How the new Environmental Protection Act would transform EPR schemes in Slovenia

This the last of a four-part investigation: read part 1, part 2 and part 3.

The new Environmental Protection Act (ZVO-2), adopted in March 2022, stipulates that each waste stream should be managed by a single non-profit organisation, owned by the producers and operating under a supervisory body.

It also prohibits any capital or family links between PROs and subcontractors, and it mandates the so-called eco-modulation of prices for EPR producer fees, which translates to packaging fees being set according to the sustainability of the packaging that producers place on the market.

Any profit a PRO might make has to be either returned to producers who paid into the EPR scheme or used for future waste handling operations (and discounting producer fees at that time) according to the new reform.

A single not-for-profit PRO per scheme is not a EU novelty; other member states, such as the Czech Republic, France, Spain, Belgium and the Netherlands among others, conduct EPR schemes this way. 

The PROs Interzero, Dinos, Surovina, and Recikel filed for a constitutional review of these reforms and consequently their implementation is temporarily suspended awaiting the ruling.

The PROs argued that the new reform, if implemented, would violate their constitutional rights as they would lose their PRO status immediately. This kind of government intervention, they argue, would only be justified in cases of the overriding reason of public interest, which they believe the government will not be able to prove.

The PROs further argued that the change of PRO activity from commercial to not-for-profit constitutes the highest possible degree of market restriction. They believe the reform establishes a monopolistic organisation and breaches the right to free economic initiative.

The government, in reply, argued that EPR schemes were never meant to be the grounds for profitable commercial activity, but rather a system created for the achievement of environmental objectives and recycling targets. The government denies any interference with economic incentives as they do not view EPR schemes as a legitimate free market.

They continue with the argument that in the current system, PROs act mainly to pursue commercial interest instead of acting to fulfil producers’ obligations in reaching environmental targets. They argue it is in the public interest to increase the efficiency of EPR schemes. The government also stated that were the contested articles to be suspended, Slovenia would risk further waste accumulation and state interventions with taxpayer money.

In their official response within the legal proceedings in May 2022, government representatives also warned that should the reforms be suspended, “the obligation to establish the minimum requirements of EPR schemes in accordance with the EU directive would remain unfulfilled and proceedings against Slovenia for breach of EU law would continue.” However, in response to our inquiries in March 2023, the ministry said that such proceedings are not ongoing as the European Commission had not yet initiated them.

In May 2022, the Constitutional Court decided to suspend the implementation of most of the contested articles pending a final decision, thus delaying a potential EPR reform until it has ruled on the constitutionality of the renewed system foreseen by ZVO-2.

The entire sector awaits the Constitutional Court’s decision

Currently, the future of Slovenian EPR schemes remains unclear.

Tanja Bolte, acting Director of the Environment Directorate at the Ministry of the Environment, Climate and Energy, told us the ministry is awaiting the ruling and hoping the court finds the reforms constitutional. She also underlined the ministry’s view that a single non-profit organisation managing all packaging in Slovenia would be more efficient and economical. 

The claim about efficiency is partly drawn from the findings of an analysis published in September 2021, which the ministry commissioned from the Institute for Public Services and which we obtained via an FOI request.

The PRO Interzero commissioned another analysis by economists Aljoša Feldin and Sašo Polanec, published in August 2022. Their study highlights the correlation between the intensity of competition and the levels of investment and innovation. The authors argue that the new reforms would actually decrease efficiency and suggest less government regulation – they also argue against the one PRO per one waste stream limit.

Another study, published in 2018 by the Czech CETA – Centre for Economic and Market Analyses, stresses, on the other hand, that the neoclassical economic theory does not apply to EPR waste management, as it is not a classical market with a supply-demand correlation, but rather an artificially created market based on regulations with clear political objectives.

In this artificially created market, the authors argue, competition doesn’t necessarily lead to efficiency since PROs get their income from producers upfront. This income is earmarked for the management of the waste that is yet to be generated from producers’ packaging. Producers have to pay the fees because of legal requirements intended to ensure achieving environmental objectives.

The quality of the service provided therefore has no impact on the financial inflow (in the form of packaging fees) which is made in advance. The CETA study concludes that more organisations in an EPR scheme doesn’t necessarily mean improved performance, but it is rather the other way around in many cases. The authors also conclude that single-organisation systems achieve higher separation and recycling rates and that the not-for-profit status of the organisation is a prerequisite for preventing abuse and ensuring the functionality of the system.

