By stimulating innovation, strict environmental regulations can actually enhance competitiveness.
Toward a New Conception of the Environment-Competitiveness Relationship
Michael E. Porter and Claas van der Linde
The Waste Reduction Strategy –- the Ontario Ministry of the Environment’s marketing document that accompanied its release of Bill 91 Waste Reduction Act (WRA) –- touts the WRA as a measure that will encourage, “…producers to develop products that are designed, manufactured and distributed in ways that reduce their impact on the environment.” In setting forth this lofty (and, in Ontario, entirely unachievable) objective, the environment ministry seems to have forgotten to address the more pedestrian objective of ensuring that what is collected on behalf of producers is, in fact, properly recycled.
Bill 91 proposes two environmental performance measures – a waste reduction service standard (which addresses requirements for things like the geographic coverage of designated waste collection) and a waste reduction standard (WRS) (which relates to collection targets and requirements or prohibitions regarding the reuse, recycling or disposal of designated wastes).
From what can be determined from Bill 91, the WRS seems to be intended to define reuse and recycling for a given material in regulation — a good first step.
Ideally a WRS should be clear in terms of defining an outcome without specifying a specific recycling process; something like, “Recycling widgets means recovering a minimum of 80 per cent of the component materials widgets are made of, for use in manufacturing new products or by natural ecological systems.”
Think evolving functional definitions of recycling like the McDonough Braungart Design Chemistry Cradle-to-Cradle definition or the Ellen MacArthur Foundation Circular Economy Principles. (See editor Guy Crittenden’s blog entry “Less bad is no good” from July 29, 2013.)
Such a WRS might also proscribe certain interpretations of recycling, something like, “Taking widgets and reducing them to slag in a smelter and then using the slag as aggregate replacement in road beds does not conform to the definition of widget recycling.”
To be effective, the WRS should apply to producers (meaning they cannot use a recycler that does not meet the standard) and they should apply to the recyclers themselves.
Accordingly, a recycler would not only have to meet the usual minimum site and environmental discharge approvals (i.e., environmental compliance approvals) for recycling widgets; they would also have to verify on an ongoing basis that their recycling process meets the outcomes set out in the recycling standards. This would ensure the recyclers are not disposing of materials or cherry-picking valuable components while disposing of the rest, or shuffling off half-recycled materials to another jurisdiction with lower environmental standards for further “recycling.”
Unfortunately Bill 91 Waste Reduction Act is silent with regard to the application of the WRS to recyclers.
Where producers and their intermediaries (what we know today as Industry Funding Organizations) must register with the Waste Reduction Authority, recyclers do not. (The Waste Reduction Authority will be Waste Diversion Ontario transmogrified from a poorly defined regulatory blob into a full fledged statutory authority with law enforcement powers.)
Rather, under Bill 91 a producer or its intermediary is responsible for ensuring recyclers are meeting the WRS set out in regulation.
This creates a number of problems.
First, the approach puts a heavy burden on individual producers in selecting a recycler. Where an individual producer is interested in getting competitive pricing from recyclers, it has to evaluate each and every recycler that’s proposing to supply it with a price bid against the WRS. The producer can’t rely on the fact that the recycler is adhering to a regulated WRS because the recycler isn’t regulated to any WRS.
As noted by the May 2012 draft Institute of Electrical and Electronics Engineers standard 1680.2 (Standard for Environmental Assessment of Imaging Equipment), “In jurisdictions where the manufacturer has control over the choice of initial service providers, manufacturer shall ensure that all equipment collected…is managed by initial service providers that are certified on an on-going basis to a qualified recycling standard by independent certification bodies.”
Accordingly, producers are best served in selecting recyclers if a WRS applies to all recyclers of designated materials and the Waste Reduction Authority oversees compliance with the WRS.
The second issue is that recyclers adhering to WRS and operating on behalf of producers may find themselves uncompetitive with recyclers that collect and broker the same designated products and materials in the open market where they have a financial value. The lack of a common standard between recyclers operating on behalf of producers and those operating outside of producer responsibility arrangements forces producers to pay more to their recyclers to “pull” materials away from the “unregulated” market in order to ensure that product and material recovery targets are met. This happens frequently for designated products like waste electronics.
The result is increased costs for producers and, in turn, consumers.
Another issue is that even if producers or their intermediaries are diligent in selecting and overseeing recyclers and those recyclers nonetheless cut corners and ship materials where they are not supposed to go, there is not a thing the Ministry of the Environment can do to rectify the issue, other than enforce against the producer or intermediary. Undoubtedly producers and intermediaries will avail themselves of a due diligence defense (and hopefully fire the recycler in question).
There will always be a tension between adherence to standards and cost — it will be up to how well the system is regulated to ensure ongoing outcomes.
If the system isn’t well regulated, recyclers that have invested and innovated against meeting the WRS may find their investments and innovations devalued as they compete with recyclers that producers or their intermediaries allow to cut corners.
The application and oversight of the WRS to all recyclers receiving designated materials is really the lynchpin to ensuring environmental outcomes and economic efficiency (primarily driven by innovation) in the end-of-life management of products and materials.
Regulating recyclers means meaningful enforcement; as a proposed statutory authority the Waste Reduction Authority provides an opportunity to oversee and enforce the WRS on both producers and recyclers.
For a producer or intermediary to send designated materials to a given recycler, that recycler should be required to register with the WRA and agree to compliance audits irrespective of where it operates. To level the playing field between recyclers operating in Ontario, any recycler receiving designated waste — irrespective of whether through producer efforts or via the open market — should be required to adhere to the WRS. Failure in meeting the standard means losing the eligibility to receive designated materials.
Bill 91 should be amended to provide a recycler oversight function for the WRA. By doing so, producer costs and risks will be reduced, there will be less opportunity to cheat the system, recycling markets will enjoy a level playing field (which will drive investment and innovation) and the Ontario government and citizens will have greater certainty that environmental objectives are being met.