EPR FAQ: Answers to commonly asked questions and claims

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Written by Calvin Calvin Lakhan, Ph.D, Co-Investigator: “The Waste Wiki” – Faculty of Environmental Studies at York University

Oh goodness gracious, I appear to have really stepped in it this time (although I do suppose I have a history of doing that). My last article about EPR really rankled some feathers and resulted in some heated exchanges with people that disagree.

A little birdie even told me that the word on the collection route is that I am in cahoots with producers and that I am trying to derail the Blue Box transition. If I’m on the take, can someone please let my bank know? I apparently am not receiving any of the money they are paying me to speak out against EPR.

My response to criticism has always been more or less the same – show me the data. My last article asking for any information that supported the efficacy of EPR for packaging waste was met with radio silence. I did have one individual tell me I was wrong, but when I asked them to provide evidence, they responded that I should pay them for their time…. that was a bit of a head scratcher.

In any event, I thought I would share a document I recently put together for the Ontario Environment Ministry outlining some of York University’s responses to commonly asked questions or claims regarding EPR for packaging waste. I also want to re-iterate that I have no issues with EPR as a concept, nor do I think producers should be absolved of their physical and financial responsibility at end of life. My issue has to do with the way EPR is currently implemented, and the challenges that arise when our goal is increasing recycling.

Please note that some of these comments are Ontario specific and refer to proposed changes in the Blue Box legislation. I still think it is of value to those outside of the province to better understand the issues we face as we transition to 100% EPR.

Questions surrounding Extended Producer Responsibility

Extended Producer Responsibility subscribes to the “Polluter Pays” Principle (transferring the responsibility of managing end of life waste to the polluter.

While the polluter pays principle is certainly the spirit of EPR, people often erroneously conflate “polluter pays” with the inability to recycle a material. The most sustainable outcome is not necessarily the one that recycles the most material – from a life cycle perspective, package light weighting has far greater environmental benefits, even in instances where the package cannot be recycled. Instead of encouraging or incenting producers to develop the most sustainable solution, we are telling them to develop recyclable solutions, which in many instances, results in inferior economic and environmental outcomes. Our fixation on using recycling rates and recyclability as the measuring stick for success is why program costs are increasing by double digits year over year, while diversion is actually decreasing.

EPR is not intended to create cost containment; it purely a funding mechanism to shift the burden from the taxpayer to the consumer

A system that does not contain costs is not tenable or sustainable. This is the fundamental issue with existing approaches to EPR. Proponents will say costs are now born by the right party, but what that cost is has significant implications to all stakeholders. Further to that point, while the intended purpose of EPR is intended to make consumers responsible for end of life costs, existing and proposed approaches to legislation are obliging consumers to pay for the costs of operating the recycling system. Recycling is not and should not be the only end of life option that we consider for how printed paper and packaging is managed. Not all materials are created or recycled equally – thus, it seems prudent that we explore options that maximize environmental and economic outcomes by differentiating how and where certain materials should be managed. The decision to recycle everything, everywhere, is the foremost issue facing the long term tenability of the Blue Box program.

The proposed Blue Box transition will save Ontario taxpayers money

A common refrain made by advocates of the transition to 100% producer responsibility is that transitioning program costs to stewards will result in taxpayer savings. Under the proposed legislation, stewards will be responsible for an additional $135 million dollars in program costs (exclusive of proposed changes to what sectors are obligated). The underlying intuition behind the tax savings hypothesis is that municipalities will pass this $135 million in savings onto households, either through a reduction in property tax or utility rates.

While this would be an optimal solution, there is no evidence to suggest that this will be the case. Municipalities (particularly in a post COVID world), grapple with significant budgetary shortfalls and are in all likelihood going to take the funds “saved” from transitioning the Blue Box program and re-allocating those funds to other programs and services. In British Columbia, there is no data to suggest the transition to 100% EPR has resulted in a tax savings for households.

