What is t2e?

The Environment Exchange (t2e) provides the central marketplace on which companies may display firm buying and selling prices for:

• Packaging Recovery Notes (PRNs) and Packaging Export Recovery Notes (PERNs) in a spot and 4 forward markets for 7 different materials: Aluminium; Glass; Paper; Plastic; Steel; Wood; Recovery and General Recycling
• Waste Electrical and Electronic Equipment Evidence and Trade Notes (WENs) in 2 spot markets for 13 different categories: Large household appliances, Small household appliances, IT and telecommunications equipment, Consumer equipment, Lighting equipment, Electrical and electric tools, Toys, leisure and sports equipment, Medical devices, Monitoring and control instruments, Automatic dispensers, TVs and monitors, Fridges and cooling equipment and Gas discharge lamps.

The Environment Exchange (t2e) provides an open and auditable electronic trading facility for PRNs (Packaging Recovery Notes) and PERNs (Packaging Export Recovery Notes). It provides a spot (cash market) and four forward markets for these commodities. It is looking to develop tradable contracts in recyclable commodities and Waste Electrical and Electronic Equipment Recycling Notes. It opens up the PRN market to a wider audience and eases the development of end-use products by:

t2e not only displays the buying and selling prices but also administers the delivery and settlement of all transactions conducted on the exchange and as a consequence provides to its participants timely and accurate information.

t2e is an open and auditable electronic trading facility. It provides spot (cash market) and forward markets for these commodities. It is looking to develop tradable contracts in recyclable commodities. It opens up these markets to a wider audience and eases the development of end-use products by:

• providing price transparency and best markets for PRNs and PERNs
• allowing traders involved in the sector to manage their risks
• matching willing buyers to willing sellers, yet maintaining confidentiality
• simplifying PRN handling, saving on administration costs and improving access to or disposal of all traded commodities
• providing a low cost bulking up facility for traders
• encouraging traders to meet minimum common trading standards

As it is electronically based its location is flexible, effectively the market comes to the customer rather than the customer having to come to the market. It improves the speed of the cash flow through the recycling sector and provides integrated settlement, delivery and information services.

Participation

Participation in t2e to trade PRNs is open to:

• All companies that have an obligation under PWRegs
• All accredited compliance schemes, reprocessors and exporters
• And their representatives

Participation in t2e to trade WENs is open to:

• All approved producer compliance schemes (PCSs)
• All approved authorised treatment facilities (AATFs) and exporters (AEs)
• All Designated Collection Facilities
• And their representatives

The Background

UK environmental legislation, such as Landfill Tax, Producer Responsibility Obligations (Packaging Waste) Regulations 2005 (PWRegs) and Producer Responsibility Regulations (Waste Electrical and Electronic Equipment) Regulations 2007 (WEEERegs), is fundamentally altering the economic balance away from landfill towards recycling and recovery, primarily waste to energy and composting, as a means of waste disposal. This legislation has had three impacts, it has:

• raised the profile of recyclable commodities (secondary raw materials)
• created new commodities, the evidence required by business that packaging materials have been either recycled or recovered
• highlighted the need to broaden the potential markets for secondary raw materials

In 1996 The Department of the Environment (DoE) estimated that by 2001 PWRegs would impact on 19,000 businesses (in fact 12,000 would have been a more accurate figure) and the combined effects of this environmental legislation would be an annual cost to industry of £1 billion. As a result of the increase in global demand for secondary raw materials and that the price transparency that t2e has provided this figure has rarely exceeded £100 million and is frequently significantly less. It affects all waste producers with a particularly major impact on the food, drink, retail, electronics, textiles and chemicals industries.

In the same year the DoE estimated that there were 8.4 million tonnes of paper/ fibreboard, plastic, glass, steel and aluminium packaging. All indications are that this estimate was close. Despite the Regulations INCPEN estimate that packaging has increased by 2% annually. By 2006 the reported figure was 10.5 million tonnes approximately 88% of this was reported by businesses with an obligation under PWRegs.

The desire of Government is that businesses should seek a collective solution to PWRegs by joining registered compliance schemes, approved by both the Office of Fair Trading and the Environment Agencies. These schemes will take on their members' legal obligation to obtain PRNS. Some twenty compliance schemes have been approved and others are seeking approval.

However if businesses wish they are allowed to comply individually as at 10 August 2007 this option was selected by 699 companies while 5,921 opted to go for the compliance scheme route.

The Packaging Cycle in 2008

Notes:

1. In 2008 the maximum going into landfill is 40%, Recovery 5%, Recycling 55% minimum
2. The difference between these and the business targets cover tonnage that is not reported by obligated companies
3. The circle represents the decision point by Waste Companies and Local Authorities
4. All packaging material flows are anti-clockwise. All evidence (PRN) flows go from the reprocessors to the packaging chain or their representatives, the compliance schemes
5. For diagrammatic simplicity
1. reprocessors have been separated from packaging manufacturers. It is appreciated that they may well be the same. Equally packaging manufacturers are part of the packaging chain.
2. no account has been taken of the individual material recycling targets. All packaging sectors have been put together. In reality the packaging sectors are competitors and for metals and glass there are no realistic recovery options.
6. Approximately 60% of packaging waste is in the domestic waste stream the majority of which is collected by local authorities, the remaining 40% is in the business waste stream.
7. The UK business targets for PRNs and PERNs from 1998 – 2010 are:

Business Targets under the Producer Responsibility (Packaging Waste) Regulations expressed as a % of tonnes supplied within the UK

Year	1998	1999	2000	2001	2002	2003	2004	2005	2006	2007	2008	2009	2010
Targets (%) Overall Recovery	38	43	45	56	59	59	63	65	66	67	72	73	74
of which: General Recycling	50	50	50	50	50	50	94	94	92	92	92	92	92
within which: Material Specific
Paper	7	10	13	18	19	19	65	66	66.5	67	67.5	68	68.5
Glass							49	55	65	69.5	78	80	81
Aluminium							26	28	29	31	35	38	40
Steel							52.5	55	56	57.5	68	68.5	69
Plastic							21.5	22	23	24	26	27	29
Wood	No Material Specific Target						18	19	19.5	20	20.5	21	22

Note:

In 2001 the targets in Northern Ireland were 52% Recovery of which 50% were general recycling within which the material specific targets were 16%.

