Thursday, July 15, 2010

Costs for Added Service: "Eco-fees"

Guest column by Helen Spiegelman

In Canada, producers are beginning to add recycling costs ("eco-fees") onto the prices of their products. These fees are coming under a lot of fire. Environmentalists who support producer responsibility are concerned that corporations are slapping these "fees" on without adequate government oversight. The general public in Canada sees the fees as a government tax -- coming hard on the heels of a "harmonized sales tax" (HST) that adds cost to some consumer goods. It is important to help the public understand the underlying facts so they can hold both corporations and the government accountable.

First, EPR "eco-fees" are not a tax but a price increase reflecting an added service being provided by producers to consumers. It is a cost, like the other costs that are incurred in producing and marketing products, that has to be factored in when the producer sets the price of the product. Pricing is flexible, of course: producers can choose to absorb some costs temporarily, but ultimately all costs have to be covered or the producer goes out of business.

Where EPR gets into trouble at this stage of its evolution is that government has allowed all producers of a given product (e.g. electronics) to use the same company to manage their recycling function, creating a monopolistic/monopsonistic situation. For this reason, really robust government oversight is needed, such as the delegated administrative organization in Alberta, to make sure that the consortia don't abuse the consumers. But there will be a natural tendency for producers to bolt from consortia when they can come up with a lower cost way of providing the same services. This is why good EPR legislation allows producers to manage their own recycling functions or form new consortia.

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