Policy paper

Methodology and procedure for calculating November 2024 estimated payments

Published 20 December 2024

This guidance should be read with the provisional notice of assessment letter which has been provided to each authority.

Payment estimates provided in November 2024 are not final Extended Producer Responsibility for packaging (EPR) payments for 2025 to 2026. They are indicative estimates only which use the most up to date modelling and data we have available at this time.

Correspondingly, this guidance and accompanying provisional notice of assessment should also be treated as indicative only.

Whilst we do not expect many changes to the methodology in year 1 beyond this point, the payment values and methodology may still be updated before payments are made due to the ongoing quality assurance (QA) and testing processes on the model which are being used to determine the estimated payments.

New EPR regulations planned to come into force from January will, as currently drafted, require the EPR Scheme Administrator (SA) to formally publish information explaining how it has assessed local authority (LA) EPR payments for 2025 to 2026, including:

• efficient disposal costs for each packaging category
• waste income for each packaging category
• net efficient disposal costs for each packaging category
• chargeable disposal costs

Published guidance may include an updated methodology to determine EPR payments in 2025 to 2026.

Estimated payments provided in November relate to payments to be made in the financial year 2025 to 2026 only.

Work will continue to improve the collection and quality of all obtained data and modelling methods for payments in future years.

The EPR SA may decide to evolve data collection and modelling in future years. Payments in future years may change as a result and further guidance will be provided if appropriate.

1. Scope of payments

This section covers the costs that we are accounting for in determining a LA’s payment.

LA household packaging waste service costs have been estimated using a model developed by Defra with the support of the Devolved Governments. The model used is called the Local Authority Packaging Cost and Performance Model (LAPCAP). LAPCAP calculates the net efficient waste management costs of managing household packaging waste for each individual LA.

As defined in the new EPR regulations due to come into force in January “Efficient disposal costs” are disposal costs that an authority would incur if its costs were as low as reasonably possible, taking into account:

• the waste management service provided by the authority
• any other factors specific to that authority, or to the area in relation to which it exercises its waste management functions, which in the opinion of the SA are likely to affect its disposal costs

“Net efficient disposal costs” means the efficient disposal costs less the expected income from sale of recyclable packaging.

Net efficient disposal costs include:

• costs incurred for the collection (via kerbside, communal collections, bring sites and household waste recycling centres (HWRCs) where relevant)
• handling, treatment, and disposal of household packaging waste net of income from the sale of recyclate, including administration and communications

In Year 1 of EPR (2025 to2026), LAPCAP does not include business waste, street bin waste or litter. Drinks containers made from polyethylene terephthalate (PET), steel, or aluminium between 150ml to 3l in size are excluded from EPR until 2028 and will be in scope from 2028 only if a Deposit Return Scheme (DRS) is not in place by that time. Packaging collected in the food and garden waste streams are also excluded.

Estimated payments will only cover the cost of the packaging element of the waste stream for eight high-level packaging material types (primary packaging categories). These are:

• glass
• aluminium
• steel
• paper and card
• plastic
• wood
• fibre-based composite
• other materials

2. LAPCAP methodology

This section covers how the model calculates each LA’s estimated payment.

LAPCAP uses a combination of LA specific data, for example, tonnes reported in Waste Data Flow and comparative data (groupings based on reported cost data from a sample of LAs) to calculate a payment for each LA in the UK.

LAPCAP’s methodology for a unitary authority can be summarised as follows:

Recylate collection cost + recyclate handling, sorting and transport costs - income from sales of recyclate

+

Residual collection cost + residual handling, sorting and transport costs + residual treatment and disposal + disposal overheads

= Net payment to LA

For waste disposal authorities (WDA) and waste collection authorities (WCA), collection and disposal costs respectively are omitted and an adjustment to account for recycling credits is applied unless we have information that other local arrangements are in place. More detail on how the model handles two tier authorities and recycling credits is provided in the separate sections below.

