NSW looks set to become the third State or Territory, after South Australia and the Northern Territory, to implement a container deposit scheme (CDS), with the Waste Avoidance and Resource Recovery Amendment (Container Deposit Scheme) Act 2016 (CDS Act) assented to on 25 October 2016. This follows a commitment by the Premier of NSW on 21 February 2015 to introduce a CDS in order to reduce letter by 40% by 2020.

Although not yet proclaimed, it is expected that the CDS will commence in mid-2017.

Queensland and Western Australia are expected to introduce similar schemes by 2018.

Legal challenges to similar schemes in SA and NT

Historically, the beverage industry, amongst others, has taken issue with such schemes, for reasons including the impacts on the viability of kerbside recycling schemes, doubt as to the benefits over and above the kerbside schemes, increased costs including to provide infrastructure and to provide different containers in different States and Territories, and the restrictions on importing beverages that may not be compliant with a particular CDS. This has led to legal challenges of enabling CDS legislation in South Australia and the Northern Territory.

South Australia first introduced its CDS through the Beverage Container Act 1975 (SA), and later the Environment Protection Act 1993 (SA). The CDS was successfully challenged in the High Court on the grounds that the enabling legislation was in breach of s92 of the Commonwealth Constitution, which provides for the freedom of interstate trade.[1] A new CDS was then introduced in a form that avoided the constitutional issues with the original legislation.

The Northern Territory CDS legislation was successfully challenged in the Federal Court on the grounds that its packaging requirements under the Environment Protection (Beverage Containers and Plastic Bags) Act 2011 (NT) were inconsistent with the requirements of the Mutual Recognition Act 1992 (Cth) (MRA)[2]. The Northern Territory government was required to obtain an exemption under the MRA for its CDS to proceed.

These cases highlight the types of legal challenges that may affect the implementation of the CDS in NSW.

How will the CDS operate in NSW?

The CDS will operate in NSW through the insertion of a new Part 5 in the Waste Avoidance and Resource Recovery Act 2001 (NSW) (Act).

Many of the details of the CDS are to be prescribed in regulations that have not been published. For example, the EPA’s Regulatory Framework Discussion Paper states that the regulations will specify the refund amount as 10 cents for each eligible container. This is the same as in SA and NT, and it recognises that a higher rate may encourage the interstate transfer of waste containers to NSW. However, unlike the SA and NT schemes, it is proposed that regulations will provide that the NSW CDS will not apply to containers that are smaller than 150 millilitres. The EPA’s rationale is that smaller containers are less commonly found in the litter stream and a 10-cent refund would substantially add to the overall cost to supply drinks of that size.

Key concepts

The CDS will regulate ‘suppliers’, ‘collection points’, ‘Scheme Coordinators’, ‘network operators’ and ‘collection point operators’. Those concepts are explained below:

Term Explanation
collection point A ‘collection point’ is the point at which a container may be deposited and refunds paid, being:

(a) any facility or premises for the collection and handling of containers delivered to the facility or premises in consideration of the payment of refund amounts, or

(b) a reverse vending machine, or

(c) any other facility or premises of a kind prescribed by the regulations.

collection point operator The collection point operator is the person who operates a collection point, being either:

(a) a person who has entered into a collection point arrangement with a network operator in connection with the operation of the collection point, or

(b) if there is no collection point arrangement in force in respect of the collection point—a network operator who administers and operates the collection point.

container A container is defined as:

(a) a container that is designed to contain a beverage and to be sealed (when filled with the beverage) for the purposes of transport or storage before its sale, or delivery, for the use or consumption of its contents, or

(b) any other container of a kind prescribed by the regulations.

network operator A network operator is a person appointed by the Minister for the Environment to set up and service a state-wide network of collection points. Collection points within a network operator’s network, may be operated directly by the network operator or by separate collection point operators.
Scheme Coordinator The Scheme Coordinator is the person appointed by the Minister for the Environment to coordinate the CDS.

The Scheme Coordinator will be appointed under a ‘Scheme Coordinator agreement’. The content of the agreement will be largely at the discretion of the Minister, and the term of the agreement may be up to 7 years (with an ability to extend the agreement for two further 3-year terms).

supplier A supplier is a person who carries on a business that is or includes the supply of beverages in containers. Specific exclusions may be included in the regulation.

A lessee of a beverage vending machine or owner (if there is no lessee) is considered a supplier under s37 of the Act.


Supplier obligations

The CDS will require suppliers to have:

  • a supply arrangement with a Scheme Coordinator in respect of the class to which the beverage container belongs; (s38(1)(a))
  • a container approval in force in respect of that class of container, which may be obtained from the EPA; and (ss38(1)(b) and 40)
  • a refund marking on the container that complies with the requirements to be prescribed in the regulations. (s39)

A supplier who does not comply with those obligations may be liable for civil penalties of up to $440,000 for corporations and $110,000 for individuals.

