The packaging war just got a lot more complicated ... The battle lines are becoming more complex than ever across Europe's packaging sector.

It is fair to say that the market share of fiber-based packaging has been on a long, slow downward slope for some time. But the growth rate of the overall market and gentle erosion of the fiber-based share has been slow enough to allow board and corrugating producers to continue operating in a relatively steady growth environment over the years.

Yet, new environmental rules being considered by the European Commission in Brussels, Belgium, could further dent the ability of fiber-based packaging forms to compete against plastics in the future. Lobbying has been intense on all sides.

One of the hottest issues is the latest revision to the packaging and packaging waste directive as it winds its way through the tortuous machinations of Europe's bureaucratic process. The revision requires different recycling rates for different packaging materials. While 15% of wood used in packaging must be recycled and 22.5% of all plastics, the target is 50% for metal, 60% for glass, and 60% for paper and board. The current directive sets a common minimum recycling rate of 15% for all packaging forms except wood, which is zero, so this is a big step up. If the proposals become law, as seems likely, they will require the packaging industry to meet these new targets by 2008.

HOT TOPIC

The new rules have prompted passionate debate among legislators, environmental groups, and packaging industry professionals alike. According to Petri Vasara, principal at Jaakko Poyry Consulting, "The: battle between the materials is really heating up and the numbers in the directive are one indicator of that."

The topic is so politically charged that few on the industry side want to be seen as openly negative about the revision; still, there is no shortage of unease in industry circles about both the direction of the changes and the environmental logic of specific measures.

Esa Hyvarinen is the recycling director for the Confederation of European Paper Industries (Cepi). He points out that the political imperatives driving the revision timetable may have led to the potential effects of the changes being under-researched.

"Having different recycling targets for different materials will have implications for competition between the packaging forms across Europe. We don't pretend to know what those implications will be, but neither does the European Commission, because no background studies were carried out before they decided to propose these rules," he explained. "You have to ask where the environmental justification for this is--or indeed, if there is any."

Julian Carroll, managing director of Europen, a trade association representing many of Europe's top packaging companies, is slightly less convinced. "In my view, there's nothing in the paper from the commission or in the amendments made in the first reading in the European Parliament that favors one material over another," he said. "What it does do for the first time is to introduce different minimum recycling targets in a material-specific manner. Some critics might make the argument that if this becomes law, then some member states might decide that they'll never make the target and, as a result, might be tempted to skew loom legislation in such a way that it moves packaging away from one form and toward another. But at present, this is just a hypothetical argument."

However, the view that the changes will be hard to predict is widely shared, as Vasara's colleague at Jaakko Poyry, senior consultant Anna Malkonen, pointed out.

"The main point of this new legislation is that no one really knows what the impact might be," she stated. "Tile issues are so complex and the interactions so complicated that it would be a miracle if the rules turned out to be fair to everybody. It's very hard to say at this stage which material might do better or worse under the new directive."

For many on the paper side of the business, the simple fact that the recycling target for paper and board is set to become almost three times higher than for plastics is evidence that they are, in effect, being punished for having progressed further down the recycling road, spending hundreds of millions of euros along the way.

The players on the plastics side do not see it that way. They argue that the 22.5% target recycling rate riot plastics is actually quite ambitious since the sector has done little recycling in the past. Added to that, all plastic packs are essentially composites of different types of plastics that are often not compatible for recycling. But, as one commentator observed, if you take the old 80:20 rule you could also argue that the first 20% will be the easiest to get.

MAKING SENSE?

Despite the sense of unease about the revision, it appears to be generating less concern in the packaging industry than other "green" initiatives in the pipeline. Though packaging weight ratios and deposit schemes have come under criticism, the industry has been especially critical of a proposal from environmental groups in Belgium that seeks to impose mandatory levels of recycled content in packaging.

As Hyvarinen explained, "The Belgians are really pushing for this eco-tax scheme on recycled content and it will distort the market. Unless you have a minimum of 70% recycled content on colored glass, you are taxed on a sliding scale. For paper, it's an automatic tax below 50% recycled; that means that products like beverage cartons automatically get hit with the full tax because you can't use recycled materials in food-contact products."

As it stands, the proposed rules would affect only the Belgian market if the law passes, but criticism has been vocal among other parties fearful that similar rules could be imposed elsewhere.

Matti Salste, vice president of knowledge management at StoraEnso Packaging Boards, believes that such rules reflect the triumph of single-issue politics more than any real benefit to the environment. "In terms of recycling, the targeted increase for the paper industry is probably not that detrimental, if we're going to do it in a sensible way," he said. "But looking at issues such as mandatory recycled content, some of these ideas are not feasible even just taking into account food hygiene factors."

That is not to say that Salste is against recycling. Indeed, he is an ardent supporter--if there are "real" environmental benefits. "There are always products that can use recycled content appropriately. Look at the paper industry--the recycling rate is already some 50%. But a measure that calls for mandatory recycled content levels will actually ruin the environment. For packaging that comes into contact with food, such a rule would mean you could not then use paper or plastic in many products, but it might benefit glass or metal. However, that does not mean that it is the most environmentally friendly solution. The problem starts because the mechanism that makes the rules is political."

NO DEPOSIT

Deposit schemes for beverage cartons have also proved contentious. Petra Gerber, head of environmental affairs and public relations for the converter SIG Combibloc, explained, "In Germany, if you don't achieve the required recycling target or the required re-use quota, then you are required to implement a mandatory deposit scheme."

