CAPRI (2018) An economic evaluation of a deposit return scheme, Jamaica.pdf

R1811
JULY 2018

ECONOMIC
ASSESSMENT OF A
DEPOSIT-REFUND
SYSTEM (DRS) FOR

JAMAICA


Caribbean Policy Research Institute (CAPRI)

Block H, Sir Alister McIntyre Building,

UWI (Mona), Kingston 7, Jamaica

Tel: (876) 970-3447,970-2910

Fax: (876) 970-4544

Lead Author: Suzanne Shaw

© Copyright 2019 CAPRI


CONTENTS

ACRONYMS ......................................................................................................................................................

1 BACKGROUND ...........................................................................................................................................

2 PURPOSE ..................................................................................................................................................

3 A COST-BENEFIT APPROACH IS USED AS THE BASIS FOR ADVISING ON A DRS FOR JAMAICA ..............

3.1 THE STRUCTURE OF THE DRS HAS IMPLICATIONS FOR ASSOCIATED COSTS

3.1.1 SOME ELEMENTS OF A DRS INFRASTRUCTURE ALREADY EXIST IN JAMAICA, BUT THE
SYSTEM WOULD NEED TO BE AUGMENTED FOR A FULL DRS

3.1.2 A NUMBER OF POSSIBLE CONFIGURATIONS EXIST FOR DRS, EACH WITH ITS OWN COST
IMPLICATIONS

3.1.3 THE NEED FOR FRAUD PREVENTION MECHANISMS, AND THE LEVEL OF AUTOMATION AND
TECHNOLOGY EMPLOYED, ALSO HAS COST IMPLICATIONS

3.2 RECOVERY RATES IMPACT DRS COSTS, A DRS FOR JAMAICA ASSUMES SIXTY PERCENT RECOVERY
WITHIN TEN YEARS OF IMPLEMENTATION

3.3 A UNIFORM DEPOSIT AMOUNT IS ASSUMED FOR ALL PET BOTTLES IRRESPECTIVE OF SIZE

4 RESULTS OF THE ANALYSIS .....................................................................................................................

4.1 ASSESSMENT OF ALTERNATIVE DRS CONFIGURATIONS

4.2 THE RETAILER-BASED MODEL, WITH AUTOMATED RETURNS SYSTEM, IS THE LEAST-COST DRS
CONFIGURATION

4.3 THE ECONOMIC BENEFITS OF A DRS IN JAMAICA FAR OUTWEIGH THE ECONOMIC COSTS

4.4 A DRS IN JAMAICA IS SELF-FINANCING

5 CONCLUSIONS AND RECOMMENDATIONS ................................................................................................

5.1 A DRS IS ECONOMICALLY AND FINANCIALLY VIABLE FOR MANAGING PET WASTE IN JAMAICA BUT
MUST HAVE HIGH ENOUGH DEPOSIT RATE TO BE EFFECTIVE

5.2 CONVENIENCE OF RETURNS IS KEY TO A SUCCESSFUL DRS

5.3 A CENTRAL ADMINISTRATION BODY SHOULD MANAGE THE DRS

5.4 THE DRS SHOULD BE INDUSTRY-LED AND OWNED

5.5 INITIAL INVESTMENT AND YEAR ONE OPERATION COSTS CAN BE FUNDED THROUGH A GOVERNMENT
LOAN

5.6 INFORMATION AND ACCOUNTABILITY IN DRS

5.7 ENGAGING COMMERCIAL ENTITIES WITH HIGH BEVERAGE CONTAINER USE

5.8 THE PHASING OUT OF ONE- AND FIVE- DOLLAR COINS HAS IMPLICATION FOR CASH RETURNS

5.9 THE DRS SHOULD ALLOW FOR INCLUSION OF OTHER MATERIALS IN THE FUTURE

V

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6 APPENDICES .............................................................................................................................................

6.1 DATA AND ASSUMPTIONS OF THE MODEL

6.1.1 GENERAL DATA AND ASSUMPTIONS

6.1.2 DATA AND ASSUMPTIONS RELATED TO THE COST ANALYSIS OF VARIOUS DRS
CONFIGURATIONS

6.1.3 DATA AND ASSUMPTIONS RELATED TO THE ASSESSMENT OF ECONOMIC BENEFITS
OF DRS

REFERENCES ...................................................................................................................................................

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ACRONYMS

CAPRI Caribbean Policy Research Institute

DRS Deposit refund system

JIS Jamaica Information Service

JMD Jamaican dollars

NSWMA National Solid Waste Management Agency

OECD
Organisation for Economic Cooperation and
Development

PET Polyethylene terephthalate

RPJL Recycling Partners of Jamaica Ltd.

RVM Reverse vending machine

USD United States dollars

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | V


1. BACKGROUND

Inexpensive, light, durable and versatile, plastic bottles have become a part of everyday life. They have
also come to be one of the biggest sources of pollution of our time: one million plastic bottles are
bought around the world every minute,1 the majority of which are used just once and thrown away,
ending up in landfill or in the ocean.

Most plastic bottles used for water or soft drinks are made from polyethylene terephthalate (PET), a
highly recyclable material. Why then is PET recycling not more widespread? In the United States, one of
the world’s largest consumers of plastic bottles, recycling of PET bottles is only around thirty percent.2
The main distinguishing factors for countries such as Germany and South Korea,3 which do achieve
relatively high recycling rates, is that they have waste separation systems which facilitate recuperation
of the PET and other materials for recycling. They also use economic measures – incentives or dis-
incentives – to achieve high material recuperation; in the case of South Korea fee systems, and in the
case of Germany deposit-refund systems.4

In Jamaica, recuperation of PET bottles from the waste stream for processing and export to be recycled
is currently estimated to be five to ten percent.5 A recent study by the Caribbean Policy Research
Institute (CAPRI),6 which assessed various measures for PET waste management, recommended that
a deposit-refund system (DRS) be considered to increase recuperation, and improve management, of
PET waste in Jamaica.

DRS have two key benefits. They increase the rate of recuperation, and thus recycling, of containers
covered by the deposit scheme, as the deposit provides an incentive to the consumer to return the
material to obtain their refund. Second, they reduce litter of the targeted material, since in the case that
the consumer does decide to litter, someone else more desirous of getting the refund may pick it up.
Both benefits hinge on the level of deposit/refund applied.

However, as CAPRI’s report8 indicated, the cost of implementation of a DRS can be considerable,
indicating the need for an assessment of the potential costs and benefits of a DRS in the decision-
making process regarding the implementation of this type of system for PET waste management.

1 “A million bottles a minute: world’s plastic binge ‘as dangerous as climate change’,” The Guardian, June 28, 2017.
(www.theguardian.com/environment/2017/jun/28/a-million-a-minute-worlds-plastic-bottle-binge-as-dangerous-as-climate-
change)
2 Rick Leblanc, “Plastic Recycling Facts and Figures,” The Balance Small Business, June 1, 2017. (www.thebalancesmb.com/
  plastic-recycling-facts-and-figures-2877886)
3 OECD (2015).
4 CAPRI (2018).
5 Personal communications with Recycling Partners of Jamaica Ltd. and Jamaica Recycles Ltd. 2017
6 CAPRI (2018).
8 CAPRI (2018).

4 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


7 OECD (1997).

“A deposit-refund system is the surcharge on the price
of potentially polluting products. When pollution is
avoided by returning the products or their residuals, a
refund of the surcharge is granted.”

