Small cafe owners have forced the NSW Government to walk back its $110,000 fine threat over disposable coffee cups.

A bill passed by the state earlier this month will require all cafes to serve beverages in mugs or glasses to dine-in customers from 2028.

The laws will also require cafes to accept reusable cups brought in by customers.

The news immediately drew backlash from small business owners who said the changes would add further costs and make order times longer. 

However, NSW Environment Minister Penny Sharpe on Wednesday morning told 2GB that cafes would be allowed to serve hot drinks to all customers in recyclable disposable cups.

'We've listened to the concerns raised by small businesses about reusable coffee cup reforms and we're making changes to give them certainty and confidence,' she said on 2GB radio on Wednesday morning.

Instead, the legislation will require cafes to give customers the option to use a mug or glass when dining in, rather than ruling out disposable cups all together. 

'But we've heard the concerns from small businesses and we won't be requiring cafes to purchase any additional cups or change the way they operate,' Sharpe said.

Initial backlash to the new laws, designed to reduce waste, was worsened by a misunderstanding that all disposable cups would be banned by 2028.

Additionally, industry heads baulked at the maximum penalty of $110,000 for companies and $22,000 for individual operators who failed to comply. 

While disposable cups will remain legal, businesses need to ensure the cups they use are recyclable and don't contain harmful chemicals. 

'The Bill doesn't ban single-use coffee cups. It says by 2028 they must be recyclable for your yellow bin,' Sharpe said.

Sharpe last week told Daily Mail that small businesses were exempt from offering mugs or glasses.

Businesses also won't be required to accept dirty reusable cups – addressing concerns from business owners that cleaning cups would add to order times. 

'We will trial the reusable cup schemes on NSW Government premises and establish a reuse precinct in the Sydney CBD,' Sharpe said.

'The plastics plan and laws have been consulted on for three years. The regulations will be developed closely with small businesses.'

NSW generated about 891,000 tonnes of plastic waste in 2022-23, almost 110kg per resident. Just 14 per cent of that waste was recycled.

Nearly 800-million single-use cups are used in NSW each year.

The new laws have also targeted several other single-use plastics, including soy sauce fish containers which need to be recyclable and fruit and vegetable stickers that must be compostable by 2030.

- READ MORE: Aussie hospitality figures lash out at new reusable cup requirements over fears of extra costs to businesses