We’ve been
posting a lot on Ontario lately because some bold changes are being proposed to
the EPR system. Usman Valiante
has just written a compelling critique.
It’s on the long side but well worth the read. Despite the
title of his article, if the Ontario legislation is changed per his
suggestions, the Province of Ontario will become North America's leading
jurisdiction for EPR and waste reduction and diversion.
(One quibble: Usman recites the history of how
municipalities got snookered into providing curbside recycling by the beverage
industry and expedient politicians, how the original and current waste acts
thwarted true producer responsibility, and then defends the municipal role as a
success to build on.) Reprinted with
permission.
-- Bill Sheehan
Usman
Valiante is Senior Policy Analyst with Corporate Policy Group LLP. He has 20
years experience in the management of commercial and public policy issues
involving a complex mix of economics, environmental science, law, public
policy, business strategy and politics.
By Usman Valiante
Sept 15, 2013
The effect of the
people’s agreeing that there must be central planning, without agreeing on the
ends, will be rather as if a group of people were to commit themselves to take
a journey together without agreeing where they want to go; with the result that
they may all have to make a journey which most of them do not want at all.
-- Frederich
August von Hayek, The Road to Serfdom (1944)
Ontario municipalities are
rightly frustrated with sharing responsibility for the collection and recycling
of printed-paper and packaging (PPP) – what Ontarians call “Blue Box” materials
– with producers.
As the Association of
Municipalities of Ontario (AMO) states in its submission regarding Bill 91
Waste Reduction Act, “ It is quite challenging and frustrating under the
current Waste Diversion Act that, although municipalities are legally
responsible for more than 50% of the net costs of the Blue Box program and all
the infrastructure investments we have made, we have no official voice in the
actual design or implementation of the Blue Box Program Plan nor do we have any
influence over producers’ packaging decisions.”
A legitimate gripe, no ifs, ands or buts.
As we sympathize with the plight
of Ontario municipalities we should remember that “shared responsibility”
didn’t happened by accident but was created by design.
As per Hayek’s allegory, in
establishing a centrally planned “shared responsibility” paradigm for recycling
we have gone on a journey without a clear destination and have ended up in a
place where no one wants to be.
As drafted, the Waste Reduction
Act (WRA) not only builds on, but also amplifies the faulty design of the Waste
Diversion Act 2002 (WDA). The WDA itself is the product of a long history of
decisions based on short-term political expedients.
I remember the common refrains
during the debates over Bill 90 Waste Diversion Act over 11 years ago, “It
isn’t perfect, but let’s get it done and we’ll fix it later” and “If we don’t
take this deal we might not get another one”.
Well, now is later and we aren’t
talking about fixing anything but taking another big step down the existing
track that will make things much worse. Once again, the biggest losers will be
Ontario municipalities and Ontario consumers.
How so? Well, let’s start at the
beginning.
To understand the fundamental
problem with the design of the Blue Box funding model (which is really the guts
of the Blue Box Program Plan operated by Stewardship Ontario) one must revisit
its history.
How did the idea of producer
“funding” of the Blue Box under the moribund concept of “shared responsibility”
or “product stewardship” come to be?
It all started way back in the
late 1970s with the first great churn in the primordial soup of packaging
politics brought on by the members of the Ontario Soft-Drink Association as
they sought to escape refillable bottles (or more accurately their network of
franchise bottlers) and provide consumers with what they termed “packaging
freedom”.
The story as it unfolded in
Ontario is a fascinating one and its abridgement below does it no justice
whatsoever.
In a nutshell, in 1987 the
Ontario Government (of which the Honourable Jim Bradley was Environment
Minister) reached an agreement with the soft-drink industry by which it would
reduce provincial quotas for the sale of refillable soft-drink containers (the
quotas themselves set under the previous Progressive Conservative government of
Premier William G. Davis) in exchange for the soft drink industry and its
packaging suppliers facilitating the establishment of a provincial Blue Box
system.
The deal effectively allowed
soft-drink producers to finish dismantling a 100% producer responsibility
program of deposit-refund and refilling in exchange for the promise of broader
municipal-based, curbside, multi-material recycling – a system that would
ostensibly help alleviate the province’s “landfill crisis”.
The Blue Box program was sold on
the idea that producers would provide seed capital funding to start up the Blue
Box and in the longer-term “valuable recyclable materials” would sustain it by
generating municipal revenues in excess of collection and recycling costs. Most
notably, aluminum soft-drink cans were to become the “gold” in the Blue Box.
When Ontario municipalities came
to understand the reality of the economics of secondary material markets they
realized that the Blue Box wasn’t a moneymaker but a costly and risky venture.
