Australia recycles just 18% of plastic packaging, according to the latest annual figures, and will only get two-thirds of the way to its national target of 70% by 2025, an official review has said.

Plastics campaigners said the review by the Australian Packaging Covenant Organisation (APCO) – the not-for-profit group charged with coordinating the national targets – showed the current industry-led approach was failing and stronger laws were needed.

A target for 100% of packaging to be “reusable, recyclable or compostable” by 2025 was also likely to be missed, with levels expected to reach 94%, the review said.

A target to increase the amount of recycled content being used in packaging to 50% would be met for glass and PET plastic used for drink bottles, but would be missed for other plastics used in packaging, APCO said.

The recycling targets were introduced in 2018 but experts have been warning for two years the targets would probably be missed, blaming the industry-led approach that has no penalties for failures.

Companies can choose to work outside the covenant and be regulated by states, but a review in 2021 found there had been no reported compliance actions, investigations or complaints over the previous four years.

Members of APCO told the review they faced a “competitive disadvantage both from free riders who are not held to account by governments and from underperforming APCO members” and this was holding back ambitious action.

The chief executive of APCO, Chris Foley, said the results were “disappointing” with improvements needed in packaging design and to expand business-to-business recycling.

“It is time for many businesses to do more to reduce the impact of their packaging and improve its recoverability,” he said.

“If industry cannot do better as a whole, governments will pursue harder regulation. It is clear a stronger co-regulatory framework that brings in and aligns the entire packaging system and creates an even playing field for all will help to further reduce environmental impacts and deliver community and economic benefits.”

The review outlined continuing challenges for industry, such as “cost, competitive risk, hard-to-recycle items, recycling capacity, limited access to high quality recycled content, inconsistent policy, poor data to support decision making and measure impact, and uncertainty about future outcomes”.

Kate Noble, a plastics policy expert at WWF-Australia, said: “Industry self-regulation has proven to be a failed experiment.

“Industry has said loud and clear they can’t deliver these targets without additional government intervention. This intervention needs to come in the shape of stronger laws.

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“We welcome industry making the case for a stronger regulatory framework and laws that can reduce plastic consumption, increase recycling, and ultimately reduce plastic pollution.”

The environment minister, Tanya Plibersek, repeated a warning she made last year that if businesses did not “voluntarily step up on plastics, I will regulate”.

She said it was “thanks to serious failures by the previous Liberal government” that Australia was “way behind on its recycling targets”.

The government had invested $250m in recycling facilities, she said, and would reform packaging regulations by 2025.

The plastics campaign manager at the Australian Marine Conservation Society, Shane Cucow, said: “Plastic production is outpacing our recycling capacity despite the Australian government investing a quarter of a billion dollars in recycling.

“It’s clear as day that new plastics laws are needed to make these targets enforceable. Asking nicely has failed to get business to reduce their plastic packaging, and our turtles and seabirds are paying the price.

“As long as there is no penalty for using unrecyclable and unsustainable packaging, sustainability conscious businesses will continue to be undermined by brands that choose to keep using plastic.

“Federal environment minister Tanya Plibersek has said that the government will regulate if business doesn’t act. It’s clear that time has arrived.”

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