SB 54 is Gearing Up

The Circular Action Alliance (“CAA”), a 501(c)(3) non-profit, is expected to be selected as California’s new producer responsibility organization (“PRO”) under the Plastic Pollution Prevention and Packaging Producer Responsibility Act (“SB 54”),[1] the nation’s broadest extended producer responsibility (“EPR”) packaging law.[2] 

CAA’s founding members include leaders in the food, beverage, and consumer goods industries. It is the only entity that has publicly indicated it intends to submit an application. Applications are due to the California Department of Resources Recycling and Recovery (commonly referred to as “CalRecycle”) no later than January 1, 2024.

CAA was established to support the implementation of the new EPR laws for paper and packaging, which over the last two years have been adopted by California, Maine, Oregon, Colorado, and (to a more limited extent) in Maryland. CAA’s founders, several of whom have been involved in sustainability initiatives and international EPR programs around the globe, include Amazon, Clorox, Colgate-Palmolive, Ferrero, General Mills, Keurig Dr Pepper, Kraft Heinz, L’Oréal, Mars, Nestlé, Niagara Bottling, PepsiCo, Procter & Gamble, Target, The Coca-Cola Company, Unilever, SC Johnson, and Walmart.

CAA’s objective is to serve as a PRO in all states that have adopted an EPR program for paper and packaging. CAA already has been selected as the sole PRO for Colorado and Maryland. Oregon, which allows for multiple PROs, is expected to begin accepting applications for PROs in March 2024. Maine expects to accept applications for a Stewardship Organization – similar to a PRO – in the Fall of 2025.

In California, the PRO must prepare and implement a plan for compliance with SB 54. Successful implementation of an EPR program will require innovation in packaging design, improving consumer access to recycling and collection systems, increasing recycling rates, and generating recycled materials with responsible end markets – as well as collecting sales information and other data sufficient to satisfy reporting requirements for SB 54’s source reduction mandates.

In addition, the PRO is responsible for establishing a fee schedule and assessing funds from its members sufficient, among other things, to (a) cover the substantial costs of implementing SB 54;[3] and (b) raise $500 million a year to subsidize a fund to mitigate the impacts of plastic pollution.[4]  SB 54 mandates certain features of the fee schedule – such as increased assessment of fees for use of materials made from petrochemicals and decreased fees for those made from renewable feedstock. But except for directives of this general nature, the terms of the fee schedule and the amount of fees assessed against members will be determined by the PRO.[5]  

Finally, the PRO will also establish the rules for governance of the PRO – such as how decisions will be made within the PRO, the formation of committees, how information about sales data and packaging materials will be collected from members, what measures will be taken to protect confidential business information, when memberships can be terminated, and how disputes will be handled.[6]

Thus, apart from the mandates of SB 54, the operation of the PRO itself will have a significant impact on regulated businesses. While the founding members of CAA collectively represent hundreds of brands under SB 54, a vast number of other businesses are also regulated by SB 54 – with some exceptions, generally any business that sells goods in California.[7]

CAA is actively seeking producers to join its new Producer Working Group (PWG). Membership in the PWG will not satisfy any legal obligation to join a PRO but provides a forum for producers to share information and discuss various aspects of the EPR programs on a nation-wide basis. According to materials published by CAA, membership in the PWG is limited to “obligated producers,” their legal representatives, and trade associations.

CalRecycle initially indicated in a March 2023 workshop that it might not enforce the requirement that producers join a PRO until January 1, 2027.[8] There is some uncertainity whether CalRecycle still holds that position. The statute itself appears to require producers join a PRO by January 1, 2024, however, the PRO will not be selected until after that date. Meanwhile, CAA has announced that it will open membership into the PRO soon after it is selected to serve as the PRO (assuming CalRecycle selects CAA as the PRO).

Meanwhile, in what may be the most significant development, the draft regulations for SB 54 are expected to be released sometime over the next few weeks – and finalized within a year thereafter.

Companies who have not yet evaluated whether they are considered a producer may want to consider making that determination sooner rather than later; if they are a producer, they can then decide what level of engagement with the rule-making process, the PWG, and the PRO is appropriate for their company. Depending on the facts, the analysis of a company's status as a producer may be relatively straight-forward or fairly complex.[9]   

In conclusion, SB 54 is gearing up. There is a likely PRO candidate (CAA). CAA has created a producer working group. CalRecycle expects to select the PRO in early 2024 – and CAA has announced it will be soliciting PRO membership soon after it is selected to serve as the PRO. Finally, the rule-making process is expected to be underway in the near future. For companies who sell packaged goods in California, it may be time to take a deeper dive into SB 54.

[1] Cal. Pub. Res. Code (“PRC”) § 42070 et al.   [2] Under EPR laws, producers and/or other entities in the supply chain assume responsibility for a product through the post-consumer stage of a product's life cycle. Under SB 54, producers must meet ambitious recycling rates and source reduction mandates over the next ten years. [3] These include costs incurred by local jurisdictions, recycling service providers, alternative collection systems and others. PRC § 42053.5. [4] The fund must be subsidized over a ten-year period, totaling $500 billion. PRC § 42064 (d)-(m). [5] PRC § 42064 (d)-(m). As a caveat, it should be noted that the rule-making process may expand, diminish, or clarify the anticipated role of the PRO in setting fee schedules (and other aspects of the program). [6] See supra, at note 5. [7] See EGC Blog, Who Must Comply with SB 54, May 2023. While we are not aware of any information about the potential number of companies regulated by SB 54, the consumer goods industry is a multi-trillion-dollar industry, including millions of small businesses who sell directly within California and on-line (and SB 54 also regulates non-consumer goods). While other state EPR programs exempt businesses with gross annual sales less than $5 million, California only exempts business with less than $1 million in gross annual sales – and only if CalRecycle approves the exemption. See EGC Blog, Five Things You Really Need to Know About SB 54, August 2023. [8] See, EGC Blog, When Must Businesses Join a PRO, March 2023. [9] See, Who Must Comply with SB 54, supra at note 7. Some materials are available on-line from CAA, state EPR programs, and other entities that are designed to assist companies make at least a preliminary evaluation about whether they are likely a producer. Among the more helpful materials, at least for Colorado’s program, is a Producer Determination Flow Chart, published by the Colorado Department of Public Health & the Environment (DPHE). (As of publication of this blog, a link to the Producer Determination Flow Chart is not functional but it can be found on DPHE’s webpage.)