Written Testimony

Offered to the

United States Senate Committee on Environment and public works

July 11, 2002

Submitted by

Mr. Darryl Young, Director

California State Department of Conservation

Mr. Chairman and members, thank you for inviting me to testify on the State of California’s Beverage Container Recycling and Litter Reduction Program (Program). I appreciate the opportunity to provide an overview of the California Recycling Program and the various features of our program that differentiate it from recycling programs administered by other states in the Union.

California Recycling Program Overview

The Division of Recycling within the California Department of Conservation (Department) administers the Program. The Program was created by the passage of the California Beverage Container Recycling and Litter Reduction Act (Act) in 1986. Its purpose is to make beverage container recycling integral to the California economy. The Department’s primary goal is to achieve and maintain a recycling rate of 80% for each beverage container type included in the Program, thereby reducing the beverage container component of litter in California. Units within the Department’s Division of Recycling are responsible for participant certification and registration, regulatory compliance, grant funding distribution, as well as technical and educational assistance to other industries and groups involved in beverage container recycling.

The California Program is unique among the states that have a beverage container recycling system. In other bottle deposit states, the cans and bottles are returned to the store from which the containers were purchased. Californians enjoy a more convenient form of container recovery with nearly 3,000 recycling opportunities statewide. The recycling system in California provides a convenient and efficient way to recycle beverage containers, and also is used as a source of non-tax dollar funding of various recycling and litter reduction programs throughout the state.

The Program involves participants from private industry such as buy-back recycling centers (offering payment to consumers for recycling), drop-off recyclers (such as curbside programs), beverage manufacturers, beverage distributors, and retail dealers. Public and semi-private entities like local conservation corps and non-profit organizations also help achieve the Program’s goal of providing Californians convenient opportunities to recycle their beverage containers.

The California Redemption Value (CRV) and the way the State administers those CRV funds is the engine of California’s beverage container recycling program. Consumers pay this CRV when they purchase a beverage container of any type or brand. That CRV deposit is refunded to the consumer when they recycle the container. Similarly, CRV is provided to the curbside program or other drop-off program that may recycle the container. The CRV is two-and-a-half cents per container under 24 ounces in volume and 5 cents for containers 24 ounces in volume or larger. Unredeemed funds – that is, when consumers or curbsides don’t recycle and collect the deposit on a container – help support various components of the Program which help promote higher recycling rates. The Program’s goal is 80 percent recycling rate for all aluminum, glass, plastic, and bimetal beverage containers sold in California.

California’s Program continues to grow and change. When the Program began, only soft drinks, beers, wine and distilled spirit coolers and some limited carbonated fruit drinks were included in the redemption system. In 1999, Governor Gray Davis signed into law the largest recycling program expansion of any state in the nation, increasing by three (3) billion the number of containers Californians can recycle under the Program. The expansion added non-carbonated fruit drinks, coffee and tea drinks, non-carbonated water, and sport drinks. In addition, CRV was applied to beverages sold in all of the seven plastic resin types. As of January of 2001, Governor Gray Davis and the Legislature added still other beverages, specifically vegetable juices in beverage containers of 16 oz. or less.

The changes effective in January of 2000, combined with normal growth in beverage sales volumes, increased the total beverage container sales from 1999 to 2000 by 25 percent. Total sales for all material types exceeded 16.5 billion in 2000. The addition of vegetable juices, combined with normal growth in sales, resulted in an additional 6 percent increase over 2000 with total sales from beverage containers reaching 17.5 billion beverage containers.

While recycling rates in California under the Program have been as high as 82 percent, recent rates have been lower. The addition of new beverage containers to the system provides the most obvious reason for the recent rate decline. This immediate addition on January 1, 2000 of containers sold under the Program has not yet been matched by an increase in the number of containers recycled by consumers. Significantly, though, the total volume of material recycled has increased every year since 2000.

Fundamental Differences – California vs. Other States

Three fundamental tenets of the California Program set it apart from other states’ programs. California has a centralized deposit fund, administered by the state for the benefit of consumers, private industries, and semi-private/public entities participating in the Program. California makes a concerted effort to create and promote convenient recycling opportunities. The Program seeks to use existing private recycling industries -- and promotes new recycling modes -- to offer consumers convenient places to recycle. California law also creates a Manufacturer or Producer Responsibility for the recycling of certain material types. Here the goal is to help internalize the cost of recycling and ensure that cost is covered when a material type’s inherent scrap value isn’t enough to drive the recycling of a material type.

Statewide Deposit Fund

California’s Program centers around the Beverage Container Recycling Fund. Distributors of beverages pay an amount equal to the CRV for each container they sell to a California retailer or dealer. The State pays that CRV deposit back to recyclers, via processors, for each container they collect from a consumer. In the case of the recycler, the State compensates the recycler for a prior payment of CRV to a consumer. The Department has the duty of collection and payment of these CRV funds, as well as auditing the records of the distributors and recyclers who pay CRV monies to, and receiving CRV monies from, the State.