– OECD. Glossary of Environment Statistics, Studies in Methods,
Series F, No. 67, United Nations, New York, 1997.7

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 5


2. PURPOSE

The purpose of this study is to build on CAPRI’s previous report, which recommended an assessment
of the economic costs and benefits of a DRS for PET bottles in Jamaica, to inform decision-making
regarding its implementation. This study seeks to:

» Quantify the costs of establishing and operating a DRS to manage PET waste in
Jamaica, considering different configurations for implementation;

» Assess the benefits associated with the implementation of a DRS, and thus the
economic attractiveness of a DRS for PET waste management;

» Advise on the financing for a DRS; and

» Recommend a structure for DRS.

6 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


3. A COST-BENEFIT
APPROACH IS USED AS

THE BASIS FOR ADVISING
ON A DRS FOR JAMAICA

The assessment of a DRS for Jamaica is based on cost-benefit analysis.

Two types of cost-benefit analysis are conducted:

1. Cost analysis to compare alternative configurations for implementing a DRS, and

2. Cost-benefit analysis to assess the value of a DRS for Jamaica compared to the cost
of implementing it.

The cost-benefit analyses are conducted with respect to the economy as a whole, not from the point of
view of any specific actor within the DRS system.

Costs analysed with respect to the DRS include:

» Operating costs associated with the transportation of the PET bottles from consumers
to intermediate- and end- collection points,

» Fixed and operating costs associated with collection, handling and processing of PET
bottles, and

» Fixed and operating costs for the administration of the DRS.

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 7


The benefits evaluated include:

» Avoided cost of solid waste management (SWM) by the National Solid Waste Management Agency (NSWMA)
» Avoided cost of disamenity9 from PET litter
» Avoided cost associated with flooding caused from drains blocked by PET litter
» Revenues from sale of processed PET for recycling
» Revenues from unredeemed deposits

Other costs and benefits of a DRS, such as the environmental costs of greenhouse gas emissions from transportation of PET
bottles, and avoided costs of having to clean PET litter, are not assessed in this study.

The Recycling Partners of Jamaica Ltd. (RPJL) already conducts
collection, transportation and processing of a portion of the
plastic bottles in Jamaica for processing, and has established
recycling programmes in a number of communities and
schools. RPJL also has established relationships with brokers
to whom they sell the processed material, for export for
recycling. RPJL therefore has a network of trucks, collection

depots and processing equipment that can be integrated into
a DRS.

The current infrastructure would however need to be
expanded to accommodate a Jamaica-wide DRS collection and
processing system. The structure and logistics of collection,
transportation and processing may also need to be re-visited,
to achieve greater efficiency for an island-wise DRS.

9 Disamenity is the unpleasant character or quality of something
10 A central system is an entity that manages and administers the deposit refund scheme and is therefore the focal point for the flow of information regarding
bottle sales, collection and finance for the entire system.

3.1.1 SOME ELEMENTS OF A DRS INFRASTRUCTURE ALREADY EXIST IN JAMAICA, BUT
THE SYSTEM WOULD NEED TO BE AUGMENTED FOR A FULL DRS

3.1 THE STRUCTURE OF THE DRS HAS
IMPLICATIONS FOR ASSOCIATED COSTS

8 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


In its simplest form, a DRS functions as described below and in the accompanying Figure 1.

1. The manufacturer or importer of the beverage
pays the central system, which administers and
facilitates the running of the DRS, a fee for the
beverages delivered for sale.

2. a) The manufacturer or importer delivers
the beverages for sale to the retailer (shops,
supermarkets for example).

b) The retailer then pays the deposit to the
manufacturer or importer of the beverage in the
price of the product.

3. a) The consumer buys the beverage from the
retailer.

b) The consumer pays the deposit when
purchasing the beverage, included in the cost of
the beverage.

4. a) After consumption, the consumer returns the
empty container to the retailer.

b) The consumer has the deposit refunded to
them on return of the empty container.

5. The manufacturer, commercial recycler, or central
administrator collects the empty beverage
containers stored at the retailer and transports
them to the processing plant (where they are
processed and recycled, or exported for material
revenue)

6. Both the retailer and processing plant report the
number of returned containers to the central
system.

7. The central system then repays the deposits to
the retailer in accordance with the number of
reported returned containers.

3.1.2 A NUMBER OF POSSIBLE CONFIGURATIONS EXIST FOR A DRS, EACH WITH ITS
OWN COST IMPLICATIONS

Figure 1: Basic structure of a DRS

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 9


Several possible variations in the DRS configuration exist as
outlined in Table 1 below. CAPRI has chosen to analyse the
most relevant of these variations with respect to the Jamaican
case, as indicated in the last column of the table.

As the table shows, no quantitative analysis is done with respect
to the managing entity of the DRS. As this study conducts
an economic analysis, only the cost of managing the DRS is
analysed, not who manages it. The choice of managing entity
may have implications for the efficiency and effectiveness of
the DRS, however, and this is analysed qualitatively in the
recommendations.

In terms of return points, we analysed the economic impact
of having a DRS based on a few large redemption sites/depots,
compared to several smaller collection and intermediary
processing points. The former model is similar to the model
currently used for the handling and processing of PET bottles
in Jamaica by RPJL, whereas the latter is similar to the model
used in most countries which have adopted successful DRS.
The situation of a combination of both is not analysed as it is not
common, but we could expect that a combined system would
lie somewhere in between the two models analysed. Within
the retailer model, we also analyse two different possibilities:
manual collection and accounting, and automated collection
and accounting through the use of reverse vending machines
(RVM) (section 3.1.3 explores the RVM model in greater
detail).

MANUAL RETURNS SYSTEM:
Customers return empty containers to the retailer (who may
have designated employees responsible for the task,) who count
the bottles, refund the deposit (either via cash or store credit,)
and take the containers to the processing area for storage, with

or without prior compaction, until pick-up, typically done on
a pre-determined schedule (according to expected volumes)
in agreement with the collection agents. The containers are
transported to a central depot to be weighed, to reconcile
the count, and retailers are accordingly reimbursed for the
deposits they have refunded.

AUTOMATED RETURN SYSTEM USING A
REVERSE VENDING MACHINE (RVM):
Customers deposit used (empty) drink packaging into the
RVM, which returns either money or a voucher for store credit
voucher to the user. Containers returned in the RVM are
scanned, identified (matched to a database) and determined
to be a participating container; once confirmed as an eligible
container it is counted (and a refund provided) and compacted
to reduce size and storage space requirements. RVMs may be
digitally connected so that collection data can be transmitted
to the body responsible for the administration of the DRS.
Such information facilitates the scheduling and optimisation
of collections and allows faster accounting within the system
for reconciling payments to retailers.

We analyse, based on the costs of the DRS, how the DRS
infrastructure (return and collection points, transportation
etc.), could be financed. Here, we examine whether and for
how long the unredeemed deposits and revenues from PET
material sales would be sufficient to cover set-up and operation
costs, and the amount of additional financing that may be
required from other sources, for instance via manufacturers,
through the payment of joining and/or handling fees. The
case of a partial rebate is not analysed, as it is not commonly
used in DRS around the world and introduces additional
complexity which we do not recommend at the outset of DRS
implementation.

10 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


Table 1: Possible variations in the structure of a DRS

Key Elements Variations Analysed

Managing Entity

Management of
Central System

NGOs Qualitative
analysis only

Industry bodies – manufacturers, importers, retailers

Public and private sector partnerships

Combination of various stakeholders

Return Points Number Types

A few large points Large redemption sites/depots

Several points of smaller size Retailers (large and/or small)

Combination Combination of different types

Financing Possible Sources How

Bottlers/Manufacturers Through payment of handling fees to
retailers and recyclers to offset their
operational costs

Through joining and annual fees paid to
the central system to cover expenses of the
DRS

Consumers “Unredeemed deposits” – the value of
deposits not claimed by consumers

Partial rebate – a portion of the deposit
value which is not returned to the
consumer but kept for financing the DRS

Material Purchasers Revenue from sale of PET material to
material purchasers for further processing
and/or export for recycling

Source: Based on CAPRI, 2018

As this study conducts an economic analysis, only the cost of managing the
DRS is analysed, not who manages it. The choice of managing entity may
have implications for the efficiency and effectiveness of the DRS, however,
and this is analysed qualitatively in the recommendations.