From an industry standpoint, there are several points of contention related to deposit schemes. For example, apart from being extremely costly to implement, such schemes generally impose design constraints on the package. Depending on the parameters of the scheme's design and geography, the environmental cost of returnables can outweigh the benefits.

As Stora Enso's Salste pointed out, "For single use, you need the packaging to be as light as possible, but it still has to protect the contents so that they are safe and of good quality. Anything returnable must be strong enough to be transported back and survive cleaning, which means it has to he durable and much heavier Returnables usually use a deposit system to make sure the packaging comes back and then you have to spend money to set up and run the return system. As a result, the consumer pays twice for the privilege of returning the packaging: once to fund the system and again for the return costs."

TAXING TIMES

Deposit schemes and so-called eco-taxes have also come under attack for being incompatible with one of the fundamental aims of the European experiment--creating an open, single market for the free flow of goods. This charge has been difficult to prove in the context of deposit schemes. "It is difficult to say whether this represents a trade barrier or not and how it will influence sales in the long term," said Gerber of SIG. "There is some evidence that sales drop at the beginning when a deposit is introduced and later, when people get used to the system, sales go back up again. Lawyers have been looking at the German regulation for years and they still haven't been able to say that it represents a trade barrier."

Apart from the added complications in the distribution chain and the attendant costs to the consumer, advocates of deposit schemes argue that since the law affects every form of packaging equally, trade barriers are not an issue. As Europen's Carroll said, "If you look at the example of Denmark's can ban [where aluminum cans were effectively outlawed in the country], you can make an argument that that is some sort of barrier to free movement. But the trend today is to use tools that are more difficult to contest under European law, such as eco-taxes. No member state is going to willingly allow anyone else to mess with its tax system."

That is not to say that such schemes are designed to be neutral to all packaging formats. Indeed, one such eco-tax scheme in Denmark actually favors fiber-based packaging based on its "renewability." Explained Cepi's Hyvarinen, "They carried out a life cycle analysis (LCA) in Denmark and based the tax on a standard pack. Essentially, it makes paper a 'good' product and recycled paper is on an even better scale."

Although this particular scheme aids the cause of fiber-based packaging, Cepi remains highly skeptical of LCAs as a basis for making policy. A change in one of an LCA's basic pillars--such as population density or energy cost--makes the results no longer relevant, Hyvarinen noted.

GETTING COMPLICATED

While the current and proposed schemes in Germany, Belgium, Denmark, and elsewhere represent specific gains and costs for different types of packaging, the general trend toward an increasingly fragmented legislative environment is probably the most unsettling factor for packaging industry leaders.

As Carroll pointed out, "In 1994, when the first packaging directive came out, the stated goals were to reduce the impact of packaging on the environment and to ensure the free movements of goods. Over many years, the member states have chipped away at the harmonization aspect of the directive and the European Commission has been very reluctant to tackle that."

If the scheme is complicated for EU producers and retailers, for companies trying to do business from overseas the swathe of legislation must seem incredibly off-putting. "It means that a U.S. company, for example, can't just ship consignments directly into Europe because of all the eco-taxes and deposit schemes that apply," Carroll said. "It's all little things on the surface, but when you start totting it all up, you see that all this talk about increasing the competitiveness of Europe is something of a joke."

There are at least some bright spots for fiber-based packaging producers. For example, an increasing emphasis on resources and renewability in the environmental debate could well see a reverse in the apparently unstoppable rise of plastics in packaging. But clearly, it is too early to determine which ways things will turn yet.

CHANGE IS A CONSTANT

Technological advances are likely to have as much impact on the future of packaging as any environmentally driven changes. According to Kevin Bradley, director general of the Alliance for Beverage Cartons and the Environment (ACE), the outlook for materials is very mixed.

"In the next 5-10 years, resource use and climate change impact will become more important in packaging systems. This will require a change in attitudes to materials and resources in packaging from politicians and regulators. The question at the moment is whether it will be via voluntary approaches through innovation, design, etc., or via regulatory or economic means," he said. "I think we'll see a continuing lightweight trend and a continuing increase in the use of multi-material packages and that presents opportunities and challenges for us all."

Vasara at Jaakko Poyry agrees. "There will be a lot of changes coming. RFID tags, chemical and biological markers that allow you to follow the product and tell you what condition it's in, nano-technology to create new coating barriers, you name it. Many of these changes will twist the market and material competitive balance around," he explained.

In the meantime, Vasara has some pertinent comments for the paper industry as it faces the shitting requirements of consumers and legislators in the European packaging sector.

"It's one of the mysteries of the world that the one material that takes its energy from the sun and is renewable isn't more widely used," he said. "The paper industry should be confident enough to see that their material can be technologically upgraded and improved to provide the basis for many of these future packaging innovations." S!

IN THIS ARTICLE, YOU WILL LEARN:

* The major regulatory issues facing European packaging producers,

* How proposed restrictions would affect Europe's packaging industry and the global market as a whole.

ADDITIONAL RESOURCES:

* Home page for Confederation of European Paper industries (Cepi): www.cepi.org

* To learn more about regulatory affairs in European packaging, visit the website for the European Federation of Corrugated Board Manufacturers (FEFCO): www.fefco.org

About the author: Jim Kenny is contributing editor/Europe, for Solutions! magazine, and is based in Brussels, Belgium. He is the farmer vice president of editorial for Paperloop and today heeds his own company, DSI. Contact him by phone at [phone], or by email at [e-mail]