How A New California Law Will Raise The Cost Of Consumer Goods Nationwide

Governor Gavin Newsom (D-Calif.) has been promoting the checks worth up to $1,050 that the California state government will send to 23 million Californians in October. Those checks are part of Newsom’s “inflation relief package” that was included in the new state budget. What Newsom and his allies haven’t mentioned is the way in which those relief payments will be counteracted by the inflationary effects of a new law enacted the same day Newsom signed the budget, one critics contend will drive up the cost of many consumer goods, including basic necessities like food.

During the final three days of June, California legislators passed and Governor Newsom signed Senate Bill 54, legislation that opponents argue (and research shows) will inflate the cost of groceries and other household necessities. Enactment of SB 54 will create an Extended Producer Responsibility (EPR) program in California, only the fourth EPR program in the country.

EPR programs are analogous to cap & trade regimes like the one in place in California. Whereas the objective of cap & trade is a reduction in carbon emissions, the goal for EPR programs is mitigation of plastics usage. While cap & trade programs impose fees on fossil fuel producers in a manner that inflates the cost of gas and utility bills, EPR programs raise the cost of goods sold in packaging with fees assessed on the basis of how much plastic and other materials are used.

“We’re holding polluters responsible and cutting plastics at the source,” Governor Newsom said at the signing event for SB 54. California Chamber of Commerce CEO Jennifer Barrera, however, noted that under the multi-year implementation of SB 54, “California businesses both large and small will face a maze of environmental regulations.”

“The law targets not only manufacturers but sellers of all goods sold in California, and thus will apply to the owner or licensee of the brand or trademark under which the covered product is sold or otherwise brought into California by distributors or retailers,” explains a Sidley Austin LLP analysis of SB 54. “This would sweep in nearly any company that makes any consumer or commercial goods with single-use packaging or food service ware sold in the state.”

The California EPR law includes a unique provision not found in the other three EPR laws enacted in Colorado, Oregon, and Maine. As the California Republican Assembly Caucus floor report notes, under SB 54 companies can’t explicitly pass EPR fees along to California consumers because the bill includes a provision that “prohibits the fee from being passed on to consumers as a separate item on the receipt or invoice.”

Instead companies will have to pay California’s EPR fees out of general corporate funds, meaning those costs will be embedded into the cost of all goods sold nationwide. Opponents of SB 54 argue this will force all U.S. residents, 90% of whom do not live in California, to foot the bill for recycling programs in California.

Critics of California’s new EPR law also point to its creation of a bureaucracy with the power to unilaterally assess fees without legislative approval or oversight. As with other EPR laws, a Producer Responsibility Organization (PRO) comprised of consumer brand companies that sell products in California will be created to administer the EPR program. The PRO will be tasked with assessing and collecting EPR fees.

EPR laws in Colorado, Oregon, and Maine task PROs with devising the amount of revenue needed and the fee schedule for collecting it. Unlike in the three other states with EPR laws, private companies will not have a seat at the table in California when it comes to determining how much the EPR program needs to raise. That’s because under SB 54, the state agency CalRecycle, not the PRO, will be in charge of the “needs assessment,” which determines how much revenue the new EPR program will seek to raise. Critics point out there will be insufficient oversight of CalRecycle’s “needs assessment,” which determines how much it will cost to upgrade the infrastructure and operations of California’s recycling systems.

The way critics of SB 54 see it, the state has outsourced taxation powers to the PRO to meet their budget needs. CalRecycle will be able to create an effective tax liability under SB 54 that is unrestricted with no legislative or electoral oversight.

The revenue raised from EPR programs is supposed to be used to upgrade recycling infrastructure and technology. Under California’s EPR law, starting in 2027, consumer brands companies that wish to do business in California must also pay $500 million every year for conservation efforts unrelated to recycling. This requirement to pay half a billion dollars annually for conservation efforts, on top of the millions from EPR fees that will go toward recycling infrastructure, was reportedly included in SB 54 to get buy-in from influential non-governmental organizations.

Some EPR backers note that they don’t need to get laws passed in all 50 state capitals in order to achieve their desired effect. After passage of the first two EPR bills in Maine and Oregon in 2021, Governing Magazine noted “if they are followed by the success of similar bills in New York and California, the size of those markets could prompt packaging reform no matter how many other bills followed.”

Governor Gavin Newsom and California lawmakers are now erecting a new EPR bureaucracy that will drive up the costs of food and other basic goods through the imposition of fees. It also appears California lawmakers may have found a way to pass the cost of their recycling and conservation programs on to residents of the other 49 states.

Critics of EPR point out the program effectively acts as a regressive tax hike on the broader economy by further inflating the cost of basic consumer goods. Amid the highest inflation in four decades, that will be a tough sell in states where legislative leadership is not as progressive as that which is found in California, Colorado, Oregon, and Maine.

The first EPR program enacted in Maine last year, once operational, will increase the cost of consumer products by anywhere from $99 million to $134 million annually, according to estimates by York University’s Dr. Calvin Lakan. Using Maine’s own recycling data, Dr. Lakan’s estimates that the EPR program will translate into a monthly cost increase ranging from $32 to $59 for a family of four.

“It ends up making all Maine families pay higher, hidden costs for food and other essential goods,” explained a statement by Maine People Before Politics, an Augusta-based policy research organization, in opposition to what was ultimately the first EPR bill enacted in the U.S. “It is a hidden, regressive tax. It will hurt people on fixed incomes.”

There is also an effort underway to impose EPR nationally with a federal law. The Break Free from Plastic Pollution Act, introduced by Congressman Alan Lowenthal (D-Calif.), seeks to bring EPR to all 50 states. Assuming Lowenthal’s bill doesn’t pass before the midterm elections, EPR proponents will continue their push at the state level in 2023 and beyond.

The waxing momentum and ample funding means EPR legislation is going to be reintroduced in many state capitals next year where it has already been floated. It also means EPR legislation is likely to soon be discussed in legislatures where most have yet to hear the term Extended Producer Responsibility. The new EPR law enacted in Sacramento on June 30 underscores why so many who don’t live in California are smart to pay attention to new laws emanating from Sacramento.