What happens to the revenue from selling collected materials?¶

Recovered packaging has value: baled aluminium, PET and old corrugated containers are traded commodities. In a good year that revenue meaningfully offsets system costs; in a bad one it collapses — and periodically it changes sign entirely, with material that generated income suddenly costing money to move. Someone must hold that risk, and someone captures the revenue, and the allocation of both is among the least discussed and most consequential choices in packaging EPR design. This article explains why commodity revenue is not a technical detail; sets out the four allocation models operating today and what each does to incentives; examines who can actually bear a risk that changes sign; and traces the interactions — with material quality, with reserves and governance, and with deposit-return systems — that jurisdictions keep discovering after the fact.

1. Why this is not housekeeping¶

The reference event is 2018. When China restricted imports of recovered materials under its National Sword policy, markets for several grades inverted within months: municipalities that had budgeted a revenue line found a cost line instead, mid-year, with no adjustment mechanism. That fiscal shock — fragmented local governments holding a commodity exposure none of them could manage — is a substantial part of why packaging EPR became politically possible in North America at all. Getting revenue-and-risk allocation right is therefore not administrative refinement; it is designing against the specific failure mode that produced the policy.

The structural point that distinguishes this risk from ordinary business exposure: commodity risk in recycling periodically changes sign. Prices are driven by oil, virgin resin, global demand and trade policy — none controlled by any party to an EPR scheme — and arrangements that work while material has positive value can fail entirely when it does not. A design should be stress-tested against the negative-value case, not the average year.

The sums are material to fee levels as well. Every full-net-cost scheme defines producer obligations as gross cost minus material revenue — the EU's Article 8a formulation is costs "net of revenues" — so the revenue line directly determines fees, and its volatility passes to whoever the design assigns it.

2. The four operating models¶

Four allocation designs are running today, and they distribute risk and incentive quite differently.

Netted against payments — the United Kingdom. Material sales revenue is deducted from the modelled costs used to calculate local-authority payments. Producers bear price risk through the fee; councils are made indifferent to commodity markets. The design is clean and concentrates risk on the parties with the deepest balance sheets — but it also removes any financial interest the collecting authorities might have in maximising the value of what they collect.

Title transfers to producers — Ontario. Collected material belongs to the producers' system, which markets the commodities and holds both upside and downside. This aligns revenue with the party that also bears the costs and can invest in quality — a coherent package. Its transparency gap is noted in Theme 2: where multiple producer organisations share the collection system, the terms on which revenue is allocated between them sit in the unpublished System Access Agreement.

Producer organisation as price insurer — British Columbia. The longest-running model, and arguably the purest expression of full producer responsibility: Recycle BC takes commodity risk explicitly and pays its contracted municipal and private collectors fixed rates regardless of market swings. Local governments get budget certainty; the producer system absorbs the volatility across its provincial scale.

Explicit risk-buffering payments — Oregon. The most novel instrument: a processor commodity risk fee, set through rulemaking, under which producer payments directly buffer sorting facilities' commodity exposure. Rather than assigning the risk to one party, Oregon socialises it across producers by design — having identified sorting facilities as the participant least able to carry it.

3. Who can actually bear the risk¶

The capacity question decides more than the fairness question, and it ranks the parties unambiguously:

Party	Capacity to absorb price swings	Why
Producer organisation	High	Aggregates across a territory; can smooth across years through reserves
Large waste companies	Moderate–high	Diversified across contracts and jurisdictions
Individual sorting facilities	Low	Single-site operators, thin margins — the party Oregon's fee targets
Individual municipalities	Low	Annual budget cycles, no reserves for commodity variance, politically constrained rates

The design conclusion follows almost mechanically: risk should sit with the producer organisation, or be explicitly buffered for parties that cannot carry it. Reimbursement models that leave commodity exposure with fragmented municipalities allocate it to precisely the party with least capacity — recreating the 2018 configuration inside an EPR wrapper. All four operating models above respect this principle in different ways; the designs to scrutinise are hybrid and partial-coverage schemes where the residual exposure quietly stays local.

Whoever holds the risk needs one of two things: scale to absorb it, or a smoothing mechanism. Scale is the producer systems' answer; smoothing raises the reserves question of Section 5.

4. The quality incentive, and how designs break it¶

Material revenue depends on quality — contamination levels, bale specification, sorting precision determine the price a tonne achieves. A well-designed system puts the revenue and the quality decisions in the same hands, and several common arrangements break that link without meaning to:

Where revenue is netted off an operator's otherwise-fixed payment, the operator has no financial reason to improve bale quality — the benefit accrues to whoever does the netting. This is the UK model's known incentive cost.
Where the producer organisation keeps revenue but pays collectors fixed per-tonne rates — the BC insurance model — the collector has no direct stake in kerbside contamination; the producer system must manage quality through contract standards instead, which it does, at monitoring cost.
Where a sorting facility keeps revenue but collection contracts determine what arrives, the facility bears quality consequences it cannot control — part of the exposure Oregon's risk fee compensates.

The general test for any scheme: does the party whose decisions determine material quality have a financial stake in the price achieved? Where the answer is no, expect quality to drift toward the contractual minimum — and expect the scheme's reported revenue to underperform its tonnage, a gap that then reappears in producer fees.

5. Reserves: the governance question inside the finance question¶

A producer system holding commodity risk needs reserves to smooth across the cycle — and reserves convert a finance question into a governance one. How large a reserve is prudent rather than excessive? Who approves the level? Are good-year surpluses returned to producers, invested in infrastructure, or retained? And what happens to the balance if the organisation loses its designation or the scheme is restructured?