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 11


A DRS system is vulnerable to fraud, as persons may attempt
to return the same bottle several times to recuperate multiple
refunds. Fraud can be reduced by:

» Ensuring the returned bottles, once accounted
for, are stored in a secured (locked) location with
restricted access; and

» Destroying returned bottles, once accounted for,
for instance by crushing or shredding.

We conduct the analysis for two possible means of minimizing
fraud in the retailer model: 1) use of compactors/crushing
machines at the point of collection, for the case of manual
returns; and 2) use of reverse vending machines (RVMs) with a
compacting function, for the case of automated returns. In the
manual returns system, only intact (uncrushed) bottles would
be accepted for returns. At the point of return (the retailer)
compacting machines crush the bottles prior to storage so

that they cannot be redeemed a second time. In the automated
returns system, containers are compacted by the RVM itself
preventing redemption more than once. In addition, RVMs
have been shown to achieve sixteen percent cost savings per
container compared to manual redemption;11 this savings is
factored into the cost-benefit analysis of section 4.

In the depot model, the main means for preventing fraud
would be to store bottles in a secure area on-site until they are
placed for processing. This is currently the method practiced
by RPJL.

In the early stages of the DRS, consideration must also be
given to prevent bottles which were in the market prior to the
introduction of the DRS, from being redeemed for refunds
under the DRS. The use of labelling or barcode information,
to indicate the eligibility of bottles for refund under the DRS
would take care of this problem.

3.1.3 THE NEED FOR FRAUD PREVENTION MECHANISMS, AND THE LEVEL OF
AUTOMATION AND TECHNOLOGY EMPLOYED, ALSO HAS COST IMPLICATIONS

As recovery rates increase, the greater the infrastructure costs
due to the need for more collection points, transportation
services and processing equipment. However, with greater
recovery rates, fixed costs of a DRS are spread over a larger
number of bottles, lowering the recovery cost on a per bottle
basis. At the same time, the higher the recovery rates, the
greater the overall benefits to be realized in terms of avoided
costs of solid waste management, litter and flooding. Recovery
rates therefore influence both costs and benefits of the DRS;
they depend primarily on the deposit/refund amount and the
convenience of bottle return.

CAPRI conducted a survey to obtain public feedback on
required features of a DRS for Jamaica to encourage public
participation. Responses provided insight on the required
deposit/refund amount and level of convenience that would be

required to incentivise persons to return bottles to collection
points.12

In terms of the level of convenience, CAPRI’s survey results
indicate that – for those members of the population that would
not voluntarily return their plastic bottles – roughly 90% of
the population would require that the points of return be
within five minutes’ drive or walk for them to be incentivized
to return their bottles. A significant proportion of respondents
indicated the desire to have collection points located at places
that they would be likely to go anyway as a matter of course,
or not far off from their regular daily commute. Table 2 gives
an overview of the survey results in relation to the required
level of accessibility of collection points required to incentivise
consumers to return their bottles.

The collection point most often cited as convenient was large

3.2 RECOVERY RATES IMPACT DRS COSTS;
A DRS FOR JAMAICA ASSUMES 60%
RECOVERY WITHIN TEN YEARS OF
IMPLEMENTATION

11 S. Edwards (2018)
12 The survey received 223 responses at the time of publication

A DRS system is vulnerable to fraud, as persons may attempt to return the
same bottle several times to recuperate multiple refunds.

12 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


Table 2: Willingness to return bottles based on accessibility of collection points

TIME TO COLLECTION POINTS (MINUTES) % OF RESPONDENTS WILLING TO RETURN BOTTLES

0 100%

5 93%

10 77%

15 35%

20 13%

Table 3: Expected recovery rates based on deposit amount

DEPOSIT (REFUND) AMOUNT % RECUPERATION INCENTIVIZED WITH
DRS IN NON-VOLUNTARY POPULATION

J$ CAPRI survey

1 11%

2 26%

3 27%

5 83%

15 97%

20 99%

50 100%

supermarkets (91% of respondents). Depots were significantly
less desirable as collection points (41% of respondents). Given
these results, we expect that recovery rates achieved using
depots as collection points – where there may be only one or
a few per parish – would be lower than that achieved using
major retailers such as supermarkets as collection points.

The survey indicated that, for those members of the
population that would not voluntarily return their plastic
bottles (i.e. those that would require a monetary incentive
to return their bottles,) 25% of respondents would require a
minimum deposit amount of J$2 to return rather than throw
away their plastic bottles, and approximately 80% of persons

would require a deposit amount of J$5 to return rather than
throw away their bottles. In other words, a deposit amount
of J$2 would be required to achieve an additional 25% in
the recovery rate (from the current level based on voluntary
returns,) whereas a deposit amount of J$5 would be required
to achieve an additional 82 % in the recovery rate.

Table 3 shows the expected recuperation rates based on the
results of the survey conducted by CAPRI, compared to the
calculated recuperation rates from applying equation 1 above.

These results are consistent with recovery rates seen around
the world. As seen in Table 3, recovery rates of 60-80% are
observed for deposit amounts of approximately J$5. Higher

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 13


recovery rates, above 85%, require significantly higher deposit
amounts ranging from approximately J$6 in Alberta, Canada
(recovery rate of 86%) to a high of almost J$14 in Denmark
(recovery rate 89%).

Based on data provided from manufacturers and distributors
of PET bottled drinks in Jamaica, there are currently a total
of 650 million PET bottles in circulation. The expected
trajectory for consumption of PET-bottled drinks, based on

Table 4: Recovery rates in a sample of DRS countries according to deposit amount

COUNTRY CURRENCY DEPOSIT AMOUNT PPP-ADJUSTED J$
DEPOSIT AMOUNT

RECOVERY RATE

Australia – South
Australia

AUS Pound 0.1 4.83 79%

Canada – Alberta CAN$ 0.1 5.71 86%

Denmark DKK 1.5 13.70 89%

Finland EUR 0.1 7.45 92%

Norway NOK 1 8.07 95%

USA – Michigan USD 0.1 6.89 97%

Israel Shekel 0.3 5.08 56%

Figure 2: PET-bottled drink consumption in Jamaica up to 2040

YEAR

N
O

. O
F

P
ET

B
O

TT
LE

S
IN

C
IR

C
U

LA
TI

O
N


(M

IL
LI

O
N

S
)

14 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


past growth trends, is shown in Figure 2 below.

Discussions with Jamaican manufacturers/distributors of
PET-bottled drinks – some with experience implementing
DRS in other countries in which they were present – concluded
that the following recovery rates were highly ambitious but
feasible:

» 25% within three years of implementation of the
DRS (by the end of 2021, if the DRS were to be

implemented in Jan. 2019)

» 35% within five years of implementation of the
DRS (by the end of 2023)

» 60% within ten years of implementation of the
DRS (by the end of 2028)

Figure 3 shows, based on the data collected in the survey, the
estimated deposit amounts that would be required to achieve
the above-mentioned recovery rates.

