Net Zero, Energy and Transport Committee [Draft]

Meeting date: Tuesday, September 26, 2023

Official Report 667KB pdf

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Subordinate Legislation

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Deposit and Return Scheme for Scotland (Miscellaneous Amendment) Regulations 2023 [Draft]

Our next item of business is consideration of a draft statutory instrument, the Deposit and Return Scheme for Scotland (Miscellaneous Amendments) Regulations 2023. The instrument has been laid under the affirmative procedure, which means that the Parliament must approve it before it comes into force.

The main purpose of the instrument is to amend the date for the full implementation of Scotland’s deposit and return scheme to 1 October 2025. Eagle-eyed members who have read the committee papers will have noticed that there was an error at point 1, which talked about “2024”, but the date is 2025.

The minister will move the motion on the instrument under the next agenda item. Before that, we will have an evidence session on the instrument and will have a more general update on the DRS.

I am pleased to welcome Lorna Slater, the Minister for Green Skills, Circular Economy and Biodiversity, and, from the Scottish Government, Ailsa Heine, a solicitor; David McPhee, the deputy director of the deposit return scheme; and Haydn Thomas, the head of the deposit return scheme unit. Thank you for joining us. I remind everyone that the officials can speak during this agenda item but not during the next one.

I invite the minister to make a brief opening statement.

I last appeared at the committee to discuss our DRS not long after we had received the UK Government’s fatal decision of a partial and conditional exclusion from the United Kingdom Internal Market Act 2020, which made the scheme impossible to progress and forced a delay until at least October 2025. After intensive engagement with businesses to understand the effect of the UK Government’s decision, it was clear that that was the only course of action available to us. No business could seriously be asked to proceed, given that we were unable to say what the deposit would be or what labelling requirements would be in place. As a result, we halted our scheme and agreed to work with the UK Government to develop a UK-wide approach, including a common start date. The draft regulations that the committee is scrutinising set that date.

We have always said that we recognise the need for interoperable schemes, and we designed our scheme in good faith that it would align with schemes across the UK when those launched. When we developed our scheme, both England and Wales planned to include glass in their deposit return schemes. England U-turned on glass only recently, reducing interoperability with Scotland and Wales as a result. Even the UK Government’s analysis shows that the inclusion of glass significantly increases the environmental and economic benefits of the scheme.

Waste management, which includes the DRS, is wholly within devolved competence, so it is extremely disappointing that the 2020 act has been used by the UK Government to undermine this Parliament’s ability to introduce a DRS in Scotland. As a result, business confidence in the DRS has been damaged.

Scottish Government officials have continued to work with their counterparts in the UK, Welsh and Northern Irish Administrations over the summer to develop interoperable deposit return schemes based on the conditions that are set out in the UK Government’s IMA decision letter. Many of those discussions have been shaped by the experience and expertise that were gained through work on the Scottish DRS. Although there has been positive progress, it is important that the UK Government sets out its scheme in regulations in order to maintain momentum, build business confidence and ensure that the DRS launches successfully.

We are in a climate emergency and we need to take action now. Scotland’s towns, countryside and beaches remain plagued by littered cans and bottles. We need to move away from a throwaway culture and embrace new ways to reduce our waste and emissions. The DRS will help us to achieve that.

It is disappointing that Scotland’s DRS will not launch in 2023, but we will continue to work in a spirit of collaboration to realise the economic and environmental benefits that the DRS will bring when it launches across the UK. The onus is now on the Department for Environment, Food and Rural Affairs to make a success of the DRS.

I am happy to take questions.

Before we go to questions, I draw your attention to, and remind the committee of, the fact that we wrote to the Secretary of State for Scotland before the summer recess. In his response, he referred us to DEFRA, but DEFRA said that it did not want to attend a meeting. I have since written again on behalf of the committee, asking for a response and saying that we are not happy at being pushed from one arm of Government to another. Unfortunately, the response is not due until 30 September. I urge the UK Government to assist the committee’s understanding of the reasons behind the situation. That is all that I will say on the issue at this stage. Obviously, once we get a response, we can come back to it.

