Why Eco-modulation Matters in Packaging

Eco-modulation isn’t just a subtext in EPR policies; it's an incentive system that rewards companies for sustainable packaging design. The objective is to encourage producers to generate less waste and reduce environmental impacts. Eco-modulation achieves this by using economic incentives, such as lowering fees for packaging that is easier to recycle or reuse, and raising fees for designs that hinder recycling.

• Eco-modulation drives recyclability. Packaging that is easier to sort and recycle is rewarded with lower fees.

• Eco-modulation encourages reuse and efficiency. Lightweight or refillable systems reduce costs, while excessive over-packaging faces penalties.

• Eco-modulation boosts recycled content. Many programs provide bonuses for using post-consumer recycled (PCR) materials.

• Eco-modulation levels the playing field. Companies that invest in sustainable design are often rewarded with lower fees. 

Global Trends and Case Studies

Europe: Harmonization through the PPWR

The EU’s Packaging & Packaging Waste Regulation (PPWR) officially became law in February 2025 (check out our PPWR blog post!). PPWR introduces recyclability performance grades that directly affect EPR fees, creating a consistent eco-modulation framework for all its Member States. In practice, each pack receives a recyclability grade (i.e., A/B/C thresholds described in the PPWR guidance materials), and Member States use that grade to adjust fees accordingly.

Using bottled water as an example:

• Design A: clear PET bottle + HDPE cap + wash-off label.
  This design aligns with design-for-recycling rules and is readily recyclable. Under PPWR, this maps to a higher recyclability grade, rewarded by lower modulated EPR fees.

• Design B: colored/opaque PET + full-wrap shrink sleeve + hard-to-remove adhesive. These features interfere with near-infrared (NIR) sorting systems, reducing material recovery and contaminating recycling streams. The pack would receive a worse recyclability grade, leading to higher fees.

• Design C: very small plastic bottle (<0.5 L).
  Some national schemes penalize small beverage formats. For example, France applies a +10% penalty for plastic bottles/cartons <0.5 L under its 2025 guide, illustrating how Member States can layer uplifts on top of the PPWR grades.

United States: California (SB 54)

California’s packaging EPR law (SB 54) directs the Producer Responsibility Organization (CAA) to charge eco-modulated fees. CalRecycle’s draft regulations set a simplified eco-modulation schedule for the first two years after the initial program plan is approved, with fees varying primarily by recyclability and material category. The program is intended to reward source reduction, recyclability, PCR use, and reuse/refill, and to charge more for disruptive or non-recyclable designs.

Summary — what you need to know:

• Category-based schedule (startup period): for roughly the first two years after the plan is approved, producers are charged using a simplified schedule based on covered-material categories and quantities rather than full eco-modulation by product attributes.

• Producer-specific adjustments (later phases): after that startup period, the program moves to eco-modulated fees described in the plan, allowing producer-verified attributes like PCR content to influence fees beyond the category average.

United States: Colorado (HB 22-1355)

Colorado’s statute (HB 22-1355) requires producer dues to vary by material type, recyclability, and net recycling service costs. It also requires eco-modulation factors that lower dues for source-reduction, better recyclability value, high PCR use, reuse/refill, and high recycling/refill rates, and increase dues for designs that raise system costs, disrupt other materials, or use materials not on the Minimum Recyclables List (MRL).

Summary — what you need to know:

• Approach 1 (material-level): During the initial phase, CAA will apply uniform adjustment factors by material category rather than by individual producer performance. The adjustment factors (bonuses or maluses) will be based on broad system signals, such as materials with high recycling or refill rates or formats.

• Approach 2 (producer-specific): Once the system is established, producers can earn customized credits based on verified performance data such as PCR content, recyclability improvements, or documented source reduction. Producers will submit data through the reporting portal, and CAA will review and validate the information before applying the credits.

United States: Oregon (SB 582)

Oregon’s statute (SB 582) directs the PRO to build a graduated fee algorithm that encourages producers to reduce environmental and human-health impacts. CAA’s Program Plan (pp. 211–222) confirms that eco-modulation will rely on robust packaging attribute data (beyond weight alone) and may begin with voluntary LCA-based bonuses before expanding to a full graduated fee structure. Not all statutory factors must be included immediately. CAA will phase in bonuses as the data quality and reporting systems mature.

Summary — what you need to know:

• LCA Bonuses: CAA may grant LCA bonuses for producers who evaluate and disclose life-cycle impacts. Bonus A (10% of base fees, capped at $20,000 for each SKU) is awarded to producers who perform an LCA and disclose on up to 10 SKUs. Bonus A will kick in for the 2026 program year for LCAs submitted in 2025.

• Packaging Redesign: Starting in 2027, Bonus B is awarded to producers who conduct an LCA that demonstrates significant impact reductions through a packaging change performed on a SKU. This bonus is provided in 3 tiers based on the percentage of impact reduction, up to $50,000 for a SKU.

In practice: How companies can reduce fees

1. Build reliable baseline data: Track key attributes such as material type, PCR content, adhesives, labels, and weights. Keep this information current and aligned with state reporting requirements.

2. Optimize packaging initiatives based on eco-modulation: Stay on top of eco-modulation mechanisms in different jurisdictions. Model EPR fee savings for different eco-modulation scenarios and implement packaging strategies that maximize savings for the portfolio.

3. Design for circularity: Right-weight packaging responsibly, reducing material use without undermining recyclability, and integrating verified post-consumer recycled (PCR) content to qualify for incentives

4. Adopt reuse and refill systems: Evaluate durable, refillable packaging loops that may earn eco-modulation bonuses and demonstrate long-term sustainability performance.

5. Label for clarity: Ensure packaging includes clear, accurate disposal instructions to improve sorting and collection rates

6. Continuously reassess designs: Review packaging portfolios annually, adapting to evolving eco-modulation criteria and updated recyclability standards.

What’s Next?

Eco-modulation is complex, but it’s also an opportunity. Brands can start by:

• Auditing packaging portfolios against local eco-modulation rules.

• Identifying quick wins (colorants, labels, mono-material swaps).

• Modeling cost savings from design changes.

If you are a producer and interested in exploring how to minimize your EPR fees, reach out! At Neta AI, we help brands track evolving regulations, benchmark packaging against eco-modulation criteria, and model potential savings. The sooner companies begin preparing, the better positioned they’ll be to turn compliance into a competitive advantage.