Figure 3: PET recovery rates according to deposit amount under DRS in Jamaica

Note that the recovery rates of Figure 3 assume that returning
bottles is convenient to the consumers. The convenience of
return will depend on the DRS model adopted. A depot-
based model is likely to be less convenient than models in
which a larger number of easily accessible collection points
exist. We would therefore expect recovery rates for a depot

model DRS to be somewhat lower than indicated in Figure 3.
However, for ease of comparison in choosing the most cost-
effective model to employ for a DRS in Jamaica, we analyse
both retailer and depot models assuming the same recovery
rate for both types of models.

The cost-benefit analysis assumes a uniform deposit (return)
amount for all PET bottles irrespective of size. A few DRS
internationally employ different levels of deposits according
to the size, and in some cases the colour of the bottle, however,
we suggest that a single uniform return amount be employed
so as not to introduce additional complexity to the system.

Minimizing the complexity at this level will give the DRS a
greater chance of functioning smoothly, at the very least in the
early stages when the system is still being learnt. Differences
in sizes and colours can be introduced at the level of handling
fees, if applied.

3.3 A UNIFORM DEPOSIT AMOUNT IS ASSUMED
FOR ALL PET BOTTLES IRRESPECTIVE OF SIZE

YEAR

P
ET

R
EC

O
VE

R
Y

R
AT

E

D
EP

O
S

IT
V

A
LU

E
(J

$
)

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 15


4. RESULTS OF THE ANALYSIS

Two types of cost-benefit analysis are conducted:

1. Cost analysis to compare alternative configurations for implementing the DRS;

2. Cost-benefit analysis to assess the value of a DRS for Jamaica compared to the cost
of implementing it.

The cost-benefit analyses are conducted with respect to the economy as a whole, not from the point of
view of any specific actor within the DRS system.

16 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


In comparing alternative configurations for the DRS, we
analyse the following, as mentioned in section 3.1.2:

1. Retailer model with manual return system

2. Retailer model with automated return system

3. Depot model13

Costs are assessed up to the point of achieving processed
(crushed) bottles stored at the depot for collection by
material purchasers. The costs analysed with respect to each
configuration include:

» Operating costs associated with the
transportation of the PET bottles from consumers
to intermediate- and end- collection points;

» Investment and operating costs associated
with collection, handling and processing of PET
bottles; and

» Recurring costs for the administration of the
DRS.

Other costs, such as the environmental costs of greenhouse
gas emissions associated with transportation of PET bottles,
with and without DRS, are not assessed in this study.

Table 5 shows the various configurations considered in the
cost-benefit comparison, and Table 6 the main cost items for
each configuration. As can be seen from Table 5, in the retailer
model, we consider two possible options for transportation of
the crushed containers from retailers to depots: using trucks
which are externally contracted by the central administration
body; and using trucks which are purchased and operated by
the central administration body. Further details on the data
assumptions used in the cost-benefit analyses are provided in
Appendix 6.1.2.

13 A manual returns system is assumed for the depot model.

4.1 ASSESSMENT OF ALTERNATIVE DRS
CONFIGURATIONS

The costs analysed with respect to each
configuration for the DRS include:

Operating costs
associated with
transportation of

PET bottles.

Costs associated
with handling and
processing of PET

bottles.

Recurring costs for
the administration

of the DRS.

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 17


Table 5: Components of the DRS configurations analysed

Abbreviation Description Point of
collection and
processing

Means of
handling

Transportation
means

Ret-Man-Out » Consumers bring bottles on their regular trips
to retailers e.g. supermarkets

» Bottles are manually handled and crushed by
balers located on-site

» Transportation companies are hired by the
central administrator to transport bottles to
large central depots to be accounted for prior
to collection by material purchasers

Retailers Manual Contracted by
DRS managing
entity

Ret-Man-Int » As above, except that the transportation
of bottles to central depots is done by
trucks owned and operated by the central
administrator

Retailers Manual Trucks owned
by DRS
managing entity

Ret-RVM-Out » Consumers bring bottles on their regular trips
to retailers e.g. supermarkets

» Bottles are fed into a RVM where they are
counted and crushed on-site

» Transportation companies are hired by the
central administrator to transport bottles to
large central depots to be accounted for prior
to collection by material purchasers

Retailers RVM Contracted by
DRS managing
entity

Ret-RVM-Int » As above, except that the transportation
of bottles to central depots is done by
trucks owned and operated by the central
administrator

Retailers RVM Trucks owned
by DRS
managing entity

Depot » Consumers make dedicated trips to the depots
to return bottles

» Bottles are manually handled and crushed by
balers located on-site

» The central administration does not undertake
transportation

Depot Manual Consumer

18 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


Table 6: Main cost items included for each configuration

DRS
Configuration

Investment Cost Recurring Costs

Ret-Man-Out I1 Mini-Balers R1 Labour

I2 Bottles/Refunds accounting software R2 Non-labour (utilities, e.g.) storage space

R3 Regrouping depot – land lease

R4 Regrouping depot – operating cost

R5 Transportation cost (externally
contracted)

R6 Central administration (includes central
system accounting, monitoring, customer
service, education and public relations)

Ret-Man-Int I1, I2 as above R1 to R5 as above

I3 Trucks R7 Fuel + Labour for operation of trucks

Ret-RVM-Out RVM R1 to R6 as above

Ret-RVM-Int I3 as above R7 as above

Depot I4 Processing depot – capital cost R8 Processing depot – land lease

R9 Processing depot – operating cost

R10 Fuel costs for consumers

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 19


The analysis shows that the retailer model, with automated
(RVM) returns and outsourced transportation is the least-
cost configuration for a DRS in Jamaica, costing the economy
approximately $J500 million by 2040.

Figure 4 shows the economic costs of various DRS
configurations. In all cases, the retailer model incurs
significantly lower economic cost than the depot model.
The very high costs of the depot model are due primarily to
recurring costs, as shown in Figure 5, which are due to the
cost in fuel to the consumer of transporting bottles to depots
(refer to Figure 6), which represent approximately 80% of the
economic cost of the depot configuration. In the case of the
retailer model, the cost in fuel to the consumer is considered
negligible since s/he would be going to the retailer to conduct

other business anyway, and would simply return the empty
bottles during the same trip. In the depot model, consumers
would have to make a specific trip to the depot to return
the bottles, and would not be travelling to the depot for any
other reason. In terms of fixed costs (refer to Figure 5), the
investment outlay of systems employing manual returns is
lower than systems using automated returns where RVMs
must be purchased, producing lower fixed costs. Also, as
expected, the investment cost is higher for the configuration
where transportation is undertaken through purchasing and
operating trucks internally versus outsourcing transportation
to an external company, resulting in higher fixed costs. On the
other hand, the higher outsourcing of transportation incurs
higher recurring costs.

4.2 THE RETAILER-BASED MODEL, WITH
AUTOMATED RETURNS SYSTEM, IS THE LEAST-
COST DRS CONFIGURATION

11 S. Edwards (2018)
12 The survey received 223 responses at the time of publication

Figure 4: Economic cost of various DRS configurations

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n Ret-Man-Out n Ret-RVM-Out n Ret-Man-Int
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2018 2025 2033 2040

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20 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


A closer look at the retailer-based DRS configurations (Figure
7) shows the automated returns systems to be lower cost than
the manual returns systems. It also shows that overall, when

both investment and recurring costs are taken into account,
systems with outsourced transportation are lower cost than
those where transportation is executed with purchased trucks.

Figure 5: Comparison of fixed and recurring costs for various DRS configurations (2019 snapshot)

Figure 6: Breakdown of recurring costs for depot-based DRS configuration (2019 snapshot)

Ret-Man-Out Ret-RVM-Out Depot

80.3%

13.2%

4.3%

2.2%

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ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 21


Figure 7: Economic cost of retailer-based DRS configurations

The second cost-benefit analysis looks at the cost of
implementing a DRS, compared to the benefits of a DRS to
the Jamaican economy.

