Takeaways from the extended producer responsibility session at PCPC Legal & Regulatory Conference

Background

State-level extended producer responsibility (EPR) laws stand to overhaul the packaging of consumer products across the United States, including cosmetics and personal care products.  While EPR laws—which assign the costs of collecting, processing, and recycling materials to product producers instead of local jurisdictions—have long been in place for specific products like thermostats and paints, several states have adopted new EPR laws that apply to nearly all single-use plastics and packaging. In addition to placing additional costs on producers, these laws, in particular California’s, will likely compel the complete redesign of some product packaging. 

To date, five states—Maine, Oregon, Colorado, California, and most recently, Minnesota—have adopted legislation enacting their own state packaging EPR programs. Meanwhile, various EPR bills are in the pipeline in more than ten other states, including New York, New Jersey, and Washington. 

In general, these EPR laws shift the responsibility for the funding of collection, recycling, and end-of-life management for packaging from local governments and taxpaying consumers to producers. The definition of a “producer” will vary by state, but typically it includes manufacturers, brand owners or licensees, as well as importers and distributors. Under EPR packaging laws, producers are required to pay fees that may, depending on the law, fund the costs of collecting, sorting, and processing packaging waste, plus education, outreach, and infrastructure improvements. These “eco-modulation” fees are structured to incentivize producers to make packaging design choices that minimize waste, particularly single-use plastics, and improve recyclability and compostability, among other attributes.

EPR-Plus: California Senate Bill 54

California’s EPR law goes a step further than the EPR laws adopted in other states and is best characterized as “EPR-Plus.” Passed on June 30, 2022, California Senate Bill (S.B.) 54, also known as the Plastic Pollution Prevention and Packaging Producer Responsibility Act, establishes the state’s EPR regime for plastics and packaging. This law, whose implementing regulations are expected to be finalized in 2025, will affect virtually all consumer-facing single-use packages that are sold or distributed into California. Because it is impractical for consumer product manufacturers to change their packaging for California alone or to segregate California from the rest of the U.S. market, these changes will likely be made on consumer products sold nationwide.

Unlike other statewide EPR laws, however, California’s S.B. 54 requires covered producers to meet plastic source reduction targets over a ten year period and ensure that all covered packaging materials are recyclable or compostable (as defined) by January 1, 2032. Specifically, S.B. 54 requires producers to reduce single-use plastic packaging and foodware by at least 25%, among other requirements. And to finance S.B. 54’s circular economy goals, producers are obligated pool funds of $5 billion over ten years to mitigate the environmental harms of plastic pollution. Given the size of California’s economy and the sheer volume of covered packaging that flows into the state, S.B. 54’s requirements will have ripple effects touching every local and state market in the country.  

To effectuate the goals of S.B. 54, producers must join an approved Producer Responsibility Organization (PRO) that is responsible for establishing and carrying out a program plan and assisting companies in meeting their obligations. In California, the Department of Resources Recycling and Recovery (CalRecycle) selected as the state’s PRO the Circular Action Alliance (CAA), which aims to serve as the designated PRO in all states that have enacted EPR laws for paper and packaging.

Earlier this year, CalRecycle released its draft regulations for implementing the S.B. 54 program, which received public comments through May 8. Those draft rules, although subject to change, would impose various standards on producers and CAA in meeting their obligations under S.B. 54, including through developing and verifying viable responsible end markets, which are materials markets where recycling and recovery of covered materials, like certain single-use plastic containers, are conducted. These regulations will further structure how producers are penalized for failure to meet their obligations under S.B. 54 and also qualify for certain exemptions. Relatively few requirements under S.B. 54 and its pending regulations are straightforward, and many key issues remain open in the regulatory process. For example, the statutory language does not clearly cover over-the-counter drugs (including products such as dandruff shampoo and sunscreen). Therefore, it is important for product producers, including those in the personal care products and cosmetics industry, to seek the legal advice of experienced counsel in understanding and meeting their specific and more general obligations.

Challenges and Opportunities

As goes the old proverb, he best time to start planning for compliance with S.B. 54 and other state EPR laws was yesterday, and the second best time is today. Companies should assess their products’ abilities to comply with state EPR recycling rates and, as necessary, consider packaging redesigns to increase recyclability rates. 

Such redesigns often require significant lead times and coordination across many units within the business. Decisions can require input from the marketing, sales, and research and development departments, as well as coordination and negotiation between a company and the PRO. They also involve questions regarding supply chain capacity, shelf space considerations, and artwork and consumer communications. The legal department, moreover, must assess potential slack fill claims that may arise from a redesigned package, compliance with other labelling requirements, as well as a company’s existing contracts with suppliers. With all these moving parts, the broad array of companies that stand to be impacted by S.B. 54 and other EPR laws should immediately start assessing their compliance.

The difficulties and challenges raised by S.B. 54 and other EPR laws do not mean there are no silver linings, however. For example, a business that achieves higher recycling rates than its competitors and is assessed lower eco-modulation fees as a result stands to gain a competitive disadvantage in the marketplace. Moreover, EPR laws can incentivize the creation of innovative packaging and business models. A personal care products company, for instance, that creates refills for its dispensers and sells them directly to consumers via a subscription program could conceivably reduce or eliminate the costs of selling through a retailer. In addition, companies that comply with the recycling requirements of these laws could benefit, assuming sufficient substantiation exists to make these claims, from marketing their products as “green,” an increasing preference of consumers.  

Next steps

The playing field for EPR laws is active in several states. California, for example, has finished accepting initial public comments on CalRecycle’s proposed regulations to implement S.B. 54 and, depending on the scope of revisions made in response to those comments, could issue additional regulations for public comment. EPR laws remain pending in the legislatures of several states.

Companies should familiarize themselves with the requirements of existing state EPR laws and monitor the development of pending laws. The authors of this piece have advised multiple companies in developing compliance plans for S.B. 54 and also assisted in the preparation of industry coalition comments on S.B. 54’s implementing regulations. Please contact any author of this article or your regular Hogan Lovells attorney for more guidance.

Authored by Trenton H. Norris, David Barnes, and Alexander Tablan.