In the UK system the payment is hypothecated as it is paid directly by the producer in exchange for a certificate confirming that the environmental benefit or ‘good’ has been delivered.

If the required level of environmental benefit is being delivered by market forces then the certificate reduces to an administrative value, if it is not then its value increases.

The system needs to be regulated effectively as no producer wishes to pay for an environmental benefit that is not occurring likewise no deliverer of environmental benefit wishes to be under rewarded because producers have underreported their environmental impact.

For packaging, reduction is encouraged by imposing fines, the purchase of Packaging Recovery Notes (PRNs), calculated on the first time packaging is used throughout the ‘packaging chain’. No further fine on the second and subsequent use of that packaging encourages reuse.

Recycling and/or recovery are rewarded by allowing those that recover packaging to issue and sell PRNs.

The exact level of that fine and/or reward is determined by the recycling and recovery targets which can be adjusted to reward environmentally beneficial forms of packaging and discourage those that are less so.

It is crucial that the data used to calculate compliance with the targets (the total packaging placed on the market and the total packaging recovered) is correct.

As important is that the number of non-compliers (‘free-riders’) or under reporters is minimised to ensure that tension is retained between supply (the quantity of PRNs issued) and demand (the quantity of PRNs required).

Angus Macpherson is managing director at the Environment Exchange