The model is made up of four components, which produce output data. This data is used in the calculation above to produce final outputs. These four components are: 

2.1 The meta data module

This provides the LA characteristics, such as name, country, type of LA, rurality level, deprivation level, household numbers by property type, and collection system for every LA in the UK. This data is used as inputs to the other modules.

2.2 The waste flow module

This module converts LA reported data on movements of waste into the relevant tonnages for the model. It uses tonnage data from Waste Data Flow combined with waste composition data from the Waste and Resources Action Programme (WRAP) 2017 waste composition study, Zero Waste Scotland 2023 waste composition study and WRAP Cymru 2023 composition study to estimate A) tonnages of packaging waste collected by each collection method and B) tonnages going to each disposal method.

This module provides all inputs on flows of waste for the model. Where composition data is not sufficiently granular, additional sources have been used including data submitted by producers into the Report Packaging Data (RPD) online portal system for the calendar year 2023, and government commissioned work on the proportion of given packaging categories that are in scope of the Deposit Returns Scheme. More information on this is provided in the summary of data inputs section in Annex A.

2.3 The gate fees module

The gate fees module provides data on the cost per tonne per material to dispose of waste. It calculates national average net gate fees (cost per tonne of waste for each disposal method) using data from the UK Gate Fees report 2023-24

Gate fees include bulking, haulage and transfer costs net of income. Averages are used because it is not considered possible at this time to reliably model the factors influencing gate fees. Where data is not available from the Gate Fees report, this has been supplemented with data held by Defra’s Waste Infrastructure Development Programme and Welsh Government.

For dry recyclate sent to Material Recovery Facilities (MRFs) for sorting commingled streams and separately collected materials, the gate fee module calculates a gross and a net gate fee for each facility type. This uses data from the WRAP Gate Fee Survey and data held by Welsh Government for the cost of handling materials sent direct to reprocessor.

Income from sale of dry recycling from Material Facilities (MFs) is calculated using the average Gross and Net Gate Fees.  The rebate value apportioned per material is calculated using material values from the WRAP Materials Pricing Report. 

An addition is added to all MRF gate fees (for sorting commingled streams and separately collected materials) to cover the additional cost attributed to compliance with the Environmental Permitting (England and Wales) (Amendment) Regulations 2023 relating to material facility waste sampling and reporting. This additional payment relates to operational costs as estimated in the EPR impact assessment and increases to regulator fees.

 A cost per household for disposal overheads is also calculated by taking the average disposal overhead costs from real cost data provided by a representative sample of LAs from across the UK. These costs reflect the administration, contract management and other LA costs of managing waste disposal functions. Local communication campaigns are also included.

2.4 The cost per tonne module

The cost per tonne module calculates the cost of collecting through recyclate and residual kerbside collections, bring sites and HWRCs for all LAs. This module groups LAs to calculate cost per tonne figures for waste that are collected from each of these sources, reflecting the fact that collection costs vary depending on a LAs characteristics.

The cost includes the cost of front-line staff and vehicles (running costs, maintenance, fuel and annualised capital expenditure), containers provided to householders (annual replacement and annualised capital expenditure), and overheads including management, admin, equipment, IT, local communication campaigns.

Cost per tonne figures for HWRCs and bring sites are based on the residual and recycling groups respectively. We then calculate an average cost per tonne by using reported cost data we hold for some LAs in each group. The average cost per tonne is then used to calculate the efficient costs for all LAs in the group. If we hold no reported cost data for any LAs in a group, then the average of all reported cost data is applied. This is only done for HWRC and bring site collections.

Cost per tonne figures for kerbside recyclate and residual collection are also determined by using a grouping method. To create these groups, reported cost data from a sample of 49 LAs from across the UK was analysed to identify the common characteristics which most strongly influence these collection costs ^{[footnote 1]}. These characteristics are listed below.