Some threatened to abandon curbside recycling altogether if producer funding
was not forthcoming.
With Ontario’s New Democrats now
in power and recognizing growing municipal angst, with calls for the
introduction of a province-wide deposit-refund system and regulated use of
refillable containers, key industry players coalesced to form the Canadian
Industry Packaging Stewardship Initiative (CIPSI) in 1992.
CIPSI proposed to initially fund
municipalities to the tune of $65/tonne of Blue Box material recycled with 2/3
of “efficient” net municipal recycling costs borne by industry once efficiency
metrics had been established. The amount of municipal funding offered by CIPSI
was reduced in later proposals predicated on the then rising tide of secondary
material prices.
The Provincial Government took
the CIPSI proposal to consultation in early 1994 as a proposed regulatory
measure. At the same time it regulated Ontario municipalities into delivering
Blue Box programs through Ontario Regulation 101/94 under the Environmental
Protection Act.
In November 1994, AMO and key
Ontario environmental groups, including the Recycling Council of Ontario,
deemed the CIPSI proposal insufficient.
With the 1995 election of the
Progressive Conservatives the CIPSI proposal was turfed as a new tax. Shortly
thereafter the Ontario Government ended provincial subsidies to municipalities
for operation of the Blue Box.
Municipalities, now regulated
into delivering the Blue Box, were saddled with all of its cost.
The Ontario Government’s soft
political underbelly was its own liquor agency the Liquor Control Board of
Ontario (LCBO) – the single largest source of packaging by weight in the Blue
Box.
Municipalities clamored for a
LCBO deposit-refund system to alleviate the cost of recycling LCBO packaging
and more strategically as way to push the concept of “producer responsibility”
back onto the provincial agenda.
In August 1998 the City of
Toronto introduced a concept of a City by-law mandating an LCBO deposit-refund
system in order to pressure Minister of Environment to implement a deposit
return program for LCBO containers.
In October 1998, Minister Norm
Sterling introduced a plan to fund the Blue Box through a “Waste Diversion
Organization” with the LCBO contributing $4 million to Ontario municipalities
to help offset their costs of recycling LCBO containers through the Blue Box.
Behind the scenes, Corporations
Supporting Recycling (CSR) – the latest transmogrification of CIPSI – worked
with the MOE to develop a regulatory package to address the political crisis
(CSR later became the backbone of the nascent Stewardship Ontario under the
Waste Diversion Act).
It was in this political climate
that CIPSI was resurrected, repackaged and rebranded as a 50-50 industry-municipal
“cost-sharing” model to be incorporated into a new law – Bill 90, Waste
Diversion Act.
As of 2002 the 50-50 split is
law.
Today, as AMO writes, “materials
that end up in municipal recovery systems are becoming very difficult to
manage. As stewards introduce new, lightweight and difficult materials into the
system, they should ultimately be responsible and accountable for the end of
life costs of managing these materials”, producers gripe about municipal PPP
collection and processing costs that have escalated from $250/tonne in 2007 to
well over $320/tonne today.
The squabbling over costs and
control is incessant.
The legacy of the WDA is
frustration and discord – between producers and municipalities, between
producers and the resource recovery sector and between the Province of Ontario
and producers.
This frustration arises because
none of these parties is self-determinant in fulfilling its respective role.
Meanwhile, the province is locked into a system that is characterized by
stagnant PPP recycling rates and escalating costs.
So how to fix this mess?
The great economist Ronald
Coase, who passed away this past Labour Day, wrote in his seminal paper The
Problem of Social Cost that before implementing a policy undertake an,
“…analysis with a situation approximating that which actually exists, to
examine the effects of a proposed policy change, and to attempt to decide
whether the new situation would be, in total, better or worse than the original
one.”
Following Coase’s public policy
advice, let’s look at what the Ontario Government is proposing for
municipalities under the Producers’ Responsibilities to Municipalities
provisions of Bill 91 WRA:
The right to register with the
Waste Reduction Authority (the Authority) whereby producers are then obligated
to compensate municipalities for collection and recycling of all designated
materials (PPP, tires, batteries, paint, you name it);
Financial compensation for
recycling activities through either ‘voluntary’ agreements with producers or
compensation payments determined either by the Authority or through regulation;
and
The authority to design, deliver
and control collection and processing of designated wastes for which they have
taken responsibility.
Under this approach
municipalities’ ability to negotiate voluntary agreements with producers is
backstopped by the ability to invoke the Authority to intervene and set the
rate of producer compensation to municipalities.