Minister, I will ask a very simple question. Glass was out, but cans could have been in. Would something not have been better than nothing? Should we not have gone with recycling cans?

As we said at the time, it is possible to operate a deposit return scheme in Scotland with cans and plastic bottles, but it seems absurd not to include glass, because the environmental and business case supports its inclusion. It would have been possible to run a scheme without glass, but it would not have been as good. However, as we said at the time, any deposit return scheme is better than none.

Glass was not the only reason why we had to halt our scheme. There were two further issues. They relate to the other conditions that were laid out in the partial and temporary exclusion to the 2020 act, which were about labelling and the deposit level. As you know, businesses require certainty to be able to deliver something this complicated. If we were not even able to say what the deposit level or the labelling requirements would be—from working with businesses, especially small businesses, on Scotland’s DRS, we know that it requires up to a year, and in some cases longer, to change labelling—they simply would not have been able to deliver a deposit return scheme. Businesses could not deliver the DRS without knowing those things, and we could not know those things because the UK Government has not made a decision on them and has not passed regulations setting out what it intends to do. That meant that we were left with no option.

However, the convener is correct that it is possible to run deposit return schemes without glass.

Have you thrown everything out as far as cans and plastic bottles are concerned? Was there not perhaps a year to work on getting the labelling and the deposit level correct, so that we could have gone ahead with the scheme? I think that most people in Scotland felt that there would be a benefit from recycling cans and plastic containers.

It was not a matter of getting the labelling or the deposit level correct; it was a matter of knowing what those things were once the UK Government had said to Scotland, “We’re not going to allow you to set these things. We’re going to intervene with the internal market act and not allow that. We will set them.” The UK Government does not have a timeline for setting those things.

One of the ideas that has been proposed is that, unlike in Scotland, under a UK scheme, the scheme administrator—what the UK calls a deposit management organisation or DMO—might set the deposit level. That would mean that the deposit level would not be in place until after the DMO was in place and after it had done its market research to set that level, which could take as long as two years.

It was not a question of getting the level correct. We are now at the mercy of DEFRA and the UK Government’s timescale and regulations. I could not have said to Scottish businesses that we did not know when the deposit level would be set but that they still needed to get the scheme going in August 2023 or even March 2024. Businesses simply cannot operate under those conditions.

I understand that, to an extent, but you could have set a very low level of deposit on cans and plastic bottles, which the UK Government might have accepted. When you were going to introduce the deposit return scheme, you were talking of having stick-on labels for some small producers. You had not even sorted the labelling out, so I am not sure that it is possible to blame everyone else.

Were we too premature in throwing it out? Would it be possible, with a year of fruitful negotiation, to come up with a scheme that allows cans and plastic containers to be recycled through deposit return?

I will address your two points, convener. With respect to a low level of deposit, deposit return schemes as envisioned by all parts of the UK—certainly Scotland—are run by industry itself, so the deposit needs to be set at a level that allows the scheme to operate. It is a business; the industry runs a business to collect the materials and get them recycled. The UK Government might consider a scheme in which the DMO sets those levels, but the DMO will still be obliged to set them high enough for the business to operate. The research that we had done on putting in place Scotland’s scheme determined that 20p was the level that was needed to make the scheme viable on a business case. It might be that, for a UK-wide scheme, that figure could be set at a different level—some schemes around the world even have different levels for different types of material—but the level for the Scotland scheme was 20p. If we lowered that, we would be undermining the business case. How can industry run a scheme that is a business without a business case in place? Setting the deposit too low means that the scheme cannot operate.

With respect to labels, the Scottish Government cannot set labelling requirements as that is not a devolved power. The industry had supported labelling changes. The big companies have sophisticated systems in place to get their labelling up to spec—they have much faster line speeds and so on in getting product through. Small businesses need to buy in quantity in order to make it worth while for them, but then it takes them a long time to work that product through. We cannot and did not set labelling requirements. However, the UK Government might do that, if you see what I am saying. I would have been saying to businesses in Scotland, “We’re going to put in place a deposit return scheme, but I can’t tell you what you’re going to have to say on the label and I can’t even tell you what the deposit is, which means that you can’t make a business case.” That would have made the scheme unviable, so we were unable to proceed.