The model uses findings from this analysis, legal requirements on the factors we must consider^{[footnote 2]} and data on LA characteristics from the meta data module to create groups of LAs which are predicted to have similar costs per tonne of waste collected. An average cost per tonne figure for each group is then calculated by using reported cost data we hold for some LAs in each group. 

3. LA groupings (residual and recycling)^{[footnote 3]}

The factors used to group the LAs for kerbside recyclate collections are:

• collection frequency
• rurality (% urban)
• proportion of flats
• deprivation
• country
• LA type (WCA, Unitary, WDA)
• proportion of communal collections
• tonnes collected per household
• collection scheme

For kerbside residual collections this module uses the following factors to group LAs:

• collection frequency
• rurality (% urban)
• proportion of flats
• deprivation
• country
• LA type (WCA, Unitary, WDA)
• proportion of communal collections
• tonnes collected per household

Authorities are grouped by finding their nearest neighbours for each of these variables. LAs are placed in groups with other LAs that share the most similarities across the factors^{[footnote 4]}.   

Due to the difference in cost drivers between dry recycling and residual waste, a single LA can be in one group for its dry recycling collections, another for residual, and a third group for HWRCs and bring sites (as only rurality and deprivation metrics are used for HWRC and bring sites groupings).  A table showing the groups that each LA is in is provided in Annex B.

4. How outputs from the modules are used to determine total costs

The following is a summary of LAPCAP methodology:

Recylate collection cost + recyclate handling, sorting and transport costs - income from sales of recyclate

+

Residual collection cost + residual handling, sorting and transport costs + residual treatment and disposal + disposal overheads

= Net payment to LA

The cost per tonne module gives estimated kerbside, HWRC and bring site collection costs per tonne of residual and recycling waste for each LA. These outputs are then combined with tonnages from the waste flow module to calculate dry recycling kerbside collection cost, residual kerbside collection cost, HWRC collection cost and bring site collection cost.

For dry recycling kerbside collection costs, the impact that volume has on collection costs is taken into account. This is done by using the cost per tonne figure provided by the cost per tonne module, multiplying this by the total tonnage you manage in dry recycling kerbside collections to calculate the total cost of collecting dry recyclate (packaging and all other waste). This total cost is then apportioned across materials based on the proportion of each material by volume. The volume of each material in the dry recycling stream is calculated through the tonnage and a corresponding bulk density value (data provided by WRAP and supported by the data collected in the Bulk Density Factors Desk Review 2022). This adjustment recognises that volume is commonly the limiting factor in dry recycling collections.

National UK average net gate fees for the different disposal methods from the gate fees module and tonnages for each packaging material type from the waste flow module are used to calculate the residual handling/sort/transport cost and residual treatment/disposal shown in figure 1 above.

The handling/sorting/transport net of income of dry recyclate is calculated using the gross gate fee and material specific rebate taken from the Gate Fee Module as a cost per tonne which is multiplied by the tonnage for each packaging category taken from the Waste Flow Module. The gross cost and adjustment for income is incorporated into your notice of assessment letter.  

Disposal overheads have been determined by taking the average disposal overhead costs per household, from real cost data from a representative sample of LAs from across the UK and multiplying this by the numbers of households in each LA. These costs reflect the administration, contract management and other LA costs of managing waste disposal functions. Data on the number of households is from the 2021 ONS Census.^{[footnote 5]}

For those LAs known to be running a formal plastic film pilot as part of the FlexCollect or Welsh Government schemes an additional payment has been made to cover the reported cost of operating the pilot in 2025 to 2026.

A summary of how the model utilises the factors required by the draft Producer Responsibility Obligations (Packaging and Packaging Waste) Regulations 2024 is provided in Annex C.  

5. Allocation of costs across two-tier authorities

Costs for different packaging waste management services are allocated in the model across two tier authorities according to the table below. This follows relevant regulations which assign responsibility for delivery of these services. A tick indicates that costs for the corresponding service are included in the payment assessment for that type of LA. If your notice of assessment includes a payment for a service you do not deliver or if costs for a service you do deliver are missing, please submit a feedback form via the link provided in the email.

