Governor Newsom recently signed Senate Bill 54 (“SB 54”), heralding an unprecedented commitment to reducing plastic production and consumption in California. The Plastic Pollution Prevention and Packaging Producer Responsibility Act requires single-use packaging to be at least 30% recycled, reused or composted by 2028, 40% by 2030 and 65% by 2032. SB 54 marks a compromise between legislators and supporters of a ballot initiative that was slated to appear on the November 2022 ballot, that would have required all single-use plastics to be reusable, recyclable or compostable by 2030, and eliminated the use of Styrofoam, among other provisions. Crucially, the legislation shifts much of the plastic-reducing burden from consumers to industry. Plastic producers must contribute $5 billion over the next ten years to fund recycling and reduce or eliminate single-use plastic packaging. 

SB 54 is an extended producer responsibility (“EPR”) bill, which means it places the primary burdens of a product’s end-of-life on manufacturers. California’s legislation focuses mainly on plastics reduction by producers, those who manufacture products using “covered materials” and those who own or are the licensees of the brand or trademark under which the product is used in a commercial enterprise, sold, offered for sale, or distributed in the state, thus capturing both in state and out of state entities. “Covered materials” include (1) single-use packaging that is routinely recycled, disposed of, or discarded after its contents have been used and (2) plastic single-use food service ware such as trays, plates, bowls, lidded containers and straws. Covered material that is offered for sale, distributed or imported in or into the state after January 1, 2032 must be recyclable or eligible for being labeled compostable. The primary reduction provision requires that by the same date producers must achieve a 25% reduction by weight and 25% by plastic component source reduction requirement for covered material sold, offered for sale, or distributed in California. 

The Department of Resources Recycling and Recovery (“CalRecycle”) is tasked with adopting regulations necessary to implement and enforce SB 54 by January 1, 2025. For example, CalRecycle must prepare at least one statewide needs assessment to determine necessary steps and investment needed to achieve the requirements of the new rules. CalRecycle must also establish a producer responsibility advisory board to identify barriers and solutions to creating a circular plastics economy. 

The legislation imposes (1) plastics reduction as described above and (2) payment obligations on producers of “covered materials” producers, all orchestrated through producer responsibility organizations (“PRO”). Each PRO must submit a plan and budget for approval by CalRecycle. The plans include actions and investments that the PRO will implement to achieve compliance, a source reduction plan, and technologies that will be utilized to achieve recycling requirements. The budget must include costs incurred by local jurisdictions, recycling service providers, collection programs, as well as funding for consumer outreach and education, improvements to recycling infrastructure, administering the PRO, environmental mitigation activities, and investments necessary to implement the plan and achieve the source reduction, recyclability and compostability, and recycling rate required by the new law.

Once established with an approved plan and budget, PROs shall register each participating producer with CalRecycle’s Recycling and Disposal Reporting System, provide information about each producer’s aggregate quantities of weight and number of plastic components of covered material, maintain records documenting the PRO’s activities and transactions, and collect fees. From the fees, PROs must contribute $500 million per year to the California Plastic Pollution Mitigation Fund and $500 million per year to the California Department of Tax and Fee Administration. By the 2026-2027 fiscal year, PROs must regularly pay CalRecycle a California circular economy administrative fee to cover CalRecycle’s and other state agency’s costs in implementing and enforcing these rules. Enforcement is achieved through conducting investigations by inspecting operations, facilities, and records, and performing audits of producers and PROs. If violations are discovered, CalRecycle can impose an administrative civil penalty of up to $50,000 per day per violation on noncompliant PROs, producers, wholesalers, and retailers. Entities have thirty days to cure a violation before penalties begin accruing. 

In addition to imposing requirements on “covered materials” producers, SB 54 institutes requirements for other entities in the plastics lifecycle. For example, as part of a state-mandated local program, local jurisdictions and recycling service providers must include collection and recycling programs for covered materials. Disposal facility operators must submit information on disposal tonnages to CalRecycle, which in turn requires solid waste handlers and transfer station operators to provide this information. And exporters, brokers, self-haulers, and transporters of recyclables or compost must submit similar statistics to CalRecycle. 

The law is the fourth of its kind in the country,¹ but is believed to be the most significant because it requires an overall reduction in the production of single-use plastics while at the same time requiring producers to ensure that all single-use products are recyclable or compostable.  The bill is also notable given the recent announcement by California’s Attorney General that his office has launched a massive investigation into alleged deception by fossil fuel and petrochemical industries for aggressively promoting the development of oil-based plastic products while minimizing the public’s understanding of the products’ harmful consequences. These statewide developments follow increased efforts by California District Attorneys, who in the last five years have brought several actions against large retailers for improperly labeling plastic products recyclable or compostable. Taken together, these events portray a landscape of increased plastics-related enforcement activity across the state. 

In addition to state-level legislation, there is there is increasing private sector focus as recently reflected in the number of shareholder proposals urging companies to ramp up efforts to reduce plastics waste. During the 2022 proxy season, more than a dozen plastics-related shareholder proposals appeared on proxy ballots.  These proposals generally requested that the company issue reports to identify how environmental sustainability efforts could be advanced through development of comprehensive sustainable packaging policies and reducing reliance on plastics.  Two of the proposals passed and a few others received more than 30% favorable votes, indicating significant support from shareholders for action to address plastics waste. This is yet another tool in shareholders’ ESG toolkit to urge private companies to address environmental issues, even without government directives such as SB 54 in California.

California’s SB 54 and the California Attorney General’s investigation may foreshadow similar legislation and enforcement activity in other states. This increasing trend of plastics-related regulation, enforcement, and litigation is coalescing to present a host of potential legal and reputational risks to both the producers of plastics packaging and the companies they supply.