It sounds as though an awful lot of moving parts were not tied down before we got to the date when the scheme was meant to start.

Given all that, and your answers to the convener, what needs to happen in order to enable a scheme to be implemented by 2025? Will you take us through the steps that must happen to ensure interoperability by the target date of 2025?

11:00  

I am happy to go through what is needed. The UK Government has committed to delivering the scheme. It has yet to decide what its regulations will look like, so it has not decided how to set the deposit, the exact terms for excluding businesses, what the producer fees might be and what the labelling requirements might be, such as how shelf-edge labelling will be handled. It still has to decide on all the same things that we needed to determine, and it might make different decisions from or the same decisions as Scotland. Over the summer, we have been feeding into the UK Government all our learning and all the work that we did with businesses, so that it has the benefit of that knowledge.

The next thing that the UK Government needs to do is get its regulations through the UK Parliament. That will allow for the creation of a DMO, which is what we called the scheme administrator. There will need to be Scottish, Welsh, Northern Irish and English versions, because of the way in which the regulations will operate, but the DMOs will work together closely. The DMOs will have to do the work that Circularity Scotland Ltd did, which involved bringing in investment, hiring a team, getting in place the information technology infrastructure, starting to build business relationships and getting the governance sorted out. In addition, it is very possible that they will set the deposit level, which CSL did not have to do.

The UK is much bigger than Scotland and has a much wider variety of businesses. I will describe a challenge that DEFRA has. The undermining of Scotland’s scheme undermined about £300 million of investment that went into the scheme in Scotland overall and, specifically, the investment that went into Circularity Scotland was lost. How will DEFRA go back to all the businesses, such as Coca-Cola, that invested in Circularity Scotland and say, “Okay—we collapsed that scheme, but please put money into our scheme”?

What the UK Government did to Scotland has undermined its ability to deliver the scheme, so it will have to somehow support the DMO to get the required investment. I do not know what steps will need to be taken to do that, but the DMO will need to get the investment, engage with industry, set deposit levels and set up all the exclusions, exemptions and small producer support that we did before it can launch. The intention is to do all that between the end of next year, when the DMO is created, and October 2025. I am cynical about whether it is possible in that timescale, but that is the intention.

As the convener said, it would be ideal if we could ask the UK Government our questions. Do you have any sense that DEFRA is putting in place those steps? Is it making substantial progress towards step 1?

Over the summer, we have been working with officials to come up with sensible conditions for interoperability, such as how we will agree on how we will set the deposit and on how exclusions will work. That has been discussed among officials, and it is now for DEFRA and the UK Government to sign that off, to agree on what the conditions will be and to set that out in its regulations.

We are waiting on DEFRA’s timescale; I do not have a timescale for that. I do not know whether my officials have more of an update.

My understanding is that the UK Government’s plan was to lay regulations early next year. It is still working that through and it intends to appoint the DMO towards the end of next year. That is still the plan, but some of what has happened has caused a bit of delay, because UK Government officials were not planning to sort out all these questions, as the Scottish scheme would have been up and running with the United Kingdom Internal Market Act 2020 exclusion.

Not having that exclusion changed the UK Government’s plans to some extent, but it is still working towards a timeline of getting the regulations laid and moving towards a DMO. The minister described all the things that the DMO will have to do to prepare for October 2025. After learning from what Scotland went through, the UK Government now understands a bit more of the detail.

I go back to the point about readiness without glass, which relates to questions about the UK Government’s plans. In Scotland, we had large producers who were keen on pushing ahead; in fact, they were keen on pushing ahead with a date of August 2023 and they saw no reason to delay. They changed their minds when the decision on the exclusion was made, because they saw the changes to the scheme at that late stage as being significant and meaning that they would be unable to prepare in time for the March 2024 launch. At that point, those large producers said that they would rather wait so that they could go at the same time.