The benefits assessed with respect to DRS implementation
include:

» Avoided cost of solid waste management (SWM)
by NSWMA

» Avoided cost disamenity from PET litter

» Avoided cost associated with flooding caused
from drains blocked by PET litter

» Revenues from sale of processed PET for
recycling

» Revenues from unredeemed deposits

The avoided cost of SWM of PET recuperated in the DRS is
the cost that would otherwise be incurred to transport and
landfill PET. This is estimated to be approximately J$10.5 per
kilogram, based on the current costs of transporting PET, and

factoring in an additional twenty percent provision each for
landfilling and overhead. The avoided cost of SWM is thus the
per kilogram cost multiplied by the quantity, in kilograms, of
PET removed from the waste management stream as a result
of implementation of a DRS.

The avoided cost of disamenity from PET litter is estimated
based on studies carried out in England and Australia on
citizens’ willingness to pay to reduce litter.14 These studies
found that citizens were willing to pay £40 to £50 per year in
2014 money (on average £45/year) to reduce litter. Based on
relative purchasing power parity, the equivalent willingness
to pay by Jamaican citizens is determined to be £0.50/year or
roughly J$96/year per citizen. On this basis, the equivalent
annual willingness to pay of the Jamaican population of 2.7
million persons is roughly J$260 million per year to reduce
improperly disposed of waste. The benefit attributable to the
DRS is therefore the proportion of this expense that would
be avoided based on the increased quantity of PET waste
removed from improperly disposed of waste, as a result of the

4.3 THE ECONOMIC BENEFITS OF A DRS IN
JAMAICA FAR OUTWEIGH THE
ECONOMIC COSTS

14 Eunomia Research and Consulting (2014), based on Cambridge Economic Associates (2010) and based on PricewaterhouseCoopers (2010)

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Table 7: Evaluated benefits of a DRS

Source of Benefit Value of Benefit (mill JMD/yr)

2019 2040

SWM Cost Savings 4.7 123

Avoided dis-amenity from litter 0.34 4.2

Avoided flood-related costs 3.9 47.6

PET Sales 16.7 204

Unredeemed Deposits 575 819

TOTAL 600 1,198

DRS.

The costs from flooding are estimated as the value of time lost
by employed Jamaicans, on their daily commute, as a result
of flooded roads from blocked drains due to improperly
disposed waste, part of which results from PET in the
waste. It is well known that even light rainfall in Jamaica
causes significant traffic disruptions and longer commutes,
particularly in urban centres. It is estimated that on average
commuters lose thirty minutes of productive time as a result
of flooding after each moderate rainfall event, and that there
are five such events annually. Based on average weekly salaries
of all employees in Jamaica, the value of time is estimated at
J$1062/hour per employee, or J$531 per moderate rainfall
incident. On an annual basis, this is equivalent to roughly J$3
billion per year in productive time lost due to rainfall. This
lost value is attributed to the total amount of waste which is
improperly disposed of each year. According to the Ministry
of Local Government, approximately twenty-five percent of
waste is improperly disposed of.15 Attributing the cost of lost
time to the amount of waste improperly disposed of results in
a loss of J$11.3 per kg of improperly disposed of waste. With a
DRS fewer PET bottles are improperly disposed of, reducing
the amount of improperly disposed of waste and thus flood-
related costs. This is because the DRS ascribes a value to PET
bottles increasing the likelihood of recuperation, in line with
the trend shown in Figure 3. The reduced flood-related costs
resulting from a DRS can therefore be considered a benefit to
be attributed to the DRS.

PET material recovered through the DRS can be exported
and sold to PET recyclers. Currently RPJL sells its PET
material to an intermediary to be exported for recycling; a

similar practice is envisaged under a DRS. Revenues from
the sale of PET material recuperated through the DRS are
calculated using the current PET selling price received by
RPJL of roughly for J$5.5/lb or J$12.1/kg.

As shown in Figure 1, when the consumer purchases a PET-
packaged drink s/he pays a deposit price which goes to the
central administration system. If the empty bottle is not
redeemed for a refund the value of the deposit remains with
the central administration. Unredeemed bottle deposits are
therefore a source of revenue within a DRS, as no DRS is likely
to achieve a one hundred percent recovery rate. The benefit
from unredeemed deposits is simply the deposit amount
multiplied by the number of unredeemed bottles, which is the
total number of bottles in circulation, less those recuperated
in accordance with the trend shown in Figure 3.

Table 7 shows the results of evaluating the benefits of a DRS.
As can be expected the benefits are greater in 2040, where
recovery rates approach eighty-five percent compared to
the start of the system where recovery rates are around ten
percent. Savings in the costs of solid waste management are
J$122 million in 2040, and J$48 million of productive time
is saved under a DRS. In addition, the avoided disamenity
from PET litter is J$4.1 million in 2040. The largest benefits,
however, come from the revenues generated by the DRS itself,
with PET sales generating approximately J200 million/year
in revenue by 2040 and unredeemed deposits accounting
for over J$ 1 billion. Note that although a greater percentage
(85%) of bottles is recovered in 2040 compared to 2019 (10%),
the deposit value to attain that level of recovery is very high
at J$10 per bottle, hence the high level of revenues generated
from unredeemed deposits.

15 JIS (2016).

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 23


In terms of how the benefits measure up to the costs of a DRS,
we compare the benefits to the costs of both the highest and
the least-cost DRS configurations. As Figure 8 shows, the
benefits of a DRS largely outweigh the costs for the least-
cost choice of DRS, which is the retailer-based model with
automated returns and outsourced transportation; benefits

do not cover the costs of the highest-cost DRS which is the
depot-based configuration. The choice of DRS configuration
is therefore decisive in whether the implementation of a DRS
is of net benefit to the economy or not.

Figure 8: Costs and benefits of DRS in Jamaica

The cost-benefit analysis includes all economic costs and
benefits of a DRS, including non-financial benefits such as
avoided costs of disamenity from PET litter. It, however, does
not tell us if the revenues from the DRS cover its costs, and
thus if it can be self-financed or requires funding from other

sources, for instance through joining and/or handling fees
(paid by manufacturers and distributors) as is done in some
countries. Revenues from the DRS include the value of PET
sales and unredeemed deposits.

4.4 A DRS IN JAMAICA IS SELF-FINANCING

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Figure 9: Revenues from the DRS compared to its costs

As seen in the figure, in the earlier years of the DRS, the system
generates significantly more revenues than are required to
finance the system, and is therefore self-financing. This is
due to the relatively low redemption rates in the early years
of DRS implementation. However, from 2032 onwards, where
recovery rates are eighty percent and higher, the revenues
raised from PET sales and unredeemed deposits and the costs
of financing the DRS start to converge.

Excess revenues should be used to cover the costs of recovery
from large PET-packaged drink consumption points, such as
schools and hotels (refer also to section 5.7). Unlike the general
consumer, who would effect her/his returns at a retailer where
s/he would be doing business anyway, these large consumption
centres would require their own collection and transportation
services to be able to get their PET-packaged products to the
redemption points. The costs of collection at these locations
e.g. collection bins, transportation to processing centres and
actual processing have not been included in the previous cost-
benefit analyses, which have centred around recovery from
the general consumer, and should be covered by the DRS.

Revenues should be reinvested into the DRS infrastructure
and operations, to constantly improve its efficiency and
effectiveness.

