Packaging EPR: A Financial Explainer

What is packaging EPR?

Packaging Extended Producer Responsibility (EPR) laws shift the cost of collecting, sorting and recycling packaging from municipalities to the companies that put that packaging into the market. The cost reaches those companies as a fee assessed on the total annual weight of packaging they supply into each state, priced by material. For obligated producers, it behaves as a variable cost: it scales with units sold and packaging weight per unit, not with revenue or profit.

Seven states have enacted packaging EPR laws: California, Colorado, Oregon, Maine, Maryland, Minnesota and Washington.¹ Except for Maine, each program is run by a producer responsibility organization (PRO) called the Circular Action Alliance (CAA), which registers producers, collects their supply data, sets fees and funds the state's recycling system.² The 24 founding members of the CAA include the world's largest retailers (Walmart, Target, Amazon), consumer products companies (P&G, MARS) and restaurant chains (McDonald's, Starbucks).³

Oregon began invoicing in 2025 and Colorado in January 2026; California collected its first supply reports in 2026 and it will issue its first invoices to producers in January 2027.⁴ The remaining states will come online through 2030.

How are material fees set?

The PRO calculates the rates on an annual basis in a fixed sequence:⁵

1. 01State program budget. Start with the program's total annual cost: payments to local governments and recycling facilities, new collection and processing infrastructure, education, state oversight, operating reserves and PRO administration. The budget sits in a state-approved program plan informed by a statewide needs assessment. Budgets are set on a three to five year cadence, depending on the state.
2. 02Allocate by material. Assign costs to each material category based on what it costs to collect, sort and market that material, net of the commodity revenue the material generates.
3. 03Divide. Divide each category's net cost by the total tonnage all producers reported in that category. The result is a base rate per pound.
4. 04Modulate. Adjust individual producers' rates up or down for packaging design features, such as recyclability or problem components (eco-modulation).

There are financial implications for anyone modeling a producer's exposure.

• EPR lifecycle. Each invoice is calculated on supply data producers have already filed, and the cycle spans three fiscal years: a company supplies packaging in year one, reports that supply the following spring, and is invoiced at the start of year three.
• Rate resets. Budgets are recalculated annually as program costs, PRO overhead and reported tonnage change. Program budgets for California, Oregon and Colorado will grow as collection and processing infrastructure is built out, and four more states come online through 2030. Therefore, a producer's exposure expands on two axes at once: rate per pound and number of states billing.
• Late and non-compliance. Producers that register or report late remain liable for their obligations, and state penalties apply on top. California's statute allows penalties of up to $50,000 per day, and most enacted states prohibit the sale or distribution of covered products by producers that are not participating in an approved program.⁶

Unlike Colorado and Oregon, California adds charges on top of the base fee that apply only to plastic and are assessed on different bases. As proposed in CAA's California program plan:⁷

• Plastic Pollution Mitigation Fund (PPMF) fee. An aggregated, fixed annual amount set in statute and remitted to the state.⁸ Fees are assessed on both weight and component count of plastic materials.
• Reuse Investment Fee. Funds the program's source reduction and reuse/refill obligations, allocated across reported plastic component weight.
• Source reduction bonus/malus. Producers that reduce plastic supply or increase certified recycled content earn bonuses, financed by maluses spread across all plastic producers.⁹

None of the three is part of the base-fee calculation. The PPMF is a regulatory charge unrelated to the cost of managing plastic; the other two fund policy objectives.

Who pays?

The PRO bills the "producer," a statutory term that does not always mean the manufacturer, the seller or the operator. Each state defines a hierarchy, and the first party that fits is obligated. The broad pattern runs from brand owner (in some states, the manufacturer selling under its own brand comes first), to licensee, to importer of record when the brand owner has no U.S. presence, to first distributor when no one above applies.¹⁰

Three provisions matter most to consumer analysts:¹¹

• Franchises. Several states expressly make the franchisor the producer for packaging used by in-state franchisees. The franchisee operating the unit is not.
• E-commerce. In several states, an online order is split in two. The packaging around the item (the box, bottle or pouch it sits in on a shelf) follows the item's producer. The shipping box or mailer belongs to whoever packs the order for delivery. Depending on the fulfillment model, that can be the brand itself, a retailer or marketplace fulfilling the order from its own warehouse, or a manufacturer shipping direct to the consumer.
• Contractual assignment. Some states let a producer assign its obligation by contract to another party that joins the PRO in its place. The obligation can move; it cannot disappear.

De minimis thresholds exempt the smallest producers,¹² and the scope of business-to-business and transport packaging differs by state. "Branded packaging follows the brand owner" is a reliable heuristic, not a rule.

How exposed are producers?

The fee scales with packaging weight and material; revenue scales with price, units and business model. Exposure therefore varies widely across companies facing identical rates. Six variables drive it:

• Price point. The fee is charged per pound of packaging; revenue is earned per unit sold. The same rate is immaterial on a product that sells for many dollars per pound of packaging and material on one that sells for cents. Low-price, packaging-heavy goods (bottled water, foodservice cups and containers, commodity staples) are most exposed; electronics, beauty and premium apparel least.
• Branding. The name on the package determines who is billed. In retail, the retailer pays on its house brands and national-brand manufacturers pay on theirs. In manufacturing, a co-manufacturer producing another company's brand is generally not the producer; a manufacturer selling under its own brand is. In foodservice, branded packaging is billed to the brand (the franchisor, in a franchise system).
• Revenue base. Some business models pay on a volume base larger than the revenue they report. A franchisor pays on system-wide packaging volume regardless of corporate vs. franchisee mix. A retailer pays only on its house brands, concentrating the fee on that share of sales.
• Packaging materials. Rates are set per material category, not per pound of packaging generally. Materials that are costly to collect and sort, or have weak end markets, carry higher rates. A polycoated paper cup and a plain corrugated box are both "paper" but are priced differently. In California, plastic also carries the PPMF, Reuse Investment Fee and malus; paper does not.
• Footprint. Exposure scales with the share of units sold into the seven enacted states. A brand concentrated in California or the West carries more exposure as a share of revenue than a national brand with identical packaging, whose sales are spread across states without EPR.
• Sales channels and contracts. These determine whether the fee can be passed through, not how large it is. Brands selling direct to consumers control price. Brands selling through large retailers negotiate cost increases at line reviews. Franchisors depend on what their agreements permit, and foodservice suppliers on their contract terms. See Cost mitigation strategies.

Based on the above factors, exposure will vary from sector to sector.

Cost mitigation strategies

Packaging changes may reduce the financial obligations vs. the status quo; however, producers cannot engineer their obligations to zero. Therefore, producers can look to shift the obligation through customer pricing or other supply chain mechanisms.

Which branch is available depends on the channel:

• Direct-to-consumer and e-commerce: easiest to achieve. The brand controls price and presentation.
• Wholesale to large retailers: difficult to achieve. Cost-driven increases are negotiated at line reviews, and the retailer is itself a producer paying fees on its own brands.
• Franchise systems: agreement-dependent. New charges to franchisees may not be permitted outside existing fee structures until renewal. Where pass-through is permitted, the cost moves to unit-level margin.
• Foodservice and B2B contracts: cost-plus and index contracts can pass through; fixed-price contracts delay it until repricing.