While there is an argument to be made that the reallocation of funds to support other municipal programs and services benefits households, the benefits that are accrued are indirect and do not offset the increase in packaging costs that are attributable to EPR.

EPR does not increase cost of living

As a tangent to the previous point, advocates of EPR often contend that there is no appreciable impact in the cost of living attributable to the transition to full producer responsibility.

An examination of how the fee model works and how producers respond to a corresponding increase in fee rates demonstrates that this is not true. In fact, the transition to a 100% EPR system has been modeled to increase “basket of goods” costs for consumers by anywhere from 6-12%.

While a supplementary document that accompanies this FAQ explains the relationship between EPR and the cost of packaged goods in greater detail, in short, the costs to consumers are both “direct” (an increase in fees directly translates into a proportional increase in packaging costs) and “indirect”(cost escalation resulting from producers passing costs onto the consumer resulting from an increase in their funding obligation).

A direct increase in costs are shown in how the fee model works. Any increase in recycling system costs are re-distributed to obligated materials in direct proportion to that materials share of overall costs. In Ontario’s case, the additional $135 million dollars in program costs that stewards are now obligated for are immediately translated into an increase in fee rates, which in turn, are built into the price of packaged goods.

Indirect costs are slightly more difficult to quantify, but are based on a log linear adaptation of an input/output model used to quantify the economic and labor impacts of waste management activities. Our adapted model attempts to isolate the specific impacts of increases in waste management costs on consumption baskets.

While the materials in the accompanying document describe this model in greater detail, increases in costs borne by producers can manifest in the following ways: 1) costs being passed directly onto the consumer in the form of increased prices or a reduction in product size 2) costs are internalized, but results in reduced investment, job losses, company contraction etc. 3) some combination thereof (most realistic outcome).

What few people seem to recognize is that the potential increase in costs borne by the consumer are multiples higher than the direct increase in the steward obligation. As an example, if producers collectively reduced their investment in the province by $135 million dollars, the overall impact on the economy is north of half a billion dollars in both direct and indirect costs (as per the input/output multiplier).

A steward lead EPR program will inherently contain costs

An argument this is made in favor of steward lead EPR programs (where producers assume responsibility for the entire system), is that they have a greater ability to control costs relative to muncipalities, as they are not bound by geographical boundaries.

This is a logical fallacy for a number of reasons. The foremost issue is that there is no evidence to suggest that stewards are more efficient at operating a recycling program or containing costs. Recycle BC, which is often touted as a best practice model of steward lead EPR, has experienced the highest increase in year over year recycling system costs of any province in the country. In the past 3 years, recycling system costs have increased by more than 45%. The purported benefits of cost containment by stewards can only be achieved if there is a coordinated effort that represents the collective interests of all obligated stewards. However, due to the sheer number of participants (that vary in size, sector and locality), most stewards are largely passive participants in the Recycle BC program.

A comment made by ministry staff that “Private industry has always claimed to be more efficient than government” is a bit of a half-truth. Private companies who operate in the same space/sector as a government equivalent is often claimed to be more efficient. However, handing producers the reigns to the Blue Box is not the same thing – this isn’t a situation where the Waste Managements, Emterras and GFLs of the world are being compared to municipal waste management operators. This is a situation where we are asking major CPG companies to take control of the waste management system. By their own admission (and feel free to ask – they aren’t shy in telling you), most packaging companies have no clue how to operate an efficient waste management system. They will in all likelihood have to engage in individual contracts with waste service operators (both private and municipal) who are managing the programs now…. Except, we have the added administrative costs of having to coordinate multiple companies with multiple contractors.

There is a term in economics that we refer to as “communication externalities”. Efficiency of communication and coordination becomes more difficult as a greater number of participants enter the system, particularly if participants are of unequal size, power or do not have access to the same information. Communication externalities are often sufficient to completely deter cooperation all together. This is a very real risk as producers take over the system, particularly because they lack a common voice or entity that represents their collective interests.