What Bill 91 is proposing to do
is fully institutionalize the oversight, mediation and arbitration of Blue Box
fees payable by producers within its own regulation making powers and the
powers afforded to the Authority under law. The resulting utility prices set by
the Authority will essentially be – and I use the common law definition here,
not the political one – taxes.
Producers will make offers to
municipalities and when they are rejected, the Authority will step in whereby
producers will mobilize a platoon of technical consultants, lawyers and
lobbyists to “work the program”. With gross Blue Box costs heading toward $200
million a year, spending $2 million in high priced help offers a good return on
investment if it will save $10 million a year in Blue Box taxation.
For its part, the municipal
financial fate will rest with an Authority that is supposed to be overseeing
environmental compliance but will be spending all of its time and bloated
resources refereeing producer-municipal disputes.
In the longer run the utility
scheme will only be sustained as long as the coercive force of the province is
committed to it. A change in political winds and municipalities will be back to
square one.
In a nutshell, what Bill 91 WRA
is offering in terms of the roles of the Authority, municipalities and
producers is lousy institutional design – more fighting, more discord, more
paralysis, a war of attrition with no more waste reduction.
The WRA municipal provisions are
a bad deal for Ontario municipalities, for producers and for consumers who will
end up paying for the whole enchilada.
So then, what’s the solution?
Principled, Extended Producer Responsibility (EPR).
Principled EPR means is holding
producers fully responsible and accountable for managing their wastes.
Specifically:
Producer collection and
recycling targets whereby producers must meet regulated waste service standards
(i.e. collection service) and waste diversionstandards (i.e. collection targets
and recycling standards) for designated materials;
Shifting of regulatory
requirements to collect and process designated materials from municipalities to
producers with the ability for producers to negotiate with municipalities for
the collection and processing of designated materials and for municipalities to
negotiate to their advantage or to option out entirely leaving producers to
establish their own systems to discharge their regulatory obligations; and
Penalties that producers must
face for failing to achieve waste diversion standards, with penalties set in
proportion to the portion of the waste service standard they failed to achieve.
These penalties would be payable to municipalities in recognition of the fact
that the uncollected portion of designated materials remain in the municipal
waste stream. As AMO states, “To mitigate the potential risk of IPR diversion
programs performing poorly, appropriate failsafe compensation schemes for
municipalities are required”.
To be successful in meeting
regulated waste service and diversion standards, producers will need to
negotiate access to the designated wastes collected in existing systems
(largely municipal) or build entirely new collection systems themselves.
For printed-paper and packaging
collected at the curb, producers need municipalities to help them discharge
their obligations. Given the historical municipal role in delivering curbside
collection systems and the bond municipalities have built with residents they
are in the best position to work with producers that need access to these
materials.
As such, municipalities are
afforded bargaining power that they do not currently have under the shared
responsibility system set out in the WDA – the materials they collect will have
value to producers that must meet environmental performance targets.
Under EPR the risk of processing
and marketing collected materials should be completely borne by producers not
municipalities. However, with that assumption of responsibility and associated
risk comes the reasonable expectation of control and self-determinacy.
Repealing Ontario Regulation
101/94 which requires municipalities to provide Blue Box services strengthens,
not weakens, the municipal negotiating position – either producers negotiate
reasonably and cooperate and collaborate with municipalities or they face
having to deliver Blue Box collection and engage residents themselves.
For materials better collected
in systems other than curbside and MHSW depots (i.e. private depot,
return-to-retail, return-to-charities, special collection events etc.),
producers facing penalties have a strong incentive to collect designated
materials in new and innovative ways in order to keep those materials out of
the municipal waste stream – mobile phone producers don’t want municipalities
collecting mobile phones and municipalities would be happy if none appeared in
their waste stream.
Bill 91 WRA should be amended to
eliminate the provisions related to Producers’ Responsibilities to
Municipalities and the Authority should not be provided with the jurisdiction
to, “…establish a compensation formula for every designated waste”.
The role of the province should
be to set regulated waste service and diversion standards and the role of the
Authority should be to ensure those outcomes are met.
By holding producers responsible
and accountable for waste diversion outcomes the necessary arrangements,
collaborations and innovations necessary to achieve those outcomes will happen
of their own accord.
We’ve talked about producer
responsibility for a long time in Ontario. Maybe it’s time to actually give it
a chance.
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I was asked recently about my “theory of change” in the light of ever-increasing power of corporations that put profits ahead of sustainability of people and the planet. I agree that concentration of corporate power, combined with weakening civic power, is part of what's driving unsustainable production and consumption. My theory of change is that governments are essential to controlling corporate power and that government is strengthened by civic rather than consumer action. That’s one reason why Product Policy Institute focuses on policy solutions. 