The fact that single-organisation systems are cheaper and more efficient is also highlighted in an analysis by the authors from Bocconi University, based on a comparative analysis between different systems.

The representatives of environmental NGOs we spoke to joined the ministry in hoping that the Constitutional Court will allow the implementation of the EPR reform. “The original intention was never to make profit from garbage. The EU waste policy directs us to regulate waste management in line with the public interest and to achieve environmental objectives, not economic ones. In our country, this system has strayed away from what the EU dictates in terms of priorities in waste management – the priority is recycling, reuse – not cheaper disposal,” said environmental lawyer Aljoša Petek from Slovenia’s Legal Centre for the Protection of Human Rights and the Environment (PIC, ‘Pravni center za varstvo človekovih pravic in okolja’).

The Slovenian NGO Ecologists Without Borders (EBM, ‘Ekologi brez meja’)also supports the new EPR reform presented in ZVO-2, Jaka Kranjc told us. “The system has been congested for more than 10 years. We have new commitments to the EU all the time and this communication between organisations and the producers they represent does not work in the current system.” Kranjc stressed the importance of establishing the eco-modulation of prices and thus transforming the system so that producers are forced to put more sustainable products on the market.

The country’s Chamber of Municipal Economy (‘Zbornica komunalnega gospodarstva’) supports the EPR reform set in ZVO-2. It added that it has been pointing out the inadequacies of Slovenian EPR schemes since 2008 and that the new legislation foresees the right solutions which are also in line with positive practices in other EU countries.

The PRO Slopak also supports the EPR reform as foreseen in ZVO-2. PROs Interzero, Dinos, Recikel, and Surovina do not support the changes and have filed for a constitutional review.

PRO Interzero sees the new reform as a path to monopoly. “It is a path to monopoly, to price cartelisation, to the destruction of knowledge in the field of sustainable services, and that is why we and a number of producers have submitted a request for a review of the constitutionality of the law. We were also disappointed to see no mention of an independent agency that would oversee this area in ZVO-2. The law is therefore good in some parts and disastrous in others,” they wrote.

Recikel wrote that it does not support the one-organisation-for-one-waste-stream system envisaged in ZVO-2. It added that it would support a one-organisation system “if it was foreseen that this organisation would actually ensure appropriate waste management standards, a comprehensive control of the system, the appropriate sanctioning of offenders and the selection of packaging service providers via the producers or retailers who would ultimately pay for these services and who would be interested in the most appropriate selection”.

Dinos responded that it does not support the proposed PRO arrangements. Surovina wrote that they considered the change inappropriate. The sixth PRO, Embakom, did not wish to comment.

The ministry hopes that the EPR reform will be implemented. “The current EPR schemes are distorted due to all the changes. The producers put a product on the market and don’t care where it ends up. We expect this to change when producers are actually owners of PROs. We want PROs to be not-for-profit and we want only one PRO per waste stream. These reforms will make the system more efficient,” Bolte told us.

If the court suspends the implementation of the disputed reforms, the ministry plans to introduce different reforms that would still completely transform the way Slovenia does EPR. They would still introduce most of the requirements outlined in ZVO-2 except for the one-PRO-per-waste-stream rule. They would still require not-for-profit PROs, producer ownership of PROs, and eco-modulation of producers’ fees, and they would prohibit vertical links between PROs and subcontractors. In cases of several PROs managing the same waste stream, the ministry’s reform would require a supervisory body or clearing house to supervise and coordinate prices and operations.

We asked the packaging waste PROs how they plan to proceed if the ZVO-2 reforms are implemented. Dinos replied that it  would hold off any decisions until the ruling. Surovina would continue providing waste management services even if it loses itsPRO status. Recikel wishes to continue its operations, but not as a “monopoly organisation”. If  the reforms pass, it will continue its operations under the management of a new organisation or agency. Interzero stated that it would respect the court’s decision and stop its operations as it would not be able to fulfil the PRO requirements in that case. Slopak, on the other hand, plans to operate as a packaging waste PRO should the reform pass.

It is not known when the Constitutional Court will make its ruling. In the meantime, it is also still unclear whether the current legal regime, combined with the currently valid PRO permits, will be sufficient to prevent the Administrative Court from once again overturning the inspectorate’s decisions forcing PROsto transport uncollected piles of packaging.