Finally, the revenues could be used to provide a partial
rebate on the costs of the environmental levy borne by
manufacturers and distributors, to provide them with an
incentive to make individual efforts, through their marketing
and awareness-raising channels, to incentivise consumers
of their brands to return their used PET bottles. Under an
industry-owner led DRS (refer to section 5.4), it would also
encourage manufacturers and distributors to join the DRS.
Manufacturers and distributors would receive a contribution
towards the costs of their environmental levy in proportion to
the level of returns of their bottles within the DRS. The partial
rebate would only be allowed if the DRS meets its recovery
targets. Figure 9 compares the value of excess revenues under
various DRS configurations to the cost of the environmental
levy in 2019 and 2040.16 Depending on the DRS configuration
adopted, the cost of the environmental levy can be at least
partially compensated, for manufacturers who join the DRS.
Providing incentives to manufacturers for participating
in a DRS is not uncommon, for instance, in Finland,
manufacturers and distributors who participate in the return
systems, are exempted from the beverage packaging tax.

16 The amount of the environmental levy is estimated using the value of the finished product only. That is, the environmental levy is calculated at a rate of 0.5%
on 75% of the selling price, excluding GCT. In reality, the tax applies as such for locally manufactured goods only. At least 25% of PET-packaged drinks
in the country are imported, and would therefore have the environmental levy of 0.5% applied to the cost, insurance and freight value of the imported good.
However, in absence of detailed information on the value of PET-packaged imports, an estimate based on assuming all drinks are locally manufactured is
expected to provide a reasonable estimate (for details on how the environmental levy is applied, see: www.jamaicatradeandinvest.org/faqs/what-environmental-
levy-and-how-it-applied)

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ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 25


Figure 10: Excess revenues under various DRS configurations compared to
the cost of the environmental levy to manufacturers

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5. CONCLUSIONS AND
RECOMMENDATIONS

From the analysis it is evident that the economic benefits of a DRS largely outweigh the costs, and
should therefore be implemented as a means to manage PET bottle waste. Different DRS configurations
do, however, entail different costs and a cost-effective DRS configuration should be adopted for its
implementation to be of net benefit to the economy. A retailer-based model, with collections done
at major retailers across the country, is more cost effective than a depot model – indeed the depot
model’s costs outweigh its benefits. The most cost-effective DRS configuration is one using retailers as
collection points, and one which is based on automated returns using reverse vending machines. Here,
any fixed and operation costs that would be borne by retailers when participating in the DRS would
be covered through revenues generated by the DRS, as the retailer is not expected to cover these costs
itself.

5.1 A DRS IS ECONOMICALLY AND
FINANCIALLY VIABLE FOR
MANAGING PET WASTE IN JAMAICA,
BUT MUST HAVE HIGH ENOUGH
DEPOSIT RATE TO BE EFFECTIVE

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 27


For the medium term a DRS appears to be self-financing with
the revenues from unredeemed deposits being sufficient to
cover the costs of implementation. Excess revenues should
be used to cover the costs of collection and processing of
PET bottles of large centres such as hotels and schools, who
would have to entail additional costs e.g. transportation to get
their PET-packaged products to redemption centres, unlike
consumers who would be making returns to retailers where
they would be doing business anyway. Excess revenues from
the DRS should also be used to provide a partial rebate to

manufacturers and distributors on their environmental levy.

Successful implementation of a DRS requires that the deposit
level be sufficient to incentivise returns. The deposit should
be progressive, to allow consumers time to become aware of
the system and accept it, and gradual ramping up of recovery
rates.

Successful DRS implementation entails a number of additional
considerations and recommendations are provided in the
following sections.

Under the current model of voluntary returns, collection
points are located at RPJL depots and a handful of voluntary
collection points, such as Jamaica Environment Trust
(JET) premises. CAPRI’s survey indicates that achieving
larger recovery rates will require that redemption points,
for returning containers and obtaining refunds, be easily
accessible. It will also require that collections be facilitated
regularly and at convenient times.17 The current system
of collection points in Jamaica is not compatible with a
convenient and easily accessible returns system and would
therefore need to be revisited. Likewise a DRS based on a
depot-based configuration, in which consumers would need
to go to dedicated depots/collection centres to make their
returns and get a refund, would not be considered convenient
to the majority, based on the results of CAPRI’s survey.

Consumers would have no cause to go to these locations
otherwise and would thus have to make a dedicated trip to be
able to drop off their bottles. In addition, many existing depots
and collection points currently do not accommodate drop-
offs on weekends, which is when most persons would have
time to drop off their bottles. CAPRI proposes that a DRS be
based on integrating major retailers e.g. supermarkets, where
many consumers are likely to go to in the course of doing
regular business as collection and redemption centres. The
retailer-based model is supported by the cost-benefit analysis
as the better model; indeed, the depot-based model is not
attractive from an economic cost-benefit point of view. The
retailer-based model could be approached in phases, starting
for instance with large supermarkets and gradually including
a larger number of smaller retailers.

17 For instance, according to research by Nicole Garafano, the Pacific island of Palau is not known for an efficient system, where collections from consumers
are only conducted once a month, resulting in long lines and frustration for consumers.

5.2 CONVENIENCE OF RETURNS IS KEY TO A
SUCCESSFUL DRS

Successful implementation of a DRS requires
that the deposit level be sufficient to
incentivise returns.

28 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


18 Eunomia. Personal communication (in-house leaflet comparing RVM with manual returns systems)
19 Ibid

A central body should manage and administer the DRS to
ensure its smooth operation. The central administration body
would be responsible, at a minimum, for:

» designing the system

» developing, organising and overseeing the
logistics of the DRS

» accounting for bottles returned under the system
and monitoring recovery rates and compliance

» administering the deposits (refunds) and
any handling fees to be paid to retailers for
participation in the scheme

» acting as a focal point for the flow of information
and finances within the system

» communications concerning DRS operations

» facilitating progress towards meeting recovery
targets

A key role of the central administration body is to ensure
compliance and prevent fraud; having a single entity to oversee
these functions, increases the effectiveness of monitoring and
fraud prevention. Aggregating all managerial functions and
operational responsibilities under a single entity also allows
greater economies of scale. A central administration entity
should ensure that unredeemed deposits are ring-fenced to
ensure funds are always available to pay refunds. Transparent
management of funds will be required to ensure unredeemed
deposits and revenues from PET material sales are used
towards agreed uses e.g. collections from hotels and schools,
reinvestment in DRS infrastructure and, as relevant, partial
rebates on the environmental levy.

The administrative body may choose to undertake some parts
of the logistics themselves, or simply act as a coordinating
body (for instance, as in Finland), which assures that all the
required services of the DRS – collection, transportation,
processing – are contracted and performed according to

stipulated requirements. Currently, the RPJL – the managing
and administrative body of the centralised PET bottle
recycling system in Jamaica – assumes its own collection
and transportation, and operates the processing depots.
However, as the analyses have shown, it is more cost-effective
to outsource collection and transportation services. Given the
RPJL’s central role and experience to-date in managing the
collection and recycling of PET, they are a likely candidate
for the central administration entity. However, with the
expanded operations that would be expected under a DRS, the
RPJL should consider whether it should continue to assume
operational responsibilities or focus solely on the management
and administration of the system. We recommend, that if the
RPJL were to assume the role of administrative body, that it
focus primarily on organization, management and oversight
of the DRS and minimize its involvement in operational
activities. Operational activities, such as transportation and
processing could be outsource to increase the efficiency
of operations. Isolating management and oversight
activities from operational activities would also enhance
the transparency of the central administration. Having a
separate management and administrative entity, which has
no involvement in operational activities, is common practice
in industry-led systems. In Finland for example, Palpa, the
administrative body, does not own any operative sections of
the DRS, such as transport equipment or recycling plants, they
solely manage and develop the operations of the system. RPJL
indicates that their experience with outsourcing transport has
not been particularly positive, as contractors do not always
fulfil their obligations as required, with material sometimes
left to stockpile at collection centres e.g. schools, exceeding
the collection/storage capacity of these centres and creating
health risks. This problem could possibly be addressed by
contracting the transportation services under a competitive
bidding process, with minimum service conditions specified
in the terms of reference and contract to the winning party;
failure to meet those conditions would be met with a financial
penalty.