This method of collecting the CRV from consumers and paying them back for recycling is virtually transparent to the consumer. Consumers pay the CRV at the check-stand when they purchase beverages, seeing only that CRV was included but seeing none of the collection mechanism. When they recycle or “redeem” their containers, an equal amount of CRV is returned to them. Again, how the recycler gets funds is transparent and the consumer is not required to sort containers by manufacturer or by store-of-purchase. In some cases, consumers are even offered an additional amount of “scrap value” from the recycler. While this isn’t required by law, many recyclers opt to pay some of the scrap value to induce consumers to frequent their recycling center. Most commonly, recyclers pay some scrap value for aluminum cans, largely due to the traditional and relatively high scrap value for aluminum.

This method of collecting CRV and distributing it when containers are recycled carries an additional benefit beyond being transparent and easily facilitating consumer participation in recycling. The state-run deposit is also more efficient and less labor-intensive than a traditional bottle bill. California’s Program mixes the deposits on all containers. This frees retailers from handling the deposits on containers they sell. It also allows retailers to operate like retailers and doesn’t force them into the role of “recycler,” as well. This system also benefits private industry recyclers. Recyclers do not have to track individual manufacturer’s containers through the recycling system. Recyclers are principally interested in one factor – weight – and not which manufacturer actually made the container or the product that was in the container. Under the California Program, recyclers collect containers from consumers based on individual counts, but more often collect by weight. Reporting and claims are done based on weight.

Lastly, California’s deposit system allows an accurate accounting of recycling rates. Actual volumes of containers sold in California are reported with the payment of CRV by distributors. Verifiable volumes and numbers of containers recycled are reported as claims for payment from the Recycling Fund. These values are audited regularly by the State to ensure accuracy of payment to and from the Program fund. Knowing actual numbers helps provide reliable recycling rate figures. This compares quite favorably to other deposit states where the reported numbers of sold and returned containers may be based on anecdote and are not verifiable.

Convenient Recycling Opportunities

Unlike traditional bottle bill states, California does not mandate redemption of containers inside actual retail establishments. However, consumers must be able to reclaim the deposits they made on containers. If those deposits aren’t readily reclaimable, Program founders believed the deposit might actually be construed as a tax, which it is not. The Program relies on participation by a number of types of private industry recyclers to provide these convenient recycling options. The State does not operate recycling centers, but provides funds and incentives for businesses to operate recycling centers.

A recycling infrastructure already existed on some level before the program was established. Most recyclers were located in scrap yards, often found in heavy commercial- and industrial-zoned areas. Some recyclers operated recycling kiosks near retailers, though they mostly accepted only aluminum containers. With the advent of the Program, though, a retailer must ensure that a recycler is operating within a ½ mile “convenience zone” of that retailer, if the retailer grosses a significant and specified volume of annual sales. Failure to have such a recycler located within ½ mile has consequences. Retailers in that “convenience zone” can be required to take-back and pay deposits on containers inside their stores if a convenience zone is not served by a recycler.

The Program helps develop these “convenience zone recyclers” by offering subsidies to cover the unique costs of providing a convenient recycling opportunity near retailers. The Program also offers subsidies to curbside recycling centers to promote use of curbside recycling. Over its life, the Program has proven quite adaptable in assisting varied types of recycling operations create more consumer recycling convenience.

Significant to the consumer convenience model, a recycler seeking to offer consumers redemption value for their recycled containers must redeem all material types. Absent this mandate, some recyclers might choose to only accept aluminum-recycled containers. This is because aluminum has a scrap value that exceeds the cost a recycler incurs to “recycle” it. That is, a recycler will get more in scrap value from a processor of aluminum containers than it will cost the recycler to collect, sort, and deliver those aluminum cans to the processor. The same is not true for glass and plastic, materials whose cost of recycling almost always exceeds the scrap value paid to a recycler.

This requirement that certified recycling centers accept all material types ensures that convenience of recycling isn’t simply a matter of location. A consumer visiting a single recycler can redeem all of their material types at one time. While this mandate to accept all material types might appear to force recyclers to engage in revenue-losing business practices, California’s Program takes those potential losses into account and provides a Processing Payment to ensure recyclers do not lose money by participating in the Program.

Manufacturer/Producer Responsibility

As noted above, some material types in the California Program do not “pay their way” through the recycling stream. That is, the inherent value of the material of the beverage container (the “scrap value”) is insufficient to pay for the costs associated with collecting, handling, storing, and transporting (the “cost of recycling”) that beverage container material. When this occurs for a container material type, California’s Program imposes a Processing Fee on the beverage manufacturers who choose to package in that material type.