LA Cost	Unitary	WCA	WDA	Statutory Joint Waste Partnership WCA	Statutory Joint Waste Partnership WDA
Collection of dry recycling via kerbside	✓	✓	×	✓	×
Collection of residual waste via kerbside	✓	✓	×	✓	×
Bring Sites	✓	✓	×	✓	×
Collection of dry recycling via HWRC	✓	×	✓	×	✓
Collection of residual via HWRC	✓	×	✓	×	✓
Transfer stations/bulking and haulage of Recyclate	✓	×	✓	×	✓
Transfer stations/bulking and haulage of Residual	✓	×	✓	×	✓
Tipping Away Payment	n/a	×	×	×	×
Handing and Sorting of Recyclate	✓	× (unless we have information that the WCA has taken responsibility)	✓ (unless we have information that the WCA has taken responsibility)	×	✓
Income from Recyclate netted off	✓	× (unless we have information that the WCA has taken responsibility)	✓ (unless we have information that the WCA has taken responsibility)	×	✓
Treatment and disposal of residual waste	✓	×	✓	×	✓
Recycling Credit	n/a	×
(Value of credit payment to WDA netted off total WCA payment)	✓ (Where known to pay credits to WCA)	×	×
Other Interauthority Payment for waste	n/a	×	×	×	×

Figure 2: Table of costs for different packaging waste management services are allocated in the model across two tier authorities

6. Adjustments for recycling credits

The Environmental Protection Act (1990) requires Waste Disposal Authorities (WDAs) to pay waste recycling credit payments to a Waste Collection Authority (WCAs) in its area when the WCA diverts waste from the residual waste stream to recycling. The scheme seeks to ensure that savings from the reduced waste disposal costs for a WDA (when waste is recycled) are shared with the relevant WCA, and in so doing incentivise recycling for WCAs. 

Unless there is an agreement to the contrary ^{[footnote 6]}, then WDAs are obliged to pay recycling credits where claimed by the WCA. The WDA must pay the WCA the difference between the cost of residual waste disposal and the cost of handling the recyclate. Where this value is not known the Environmental Protection (Waste Recycling Payments) (England) Regulations 2006 provide a default value with a 3% indexation.   

A payment of a recycling credit by a WDA falls under the definition of “disposal costs” for the purposes of EPR and therefore needs to be included in the assessments of costs. It is also important that producers are not double charged for waste management activities.

If a WDA receives the disposal costs from the SA to account for the recycling credits paid to the WCA, the WCA should not additionally claim the cost of recycling that material as part of its own disposal costs.

Based on the above, the model:

• pays WDAs to cover the cost of recycling credits for household packaging waste where the WDA is known to pay their WCAs inter-authority payments relating to recycling
• pays no recycling credits to WDAs and Statutory Joint Waste Disposal Authorities where it is known that no recycling credits or similar arrangements are in place 

Where a recycling credit is paid to a WDA under EPR the equivalent credit is netted off the relevant WCA’s EPR payment.  

Where recycling credits are paid to a WDA this has been calculated using the method set out in The Environmental Protection (Waste Recycling Payments) Regulations 2006^{[footnote 7]} (using the default payment values set out in the Schedule to the regulation). 

If you have been allocated a payment for recycling credits, or if one is netted off your payment, and you have no arrangements for paying or receiving a credit please submit a feedback form via the link provided in the email^{[footnote 8]}.

Adjustments for recycling credits will not apply for Statutory Joint Waste Disposal Authorities and Statutory Joint Waste Collection Authorities.

7. Sampled LA cost data - data collection

In 2023, Defra (along with four contractors) contacted 110 LAs to request comprehensive cost information regarding their waste services so that this data could contribute to the build of the LAPCAP model for year 1. Of those 110 LAs, Defra have received and been able to use the data from 52. To ensure as wide and diverse a range as possible, all UK Waste Collection LAs were put into one of ten socio-demographic groupings.