Although glass not being part of the scheme did not bring the scheme to an end, changes affecting interoperability and glass at that late stage meant that it was very difficult for producers to be ready. It is worth remembering that it was at that point, and because of that significant change at a late moment, that they came on board with the idea that there should be a UK-wide scheme.

Is there any wriggle room that would allow for a phased launch? Different regulations could be considered in different parts of the UK. Is that a possibility, or are we now looking at complete alignment?

That is a question for DEFRA. It is for DEFRA to say how it wants to implement the scheme and how it intends that scheme to operate in the UK.

What assessment has the Scottish Government undertaken of the environmental and economic implications of delaying the scheme until October 2025?

We have updated the business regulatory impact assessment for the regulations that the committee are looking at today. You have that in front of you. The major change caused by the scheme coming in later is that all the carbon and waste benefits that we would have had by getting the scheme up and running in August this year, as was originally intended, are being lost. There will be two more years of that pollution and waste.

My officials can give you more detail about the BRIA.

I am opening up my document to get the figures completely correct. Haydn Thomas might also want to jump in. Our recent strategic environmental assessment said that the impact of moving from 2024 to 2025 would be 166 kilotonnes of CO₂ equivalent. Every year that you move on from that will have a further impact on the CO₂ equivalent.

Off the top of my head, the impact on the net present value for that one-year delay is £18 million. There will be an impact on the net present value in every year of delay. Those assessments look only at the delay from 2024 to 2025: any delay beyond that would have a further impact.

Haydn Thomas, do you want to come in?

Those are the correct figures, so there is nothing for me to add.

That takes me back to my days of looking up net present values in “Parry’s Valuation and Investment Tables” and working out how we get to certain interest rates or tax rates. We will move swiftly away from that topic and have some questions from Douglas Lumsden.

Minister, Circularity Scotland is now in administration. It believed that Scotland’s DRS scheme could still have went ahead without glass. Was that wrong?

I am sorry; I was distracted. Could you repeat the question?

Circularity Scotland, which is now in administration, believed that the scheme could go ahead without glass. Was that wrong?

As I already said to the convener, it is absolutely possible to run schemes without glass. That was not why we had to halt our scheme. That happened because of the rule changes, particularly regarding labelling and the deposit level, which would have made us unable to tell Scottish businesses what the scheme would look like.

The level of deposit is core to how the scheme operates, because it is tied into the business model of how the scheme is funded. If you do not know what the deposit level is or what the labelling requirements are, you cannot operate a scheme. Had we known those things, and had the UK Government said that the only thing that it was doing was removing glass from the scheme, we would have been able to go ahead because there would still have been a case for the scheme. The case would not have been as strong or as good, but we could have made it.

Was there any way to avoid Circularity Scotland going into administration? Could that have been avoided by having some sort of scheme?

If we had been able to run a scheme, Circularity Scotland would have been able to operate it. As you rightly point out, Circularity Scotland was willing to operate a scheme without glass, but none of us can operate a deposit return scheme if we do not know what the level of the deposit will be, so we were unable to proceed.

Would there not have been a case to proceed with something to try to ensure that the Scottish National Investment Bank’s £9 million investment did not go down the pan?

The member is absolutely right to be concerned about this point, and you can imagine that it was a great concern to me as well at the time. There was not only the investment but people’s jobs, including those of the employees of Circularity Scotland and all the people who had contributed to the work that they were doing to build IT systems and so on. All those people were affected by that decision so it was something that I took very seriously.

However, we were unable to proceed with the scheme because, when you are working on a deposit return scheme—as you will have heard in the chamber from other members—businesses need certainty. Deposit return schemes are enormous and complex, and our scheme will affect every single person in Scotland and tens of thousands of businesses. Anyone who sells, handles, purchases or in any way procures either drinks or their containers will be affected.

What businesses need is certainty. They asked for that at every single meeting with them and they asked us to tell them exactly how the scheme was going to work. With the partial and temporary exclusion, the UK Government threw a huge amount of uncertainty into the works. If I cannot even say what the deposit level will be in a deposit return scheme, I cannot go ahead.

