Solid Waste & Recycling

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Fees or Taxes?

Canadian waste diversion schemes for various wastes -- old televisions, for instance -- are almost invariably accompanied by a consumer surcharge levied on the sale of new televisions. Classified as "...


Canadian waste diversion schemes for various wastes — old televisions, for instance — are almost invariably accompanied by a consumer surcharge levied on the sale of new televisions. Classified as “advance disposal fees” (ADFs), and more commonly referred to as “eco fees”, they are applied in order to generate revenues to cover the specific costs of a given waste diversion program.

Proponents of extended producer responsibility (EPR) — such as the new Ontario Zero Waste Coalition — claim that the “…’eco fee’ becomes analogous to a green tax that [consumers] have no choice but to pay, with only a vague idea that some good will come from the program.” They further argue that for EPR to be a meaningful policy approach to waste minimization the end-of-life costs of managing products need to be “internalized” to producers such that they become another cost of doing business. Once internalized, these costs become subject to market forces arising through competition between various producers of like goods. This, they posit, will drive firms to lower those costs by designing products “for the environment” more efficiently.

But competitive environments are not the initial conditions in which Canadian waste diversion programs are established. Almost singularly, Canadian waste diversion programs operate as combines of producers that coalesce to develop and implement one common program.

To fund the program, these combines don’t assess the individual costs of recovering and recycling one another’s old TVs to then invoice them for their “individual total” television recycling costs. Rather, they take the overall net waste diversion program costs for all televisions and then prorate those costs over the entire combine’s aggregate unit sales to establish a common or “fixed” sales unit fee.

While jurisdictions might hold product producers (i. e., brand-owners and first importers) to be the “responsible” party, in a common fee system these producers “pass on” their common financial obligations to retailers who collect the unit sales fees from consumers (as visible “eco fees”) and then remit those eco fees to the stewardship organization.

Thus, under these programs, producers have no financial responsibility for the program and do not compete on financial efficiency or environmental performance as they would were they to run individual waste diversion programs for themselves.

Whether fees levied under these systems amount to “taxes” really requires asking the question in the two separate (though as we shall see, related) areas of law and economics.

Canadian common law has established a number of filters to distinguish a fee from a tax.

Firstly, to be a fee, the charge must be part of a valid regulatory program. Accordingly it must be the product of a, “… complete and detailed code of regulation …” which in the case of a waste diversion program is the laws under which the program is developed and the resulting waste diversion or stewardship program plan itself.

Furthermore, the regulatory program in question must have a specific purpose which, “… seeks to affect the behavior of individuals…” In the case of waste diversion, the behavior in question might be to induce producers to establish and fund the waste diversion program and perhaps to design more easily recovered and recycled products.

Another consideration is whether there is an assessment of the “… actual or estimated costs of the regulation” which, in this case, is an estimate of the costs of the waste diversion program. Tied to this is the concept that a “… reasonable connection is shown between the cost of the service provided and the amount charged.”

Finally, a legitimate fee-based regulation should establish “… a relationship between the regulation and the person being regulated, where the person causes the need for the regulation, or benefits from it.”

Thus “fees” are more than simple revenue generating mechanisms. They are at their best economic instruments designed to modify the behavior (verily, the essential purpose of all economic regulation) of “regulated” parties that have caused the need for regulation.

In waste diversion programs that claim the mantle of EPR, it is self-evident that the producer — not the consumer — is the regulated party and by virtue of the waste associated with its products is the “person” that causes the need for regulation. Furthermore, under a program consistent with EPR principles, the behavioral objective is to have producers take responsibility for implementing, operating and bearing the cost of waste diversion as a part of their ongoing competitive marketplace activities.

As discussed above, while many Canadian jurisdictions ostensibly regulate producers in order to establish waste diversion programs, consumers typically foot the bill of regulation. Producers only experience the modest inconvenience of having to convene and administer a common waste diversion program (often run by a third party, all at a cost to the consumer) with no competitive implications whatsoever.

The legality or illegality of various ADF schemes is moot. However, the economic outcome on producers and consumers is not.

In its economic effect on television producers an ADF levied on the sale of televisions is indistinguishable from an equivalent “TV tax” implemented through a provincial tax statute specifically for the purpose of generating revenues for a government run provincial television recycling program.

ADF systems are not EPR. They are in essence and effect publicly sanctioned and privately levied taxes.

Usman Valiante is principal of Corporate Policy Group in Orangeville, Ontario. Contact Usman at valiante@corporatepolicygroup.com


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