Wednesday, September 18, 2013

It's Time to Give Principled-EPR for Packaging A Chance in Ontario

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
Solid Waste & Recycling magazine in Canada
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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