California’s Extended Producer Responsibility Law: Today is the Second Best Time to Prepare

As the old proverb goes, the best time to plant a tree was 20 years ago; the second best time is today. The same is true for consumer products companies preparing for coming requirements under California’s Senate Bill 54, which will overhaul the way many products are packaged and, therefore, how they appear on the shelves at supermarkets, drugstores, and convenience stores nationwide. Not only will the law require consumer product manufacturers to team up to fund the handling of waste from the packaging of their products—it will also require all packaging for consumer products sold in the state to be recyclable or compostable by 2032.

Background

California’s S.B. 54, the Plastic Pollution Prevention and Packaging Producer Responsibility Act (the Act), is a major plastics and single-use packaging law that will entirely overhaul the packaging of consumer products in California and the United States. The Act, signed by Governor Gavin Newsom on June 30, 2022, is the product of negotiations with industry members and California legislators to avoid a more stringent, command-and-control regime being adopted by ballot measure.

The Act is intended to shift the costs to collect, process, and recycle materials from local jurisdictions to the plastic and packaging industry. Cal. Pub. Res. Code § 42040(a)(2)(A). It will require all consumer product manufacturers to establish a producer responsibility organization (PRO) to implement a plan to meet the requirements of the Act. § 42041(x).

But unlike other extender producer responsibility (EPR) laws recently enacted in Colorado, Oregon, and Maine—requiring similar industry-funded PROs to fund the management of packaging waste in those states—the California law will also require changes to packaging. Because it is impractical for consumer product manufacturers to change the packaging for California alone or to segregate it from the rest of the US market, these changes will likely be made on consumer products sold nationwide.

Given the long lead time for package design, materials approval, stability testing, and supply chain changes, consumer product companies need to start planning now to ensure that more of their packaging eventually meets the strict California standards for recyclable or compostable. The alternative likely involves higher fees from the PRO for selling products in California.

Additionally, the PRO must remit $500 million annually to the state, funded by fees paid by members of the PRO. § 42064(e)(1). The Department of Resources Recycling and Recovery (the Department) may also levy civil penalties of $50,000 per day per violation against producers not in compliance with the Act. § 42081.

General Provisions

The PRO is required to establish a producer responsibility plan (Plan), subject to approval by the Department, § 42040(h), to ensure producers comply with the Act. § 42501.1. The Plan requires the PRO to establish a fee for producer-members based on various factors set forth in the Act. § 42053. The producer-member fee must be sufficient for the PRO to remit $500 million annually to the state. § 42064(e)(1) & (f)(1). The Act imposes several reporting and record-keeping requirements on the PRO and producers. The PRO is required to maintain records to track whether producers comply with the requirements of the Plan. § 42051.1(m)(4). The PRO is also required to submit an annual report to the Department describing the implementation of the Plan and compliance with the requirements of the Act. § 42051.3(a).

The Act regulates “Covered Material”—single-use packaging and plastic single-use food service ware.

• Single-use packaging¹ is defined as packaging that is “routinely recycled, disposed of, or discarded after its contents have been used or unpackaged, and typically not refilled or otherwise reused by the producer.” § 42040(e)(1)(A).
• Plastic single-use food service ware is “plastic-coated paper or plastic-coated paperboard, paper or paperboard with plastic intentionally added during the manufacturing process, and multilayer flexible material.” § 42040(e)(1)(B). This includes:
  • Trays, plates, bowls, clamshells, lids, cups, utensils, stirrers, hinged or lidded containers, and straws. § 42040(e)(1)(B)(i)
  • Wraps or wrappers and bags sold to food service establishments. § 42040(e)(1)(B)(ii)
• Some limited products are not Covered Materials:
  • Medical products/devices/prescription drugs
  • Animal medicines
  • Infant formula
  • Medical food
  • Packaging used to ship dangerous goods or hazardous materials
  • Packaging used to contain hazardous or flammable products
  • Beverage containers subject to California Beverage Container Recycling and Litter Reduction Act
  • Packaging used for long-term protection or storage with a lifespan of five or more years
  • Covered Material that meets specific criteria

Producer Responsibility

A “Producer” under the Act is “a person who manufactures a product that uses [C]overed [M]aterial and who owns or is the licensee of the of the brand or trademark under which the product is used in a commercial enterprise, sold, offered for sale, or distributed in the [S]tate.” § 42040(w)(1). If no person in California who is associated with the product meets that definition, then the producer is the owner of the brand or trademark, or if not in the state, then the exclusive licensee of the brand or trademark in the state. § 42040(w)(2). If there is no person under these definitions, the producer is the person who sells, offers for sale, or distributes the product that uses the Covered Material in or into the state (e.g., the retailer). § 42040(w)(3).

