The postponement of Italy’s plastic packaging tax to July 2026 shows that, for many brands and fast-moving consumer goods companies (FMCGs), the threat of financial penalties or the push of regulatory obligation is still the main driver for increasing the use of recycled plastics in packaging.
Italy has extended the rollout of its €450/tonne plastic packaging tax until July 2026, marking the seventh postponement of the tax which was due to come into effect in July this year.
ICIS asked participants across several polymer markets what this means for both the virgin and recycled sectors, and the responses overwhelmingly point to the fact that, without heavy financial penalties or a legal requirement under either state or EU law, many companies will currently opt for cost savings over sustainability.
Delaying recycled demand
The tax would add €450/tonne to the price of virgin plastic in Italy, but the postponement led many sources to expect companies that were considering increasing the use of recycled plastics to stick with virgin material for now.
In the polyethylene terephthalate (PET) market, those companies that were following the development of the legislation will now continue to use PET rather than switch to recycled PET (R-PET) according to one beverage brand.
This view was echoed by others, with a converter serving the market stating companies will stay with virgin polymer for the next two years without the financial inventive to move to more recycled content.
One virgin polyethylene (PE) and polypropylene (PP) producer now sees less pressure to both a circular economy solution as well as investment in the recycling sector.
Other comments from market sources reiterated the fact that, without this tax in place, the businesses in or serving the Italian market have lost their incentive to move to higher recycled content levels, especially at a time when prices for recycled material such as R-PET and recycled polystyrene (R-PS) are commanding a significant premium over their virgin counterparts.
Impacting investment
Another common thread running through the reactions to the delay was the impact it could have on investment in certain recycled sectors.
One virgin PS source said it expected a slow down in the development of R-PS, highlighting the current gap between higher-priced R-PS and virgin PS preventing companies from exploring the recycled market more.
Adding €450/tonne to the price of the virgin material is a substantial step to disincentivize the use of PS and driving people towards R-PS.
A second PS market participant said countries need a mechanism like a tax to promote recycled content and the absence of such a driver will make investment in R-PS harder.
From the brand side, a large FMCG said having the tax in place would help incentivize its customers to use more recycled content, but for the time being it would have to rely on its own and its customers’ sustainability targets (those that have them) to continue to support the argument for the use of recyclate.
Wider recycling issues
While the delay of the tax only impacts the Italian market, it points to a wider issue seen across both European and global markets when it comes increasing recycled material usage.
Without the financial incentive of something like a tax, or without the legal obligation of a regulation, directive or law, many companies right now will choose margins over sustainability especially in a tough macroeconomic climate.
A good example is the upcoming implementation of the Single Use Plastics Directive (SUPD), which amongst other things, mandates the use of 25% R-PET in PET beverage bottles from 1 January 2025.
Many R-PET market participants have yet to see demand for R-PET reach the levels expected ahead of implementation.
The problem is linked to the lack of clarity around how the SUPD will work – how the 25% will be measured (by individual unit or country-wide incorporation), who will be checking the percentage of R-PET in the bottles, and what the penalties will be for those who miss the target.
Some R-PET sources think some brands may simply declare they are using R-PET when they are not because they do not expect they will be audited, or others may simply ignore the Directive because of a lack of enforcement.
It was a similar situation with the Spanish €450/tonne plastic packaging tax in January 2023. R-PET sources saw no impact on demand last year (though that may have been caused by the wider cost of living crisis impacting consumer demand during 2023), and it was only in May this year that the first Spanish company has reportedly been audited by Spanish authorities to ensure compliance.
The UK is an interesting case study in the use of a tax to drive recycled plastic inclusion. In the financial year 2022-2023, Plastic Packaging Tax (PPR) receipts collected by HM Revenue and Customs (HMRC) totaled £276 million.
Government data shows of the total plastic packaging manufactured in and imported into the UK 39% was declared as taxable under the PPT, and of the remaining 61% declared, 40% contained 30% or more recycled plastic.
While there was a good proportion of recycled plastic placed into packaging during the financial year, the £276 million collected shows that many companies paid the £200/tonne rather than pay more for recycled material.
There are instances that show alternative approaches to taxation or regulation can have a positive impact on the recycling sector. In France, lower eco-modulation fees – a form of Extended Producer Responsibility (EPR) - on the sorting of mixed plastic waste led to the creation of a recycling stream for low-density PE flexible materials and a growing market for R-LDPE bales and pellets, for example.
Eco-modulation fees can also encourage the use of certain types of material (but also disincentivize the use of others), as seen in the Czech Republic, where the eco-modulation fee for using clear PET bottles was lowered in 2021, while the fee for placing coloured PET bottles on the market – perceived to be harder to recycle than clear – was increased.
The reaction to the Italian tax, the revenue generated by the UK tax, and the seeming lack of urgency from some beverage brands ahead of the SUPD indicates that for many companies currently, increasing the use of recycled plastic is nowhere near the top of their list of priorities.
While consumers focus on reducing the cost of living and companies focus on improving squeezed margins, investment in recycling and the drive to reducing virgin plastic consumption will most likely take a back seat for now.
