Supermarket giants Coles and Woolworths have been served preliminary clean-up notices for more than 5,200 tonnes of stockpiled soft plastic across New South Wales.
The soft plastics had been collected by the retailers as part of their REDcycle recycling scheme for customers.
The REDcycle program was suspended last year after the company running it said it could no longer offload the material to recyclers.
NSW Environment Protection Authority (EPA) chief executive Tony Chappel said the extent of soft plastic waste sitting in warehouses across the state was very concerning.
"These stockpiles are stored from the floor to the ceiling, blocking entry ways and preventing adequate ventilation, with the soft plastic estimated to fill about three and a half Olympic-sized swimming pools."
Fire and Rescue NSW has been notified of the high-risk storage facilities in 11 local government areas, and has asked the operators to take immediate action to mitigate any risks, the EPA said.
The clean-up notices allow for the soft plastics to be removed from storage to a reprocessing facility, or to be disposed of lawfully.
In a statement, a Coles supermarket spokesperson expressed disappointment about the EPA's draft notice.
The company was part of a task force trying to find a solution for recycling soft plastics again, it said.
"Coles, along with the other members of the Soft Plastics Taskforce, met with REDcycle and the NSW and Victorian EPAs on Friday, where REDcycle confirmed their ongoing engagement with the EPAs, to discuss the stockpile situation," the statement said.
Woolworths said it would seek clarification on the EPA's position.
"We were surprised to receive this draft notice, as Redcycle has indicated they have plans to deal with these stockpiles," a spokesperson said.
Mr Chappel said he knows supermarket customers will be disappointed, especially because the plastic materials may end up in landfill.
"This regulatory action had to be taken to protect NSW communities," he said.
"Despite this setback, which is a major blow to consumer confidence, we want to reaffirm our commitment to triple the recycling rate of plastics by 2030."
He said the supermarkets have a responsibility to address the stockpiled waste, especially after promoting their collection program widely.
"Thousands of customers diligently collected soft plastics and dropped them into their local supermarket's collection bin because they trusted their waste would be diverted from landfill and recycled," Mr Chappel said.
The EPA said it was working with its counterparts in other states and territories to ensure a coordinated approach, and to understand the issues behind REDcycle's collapse.
The supermarkets have six days to comment on the draft notices.
