Understanding the 2026 EPR Fee Modulation: What It Means for Your Business

The first year of the UK's reformed Extended Producer Responsibility (EPR) scheme has been running since April 2025, and most obligated producers are now familiar with the basics: register, report packaging data to the RPD, and wait for the fee invoices. But the landscape is about to shift in a significant way. Starting in the 2026-2027 compliance year, fees will no longer be flat. They will be modulated based on your packaging's recyclability, as determined by the Recyclability Assessment Methodology (RAM).

This is the single most consequential change to hit UK packaging compliance since the scheme launched. It means that the RAM rating you assign to each packaging component is no longer just a data field in your submission file. It is a direct cost lever. A Red-rated packaging component will cost meaningfully more than a Green-rated one, and that gap is designed to widen every year through to 2028-2029.

In this article, we break down exactly what fee modulation means, who is affected, how the multipliers work, and what you should be doing right now to prepare your packaging portfolio.

What Is EPR Fee Modulation?

Fee modulation is the mechanism by which DEFRA adjusts the EPR fees a producer pays based on how recyclable their packaging is. The principle is straightforward: packaging that is easy to recycle within the UK's existing infrastructure should cost less to manage, and packaging that is difficult or impossible to recycle should cost more.

Under the first year of the reformed scheme (April 2025 to March 2026), all producers paid flat base fees per tonne of material. These fees covered the average cost of collecting, sorting, and recycling household packaging, calculated across all materials. The RAM rating was collected as data, but it did not yet influence the invoice.

That changes from the 2026-2027 compliance year onwards. Fees will now be adjusted up or down based on your packaging's Red, Amber, or Green RAM classification. This is not a theoretical future plan. It is confirmed policy with a phased escalation schedule already published.

The Fee Multiplier Timeline

DEFRA has set out a three-year escalation path for fee modulation. The multiplier represents the ratio between the highest fee (Red-rated, not recyclable) and the lowest fee (Green-rated, fully recyclable).

The escalation is deliberate. Year 2 introduces a modest 20% differential to give producers time to adjust. By Year 4, the gap has widened to a full 2x multiplier, making the financial penalty for non-recyclable packaging impossible to ignore.

Who Is Affected?

Fee modulation applies to every obligated producer who reports packaging data to the RPD and receives a fee invoice from the scheme administrator. In practical terms, this covers two categories of business.

Large Producers

Large producers are defined as businesses with a turnover exceeding £2 million and handling more than 50 tonnes of packaging per year on the UK market. These producers report data twice per year (April and October submissions) and are required to include RAM ratings for all household packaging.

For large producers, the fee modulation impact is direct and immediate. Every component you report with a Red rating will attract the higher multiplier starting in the 2026-2027 invoicing period. If you have thousands of SKUs with hundreds of individual packaging components, even small shifts in rating distribution can translate to significant cost changes.

Small Producers

Small producers are those with a turnover above £1 million (but below £2 million) and handling more than 25 tonnes of packaging per year. Small producers report once per year in April and use a simplified data format. While small producers are not currently required to submit RAM ratings, the direction of travel suggests this will change, and many small producers voluntarily assess their packaging to prepare.

How Fees Are Calculated Under Modulation

The exact mechanism works as follows. DEFRA sets a base fee per tonne for each material type (aluminium, glass, plastic, paper/card, steel, wood, fibre composite, and other). This base fee reflects the average cost of managing that material across the waste system.

Under modulation, the base fee is then adjusted by a factor linked to the RAM rating:

• Green-rated packaging receives a reduced fee, reflecting the lower cost of managing recyclable materials that pass all five RAM stages.
• Amber-rated packaging is charged at approximately the base rate, representing materials that are partially recyclable but face barriers at one or more RAM stages.
• Red-rated packaging attracts a premium above the base rate, reflecting the higher disposal cost of materials that cannot be effectively recycled in the current UK infrastructure.

The modulation factor defines the ratio between the Red and Green endpoints. An Amber rating falls somewhere in between. The exact formula for Amber has not been fully specified at the time of writing, but indications are that it will sit close to the unmodulated base rate, with Green receiving a modest discount and Red bearing the full uplift.

Financial Impact: What Does This Look Like in Practice?

Let us consider a hypothetical mid-market food producer handling 200 tonnes of household plastic packaging per year, split across three main packaging formats.

In this scenario, the producer's total plastic packaging fee in 2028-2029 would be approximately £75,000. If all 200 tonnes were Green-rated, the same tonnage would cost around £37,500, representing a saving of £37,500 per year. Over a three-year period, the difference between an all-Red and all-Green portfolio approaches six figures.