A steward lead EPR program will lead to new end use applications and end markets for difficult to recycle materials

There have yet to be any examples in Canada where stewards have been able to develop new end markets or viable end use applications for composite and light-weight materials. While there have been “one off” situations where producers have worked collaboratively with the waste service providers to capture and recycle a specific materials (i.e. Green Mountain and Recycle BC partnering to recycle the K-Cup), those solutions were neither scalable (only available in one locality) or economical.

The above example highlights the issue with this line of reasoning – in the absence of a relationship that is site and situation specific, stewards do not and should not have the ability to disrupt commodity markets. If a material inherently has value, the market will signal that this material should be captured, and that there will be an end market willing to purchase that material. If commodity markets dictate that a material has nominal or no value, then attempting to collect and recycle that material will result in a significant cost, with virtually no benefit. Unless there is prescriptive recycled content legislation that mandates the use of that material in new products (which may or may not have technical barriers), then the only use for that material will be in bespoke recycling solutions that are more novel than practical.

At present, recycling markets for composite and light weight plastics remains virtually non-existent, and it is unlikely that stewards will be able to change that in the near term.

A steward lead EPR program will incent producers to design more sustainable packaging

Referring to the principles of the waste management hierarchy – reduction is preferred to reuse, and reuse is preferred to recycling, then through that lens, many producers are already developing more sustainable packaging. Once again, the issue is that most people (both policy planners and the public) conflate recycling with sustainability – if it can’t be recycled, it must be bad.

While package light weighting has often been characterized as a negative due to low levels of recyclability, most life cycle analysis studies demonstrate that the “upstream” environmental savings (resulting from a reduction in material used, efficiencies in transportation and logisitics and increased shelf life) significantly offsets the environmental impact of being unable to recycle those materials.

Existing and proposed legislation incents recycling (and in some instances, takes punitive measures towards materials that have low levels of recyclability), but offers no credit for the waste reduction that is achieved. In many ways, the existing approach may result in an environmentally and economically perverse outcome, where producers “switch back” into heavier, but more recyclable packaging.

Issues Surrounding Proposed Impacts of the Blue Box Expansion into the IC&I Sector

We have no data

EPR is fundamentally premised on being able to allocate end of life management costs to the correct obligated party. In doing so, the following information is required:

1)     Who are the generators?

2)     What is the total quantity of material being generated/recovered (by sector and by generator)

3)     What types of material (composition) are being generated/recovered (by sector and by generator)

4)     How is waste currently being managed? (who is collecting it, where does it go, where does it end up etc.)

5)     How much does it cost to manage? (Including costs by activity type – collection/sorting/baling)

At present, there is no reliable data regarding the aforementioned data points with respect to the IC&I sector. We know neither the size nor scale of the issue, and have no ability to track how waste is managed throughout the system.

In the absence of having this data, is it is virtually impossible to determine what the steward obligation should be, or how to allocate those costs to individual stewards.

We don’t have the administrative infrastructure

Collecting the necessary data (including who is responsible for gathering this information, who owns it, and how this data is verified/vetted) is something that needs to be figured out before we can even begin to have conversations surrounding expanding the Blue Box into the IC&I sector.

Further to that point, the province also needs to be able to know the roles and responsibilities of affected stakeholders regarding quantifying and allocating costs to the appropriate steward.

Given the sheer # of producers who operate in the IC&I sector, the administrative externalities associated with the above activities are enormous, and are costs that have yet to be quantified when estimating what the increase in the steward obligation may be.

We don’t know if we have the infrastructural capacity

At present, the province has no way of knowing whether there is sufficient capacity within the existing system to accommodate for increases in diversion attributable to any legislative changes. With respect to material recycling facilities for printed paper and packaging, we do not even have a list of all the private and public facilities in the province, nor do we have any estimates surrounding their approved and existing capacity.

It seems entirely plausible that capturing more PP&P from the IC&I sector would require infrastructural investments to expand system capacity (for both collection and processing), which is a cost that has not been quantified.

