even the government itself has dared to stop prices at origin, intermediate or final, having implemented these days measures that only affect the selective reduction of some VAT rates..., that is to say; it does not interfere in operational and logistic costs of the sector because it knows that they are very compromised.
In any case, the insufficiency of resources or the impossibility of transferring these costs to the final price of the marketed product and ultimately to the end consumer, implies a de facto increase in risks and a high potential for third party claims against producers for total or partial non-compliance by many of them.
The plastics industry has also announced that it will be difficult to comply with the objectives set by this royal decree. In this sense, it is to be expected that there will be disruptions due to non-compliance by these companies, in a more or less long transition period, where claims and lawsuits for environmental damages derived from the lack of monitoring and diligence in complying with the law will be added threats that will have to be contemplated in the risk management of the companies.
This group recalls that on November 30, 2022 the European Commission presented a proposal for a regulation that will amend the Directive on packaging and packaging waste. Throughout the processing of the Royal Decree in Spain the sector has requested that national measures were harmonized with Europe to avoid gaps in the single market and that Spain loses competitiveness with respect to other countries if our law is finally more restrictive.
An aspect as simple and not trivial as the need to warn and inform on labels about packaging, is already an added concern, in this sense Diego Lara, professor of Design and Sustainability, Graphics and Branding at IED Madrid, proposes establishing a general and unified labeling system that conveys clearly, simply and concisely the characteristics of products and their packaging.
As an expert in the creation of visual identities, focuses its proposal on betting on easily identifiable graphic designs, which specify at a glance aspects such as; the reusable condition of the container, the container in which it should be deposited, the percentage of recycled material it contains and the percentage that can be recycled in the future, or even the environmental performance rating of the container.
Deficiencies that will undoubtedly occur in labeling and that are also susceptible to cause potential claims for indirect damages or pure patrimonial damages derived from misuse of the containers by misinterpreting the instructions on them.
In any case, it is a necessary law that must be accompanied by an improvement in the culture of respect for the environment which, by the way, also concerns us as citizens and makes us feel responsible for solidarity.
Author:
Casimiro Rey
Business and International Director
Grupo Galilea S.L.
December 2022