For larger producers handling thousands of tonnes across multiple materials, the financial exposure is substantially greater. Some estimates suggest that enterprises with predominantly Red-rated packaging could face annual fee increases in the hundreds of thousands of pounds by the time the 2.0x multiplier takes full effect.

Understanding the RAM Stages That Drive Your Rating

Your fee modulation outcome is determined entirely by the RAM rating applied to each packaging component. The RAM assesses recyclability across five sequential stages, and a component must pass all five to achieve a Green rating.

1. Classification: Identifying the material type and format of the packaging component. This determines which recycling pathway it enters.
2. Collection: Whether UK kerbside or bring-site collection infrastructure exists for that material. If it is not collected, it cannot be recycled regardless of material quality.
3. Sortation: Whether materials recovery facilities (MRFs) can mechanically identify and separate the material. Black plastic, for example, fails near-infrared sorting.
4. Reprocessing: Whether the sorted material can be converted into usable secondary raw material by UK-based or accessible reprocessors.
5. Application: Whether viable end markets exist for the recycled output. This ensures there is actual demand for the reprocessed material.

A failure at any stage results in a downgrade. Materials that fail Collection or Sortation typically receive a Red rating. Those that pass Collection and Sortation but face issues at Reprocessing may receive Amber. Only materials that clear all five stages with sufficient UK infrastructure capacity receive Green.

Which Packaging Types Are Most at Risk?

Certain packaging formats are disproportionately likely to receive Red or Amber ratings under the RAM framework. Understanding which ones are in your portfolio is the first step toward managing fee modulation exposure.

High-Risk Formats (Likely Red)

• Multi-material flexible packaging (e.g., laminated pouches combining plastic, aluminium, and paper layers) – fails Sortation and Reprocessing
• Black plastic packaging using carbon black pigment – fails near-infrared Sortation at MRFs
• Polystyrene (PS) packaging – limited UK collection and reprocessing infrastructure
• PVC packaging – contaminates other plastic recycling streams
• Non-separable multi-component packaging (e.g., plastic window on a card envelope that cannot be easily detached)

Medium-Risk Formats (Likely Amber)

• Coloured PET – collected and sorted, but downgrades reprocessing output quality
• HDPE with full-sleeve labels – labels can interfere with material identification during sortation
• Paper/card with plastic coatings – collected but coating causes issues during fibre reprocessing

Low-Risk Formats (Likely Green)

• Clear PET bottles – widely collected, easily sorted, strong reprocessing infrastructure and end markets
• Natural HDPE bottles – mature recycling pathway in the UK
• Corrugated cardboard – one of the most recycled materials in the UK
• Aluminium cans – highly recyclable with strong economic incentive
• Glass containers – well-established collection and reprocessing

How to Prepare Your Business for Fee Modulation

The modulation schedule is set, and the first modulated invoices will cover the 2026-2027 compliance year. That gives producers a window to act, but it is narrower than many realise. Packaging design changes take time to implement, test, and roll through supply chains. Here is a practical roadmap.

1. Audit Your Current RAM Ratings

Start by reviewing every packaging component in your portfolio and its current RAM classification. If you have not yet conducted RAM assessments, this is urgent. You cannot manage fee modulation risk if you do not know where you stand.

2. Identify the Biggest Cost Drivers

Rank your Red-rated components by tonnage. The highest-tonnage Red-rated items represent the largest fee exposure. Focus your redesign efforts here first for maximum financial impact.

3. Assess Material Swap Feasibility

For each high-priority Red component, evaluate whether a material change is practical. Common high-impact swaps include moving from multi-layer to mono-material films, replacing carbon black pigment with detectable alternatives, and switching from PS trays to rPET or PP alternatives.

4. Engage Your Supply Chain Early

Material changes require coordination with packaging suppliers, manufacturers, and sometimes retailers. Start conversations now. Lead times for new packaging tooling and qualification can be six to twelve months.

5. Model the Financial Impact

Use fee modulation projections to build a business case for packaging changes. A component that costs £5,000 extra per year in 2026-2027 at the 1.2x multiplier will cost £12,500 more by 2028-2029 at 2.0x. Compounding that across multiple components over three years makes the case for investment in redesign.

The Strategic Opportunity

Fee modulation is designed to be a stick, but it also creates a carrot. Producers who proactively improve their packaging recyclability will see their fees decrease relative to competitors who do not. Over a three-year horizon, this creates a meaningful cost advantage.

There is also a reputational dimension. Retailers and consumers are increasingly attuned to packaging sustainability. A portfolio that skews Green is not just cheaper to manage under EPR. It is easier to market, easier to defend to stakeholders, and more resilient against future regulatory tightening.

The producers who treat fee modulation as a strategic opportunity rather than a compliance burden will come out ahead. The data is available. The methodology is clear. The timeline is set. The question is whether you act now or pay more later.