PRNs

Statutory guidance to PWRegs introduced a new commodity the Packaging Recovery Note (PRN) which is the evidence required by industry that it has met its obligations under the legislation. PRNs are issued on behalf of the Environment Agencies by one of the reprocessors or exporters (PERN) accredited by them. Effectively it is a market driven subsidy paid for by the businesses affected by PWRegs to stimulate previously financially unsustainable recovery and recycling operations. Ideally in time this market driven subsidy will reduce to an administrative value in all materials as economies of scale and new working practices and markets develop with the minimum of outside interference. To all extents and purposes this has occurred for paper and wood packaging.

The price of the PRN is related inversely to the price of the recyclable commodity. A surplus of demand for PRNs over supply will keep the PRN prices high, whereas a surplus of recyclable commodities over demand will keep commodity prices low. If the price for the commodity increases so the PRN availability will increase and the PRN price will decrease and vice versa. In PWRegs there is a material specific recycling requirement and a general recovery and recycling requirement for which a PRN of any material can be used. Hence the value of the PRN of any individual material is not solely dependent on the price of the commodity but also on the general availability of PRNs. This will tend to dampen the fluctuations in PRN prices. Currently there is an overall surplus of PRNs in most materials as a result the majority of PRN prices tend towards an administrative value. In 2008 there are concerns as to whether the aluminium and plastic material specific targets will be met. For this complex balance to be identified there needs to be a central market place for PRNs.

WENs

In 2007 The Government introduced The Waste Electronic and Electrical Equipment (WEEE) Regulations. Their aim is to measure the quantity of household WEEE that is reused or recovered and to increase the percentage of that WEEE that is either recovered or recycled. Europe has designated 10 categories of WEEE that need to be recovered. The UK has subdivided this into a total of 13 categories which need to be recovered and recycled at the following levels:

Categories		Minimum Reuse/Recovery/Recycling Rate (%)
		Reuse	Recovery	Recycling
CAT 1	Large household appliances	100	80	75
CAT 2	Small household appliances	100	70	50
CAT 3	IT and telecommunications equipment	100	75	65
CAT 4	Consumer equipment	100	75	65
CAT 5	Lighting equipment	100	70	50
CAT 6	Electrical and electric tools	100	70	50
CAT 7	Toys, leisure and sports equipment	100	70	50
CAT 8	Medical devices	100	n/a	n/a
CAT 9	Monitoring and control instruments	100	75	65
CAT 10	Automatic dispensers	100	80	75
CAT 11	TVs and monitors	100	75	65
CAT 12	Fridges and cooling equipment	100	80	75
CAT 13	Gas discharge lamps	100	80	80

Data on the quantity of Household electrical and Electronic Equipment placed on the market must be supplied by producers and importers on a quarterly basis to one of 27 Producer Compliance Schemes (PCSs) who must obtain evidence in proportion to their obligation which is calculated on the basis of their market share in each category of WEEE. Although PCSs may have an idea of what their obligations might be they do not have this finalised by the Agencies until 1 May. PCSs have from then to 31 May to achieve compliance.

Compliance is achieved by producers and importers through their PCSs acquiring evidence that recovery and recycling of WEEE (WENs) in each of the relevant categories has taken place. This evidence is initially acquired by PCSs working with Designated Collection Facilities (DCFs) from which they obtain household WEEE which is then delivered to Approved Authorised Treatment Facilities (AATFs) or Approved Exporters (AEs) from whom they obtain evidence that recycling and/or recovery has taken place. It is extremely unlikely that PCSs will have the correct amount of evidence to exactly meet their obligation hence t2e will provide the marketplace, a central financial and administrative clearing mechanism, through which this will occur.

WRAP Materials Pricing Report

t2e currently provides a market pricing report on behalf of the Waste and Resources Action Programme (WRAP). This is available to all that are actively involved in the trading of the following secondary raw materials: paper, glass, plastic (PET HDPE and Mixed Bottles) or metal cans. Those that wish to learn more about the WRAP market price report should visit www.wrap.org.uk/businesses/market_knowledge/materials_pricing_reports/index.html or e-mail mpr@t2e.co.uk

Secondary raw materials/recyclable commodities

Recyclable commodities are traded by many of the same key players as those involved in the PRN and WEN markets, waste handlers and reprocessors.

Today the market for recyclable commodities has two major problems. Firstly on the fringes it is a highly volatile market. This partially reflects the price of the primary material. Secondly the world price on its own has been insufficient to encourage extraction of secondary raw materials from the waste stream. This is partially because it is subsidised elsewhere in the world, partially because there are insufficient end markets for recyclable materials and partially because the primary raw material is available at low cost. Quality also has a significant impact on price.

t2e aims to provide a market place for both spot and forward contracts in recyclable materials allowing traders to improve quality, find end-markets and hedge their risks.