Supply and Demand:
When the prices of virgin materials decline, it can become more cost-effective for businesses to use these materials instead of recycled alternatives. As a result, the demand for recycled materials decreases. The reduced demand for recycled materials lowers its end market value, therefore increasing the price of a PRN to ensure that UK recycling targets are met, and adequate financial support for recycling infrastructure and waste management is achieved.
Profitability of Recycling Operations:
The profitability of recycling operations can be tied to the price dynamics of virgin materials. When the prices of virgin materials are lower, there is usually a higher demand for this material, meaning that recyclers may face increased financial pressure due to having to reduce the price of their recycled material in order to compete with low priced virgin material. Reduced demand for recycled materials can lead to a decrease in revenue generated from their sale, making it difficult for recycling facilities to cover their operational costs. The increased price of PRNs serves as a mechanism to mitigate these financial challenges and sustain the recycling industry.
Encouraging a Level Playing Field:
Incentivising the use of recycled materials and fostering a circular economy requires a level playing field between virgin and recycled materials. If the prices of virgin materials are significantly lower than those of recycled materials, businesses may opt for the former due to cost considerations. This undermines the market demand for recycled materials and impedes progress toward sustainable practices. By increasing the price of PRNs, the market is stimulated therefore increasing the level of recycling, lowering the price of recycled material and maintaining the competitiveness of recycled materials, thus ensuring a fair and balanced market.