Solid Waste & Recycling

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Towards Nexus

It seems only fitting that since the Province of Ontario was the first jurisdiction in North America's to launch the now almost-ubiquitous blue box municipal recycling program, Ontario should be the p...


It seems only fitting that since the Province of Ontario was the first jurisdiction in North America’s to launch the now almost-ubiquitous blue box municipal recycling program, Ontario should be the proving ground for a new evolution in municipal curbside recycling: industry funding. Recent attempts to potentially change the methodology via which amounts are calculated so that industry stakeholders pay their “fair share” of blue box costs (in this case, 50 per cent of net system costs, after the sale of diverted materials) should be of interest not only to the directly affected parties but also to policymakers and recycling professionals in other jurisdictions. The discussion about who should pay (and how much) into the system offers a window into blue box economics. Also, Quebec and Manitoba have announced they would like to harmonize their curbside programs with the rules in Ontario; they should look closely before they leap.

In February a heated debate erupted over the funding issue. A proposed new funding formula had been suggested that most stakeholders agreed would allocate costs more fairly among brand owners and other stakeholders. Yet, just as it was about to be approved, the proposal was withdrawn in favor of another formula that is highly similar to the old one. The debate, which principally pitted the paper and plastics industries against one another, provides a sort of “insider’s guide” to the true cost of municipal recycling, and some of the inherent limitations and perverse side-effects of managing an ever-widening list of materials this way, as opposed to an “integrated waste management system.” (See Editorial, page 4.) What was once mostly a tax-payer funded “basket of goods” approach shot through with subsidies is gradually evolving and has started to look more like producer responsibility.

Background

Before one can understand the finer points of the debate, a few things unique to Ontario need to be known. Two and a half years ago the provincial government required industry to start paying 50 per cent of the net cost of municipal recycling. In 2006, this amounts to an estimated $54 million (half of the $108 million total). The government accepted industry’s reasoning that the funding should be a “shared” responsibility because having some skin in the game would encourage municipalities to operate efficiently.

The government passed the Waste Diversion Act and established Waste Diversion Ontario (WDO) as an agency to oversee the development of producer responsibility programs for waste materials “designated” by the minister such as used oil, scrap tires and electronics waste. The blue box materials were the first designated materials and an industry funding organization (IFO) called Stewardship Ontario was established to represent the various industries (or “stewards”) that produce packaging made from paper & paperboard, newsprint, glass, aluminum, plastics and so on.

A tremendous side benefit of this has been detailed cost information culled from the annual municipal datacall. Instead of speculation, the government (and everyone) now has access to accurate and detailed information about recycling program costs. Also, some programs collect different materials, and use different collection and processing strategies and equipment; they therefore have different net recycling costs. This has allowed Stewardship Ontario to start examining the efficiency of different programs and to make comparisons. An Effectiveness and Efficiency Fund (the “E&E fund”) provides money to municipal programs to experiment with and demonstrate different approaches to boost performance. Different market development projects are under way for challenging materials such as plastics and glass, and over time it’s reasonable to expect that the best practices for recycling programs will be determined and promoted. (For comments on glass, see Commodities Corner, page 35. For further program details, visitwww.stewardshipontario.ca)

Changing the funding formula

The old funding formula is commonly referred to as the “40/40/20 formula” because of the way it assigns costs proportionately for recovery, net costs and equalization. A new formula was proposed with different weightings (20/40/40). Although the reasons are complicated, the net effect of the proposed change would be that materials such as paper and paperboard, which are large volume, low-cost materials in the system, would attract reduced fees, and other materials such as certain plastics that are low volume, high cost in the system, would see their fees rise.

The suggested change appealed to groups like the Paper & Paperboard Packaging Environment Council (PPEC) because its members believe that for the three years ending in late 2006 they’ve paid more than their fair share and have subsidized the other materials.

As a PPEC letter to Stewardship Ontario states: “Paper materials represent 75 per cent of what’s in the blue box; they provide 64 per cent of its revenue to Ontario municipalities; have already surpassed the 60 per cent diversion target; and by the end of 2006 will have been paying an unfair portion of industry costs for three years.”

PPEC favored the proposed new formula because it more closely mirrored the “three key elements” that Stewardship Ontario outlined in the Blue Box Plan (Section 9.10): fairness, effectiveness and sustainability. PPEC says it also strengthens the “nexus” test through the partial disaggregation of material fees. “Nexus” is a term often used interchangeably with the “Eurig decision” — it’s a legalistic way of saying that stewardship fees should reflect the cost of the actual service delivered.

A fight erupts

In early march, only a few days after the comment period deadline, a Stewardship Ontario subcommittee came out with a another proposal that more or less keeps the old formula in place.

In a March 17 letter to WDO Chair Gemma Zecchini, entitled “Paper industry very disturbed by last-minute change to Blue Box fee proposal,” PPEC noted that the reversal seemed to be designed to appease the plastics industry, which appeared concerned that increased costs were coming too fast for its members. Yet PPEC pointed out as of February 14, 2006, 31 companies or organizations indicated support for revising the formula (including AMO, NAPCOR, OCNA, PPEC and Refreshments Canada) while only seven opposed (including industry associations CSFA, CPIA and ODC).