5.3 A CENTRAL ADMINISTRATION BODY SHOULD
MANAGE THE DRS

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 29


20 Ibid
21 Ibid

22 Ibid
23 S. Edwards (2018).

The majority of successful and cost-effective DRS around
the world are brand owner-controlled systems, that is,
manufacturers, distributors and DRS-participating entities,
such as supermarkets, lead and control the DRS. In Norway,
for instance, the central administration entity is wholly owned
by industry, including the brewery and beverage association,
and the grocery store association, with its board of directors
including representatives from Norway’s leading grocery
chain, Coca Cola, and two of Norway’s major breweries.18
In Oregon, the beverage recycling cooperative is owned by
one hundred and eight of Oregon’s beverage distributors and
grocery retailers.19 The RPJL, which already has significant
experience in the management and operation of Jamaica’s
current PET collection and recycling system, and whose
board includes representatives from Jamaica’s largest PET-
packaged beverage suppliers, is a good candidate to assume
the role of central administrator. The Board should, however,
be diversified to include other major players in the DRS
value chain, to include for instance representatives from the
private recycling industry and major retailers such as large
supermarket chains.

STATE-RUN SYSTEMS
State-owned systems tend to be less flexible to accommodating
changes in the evolution of the DRS and do not reinvest
sufficiently in DRS for ongoing operational efficiency. In
Connecticut, for instance, the handling fee received by
retailers, established at the inception of the system in 1983, has
not changed and does not reflect actual costs (which are higher
than the handling fee currently paid.)20 State-run systems also
undermine brand-owners’ product stewardship,21 which not
only removes the sense of responsibility from brand-owners
but disempowers them. By allowing brand-owners to lead the
effort in PET management, there is greater engagement of
industry, and redemption rates tend to be higher as there is
flexibility to ensure the system functions and adapts according
to evolving needs. As brand-owners are also the most
knowledgeable source of costs and logistics related to their
products’ distribution and use, they are the best placed to lead
the design of the DRS, to monitor its operation, and identify
efficiency improvements. Indeed, systems in which the state
acts as the central administration entity, such as in California,
do not allow brand owners to effectively control their costs;

state-run systems as obtains in the case of California, also
have higher administrative overhead costs than comparable
producer-controlled systems.22
Government does play an important role as it should establish
recovery targets in line with those mentioned in this study;
as the targets increase over time, there is a goal towards
continuous improvement in the system. Under an industry-
led system, however, industry is responsible for determining
how those targets should be met i.e. how the DRS should be
structured and run to meet those targets. An efficiently-run
DRS, with a high enough deposit, and in which returns are
convenient, should enable targets to be attained. The level of the
deposit should be regularly reviewed to ensure it incentivizes
returns. For instance, in Oregon, where a brand-owner led
DRS is in place, legislation allows for the level of the deposit to
be revised if the recovery rate drops below eighty percent.23 A
failure to meet targets could be accompanied by penalties, to
ensure that manufacturers and distributors have an incentive
to work towards recuperating the targeted number of PET
bottles. A penalty could be in the form of foregoing any rebate
on the environmental levy. Failure to meet targets should also
signal a need for increased investment in infrastructure to
enhance the ease and efficiency of redemption, and possibly a
need to reduce fraud.

5.4 THE DRS SHOULD BE INDUSTRY-LED
AND OWNED

State-owned systems tend to be less flexible to accommodating
changes in the evolution of the DRS and do not reinvest
sufficiently in DRS for ongoing operational efficiency.

30 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


PET-packaged bottles should have a label which indicates
to the consumer that the empty bottle qualifies for a refund
and the amount of that refund. Adjusting the labelling for
locally-manufactured PET-packaged drinks is relatively
simple, as it can be controlled in the production process to
ensure labels meet the requirements at source. However, for
imported products, it is unlikely that importers purchase in
volumes that would give them sufficient buyer power to be
able to convince producers to manufacture a label specifically
to accommodate the requirements of a Jamaican DRS. In
such cases, bottles would have to be labelled upon entry
into the country and prior to sale. This could be done for
instance through the placement of a sticker on the original
manufacturer label. Some manufacturers/distributors have
suggested that imported bottles be subject to a tax at the port
equivalent to the amount of the deposit which is in effect
in the DRS. However, this is not recommended as this will
incur additional transaction costs in terms of monitoring
and managing funds collected at the port to be brought into
the decentralised DRS fund. Moreover, operating a separate
system would require implementing additional controls to
ensure a level of monitoring and accountability that could
effectively control fraud, which would also incur transaction
costs.

The accountability mechanism should ensure that returns can
be identified according to the manufacturer or distributor,
since manufacturer/distributor-specific information on
returns will be useful for aspects such as:

» Determining the allocation of any incentives
linked to manufacturer return rates e.g. partial

rebate on the environmental levy;

» Determining the allocation of any additional
costs. In the case where the DRS revenues
cease to cover its costs, manufacturers could
for instance be required to pay handling fees in
proportion to the volume of their brand which is
collected and processed in the DRS; and,

» Monitoring recovery rates for individual brands,
to identify whether additional marketing efforts
may be required by to enhance their recovery
rates.

The accountability mechanism should allow for recording
and reporting by retailers/collection centres on the amounts
of bottles collected/refunded, by manufacturer, and the total
deposits paid. It should also allow for cross-checking and
verification of reported amounts, by the administrative entity,
who effects refunds to retailers based on verified amounts.
The frequency of reporting should be such that the retailer,
which upfronts the cost of refunding deposits to consumers,
is not out of pocket for a long period of time or for an amount
which will significantly burden its cash flow. The reporting
frequency should therefore be determined through careful
analysis and consultation with participating retailers/
collection centres. It should be noted that RVMs include
digital counting and online connection features, which allows
for faster accounting for and reconciling of returns, enabling
retailers to be paid more quickly. RVMS also provide central
administrators and distributors with quicker access to more
reliable data on redemption rates by beverage type.

5.6 INFORMATION AND ACCOUNTABILITY IN DRS

Some up-front capital will be required to finance the cost of
equipment and infrastructure for the DRS, as well as to operate
the DRS in the first year, while revenues are just starting to be
generated. Upfront costs include the costs of the participating
retailers/collection centres, for acquiring equipment e.g.
RVM, as well as the costs of any additional depots that may be
needed to handle increased operations. Additional year one

costs include storage costs for retailers/collection points, costs
of additional staff to oversee the returns system, and costs of
transportation and processing. In order to cover upfront and
year one costs, the government could provide a loan to the
DRS administration body, to be repaid as the DRS system
starts to generate its own revenues.

5.5 INITIAL INVESTMENT AND YEAR ONE
OPERATION COSTS CAN BE FUNDED THROUGH
A GOVERNMENT LOAN

Some up-front capital will be required to finance the cost of equipment
and infrastructure for the DRS, as well as to operate the DRS in the
first year, while revenues are just starting to be generated.

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 31


Given that Jamaica has dispensed with tender less than J$10, and bottle deposits are likely to range from J$1 to J$5 for the
medium term, cash-based returns and refunds would need to be effected on the basis of counts of ten bottles. Alternatively, other
means of effecting refunds should be looked into, such as providing vouchers that could be used towards the purchase of goods
at participating retailers, or by refunding money to credit cards.