These questions are among the least examined in scheme design, and they are not hypothetical: Oregon's producer organisation accumulated substantial reserves within its first operating year; Belgium's Fost Plus began recording reserves per material from its 2026 tariff; and no examined jurisdiction publishes a full reserve policy — level, trigger, disposition and wind-up treatment — as a matter of course. The transparency principles of Theme 2 apply directly: reserve policy belongs in the published methodology tier, not the confidential one, because it determines whether fees are smoothing volatility or quietly accumulating producer money against undefined futures (the transparency article).

6. The deposit-system collision¶

Commodity revenue allocation collides with deposit-return systems, and jurisdictions keep discovering the collision after the fact.

A deposit system removes the highest-value materials — aluminium cans and PET bottles — from the kerbside stream. Whoever was relying on that revenue to offset kerbside costs loses it, and the per-tonne economics of everything remaining deteriorate: the same collection round now yields a poorer basket. Where the two systems have separate financial architectures, this generates the cost-boundary and revenue-attribution disputes now visible in several jurisdictions — and it is a substantial part of why average packaging fees are higher in DRS jurisdictions (the fee-levels article): the fee is levied on the residual, lower-value stream.

The collision has been quantified from both sides of the industry divide, and the opposed studies agree on its existence while bargaining over its size. Modelling commissioned by the US waste industry's association (which opposes deposit expansion) put reference sorting-facility revenue losses at $11.90–23.50 per ton marketed; the can manufacturers' counter-modelling (their industry favours deposits, which feed it clean scrap) computed the compensation that would make facilities whole at roughly 18% of the scrap value of deposit containers. A 2025 analysis for New York estimated statewide sorting-facility losses of $57.4 million a year under a modernised bottle bill — against municipal collection savings of $39.5–108.6 million that accrue to different parties, which is the political heart of the matter. And one jurisdiction has long operated the compensation everyone else debates: California's deposit program transferred $183 million to kerbside and drop-off programs in a single documented year — the ready-made template almost nobody copies.

The stakes are concentrated in one material. Aluminium is the commodity whose value can carry a system — used beverage cans are the highest-value scrap stream in household recycling — which is why the political economy of deposit expansion is substantially a fight over who captures the aluminium: deposit operators, kerbside systems, or the producers whose fees the revenue would otherwise offset. Theme 7 treats the instrument interaction in full; the design implication belongs here: set the revenue and cost architecture on the post-deposit stream from the start, rather than building kerbside economics on revenue a future deposit system will remove.

7. Questions to ask of any scheme¶

Who holds title to collected material, and at what point does it transfer?
Is revenue netted against payments, retained by the operator, or shared — on what published formula? Ontario's unpublished inter-organisation terms are the cautionary example.
Who bears the loss when prices go negative, and do they have the balance sheet for it? Test the design against the sign-change case, not the average.
Does the party responsible for material quality have a financial interest in achieving it?
What is the reserve policy — level, approval, disposition of surpluses, and treatment on wind-up?
If a deposit system exists or is coming, whose revenue does it remove, and who compensates?

8. Where the argument stands¶

The commodity-revenue question has a clearer design consensus than most in this library, because the 2018 shock supplied a natural experiment in getting it wrong: risk concentrated on the parties least able to bear it, with no smoothing, produced fiscal crisis and policy change. The four operating models all respect the central lesson — move the exposure to producer scale or buffer it explicitly — and differ on second-order incentives: the UK trades away collector quality incentives for clean risk transfer; BC purchases municipal certainty at monitoring cost; Ontario aligns revenue and cost while leaving the inter-organisation split opaque; Oregon socialises the exposure of the weakest link by explicit design.

What remains genuinely underdeveloped is the governance layer: reserves without published policy, revenue-sharing without published formulas, and quality incentives left to contract rather than design. These are the places where the next disputes will surface — predictably, in the first sustained commodity downturn the new North American systems face, when the difference between a smoothing reserve and an unexplained surplus, and between a fixed rate and an abandoned collector, stops being theoretical. The systems that will pass that test have written the answers down in advance; on the published record, most have not.

References¶

Directive (EU) 2018/851, Art. 8a(4)(a) — producer contributions covering necessary costs "net of revenues," the legal anchor of the netting arithmetic.
GOV.UK, local-authority payment calculation methodology — the UK revenue-netting model.
Ontario O. Reg. 391/21 and Circular Materials System Access Agreement materials — title transfer to the producer system; inter-organisation revenue terms unpublished (as documented in Theme 2).
Recycle BC stewardship plans — fixed contracted collector rates and explicit producer-side commodity risk, operating since 2014.
Oregon DEQ rulemaking and program documentation — the processor commodity risk fee; reporting on the producer organisation's first-year reserve accumulation.
Fost Plus, 2026 Green Dot rates documentation — per-material reserves recorded from 2026.
The 2018 China import-restriction episode (National Sword) and its municipal fiscal consequences — the standard contemporary accounts underlying Section 1.
On the deposit-system interaction and aluminium's role: the industry modelling and value-chain analyses cited in Theme 7's treatment, including the opposed-interest studies (waste-industry and can-industry commissioned) agreeing that revenue diversion is real and bounded.

Verification note: the four model descriptions rest on the primary program documents cited; the reserves finding — no examined jurisdiction publishing a complete reserve policy — is an absence finding from targeted review of scheme documentation. See Sources and method.