Maintaining the status quo was a response to concerns from the plastics industry that some of its members’ costs would soar, in some cases where no recycling service was offered. Indeed, the maneuvering over fees was not just between the paper and the plastics industries, but within plastics itself, because the brand owners of plastic soft-drink containers would see their costs drop a bit, while some others (for example, film, laminates and polystyrene) would have climbed.

The plastics industry stated that there was no recognition for materials reduction at source, and that many plastics are being penalized for being food packaging. The plastics industry operates at low cost margins, the plastics industry stated, and it claimed that plastics are being penalized because municipalities don’t collect certain plastics.

PPEC responded point for point that “[r]eduction at source (the first R) is not special to plastics. All materials have been, and continue to be, reduced at source where possible.” PPEC commented that plastics does not equal food packaging. “Food packaging is the major end-use for most packaging material,” the group stated, adding that, “Some 80 per cent of boxboard, for example, is used to package food.” All packaging material supply industries operate at low cost margins, PPEC wrote, and then asked: “How is it the fault of other materials and non-plastic stewards that certain plastics are not collected?”

The plastics
industry position

One has to agree that it’s not fair that paper and other industries pay more than their fair portion for total recycling costs. Yet the plastics industry raises some legitimate points — some of which might lead an observer to conclude that certain plastics shouldn’t be part of the blue box program in the first place.

In a February 27 letter to Stewardship Ontario, Serge Lavoie, president and CEO of the Canadian Plastics Industry Association (CPIA) wrote:

“Plastics packaging comprises 26 per cent of all household packaging. Currently, stewards of plastic packaging pay 43 per cent of the total industry share of the Blue Box costs for recycling all packaging. If the proposed funding formula changes are approved, stewards of plastic packaging will be paying 53 per cent of the total industry share of the Blue Box costs. Yet only 10 per cent of the packaging recycled is plastic packaging. This is an unacceptable fee for the level of service provided and moves further away from the requirements outlined by Eurig…”

One of the CPIA’s most interesting arguments concerns stewards of certain plastic packages which prevent or significantly reduce waste who will be penalized by having their fees increase by 50 per cent.

Writes the CPIA:

“Take for example plastic laminates used for packaging processed fruit, vegetables, meat, poultry and dairy. For each kg of laminate packaging used, it is estimated that 10 to 300 kg of household organic waste are diverted from the household waste stream (by virtue of commercial processing with the residues diverted into products). The engineering of these materials to prohibit transmittal of moisture, fats and oils, however, makes these same materials difficult to recycle and municipalities do not collect them.

“Stewards of these materials are currently paying $2.2 million and will pay $3.5 million, under proposed formula changes, for virtually no recycling service.” (Emphasis added.)

It seems fair that materials not collected via the blue box, but which offer other environmental lifecycle benefits, should be exempt from these fees. The way in which the proposed changes (which have been dropped) would have impacted the plastics producers are illustrated in the chart. (See page 9.)

The road ahead

PPEC has called for certain improvements to the funding program, some of which are already in Stewardship Ontario’s plans. The group wants to see improved accuracy of material-specific net cost calculations, while it agrees that the three-year rolling average on material revenues is a reasonable methodology. PPEC accepts leaving as is the allocation of Stewardship Ontario common costs until a better method is determined, and wants continuation of calculating generation rates using waste audits cross-checked against steward reports. The organization has also suggested an industry-led green procurement plan to help build markets for recycled materials. PPEC writes that “what happens to materials after the green procurement decision (post-use diversion) could be factored into a recycled content credit” that could come out of a bigger “market development” fund supported by all stewards.

But it doesn’t want further consideration to “life cycle” type credits (emissions, toxicity, biodegradability) in a formula that’s supposed to be about recycling costs. This is reasonable in the limited discussions about today’s fees, but PPEC hints at more fundamental change in future in one inspired statement:

“We wish to reiterate our earlier view that discussion of changes to the levy formula cannot be isolated from other interrelated issues (such as what materials should or should not be in the Blue Box, and determining where recycling ends and composting (of paper materials) and/or energy-from-waste begins). A full cost analysis, including the cost of managing Blue Box materials by other means, should be completed and widely disseminated for discussion.”

Such discussion would likely encourage thinking “outside the box” — for the funding debate has pointed up the fact (that even the blue box defenders acknowledge) that the blue box is not a panacea. In the future, the blue box might become more of a paper box in an integrated waste management system, and certain challenging plastics (3 through 7) might be harnessed for their BTU value rather than recycled at great expense. (See chart on opposite page.) Soft-drink containers and/or glass wine and liquor bottles might be placed on deposit and handled outside curbside programs altogether.

Whatever happens, a close reading of the PPEC and CPIA documents (among others) tells the story of the true cost of recycling, and should be read by all people interest- ed in waste diversion, efficiency and environmental economics. We have posted a selection of these on our website at www.solidwastemag.com

Guy Crittenden is editor of this magazine.

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