When the First Minister and I sat down at a business round table after 26 May, when we got the letter from the UK Government laying out the temporary and partial exclusion, businesses said that they just could not deliver the scheme at all given the level of uncertainty. They said that, even with all the investment that businesses had made, they would now prefer to align with the UK.

To go back to my point, was there no way of saving Circularity Scotland and the £9 million of investment?

There was no way with the conditions that were imposed on us.

The Scottish National Investment Bank’s annual report is out tomorrow. Should we expect heavy losses as a result of this?

I am in no way involved with the Scottish National Investment Bank, and I do not know what it will be reporting.

But you would not expect that £9 million to come back.

Circularity Scotland is in administration, and I am not familiar with what the administrators will be able to manage through that process.

It looks like £9 million of taxpayers’ money will be lost. That was not done just to pick a fight with the UK Government, was it, minister?

The UK Government made this decision. It was its decision to undermine our scheme, and it is responsible for the impact that it has had. I and everybody at Circularity Scotland was fully committed to making the scheme work. As David McPhee has just pointed out, big businesses and big producers were also fully committed. You will have seen reverse vending machines going in in many supermarkets. We were fully set up to get operational in August this year, but when those conditions came in, even the big producers that had invested millions, and Circularity Scotland, said, “We can’t do it; these are not conditions under which we can launch the scheme.”

Minister, do you take no responsibility at all for the £9 million of taxpayers’ money that is now being lost?

The scheme would have gone ahead in August 2023 if the UK Government had granted a full exclusion on the timeline that we had previously agreed.

You take no responsibility and it is all to do with the UK Government.

That is correct.

Okay.

Monica Lennon, you have the next question.

Good morning to the minister and the witnesses.

The committee’s stage 1 scrutiny of the Circular Economy (Scotland) Bill is under way, and we are keen to understand what lessons have been learned about progressing circular economy policy under the United Kingdom Internal Market Act 2020 and the common framework.

The challenge that I have there is that, in this case, the common framework failed to do its job. We engaged from 2021 with the UK Government on the deposit return scheme legislation. We went through every step of that common framework. The common frameworks are the mechanisms by which the UK and the devolved Governments work together to come to agreement. Our officials had worked together. I met my UK Government DEFRA counterparts monthly, and we had worked through the framework all the way through. We had done everything that we needed to do. We understood that we would secure the full exclusion from the 2020 act because we had done everything that we needed to do in order to secure it.

We did not get the exclusion that we expected to get as a result of the common framework process, nor did we get the partial and temporary exclusion that we did get in a timely manner. That came very late in the day, at the end of May, but we had been working with UK Government on the scheme for years.

If UK Government ministers are not following the process of the common framework or agreeing to abide by the common framework, and can, in fact, change their mind at the 11th hour on a whim, we have a challenge. The other point is that the UK Government has not provided any evidence for the change. The UK Government did not do impact assessments on the change and, as far as I am aware, it has not even written out to say why it made this change. If the UK Government can proceed in that way, the common frameworks are clearly not working.

I am almost certain that the UK Government would not take it well if I stepped away from the common frameworks process and changed my mind at the last minute about something that had previously been agreed. I feel that that would go down badly.

11:15  

What I am hearing is that, prior to May, there had been extensive regular dialogue between the Scottish ministers, UK ministers and, obviously, officials—lots of engagement and discussion. Given where we are now—that is, things have not ended up in a good place—what discussions and engagement have taken place on the Circular Economy (Scotland) Bill? Are you confident that we will end up in a better place on that bill, or are there risks that we will end up having discussions such as this one on that legislation?

There are two points to make in response to that. First, I do not think that the common frameworks are working—because they allow for a lot of work to be done over years then for ministers to swoop in at the end and say yea or nay. There is a larger project, therefore, not just within my portfolio, about how the common frameworks work between the two Governments. I suspect that that will mean having to get ministerial agreement at various points in the process, so that people can have confidence as they move forward. Throwing out two years of working together by officials is not an efficient way for any of us to work. There is therefore a bigger picture about making those common frameworks work properly, because clearly, in this case, the UK Government has not done so.

Secondly, my understanding is that, because the Circular Economy (Scotland) Bill is a framework bill, there are no inherent internal market issues. I ask Ailsa Heine to come in and correct me if I have that wrong.

