In their April 30, 2004 report 60% Diversion of Blue Box Waste, Material Specific Targets and Municipal Benchmarks, Waste Diversion Ontario (WDO) recommended a range for setting material specific targets for 2006 to 2008 Ontario blue box materials to the minister of the environment and identified four options for achieving these targets. WDO recommended that additional research and analysis be conducted on the economic and environmental effects of achieving different recovery targets prior to selecting the preferred option and setting the 2006 to 2008 material specific targets.
Interestingly, there were no costs attached to the four options presented by WDO for setting material specific targets for 2006 to 2008. With a current net cost of the blue box system of $98 million and a diversion rate of approximately 46 per cent, reaching 60 per cent would appear to be quite aggressive and many dollars away; yet this has been mandated by the province’s environment minister.
Let’s look at three scenarios for reaching the 60 per cent target and the gross and net cost associated with each.
The scenarios include:
– The mid-point of the range of possible 2008 material specific targets from the WDO report;
– A level playing field (LPF), as suggested by some, where all materials in the blue box reach a 60 per cent diversion rate; and
– A system where the focus is primarily on the “next least costly tonne” (NLCT).
The three scenarios examined project systems’ costs, assuming the prescribed targets are reached in 2008, as required by the minister. The recovery rates assigned to each material under each scenario are shown in Table 1.
For the purposes herein, it’s assumed that the gross cost per tonne for the individual materials will be as defined by Stewardship Ontario earlier this year and used to establish the 2004 fees. The revenues per tonne will be based on the values reported by Stewardship Ontario for 2002. The difference between the two will provide the net cost per tonne. Across all scenarios, it’s assumed that even with changes in the quantities managed, there would be no savings from economies of scale, nor would there be any cost increases associated with the potentially necessary improvements to manage the new tonnes of materials.
The current system (2002 data) was used as a benchmark against the three scenarios examined. The overall recovery rate of the current system is 46 per cent (printed paper at 56 per cent and packaging at 37.5 per cent). The gross cost of the current system is $158 million less revenues of $60 million, resulting in a net $98 million cost.
Reaching 60 per cent
The first scenario examined uses the mid point of the range of possible material specific target recovery rates put forward by the WDO. Targets were set for each material group to generate a diversion rate of 69.3 per cent for printed paper, 56.6 per cent for packaging and an overall diversion rate of 61 per cent. As seen in Table 2, the gross cost of the system would be $291 million, with revenues of $98 million for a net cost of $193 million — almost double that of the current system.
Some have suggested that targets should be the same (i.e., equal) across all packaging and printed materials, so that no individual material receives an unfair advantage. So the second scenario examined, the level playing field (LPF) model, looks at the costs associated with setting the targets for all materials in the blue box at a 60 per cent diversion rate. System costs soar enormously in this scenario to a net cost of approximately $267 million, more than 2.5 times those of the current system.
Used within reason, the third scenario — next least costly tonne (NLCT) — costs much less to attain overall diversion of at least 60 per cent. The system would, of course, focus on recovering more aluminum, newspaper and mixed paper, whose impact on system costs are small in comparison to some higher cost materials.
The highest attainable target would be a recovery rate of 80 per cent, which represents approximately 90 per cent participation and a 90 per cent capture rate. The proposed targets generate an overall recovery rate of 61.2 per cent, with printed paper recovery at 70.7 per cent and packaging recovery at 53 per cent. The costs associated with this scenario are significantly lower than those of the other two scenarios. The estimated gross cost is $245 million with revenues of $104 million, for a net cost of $141 million. This is more than $50 million lower than under the first, mid-point scenario.
The major disparities between the costs of the three scenarios highlight the importance of how individual targets are set (and what those targets are) for each specific material to reach the overall 60 per cent diversion goal. Targets should not be assigned arbitrarily. The blue box system has to be financially sustainable. In theory, to save money, targets should be set according to the doctrine of the next least cost tonne. However, with the restrictive manner in which the Pay In Formula can reward diversion performance, instead generating negative financial implications (i.e., higher fees) for those with a larger percentage of the net cost of the program, some may argue this is unfair. Others would argue that there should not be any “free riders” in the system and, therefore, targets should be aggressively set for all materials.
Neither municipalities nor industry wants to see recycling program costs double or triple in the next four years. Diversion comes at a cost. Defining a sustainable cost is the question.
A link to the relevant WDO document is posted in the June/July 2004 area under Posted Documents at www.solidwastemag.com
A requirement of the Waste Diversion Act is that the fees paid by “stewards” (obligated companies) should fairly reflect the costs of developing, implementing and operating the program. Under the approved Blue Box Program Plan (BBPP) Stewardship Ontario (the BBPP Industry Funding Organization) addressed this requirement by developing a methodology for setting members fees which integrates three key elements considered critical to the fairness, effectiveness and sustainability of the BBPP:
Element 1: The recovery rate of each designated blue box waste in a given program year;
Element 2: The net cost of recycling each of the designated materials through municipal programs in any given year; and,
Element 3: The disproportionate contribution that some blue box materials make to the overall success of the programs in any given year.
The fee setting methodology used by Stewardship Ontario assigns a weighting to each of these factors in setting material specific fees. In approving the BBPP in December 2003 the minister of environment requested significant enhancements to the plan including:
– Increasing the overall diversion of blue box waste to 60 per cent by 2008;
– Setting annual material specific diversion targets and policies and practices to ensure they are met;
– Developing policies and practices to contain the costs of the overall program.
As noted in the accompanying article these requests may have a significant impact on overall BBPP costs and on the material specific fees that would be charged to stewards under the current Stewardship Ontario funding formula.
Stewardship Ontario will be consulting with stewards over the next four months on fees to be set for the 2005 program year, prior to submitting these fees for approval by the WDO and the environment minister. It’s expected that stakeholders will be expressing their views on the appropriateness and fairness of the current fee setting methodology under a revised BBPP during this consultation process.
–Derek Stevenson, Stewardship Ontario