California beverage container redemption centers lost $20 million in 2015 from state payment shortfalls

California’s approximately 2,100 certified beverage container redemption centers lost $20 million in 2015 from inadequate state payments received, for a total of $42.7 million lost since 2012, as the result of an outdated compensation method used by CalRecycle (California Department of Resources Recycling and Recovery) per state law, according to a report from the nonprofit Container Recycling Institute, Culver City, California.

The CRI report, “Integrity of California’s Beverage Container Deposit System Threatened by Processing Payment Shortfalls,” analyzes the reasons for the payment shortfalls and provides suggested fixes, particularly revising the state statute to allow for adjustments in the time frames CalRecycle uses to account for changes in scrap material values and thus determine payments to the centers.

Overall, California operates a successful beverage container deposit return program, CRI says, with certified centers handling nearly 90 percent of the 18 billion bottles and cans recycled annually in the state.

Under the program, CalRecycle pays per ton “processing payments” to supplement the revenue redemption centers earn from the scrap values for PET (polyethylene terephthalate), glass and aluminum, enabling the centers to cover their operating costs and ensure a reasonable profit.

However, with a four-year trend of rapidly declining scrap prices for these commodities, the state payment shortfalls have forced the closure of at least 269 redemption centers so far this year, leaving only about 1,800 centers still standing, CRI says. This threatens the state’s beverage recycling infrastructure and, contrary to the California Beverage Container Recycling and Litter Reduction Program, reduces consumers’ ability to easily access sites (typically required within a half-mile radius of a supermarket) to recover beverage container refund values (CRVs), the nonprofit adds.  

The state payment formula currently uses 12-month averages from the previous year, with a minimum three-month lag time, and doesn’t account for real-time changes in scrap value prices. For example, CalRecycle’s PET processing payments for July-September 2015 were based on the average price from April 1, 2014, to March 31, 2015. However, the actual scrap value for the July-September 2015 period was $100 lower than the value calculated under the back-dated formula, CRI says.

This formula takes a particularly heavy toll on the smallest redemption centers, many of which are located in rural areas, the nonprofit adds.

CRI President Susan Collins says, “When it comes to falling scrap prices, these small redemption centers are the proverbial ‘canaries in the coal mine.’”

Data show that the average recycling costs at the smallest centers can run twice as high on a per-ton basis as at the largest centers in light of economies of scale, leaving the smaller sites operating at a loss and even more prone to closure, CRI says. 

Although CalRecycle recently announced an increase in processing payments, they still will leave a shortfall for centers, CRI alleges. To address these issues, CRI recommends re-evaluating the processing payment calculation method, perhaps by tying payments more closely to recycling centers’ real-time revenue. CRI also proposes a tiered payment mechanism to distribute the program’s resources more equitably and help smaller centers remain open.

Collins says California’s beverage container deposit return program “creates a boon to the state’s economy, directly employing at least 3,000 people, generating $8 million to $9 million annually in state tax revenues and channeling a million tons of premium-quality scrap material away from landfills and into the products of U.S. manufacturers.”

She adds, “If the current downward commodity pricing trend continues without structural adjustments to the state’s processing payment formula, recycling centers’ cumulative net losses will inevitably force more of them out of business. Additional closures will mean not only more job losses and lost recycling opportunities, but a real loss to the people of California, to the sustainable economy and to the environment.”

The nonprofit Container Recycling Institute’s mission is to make North America a global model for the collection and quality of packaging materials recycling.