What has happened?
Victoria’s long awaited container deposit scheme (CDS) under the Circular Economy (Waste Reduction and Recycling) Act 2021 (Vic) (CE Act) is due to commence on 1 November 2023. The CDS promises to shake up the comingled recycling collection and processing system by creating a new revenue stream for the collection and processing of eligible containers.
The release of draft Local Government Refund Sharing Protocol (LG Protocol) and draft Material Recovery Facilities Protocol (MRF Protocol) provides a draft framework for determining the revenue share between local councils and MRF operators on the one hand, and the CDS scheme coordinator and MRF operators, on the other. The Protocols will be the key documents for determining the share in millions of dollars of revenue under the CDS. In this Alert we take a look at the key features of the Protocols and what local councils need to do to prepare for the introduction of the CDS.
Recycling Victoria has invited public consultation on the Protocols. The public consultation period is open until 11 August 2023 by way of a survey. A link to the Protocols and the survey is found here: https://engage.vic.gov.au/container-deposit-scheme-refund-sharing-protocol-consultation
MRF Protocols
Under section 103 of the CE Act, Recycling Victoria may issue the MRF Protocol. The MRF Protocol sets out the refund amount the scheme coordinator must pay to MRF operators for sorting suitable eligible containers that have been collected through:
- a relevant municipal recycling service; or
- a commercial recycling service.
The MRF Protocol is taken to be a condition of any recovery arrangement between the scheme coordinator and a MRF operator. Unlike the LG Protocol, the parties may not contract out of, or negotiate, the MRF Protocol.
Notably, the MRF Protocol calculates the refund amount as a “gross refund amount” which includes a deduction for the scheme coordinator’s costs (but excludes the MRF operator’s costs). It is only under the LG Protocol that a MRF operator may seek to recover certain types of approved incurred costs before distributing the net refund share to local councils.
The MRF Protocol includes detailed methods for counting eligible containers, reporting and auditing requirements. It remains to be seen how much transparency of these arrangements local councils will have under their respective recycling contracts.
LG Protocol
Under section 104 of the CE Act, Recycling Victoria may issue the LG Protocol. The LG Protocol sets out the share of the refund amount between local councils and MRF operators.
A LG Protocol is taken to be a condition of any contract between a local council and a MRF operator, unless the contract expressly provides for the subject matter of that protocol. Unlike the MRF Protocol, the parties may contract out of the LG Protocol. Local councils should review their contracts to identify whether the parties have contracted out of the LG Protocol and local councils should consider the LG Protocol in the context of any future proposal to contract out of the LG Protocol.
Key points
- 50/50 minimum share:The LG Protocol prescribes a minimum share of 50 / 50 of the net refund amount between a MRF operator and local council.
- Approved incurred costs: MRF operators may deduct approved incurred costs from the gross refund amount before distributing the net refund amount to local councils.These costs are described as administrative activities for counting eligible containers and audit costs under the MRF Protocol.The description of administrative activity costs is unclear and is likely to be scrutinised.No other costs may be deducted from the gross refund amount.
Payments of the gross refund amount are made from the scheme coordinator to the MRF operators on a quarterly basis. The local council share of the net refund amount must then be distributed to local councils within 5 business days.
Key Takeaways
For local councils the key takeaways from the Protocols are:
- The minimum 50 / 50 share of refund amounts generated under the CDS will significantly increase the value of the municipal recycling stream.In the short term, local councils should review their contracts to identify whether the parties have contracted out of the LG Protocol and local councils should consider the LG Protocol in the context of any future proposal to contract out of the LG Protocol.
- Local councils should review the approved incurred costs that can be deducted from the gross refund amounts payable by the scheme coordinator to MRF operators to ensure they are getting a fair deal that is consistent with the Protocols.
- In the longer term as the Protocols come into effect, local councils should consider the opportunities to maximise revenue sharing under the CDS through innovative procurement activities that leverage the new value given to eligible containers in the comingled recyclables stream.
This article follows on from our previous summary of the changes, view here.
How we can help
If you have any questions or would like assistance implementing the Protocols into your contract do not hesitate to get in contact with our waste and resource recovery team.
If you require any further information, please contact Kyle Gillan, Stefan Fiedler or Michael Bragg.
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