Additionally, they were further separated based on their dry recycling system and the frequency of their residual collections, creating a total of sixty-seven sub-groups for sampling. The table in Annex D displays the number of LAs in each group.

Representative Request for Information (RFI) samples were selected from across the groups. Where an LA could not provide data, an alternative similar LA was approached instead. Defra, and its contractors, contacted 110 LAs from Spring to Autumn 2023, conversations to guide the LAs through the process were held and clarifications were made when required. Where an LA could not provide data, an alternative similar LA was approached instead. All data that was collected and provided was quality assured to ensure accuracy and relevance to the model.

This process generated 52 LA datasets of suitable quality to use in the model. Of these RFIs, 40 are from England, 2 from Northern Ireland, 5 from Scotland, and 5 from Wales. 19 were from Waste Collection Authorities, 28 from Unitary Authorities and 5 from Waste Disposal Authorities.

8. Model quality assurance

There are robust processes in place for quality assuring LAPCAP. This has included close working with the Government Actuary’s Department (GAD) to help develop our overall QA process and undertake model verification.

GAD has completed an initial independent verification review of the model which focused on whether implemented calculations are consistent with the documented methodology, are free from error, use a logical structure, and adhere to best practice.

The review included:

• operation of the model code and underlying functions
• Input and output testing – inputs and outputs have both been provided by Defra, and these have been run through the model to test reproducibility of the results
• detailed code review – all areas of the model that are in scope have been examined thoroughly as part of a “line by line” review which is intended to identify whether the code meets the specification, is free from error, uses a logical structure, is commented appropriately, and adheres to best practice
• independent testing – generating outputs from a completely independent model can provide assurance on the fitness for purpose of the model under review and results for similar scenarios would be expected to agree within a tolerance based on appropriate judgement
• assessing suitability of model documentation for understanding model implementation

GAD’s findings, based on the scope of GAD’s review, show that the model runs without error, results are reproduceable, and they were able to test and independently replicate results. GAD’s verification review is based on the model at a point in time and did not cover all aspects of the model.

Note: GAD’s role in verifying the model is not to provide sign off that the model is fully quality assured and fit for purpose, the responsibility for this sits with Defra.

In advance of issuing final payments, we will continue to work with GAD to QA the model and payment estimates provided in November may change as this work progresses.

9. A note on efficiency and effectiveness

As defined by the new EPR regulations planned to come into force from January an authority provides an efficient waste management service if the costs of this service are as low as reasonably possible, considering:

• the waste management service provided by the authority
• any other factor specific to that authority, or to the area to which it exercises its waste management functions, which in the opinion of the SA are likely to affect its disposal costs

LAPCAP aims to estimate the efficient disposal costs net of income, meaning that actual costs for an LA may be more or less than the LAPCAP modelled payment.

Effectiveness assessments will not be held in the first year of EPR and therefore estimated payments provided in November 2024 do not incorporate this element of EPR. Guidance on effectiveness assessments has been provided as a separate document.

10. Feedback

If you would like to provide feedback on this guidance, please complete the feedback form included in the email this guidance was sent with.

1. 46 were used for collection at kerbside and 30 for HWRCs and Disposal Overheads ↩

2. Outlined in the letter ↩

3. The groupings overall (residual and recycling together) account for 86% of the cost per tonne variance of our sampled cost data by using those factors. ↩

4. Local authorities are grouped using a K-prototypes algorithm, which places each authority into a group based on it’s similarity to other authorities across all of the listed variables. Authorities that share a group do not strictly share identical attributes, but will be more similar to those it shares a group with, than with the authorities in other groups ↩

5. Data for the numbers of households for Scotland is taken from The National Records of Scotland estimates from 2021. For Northern Ireland the data is taken from NISRA Census 2021. ↩

6. (s52(1B) EPA) ↩

7. Paragraph 3(6) ↩

8. We will consider options for recycling credit policy, including whether modifications are necessary in due course. ↩