Collection and refund process

The CDS provides that if a person presents an empty container to a collection point, the collection point operator must pay the person a refund (s42(1)). However, the collection point operator is not required to pay a refund: (s42(2))

(a) if the container for which the refund amount is claimed does not bear a refund marking, or

(b) if the collection point operator reasonably believes:

(i) that the container was not acquired in the State or in a jurisdiction in which a corresponding law is in force, or

(ii) that the container was acquired before the commencement of this Part, or

(iii) that a refund amount has previously been paid for the container at any collection point, or

(iv) that the container has previously been processed by a material recovery facility operator for reuse or recycling and a Scheme Coordinator has made, or is required to make, a payment in respect of the container to that operator under a Scheme Coordinator agreement, or

(c) if the person has refused to comply with a requirement of the operator under section 43, or

(d) in any other circumstances prescribed by the regulations..

The collection point operator may also require the persons depositing the empty containers to provide a refund declaration (containing information to be prescribed by regulations) and proof of identification. The operator must not make payment of a refund without the declaration and proof of identification in circumstances where: (s43)

  • the number of containers for which the person claims a refund at the collection point exceeds the number prescribed by the regulations; or
  • if the operator knows, or ought reasonably to know, that the total number of containers presented to the collection point by the person, and all other persons acting on the person’s behalf, within the period prescribed by the regulations for the purpose of claiming a refund has exceeded the number prescribed by the regulations.

The Act makes it an offence where a person attempts to claims a refund amount for containers not subject to the scheme. (s44)

Effect of CDS on MRFs

Section 28 of the Act allows either the regulations or a Scheme Coordinator agreement to allow material recycling facility (MRF) operators to obtain refunds for containers that are collected during the course of ‘waste management services’ and that are processed at the MRF for reuse or recycling – provided that a ‘processing refund protocol’ has been issued by the EPA by publication in the Gazette.

The processing refund protocol is to be applied to determine the amounts payable to the MRF operators as processing refunds. The amounts payable may be based on estimates of containers received, processed and dispatched at the MRF, as established through audits or monitoring programs.

The Regulatory Framework Discussion Paper states that: ‘regulatory framework will encourage MRF operators to share any windfall gain with the local governments that manage kerbside services, for community benefit’. This will be achieved through regulations making the ability of a MRF operator to receive container refunds contingent on the MRF operator and the applicable local council coming to an agreement on how the refund is to be allocated within a reasonable period of time. If no agreement is reached in that period then no refunds will be payable.

The Regulatory Framework Discussion Paper makes a distinction between:

  • contracts that already contain ‘specific’ clauses related to the introduction of the CDS; and
  • contracts that do not,

and implies that the mandatory agreement between an operator and a council would only apply to the second kind of contracts.

The details of this proposed framework are yet to be worked out but the proposal raises some interesting questions around:

  • what is a “specific” clause: for example is a change in law clause sufficient or is it necessary for the clause to refer to a container deposit scheme?
  • what are the obligations on the parties under the contract to negotiate a vriation. For example is there a good faith obligation or can one party simply dig their heals in and refuse to negotiate?
  • what if the processing rate was set having regard to the possibility of a container deposit scheme – even if this was not explicit?
  • how is the windfall gain calculated given the costs and revenues currently explicit or implicit in the operation of a MRF?
  • will a secondary market evolve?

A MRF Operator may also argue that the so-called ‘windfall gain’ is limited given that the number of containers deposited at the MRF may reduce significantly as residents take containers directly to collection points to receive a refund. It remains to be seen how effective the CDS will be in altering this behaviour.

Other amendments to the Act

The CDS Act also affords the EPA with the powers currently conferred on the Chief Executive of the Office of Environment and Heritage, to develop, implement and co-ordinate the policy objectives of NSW waste policy. This means that the EPA will be able to assess and determine container approvals under the Act and make changes to the CDS through policies.

Likely impacts

The NSW CDS will affect beverage suppliers, councils, MRF operators, the new collection point managers and operators, and persons intending to claim refunds for empty containers.

Suppliers need to be alert of the new obligations for container packaging and EPA approvals under the scheme. Prospective collection point managers and operators must understand the processes for collection and refunds to avoid abuse by unscrupulous claimants. Prospective claimants for refunds must also understand the types of containers to which the scheme applies, to avoid committing offences under the Act.

Councils and MRF operators will need to consider how effective their existing contractual arrangements are in addressing cost impacts from the CDS – and pay close attention to how the regulations may affect this.

The proposed CDS taps into the growing role the beverage industry shares with the community for reducing and dealing with the waste generated by beverage containers, and proposes a scheme that draws on the success of the South Australian CDS. It is likely to be a tipping point for other states and territories looking to introduce their own CDS, as well as beverage companies which had historically opposed such measures.

Upon its commencement the NSW CDS will be closely monitored by both advocates and opponents of the scheme.