Compliance costs in the UK are based on a mechanism whereby those who handle packaging are given an obligation calculated from the amount of packaging they handle multiplied by a national target, this gives each business a fixed tonnage obligation at the start of each year that they must fulfil by proving that they have funded the equivalent tonnage of packaging recycling.
Collection and recycling of packaging materials is carried out by local authorities, waste management companies and material reprocessors. For each tonne of packaging material recycling or recovered, the final reprocessor is entitled to produce a certificate called a PRN (packaging waste recovery note) which he may then sell to an obligated business who can use it to fulfil some of his recycling obligations.
This means that the demand for PRNs is fixed at the start of the year and the supply depends on the amount of recycling that takes place for each packaging material. If there is not enough recycling taking place for a material then the PRN price will increase as demand outstrips supply. As in any commodity market, this encourages more suppliers to enter the market and invest in collection and recycling so that rates increase again causing price to reduce.