On whether we should take forward specific measures in the bill, you will know from your session this morning that, for example, we want to take powers to put charges on some single-use items. That in itself is not an issue; however, if, for example, we look at putting charges on single-use coffee cups, that specific piece of legislation could then have internal market act implications. It depends on exactly how that is implemented. As you heard in your discussion, there are lots of ways in which that could be implemented. There are lots of places that the money could go to when it is collected. There are lots of models, Exactly what model we chose might have more or fewer internal market act implications. Ailsa Heine may have more to say.

That is important. We will bring in Ailsa Heine in a second. We heard from earlier witnesses that they are nervous about the lack of certainty in relation to some areas of the bill and, because it is a framework approach, about some of the detail that would potentially come later and about not knowing what amendments will come forward. I would be interested to hear from Ailsa Heine on those points.

I agree with what the minister said. There are enabling powers in the bill, and we can assess at the point of their use exactly what the impact would be when it comes to the internal market act. Through the resources and waste framework process and discussions among officials, the existence of the bill is known. That has been raised, and members of the framework process at official level are aware of it.

Thank you.

Convener, thank you for your earlier remarks. I think that we were all frustrated at the UK Government’s responses, or lack of them, and we all want more co-operation with the committee. Thank you for your stance on that.

Thank you.

As members have no further questions, I have two very quick ones. The first relates to an observation. Framework bills are great. Civil servants and ministers love them. However, parliamentarians hate them, because they cannot scrutinise what is coming. Is that assessment fair or unfair, minister?

I understand the frustrations around a framework bill. When it comes to the circular economy, I take the example of disposable vapes, which have become an issue very quickly—only in the past couple of years. We can all see that, if we had to pass primary legislation every time that a new product becomes a challenging problem, that would tie up a lot of parliamentary time. By taking a framework power, we are able to react more dynamically to things such as emerging products and to manage those things much more quickly and efficiently. We do not know what products might be developed in the future, or the environmental impact that those might have. Having that suite of tools means that we can react and put in place measures for the products of the future that we do not yet know might exist.

That sounds very convincing, but it does not convince me. It will minimise scrutiny by the Parliament.

I will ask my final question. The statutory instrument does not remove glass from the DRS. The UK Government has said that glass will not be included. In October 2025, will you have to bring another statutory instrument to remove glass from the Scottish scheme, or will you bring a whole heap more? I ask that just so the committee knows what is coming down the track.

That is a fair question. It is almost certain that we will need to revise the regulations again anyway, because, for example, if the DMO is able to set deposit levels, we will need to remove our 20p deposit from the Scottish scheme. There may be other conditions. For example, we have written into the regs the exclusion of producers who produce 5,000 or fewer of a particular line. Our exemption rules are in our regulations. If the UK Government has completely different ideas about all that, we would have to repeal it all. Rather than coming back to the Parliament repeatedly, we will wait to see what the UK Government puts into its regulations and, provided that it is in line with what we have agreed through the common framework and our negotiations, we will bring forward those regulations, so that you will have to see them only once and will not have to look at them over and over.

Okay, so we have a lot more to look forward to in 2025, including glass.

Since there are no further comments or questions from the committee, we move to the formal consideration of motion S6M-09842. Minister, do you want to say anything more?

No, thank you, convener.

I see that no member wishes to contribute. [Interruption.] How remiss of me, minister. I should have asked you to move the motion, as I assume you are here to do.

Motion moved,

That the Net Zero, Energy and Transport Committee recommends that the Deposit and Return Scheme for Scotland (Miscellaneous Amendment) Regulations 2023 [draft] be approved.—[Lorna Slater]

I assume, minister, that you do not want to sum up on what you have heard from members.

No, thank you, convener.

Motion agreed to.

The committee will report on this outcome in due course. I invite the committee to delegate to me as convener the authority to finalise the report for publication.

Members indicated agreement.

I thank the minister and her officials. That concludes the public part of the meeting, and we move into private session.

11:22 Meeting continued in private until 12:05.