Picking up the market
Europe's first electronic trading facility for Packaging Recovery Notes (PRNs) and recyclable commodities, The Environment Exchange, has been on-line for more than nine months. What are the options for the future? IEM talks to the Exchange's founder and managing director, Angus Macpherson.
Companies obligated under the Producer Responsibility Obligations (Packaging Waste) Regulations have two options: join one of 14 compliance schemes, passing on that obligation – for a price; or register direct with the Environment Agency or Scottish Environment Protection Agency. The latter option, “individual compliance”, entails the companies taking on the responsibility of sourcing and buying PRNs – evidence of recovery or recycling – themselves.
Potentially, traders on The Environment Exchange are any one of the 14 compliance schemes, the 800 or so companies outside of those, and a handful of brokers now representing one or more of those companies. Of the three quarters of a million traded volume of PRNs on the market, The Environment Exchange has handled around 7,500, or one per cent. Angus Macpherson, creator and managing director of The Environment Exchange, told IEM: “Valpak and a lot of the other compliance schemes do a lot of ‘over the counter’ trading, that is, they negotiate directly with the issuers of the PRNs, and not through us, hoping in that way to secure themselves a better bargain. Broadly speaking what we aim to do is prove to them that they can get a better bargain price with less effort through our marketplace than they can through hours of negotiation which eventually brings them to the same result. Our whole aim was to demystify the price and allow people to obtain the PRNs at the best available market price with the greatest simplicity.”
To further this end, The Environment Exchange is to introduce forward contracts, ostensibly in order to facilitate the just-in-time delivery sought by local authorities and reprocessors. Current contracts, as can currently be seen in the waste paper market, tend to be fixed at either too high or too low a price until the situation reaches crisis point and breaks down. “Forward contracts will provide a much more flexible way of achieving the same ends,” says Macpherson. “Book today, and you know that you are getting that commodity delivered to you, at that price, in three month’s time.”
Last year, The Environment Exchange traded just over 20,000 tonnes (PRNs), almost exclusively during December 1998 and January 1999 (1998 PRNs). Again, this year, the first four months saw little trading. Since June, however, trade levels have jumped from 494 tonnes to 7,500. A number of reasons exist for the sudden increase, including: last year’s end-of-year price plummet; the fact that, although you can buy PRNs from the first of January, you don’t have to decide how to comply (i.e. join a compliance scheme or register individually) until 7 April; Valpak’s attempt to secure lowest-cost PRNs from reprocessors – overturned by the Office of Fair Trading in June; and general market immaturity.
“The PRN, and indeed the PRN trading system, is not well understood,” says Macpherson. “I think there are two main problems. One is that the whole PRN system is immensely complicated – definitions of packaging are loose, definitions of reprocessing are loose and the evidence system itself is becoming much tighter, in that the agencies are beginning to understand how to control it. But that doesn’t stop the inherent problems of trying to manage a market place when both ends – ‘the goal posts’ – are being constantly, and legally, battled over [The European Commission DG XI’s Waste Management Unit has, for example, produced a Working Document on the Revision of the Packaging Directive, calling for a doubling in recovery and recycling targets]. It is a combination of your activity, how much packaging you handle, and the UK target. You have to be Machiavelli.”
Indeed, the Machiavellian notion that “there is nothing more difficult to plan, more doubtful of success, nor more dangerous to manage than the creation of a new system” is painfully evident in the Government’s introduction of PRNs in the UK. The system, however, is here to stay, presenting UK industry with a learning curve that Macpherson views as necessary for The Environment Exchange to flourish: “From the moment it was established,” he says, “I never envisaged that the PRN system would roll outside the UK, for the simple reason that it is unbearably complex. It’s not the best regulatory solution to the problem.” Here he acknowledges the conflict of interest in supporting, but not advocating, PRNs, in order to broaden understanding of how The Environment Exchange operates. “If we can get people to feel confident and comfortable with this marketplace solution, and we in the UK can learn from our mistakes and start recommending to Europe the mechanisms that can provide market-based solutions on a European scale to things like waste collection, end-of-life vehicles, renewable electricity and carbon emissions; if we can translate that vision, then it will be worthwhile.”