Solid Waste & Recycling

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Diversion: Who Pays What

Hot on the heals of the controversial Multi-Stakeholder Recovery Project (MSRP) report on U.S. beverage container recovery (see "First of Its Kind" in the February/March 2002 edition) a similar report...


Hot on the heals of the controversial Multi-Stakeholder Recovery Project (MSRP) report on U.S. beverage container recovery (see “First of Its Kind” in the February/March 2002 edition) a similar report was prepared for Canada. In January, Toronto, Ontario-based CM Consulting released “An Analysis of the Costs and Benefits of Beverage Container Recovery in Canada” that presents up-to-date information on the costs of deposit-return programs and their respective performance.

Performance

In general, deposit jurisdictions continue to maintain an average recovery rate for non-beer containers of about 75 per cent. Leading the country is Saskatchewan at about 90 per cent, followed by Nova Scotia at 84 per cent. Saskatchewan’s reduction since 1998 can be attributed in part to a reduction in illegal bootlegged material flowing in from neighbouring Manitoba and Alberta, and the recently added polycoat and aseptic materials (with a capture rate of 46 per cent), which brings the overall rate down.

Refillable beer bottles and domestic beer cans continue to be recovered in most regions by the beer industry at rates of 96 per cent and 86 per cent respectively.

Given that Ontario and Manitoba collect non-beer beverage containers in a commingled manner with other containers, a separate beverage-container recovery rate cannot be calculated accurately. However, we do know that, based on residential waste composition studies, the residential container-recovery rates (based on weight) are 41 per cent and 31 per cent respectively. (See chart.)

Who pays what

The report introduces a new method to calculate the costs of deposit-return programs called “who pays what” analysis. This new approach provides a clearer picture of the associated program costs as they relate to the various “funders.” Stakeholders are identified as beverage industry, consumers, provincial and municipal governments.

The consumer costs are identified as follows. First, there’s the cost to the “recycling consumer” or the cost incurred by the consumer who redeems a container. For example, the up-front non-refundable Environmental Handling Charge (Saskatchewan), Container Recycling Fee (British Columbia) or the halfback portion of the deposit (Atlantic Canada) used to offset the system cost.

Second is the additional cost incurred by the “wasting consumer” who chooses not to redeem the container, which are generally quite high because they are equal to the value of the forfeited deposit (polluter pays).

Lastly, “non-system related consumer costs” are the up-front fees that are not used to offset operating costs that year. These revenues may be used to build-up reserve funds for operating deficits in future years, fund other provincial environmental initiatives, or fund non-environmental initiatives. While some refer to these additional consumer fees as a “thirst tax,” for the purpose of this analysis they are simply referred to as “non-system related costs.” (See chart.)

The analysis shows that the “wasting consumer” bears the majority of program costs through the forfeited or unredeemed deposit. Additionally, only in Quebec and Alberta does the beverage industry directly pay for the program deficit, about 0.5-cents and 0.6-cents per unit sold respectively. Municipal governments bear 100 per cent of the costs of beverage container disposal, but none of the recovery costs, except in Manitoba (20 per cent of net costs) and in Ontario (about 100 per cent of the net costs, minus a $5-million government grant for liquor bottle recycling).

Paying for performance

The biggest cost related to deposit-return programs are handling fees, usually paid to depot operators. These costs account for as much as 75 per cent of the total system costs and these are rising. Currently, Alberta and Nova Scotia are considering an increase on handling fees for most containers, and New Brunswick just recently announced a 0.4-cent increase on all containers by 2004. Handling-fee increases may have a significant impact on the way in which some programs unfold over the next few years.

Here’s one problem. Several programs in Canada are managed directly by the beverage industry through third-party operators (British Columbia, Alberta, Quebec, and New Brunswick). In these programs, unredeemed deposits are used to offset system costs, thereby reducing industry’s cost to make up the deficit. (In B.C. this cost is passed on the consumers directly through a container recycling fee (CRF).

As such, unredeemed deposit revenue can become a disincentive to system operators to increase recovery. Reduced returns result in higher system revenues and less handling fees. If there are no minimum standards clearly set out in the regulation, there is no real obligation for high standards to be met.

For example, in Alberta there are no regulated recovery targets but the government “encourages” an 85 per cent target. In 2000, the recovery rate for non-beer containers was 74 per cent. If the recovery rate were to climb to 85 per cent, industry would forfeit more than $8-million. Specifically, more than $5-million in reduced unredeemed deposit revenue, and over $3-million in additional handling fees. So where’s the incentive for Alberta’s beverage industry to increase performance when there are no mandatory targets?

On the flip side, domestic beer cans are returned at a rate of 89 per cent. Beer cans have a higher recovery than non-beer cans (80 per cent) because their deposit is twice as high (10 cents vs. 5 cents). By achieving this higher performance rate, the beer industry currently forfeits almost $3-million ($2.4-million in unredeemed deposit revenue and about $745,000 in additional handling fees). So where’s the incentive for Alberta brewers to keep the 10-cent deposit? Will the brewers lower their deposit to 5 cents on beer cans?

Industry has proven to be effective and efficient when it’s put in charge of managing extended producer responsibility programs; it should be given the choice to do so where appropriate. However, if this responsibility is passed to industry, binding performance targets and proper monitoring requirements are absolutely essential.

For a copy of the report, go to www.solidwastemag.com (see the “posted documents” section).

Clarissa Morawski is principal of CM Consulting, based in Toronto, Ontario.


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