The Department determines the need for a Processing Fee by conducting surveys of recyclers’ actual costs of recycling and the scrap values received by recyclers. The difference between the scrap value and the cost of recycling is calculated on a per container basis and this amount, per container, becomes the Processing Payment due to a recycler. Processing Payments are made to recyclers at the same time reimbursement for CRV paid to consumers is made.

Processing Fees are collected from manufacturers to pay Processing Payments to recyclers. The Department calculates the amount of Processing Fee due from the beverage manufacturer using statutory guidelines for survey methodology and for some cost values. In 1992, the State reduced the Processing Fees collected to reflect the fact that only a fraction of the containers sold by manufacturers are actually recycled. The intent of the change was to eliminate surplus Processing Fee collections, though opponents of that provision now argue that it served to induce lower recycling rates (lower recycling rates equated to a lower Processing Fees). Since 1996, the Program has further reduced the amount of Processing Fee paid by beverage manufacturers with subsidies of monies from unredeemed CRV deposits.

California Recycling Program Challenges

Fraud

With a program as large and complex as California’s, some potential for fraud is bound to exist. Re‑redemption can be a problem. Containers each have ONE deposit paid to the Recycling Fund when the container is sold to a consumer. However, an unscrupulous person can seek to re-redeem a post‑consumer container, collecting a deposit on the same container or containers multiple times. Importation of out-of-state containers is another potential avenue of fraud. No deposit is paid into the California system on a container sold in Arizona or another neighboring state. Once shipped to California, though, the containers can be difficult to distinguish from legitimate California bottles and cans.

The Department, working with local, state, and federal law enforcement, has intercepted several schemes to defraud the Recycling Program. Truckloads of imported materials have been intercepted at the border and in-state. Department investigators have found warehouses of imported containers. The Department has had notable successes combating fraud, but must continue to pursue cases on a regular basis. The Department does this to ensure the integrity of the Recycling Program and the Recycling Fund and to help maintain a fair, competitive environment for legitimate recyclers who might otherwise be forced to compete with recyclers enjoying unfair and illegal advantage by committing fraud.

Level of Manufacturer Responsibility

When initially conceived, the California Program offered no subsidy to manufacturers for the Processing Fee. Since 1996, the unredeemed CRV in the Recycling Fund has been used to reduce the amount manufacturers would otherwise pay in Processing Fees. More recent discussions of the Processing Fee now revolve around the amount of subsidy that will be offered to further reduce the proportion of the Processing Payment to recyclers that manufactures pay as a Processing Fee. The Department has noted that using nothing but unredeemed CRV deposits and relying on no contribution from manufacturers could cause the Program to bankrupt itself and be unable to pay consumers back their deposits. Avoiding that problem requires acceptance of a lower recycling rate goal than is currently expected (80%).

Accurate Reflection of Recycling Markets

Originally, Processing Fee/Payment calculations of scrap value and cost of recycling were conducted annually. Changes in the Recycling Program in recent years have attempted to fix either cost of recycling, scrap value, or both in statute. However, these values change as cost factors and markets change. Recyclers have, in some cases, been forced to lose money when Processing Payments don’t match real need to remain viable in the Program by redeeming all container types. To ensure the Processing Fee/Payment system remains viable, surveys of scrap value and cost must be conducted regularly to reflect market changes, not negotiated compromises.

Additionally, what is counted in evaluating the cost of recycling or scrap values can negatively impact survey results. For instance, counting PVC plastic contamination as a reduction in the scrap value of loads of PET plastic could result in a surveyed lower scrap value for PET, resulting in a higher PET Processing Fee when the problem actually originated from the PVC. The current Program has difficulties in accounting for this kind of contamination.

Addition of New Containers

California recently added millions of new beverage containers to its Recycling Program. The addition of these containers to the CRV system did not result in an immediate increase in recycling rates, however. Educating consumers that these containers are now part of the Recycling Program remains a significant challenge to the Department. One difficulty in educating consumers about the California Program remains differentiating between the container’s material type and what was packaged in the container. California’s Program defines whether a container is “in” the Program or not by what was packaged in that container. The glass in a jar holding mayonnaise or some other product is essentially identical to the glass containing sparking water, yet the water bottle is included in the Program and the other jar is not. This difference creates consumer confusion and, notwithstanding the addition of millions of new beverage containers, remains one of the California Program’s biggest hurdles.

CONCLUSION

California's Beverage Container Recycling and Litter Reduction Program is unique among the states. We have experienced considerable growth over the years, and our program continues to evolve and change to meet new circumstances. Moreover, our system is one in which all participants -- beverage manufacturers, retailers, recyclers and consumers alike -- make valuable contributions to the program's overall success.

Thank you for the opportunity to give you a brief overview of California's program. I look forward to answering any questions you may have.