Solid Waste & Recycling

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Understanding Ontario's IPR Approach

Ontario's release of From Waste to Worth: The Role of Waste Diversion in the Green Economy sets forth both an evolutionary and revolutionary vision of waste diversion -- evolutionary in that the discussed changes build on what the province has...


Ontario’s release of From Waste to Worth: The Role of Waste Diversion in the Green Economy sets forth both an evolutionary and revolutionary vision of waste diversion — evolutionary in that the discussed changes build on what the province has learned through the development of programs under the existing Waste Diversion Act (WDA) and revolutionary in that the changes seek to capture the essence of Extended Producer Responsibility (EPR).

Where the Waste Diversion Act today makes collective producer action mandatory through the requirement to develop Industry Funding Organizations (IFOs) — producer monopolies — From Waste to Worth proposes to make, “…individual producers fully responsible for meeting waste diversion requirements for waste discarded in both the residential and IC&I sectors” and “Allowing those individual producers to meet their waste diversion requirements either by joining a materials management scheme or by developing their own individual waste diversion plan.”

It has been stated that, “…there is one and only one social responsibility of business — to use its resources and engage in activities designed to increase its profits so long as it stays within the rules of the game, which is to say, engages in open and free competition without deception or fraud.” Assigning “100 per cent physical and financial” responsibility for waste to individual producers (IPR) effectively changes “the rules of the game” such that the cost of wastes associated with a given producer’s products are brought under the discipline of that producer’s profit imperative as exercised in a competitive market.

So the essence of EPR is not waste minimization or diversion from disposal. While these are the desired outcomes, the essence of EPR is economic efficiency driven by competitive markets.

“That competitive markets can, under ideal circumstances, assure an efficient allocation of resources is the most fundamental proposition of economics.” Competition, whether between producers or between recycling companies, leads to:

• Static efficiency: This means minimizing the cost of waste reduction given the technology and institutions available today; and

• Dynamic efficiency: This means encouraging research and development and innovation so that the cost of waste reduction declines over time; that is, encourages technological progress in waste reduction. This may mean “design-for-the environment” (DFE) such that products generate less waste, are easier to reuse or recycle and easier to disassemble, embody less toxic waste or are less costly to process and more valuable after processing. In the near term, innovation is more likely to arise in the processing of wastes in collection, sortation, disassembly or re-use. Dynamic efficiency is undoubtedly most important in terms of ongoing innovation that will deliver consumers products with maximum utility and minimal environmental impact at least cost.

If governments set environmental or waste diversion targets such that the long-term environmental and economic benefits of meeting the last unit of the waste diversion target exceeds the cost of achieving the last unit of that target — what economists call “allocative efficiency” — a competitive market will undoubtedly deliver the best “bang for the buck” in the long run.

Possible outcomes from IPR

So what outcomes can we expect from the IPR proposal set forth in From Waste to Worth?

IPR gives producers the freedom and flexibility to weigh opportunities for cost savings through collective action (i.e., static efficiency borne of economies of scale associated with processing a lot of material) against the cost savings and competitive advantage associated with individual action involving innovation in product and recovery and recycling system design (dynamic efficiency). Producers may choose some combination thereof — i.e., managing some products collectively and other product lines through proprietary recovery, reuse and recycling channels.

IPR requires individual producers to proactively evaluate how they’ll discharge their waste diversion obligations and manage their individual legal liabilities. This in turn forces producers to engage and negotiate terms with their commercial intermediaries (i.e., distributors and retailers), waste recyclers and/or operators of collective compliance schemes. The inevitable effect of such dialogue and negotiation is an improved flow of information between parties that leads to more informed choices amongst those parties, which thereby increases economic efficiency.

Where individual producers coalesce voluntarily into compliance schemes, their market power is reduced from that under mandated collective IFOs. In some cases IFOs have exerted undue market power by either depressing recycling prices or restricting access to recyclable materials to the point of hampering the ability for recycling service providers to reinvest and innovate — an anathema to growth in the recycling sector as part of the “green economy.” Under IPR all parties — producers and waste diversion service providers alike — are bound to observe provisions of the Competition Act that proscribe anti-competitive behavior.

That waste diversion policy is awakening from decades of “feel good” recycling programs to the conventions of proper economic regulation is very late in coming but perhaps even more welcome because of it.

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


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