As mentioned in CAPRI’s earlier study,24 a DRS for PET bottles could function as a pilot for a wider pool of recyclable beverage
containers. Containers such as glass bottles and aluminium could be phased into the scheme. One major manufacturer/
distributor of glass-bottled drinks in Jamaica has already expressed interest in having glass bottles integrated into the DRS
system. Several DRS around the world, such as those in Europe, do treat several types of material; for instance the Finnish system
includes PET, glass and aluminium cans. Any DRS framework or policy should therefore contain provisions to allow for, or at
least not exclude, the inclusion of other beverage containers into the scheme.

5.8 THE PHASING OUT OF ONE- AND FIVE- DOLLAR
COINS HAS IMPLICATION FOR CASH RETURNS

5.9 THE DRS SHOULD ALLOW FOR INCLUSION OF
OTHER MATERIALS IN THE FUTURE

24 CAPRI (2018)

The cost-benefit analysis of DRS configurations is based on the
consumer bringing the bottles to the collection point. In the
case of large-scale consumers of PET-packaged drinks, such
as hotels and schools, we recommend that the entity charged
with managing the DRS assume the responsibility (whether
through their direct operations or through sub-contracting
a service provider) of collection and transportation from
these centres. This will relieve the burden from the hotels and
schools, who would be dealing in much larger volumes than
the general public, and who, unlike the general public, may
not have regular cause to go to retailers (redemption centres),
such as supermarkets.
The DRS framework should therefore include an obligation to
ensure collection of manufacturers’ PET-packaged products
that are sold and delivered to these institutions. The obligation
may be placed on the administrative body, who would factor
these collections into its costs to be covered through the DRS
revenues, or directly on the manufacturers/distributors, who
may effect collection through their own distribution systems
or through a separate service contract. The beverage supplier
could, for instance, pick up the transportation units in
connection with a beverage delivery, and deliver the returns
to the processing plant, with refunds made back to the hotel/
school. In Finland, hotels, restaurants, offices, schools and
different event organisers return deposit packages through
beverage suppliers.

5.7 ENGAGING COMMERCIAL ENTITIES WITH HIGH
BEVERAGE CONTAINER USE

32 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


6. APPENDICES

6.1 DATA AND ASSUMPTIONS OF
THE MODEL

Parameter Units Value

Exchange rate JMD/US 125

No. PET bottles in 1 lb /lb 25

Annual economic growth rate %/yr 2.5%

Employed population 1,129,840

Total population 2,730,894

Gross domestic product of Jamaica JMD

Fraction of household waste which goes to landfill % 75%

Fraction of household waste improperly disposed of % 25%

PET recovery from waste stream (2017) % 5%

6.1.1 GENERAL DATA AND ASSUMPTIONS

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 3333 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


Parameter Units Value

Exchange rate

Reverse vending machine – small JMD/US 125

(incl. shipping, customs duty, GCT) USD 27,000

Reverse vending machine – medium %/yr 2.5%

(incl. shipping, customs duty, GCT) USD 40,000

Mini-baler (for medium and large supermarkets/retailers) JMD 267,500

Mini-baler (for small supermarkets/retailers) JMD 89,000

Truck JMD 10,000,000

Processing depot – capital cost JMD/yr 11,500,000

Bottle/refunds accounting software JMD 12,500,000

Operation costs

Labour time per bottle seconds 8

Labour cost (minimum wage) JMD/wk 6,200

Non-labour costs of collection points e.g. utilities, storage space

Regrouping depot – land lease JMD/yr 3,600,000

Regrouping depot – operating cost JMD/yr 4,000,000

Regrouping depot – capacity kg/yr 4,000,000

Processing depot – land lease JMD/yr 3,600,000

Processing depot – operating cost JMD/yr 6,900,000

Processing depot – capacity lb/yr 1,000,000

Transportation cost (all-in, externally contracted) JMD/truck-load 10,000

Transportation cost, fuel (own trucks) JMD/litre 138

Transportation cost, mileage (own trucks) miles per gallon diesel 5

Transportation cost, labour (own trucks) JMD/day 5,000

6.1.2 DATA AND ASSUMPTIONS RELATED TO THE COST ANALYSIS OF
VARIOUS DRS CONFIGURATIONS

34 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


Parameter Units Value

Operation costs

Transportation cost, maintenance (own trucks) JMD/year 62,500

Truck capacity, uncompacted PET lb 4,500

Truck capacity, compacted PET lb 6,364

Average truck capacity factor % 70%

Round-trip distance of average collection route (for retailer model) miles 60

Transportation cost – consumers – fuel cost JMD/litre 138

Transportation cost – consumers – mileage miles per gallon
gasoline

23

Round-trip distance for consumer to depot (depot model) miles 10

Administrative costs

Central administration costs JMD/yr 85,200,000

Reduction in administrative costs as a result of the use of reverse
vending machines

% 16%

Parameter Units Value

Benefits

NSWMA waste management cost JMD/kg 10.5

Amenity cost of litter JMD/person/yr 96

No. rainflood incidents per year 5

Average productive time lost per incident minutes 30

Economic value of productive time in Jamaica (based on average weekly
salary of Jamaican employee)

JMD/h 1,062

Sale price of PET JMD/lb 5.5

6.1.3 DATA AND ASSUMPTIONS RELATED TO THE ASSESSMENT OF
ECONOMIC BENEFITS OF DRS

ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA | 35


REFERENCES

Cambridge Economic Associates with eftec, CRESR, University of Warwick and Cambridge Econometrics. 2010. Valuing the
Benefits of Regeneration. Economics paper 7: Volume I - Final Report. December 2010.

Caribbean Policy Research Institute. 2018. Managing Plastic Waste in Jamaica: PET Bottles.

Eunomia Research and Consulting. 2014. Exploring the Indirect Costs of Litter in England.

Jamaica Information Service. 2016. NSWMA Undertakes Plastic Bottle Recycling Project. http://jis.gov.jm/nswma-undertakes-
plastic-bottle-recycling-project/

Organisation for Economic Cooperation and Development. 1997. Glossary of Environment Statistics, Studies in Methods,
Series F, No. 67, United Nations, New York, 1997. (https://stats.oecd.org/glossary/detail.asp?ID=594)

Organisation for Economic Cooperation and Development. 2015. Municipal Waste, OECD Environment Statistics (database)
(https://read.oecd-ilibrary.org/environment/environment-at-a-glance-2015_9789264235199-en#page52)

PriceWaterhouseCoopers. 2010. Estimating Consumers’ Willingness to Pay for Improvements to Packaging and Beverage
Container Waste Management, Report for Environmental Protection and Heritage Council of Australia. June 2010.

Edwards S., Director, Eunomia Research and Consulting Inc. 2018. Phone conversation June 25, 2018, and leaflet “Incremental
Value of RVM Systems vs. Manual Redemption”, sent by email, June 27, 2018.

36 | ECONOMIC ASSESSMENT OF A DEPOSIT-REFUND SYSTEM (DRS) FOR JAMAICA


ECONOMIC ASSESSMENT OF
A DEPOSIT-REFUND SYSTEM

(DRS) FOR JAMAICA

To read any of our published reports in full, please visit

www.capricaribbean.org/reports

Contact us at:

info@capricaribbean.org
or by telephone at

(876) 970-3447 or (876) 970-2910


€ CAPRI


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222

Avoided cost of

disamenity from PET litter
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Avoided cost associated
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Avoided cost of solid
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The evaluated benefits
of a DRS for Jamaica


Revenues from sale
of processed PET
for recycling

Revenues from
unredeemed deposits


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