Ministry staff have indicated that proposed changes are not intended to take effect for 6 years, and as such, it is impossible to understand what system capacity will be then, and what changes will need to be made now. This is not an adequate answer – the decision to invest in infrastructure, even if those changes are not anticipated for another 6 years, is something that needs to be planned for now. As an example, if we know that the proliferation of light weight and composite plastics is likely to increase over time, then significant changes will have to be made to existing infrastructure will be required (although I personally feel that spending money trying to capture these materials is a fools errand).

It is not good enough to say “I don’t know what the future will look like, but you will have to pay that bill when it comes due”.

Material from schools, long term care facilities and multi-residential sectors are heavily contaminated

According to waste audits conducted for these sectors, contamination rates are significantly higher for the recycling stream when compared to waste generated from single family homes.

Schools and long term care/retirement facilities struggle with fiber contamination in particular, which significantly impairs its value, or in some instances, makes it completely unrecyclable. As such, an expansion of the steward obligation into these sectors is likely to result in an even more acute escalation in costs (beyond what has been estimated), as revenues received from the sale of collected recyclables is likely to be depressed.

Markets for recyclables are deteriorating, and an expansion is going to make it worse

Setting aside concerns surrounding contamination and its negative effect on revenue, there is also the practical issue that collecting more printed paper and packaging from the IC&I sector is going to exacerbate already deteriorating prices for recyclables.

Beginning with the Chinese sword and further compounded by the global economic slowdown resulting from COVID, prices for most PP&P is languishing. As a result, any proposed legislative change that is likely to result in more recyclable material being marketed is going to make a bad situation even worse. With that being said, that is not necessarily an outcome that needs to be avoided – as noted earlier, allowing commodity markets to operate freely is likely to result in the most economically efficient outcome.

However, lower prices for recyclables poses significant challenges to domestic recycling brokers and re-processors, which necessitates that any legislative change that can potentially affect commodity prices is approached with caution.

Existing estimates surrounding the cost of expanding the steward obligation assumes a fixed IC&I material management cost

Current estimates by the ministry surrounding the proposed expansion of the Blue Box into the IC&I sector does not take into account the composition of material from these sectors. The general expectation is that stewards will be obligated for the total system cost of servicing these sectors, and will negotiate individual relationships with PROs for how this material gets managed.

For as much as I can understand and appreciate that the obligation does not refer to specific material categories, we cannot in good faith estimate a cost for servicing these sectors without taking into consideration what materials are generated by these sectors.

Collecting uncontaminated office paper from Office Buildings is fundamentally different than collecting a mixed bale of contaminated fiber and tetrapaks from a school yard. The delta in material management costs is enormous. To say that we don’t need to take that into consideration when developing our existing estimates completely ignores the reality of the situation.

No one size fits all approach

A sentiment expressed earlier is that not all materials are created equal, and neither is all recycling. So with that in mind, why should legislation treat all materials the same way?

Proposed legislative changes under the Blue Box transition has the potential to adversely affect a significant number of stewards, particularly those who manufacture light weight and composite plastics. However, these same changes are being embraced by beverage stewards, who are looking to capture as much material as they can from both the residential and IC&I sector. Ideally, legislation should be able to allow stewards the approach that yields to most economic and environmentally sustainable outcome, while ensuring that they meet their legislative requirements.

This is why it is so critical that the goals of Blue Box legislation should be outcome based (total carbon abated) as opposed to tonnage based (recycling/diversion rates). It is possible to recycle less material in an absolute sense, but achieve a superior environmental and economic outcome by prioritizing certain materials for recovery.

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About the Author

Calvin Lakhan, Ph.D, is currently co-investigator of the “Waste Wiki” project at York University (with Dr. Mark Winfield), a research project devoted to advancing understanding of waste management research and policy in Canada. He holds a Ph.D from the University of Waterloo/Wilfrid Laurier University joint Geography program, and degrees in economics (BA) and environmental economics (MEs) from York University. His research interests and expertise center around evaluating the efficacy of municipal recycling initiatives and identifying determinants of consumer recycling behavior.

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