A Producer must join the PRO (or comply with the Act individually) by January 1, 2024. § 42051(a) and (b)(2)(A). Upon approval of a Plan or on January 1, 2027, whichever is sooner, a Producer is prohibited from selling, offering for sale, importing, or distributing Covered Material in California unless the producer is approved to participate in the Plan of the PRO or meets the requirements of a complying individual without participating in the PRO. § 42051(b)(1) and (2).

By January 1, 2032, all Covered Materials must be recyclable or compostable, and plastic Covered Materials must be reduced by 25 percent. § 42050(a), (b) and 42057(a)(1). All Covered Materials also must meet specific recycling rates: (1) at least 30 percent by January 1, 2028, (2) at least 40 percent by January 1, 2030, and (3) at least 65 percent by January 1, 2032. Through a concept known as “eco-modulation,” the PRO will charge producers higher fees if their products are not packaged in such a way as to assist the PRO in meeting these deadlines.

Producers of expanded polystyrene food service ware (e.g., Styrofoam) are prohibited from selling, offering for sale, distributing, or importing into the state unless the producer demonstrates all expanded polystyrene meets the following recycling rates: (1) at least 25 percent by January 1, 2025; (2) at least 30 percent by January 1, 2028; (3) at least 50 percent by January 1, 2030; and (4) at least 65 percent by January 1, 2032.

Program Administration

By January 1, 2025, the Department shall adopt regulations to implement and enforce the Act. The Regulations shall include, for example, ensuring the PRO fully funds the implementation, establishing a process for reporting to the Department and timelines to begin regular reporting, and creating an online registration form. § 42060(a). The Department will establish a process for exempting some Covered Materials from the Act. § 42060(a)(3)(A). The Department will also establish a process for exempting small producers, small retailers, and small wholesalers based on size, revenue, number of retail locations, and market share. The small entities that will be exempt will have had less than $1 million gross sales in California, unless the Department determines the exemption would hinder the ability of a type of Covered Material or Covered Material category from complying with the Act. § 42060(a)(5).

By January 1, 2024, the Department shall publish on its website both a list of Covered Material categories that are deemed recyclable and compostable. By July 1, 2024, the Department shall establish and post on its website a list of Covered Material categories. § 42061(a)(1). By January 1, 2026, the Department shall calculate and publish on its website the current recycling rates achieved in the state for each Covered Material category. § 42061(b)(1). The $500 million surcharge will be collected from the PRO annually beginning in 2027. § 42064(a)(1) and (e)(2). The Department may evaluate whether the surcharge should be increased in 2030. § 42064(i). If a surcharge is imposed, the person may petition for a redetermination of whether the Act applies. § 42064.01.

A Producer Responsibility Advisory Board will be established to advise the Department, producers, and PROs. § 42070. The 13 voting members of the board will be appointed by the Department director, comprising of a member from (1) a statewide city association; (2) a statewide rural county association; (3) an environmental protection organization; (4) an ocean advocacy organization; (5) an environmental justice organization; (6) a disadvantaged or low-income community or rural area; (7) a materials recovery facility; (8) a recycling service provider; (9) the composting industry; and (10) each of four manufacturers of Covered Materials of different material types. The three non-voting members will be from the retail sector, the grocery sector, and a PRO. § 42070.

Enforcement

The Department may audit the PRO or Producers to ensure they are in compliance with the Act, and the PRO or Producer must bear the cost of the audit. § 42080. The state can levy civil penalties of $50,000 per day per violation against Producers that are not in compliance with the Act. § 42081. In determining the penalty amount, the Department must consider various factors, including (1) the nature, circumstances, extent and gravity of the violation, (2) whether the violation has been corrected in a timely fashion or reasonable progress has been made, (3) whether the violation demonstrates a pattern of noncompliance, (4) whether the violation was intentional, (5) whether the violation was voluntary and promptly reported to the Department before investigation or audit, (6) whether the violation was due to circumstances beyond the reasonable control of the Producer or PRO, (7) the size and economic condition of the Producer or PRO, and (8) the magnitude of the impact on the environment or human health and disadvantaged or low-income communicates. § 42081(c).

The time for consumer product manufacturers to prepare for California’s S.B. 54 is now. Please reach out to any author of this Advisory or your regular Arnold & Porter contact with any questions about the issues discussed herein.

© Arnold & Porter Kaye Scholer LLP 2023 All Rights Reserved. This Advisory is intended to be a general summary of the law and does not constitute legal advice. You should consult with counsel to determine applicable legal requirements in a specific fact situation.