Readers outside Ontario will be interested to know that controversy over the fees charged in the province for various product stewardship programs have received near-saturation (and sensational) media coverage in print and broadcast media in the past several weeks. Ontario Environment Minister John Gerretsen last week canceled the fee program for Phase II products in the program that handles municipal hazardous or special waste. The province (i.e., taxpayers) will shoulder the cost for the next three months while the government sorts out the mess and the stakeholders develop a new process that's more accountable to the public. Gerretsen has also stated that visible eco fees will not be part of the renewed program, suggesting that producers will have to absorb the costs or include them in the price of retail products.

Meanwhile, the media has started scrutinizing the organizations that develop and administer these programs, including Waste Diversion Ontario (WDO), Stewardship Ontario (SO) and StewardEdge. Because some of these entities are private and/or not subject to Freedom of Information legislation, detailed answers have not been forthcoming about how the fees are spent, at least in terms of administration and the internal workings of the organizations (e.g., salaries). It's unclear whether the media will keep pushing and further details will come out, or if the storm clouds will pass. In any event, the controversy about the poorly rolled-out eco fees on household hazardous goods has already tarnished the whole concept of producer responsibility in Ontario and possibly made the introduction this fall of the revised Waste Diviersion Act politically unpalatable to the Liberals (depsite the fact that, ironically, the revised legislation would potentially address many of the concerns about how the programs are delivered and paid for).

On Tuesday July 27, Ontario Environment Commissioner Gord Miller will release a public document about the eco fees (which we'll report on this website). In the meantime I direct readers to two interesting articles; the first is Usman Valiante's excellent piece that he co-authored with a university professor that appeared in the Globe and Mail (and that I posted in this blog a few days ago) and also the Canadian Press article below that shows the kinds of questions the media is starting to raise about the stewardship administration organizations.

Critics demand Ontario eco fee spending transparency

The Canadian Press
Updated: Sun. Jul. 25 2010 3:21 PM ET

TORONTO — Opposition parties are calling on provincial bodies that collect Ontario's eco fees to come clean about how they're spending the millions of dollars they receive each year, including how much they're paying for consultants.

Even though Stewardship Ontario and Ontario Electronics Stewardship (OES) are not-for-profit corporations and don't receive government funds, the public has a right to know how they're spending the fees they're collecting, said Progressive Conservative Lisa MacLeod.

"Since these fees are mandatory, it is a tax," she said. "And I think most Ontario taxpayers understand that their money is being used to fund these organizations. So it is, effectively, their tax dollars."

Stewardship Ontario landed in hot water earlier this month when, with little warning, eco fees that fund a recycling program for potentially hazardous products were slapped on thousands of new household items, such as fire extinguishers and laundry detergent.

Environment Minister John Gerretsen was forced to drop the fees amid complaints from both businesses and consumers, but taxpayers are still on the hook for the estimated $5 million it will cost to keep the program running while it's being revamped.

Consumers are the ones who end up paying for recycling, so it's only fair that stewardship organizations abide by the same rules that apply to the public service and provincial agencies, said NDP environment critic Peter Tabuns, who has worked in the non-profit sector.

"In the end, they get to levy very substantial fees on the public," he said. "They need to be transparent and rules governing their expenditures need to be ones that protect the public."

Both organizations publish their audited financial statements each year in their annual reports. But unlike arm's-length government agencies like eHealth Ontario -- whose scandal over untendered contracts to consultants dogged the Ontario Liberals last year -- neither body is required to meet the same strict rules on the use of consultants and expenses.

Stewardship Ontario and OES has employed consulting company StewardEdge for years, but it's unclear how much was spent.

Stewardship Ontario declined to comment on what StewardEdge did for them or what the company was paid.

"Because Stewardship Ontario is a private company, I can tell you that they are a service provider to us," said spokeswoman Amanda Harper Sevonty.

"But our relationship and our business with our service providers is confidential, so I can't really give you any details about the work that goes on or what they actually do for us."

OES executive director Carol Hochu said StewardEdge was hired in June 2007 after winning a competition, but didn't go into specifics about what services they provided.

StewardEdge president Derek Stephenson provided more details about the company's work for both organizations, from implementing recycling programs, conducting surveys, helping with communications and running call centres.

Stewardship Ontario, which started in 2004, began working with Stephenson when he was with Corporations for Supporting Recycling, a not-for-profit corporation that was hired to administer the Blue Box program. He served as program manager, he said.

"In the beginning, the entire operation was run out of CSR's offices," Stephenson said in an interview. "And then as they grew up and pulled away, then they established their own offices up at Yonge and St. Clair."

Some employees then formed their own company, StewardEdge, in 2008, he said.

Since then, Stewardship Ontario has scaled back its use of StewardEdge considerably because it's hired its own staff to do the work, Stephenson said.

His company offers expertise in what it takes to motivate people to separate recyclable materials from their garbage, as well as the most efficient and effective recycling methods, he said. But it doesn't collect waste or process it.

"We invented the first Blue Box program in the world, and our sort of claim to fame has always been innovative ways to divert material from waste," Stephenson said.

But he declined to comment on what his company was paid for those services, saying he didn't want to disclose information that may fall under the organizations' client confidentiality rules.

"We have to just respect whatever the disclosure (rules are)," he said. "Because we handle information on behalf of client, we have to be very careful of whatever information we've got."

Stephenson said StewardEdge wasn't involved in the recent expansion of the eco fees July 1, which sparked a public uproar and a government retreat on the fees.

Ontario's stewardship organizations are run by the industry and regulated by the government. They collect fees from businesses to fund a recycling program for products that need special care, such as tires, paints and televisions.

It's up to the businesses -- whether they're importers, manufacturers or brand owners -- to decide whether they want to pass on the cost to retailers, who also have the option of passing on the cost to consumers.

They can disclose the fee at the cash register or embed it in the sticker price, which means consumers may not be aware how much they're paying.

Stewardship Ontario took in $25.6 million last year for a program that recycles household items that are potentially hazardous, such as paints and fertilizer.

It spent $6 million on program management, $1.3 million on program development and start-up and $1.9 million on shared promotion and education.

It's unclear how much OES took in from eco fees on electronics, because the most recent financial statements available are for 2008, before it started collecting fees.

Posted by Guy Crittenden at 11:46 AM | Permalink | TrackBacks (0)

Our contributing editor Usman Valiante recently teamed up with academic expert Don Dewees to write a powerful article about stewardship programs and fee setting. The article appeared today (Wednesday July 21) on page A15 of the Globe and Mail newspaper.

I think this is one of the most cogent arguments made against industry collectives setting fees, as opposed to individual companies internalizing the costs of end-of-life management of their products and packaging. Interestingly, the article appeared on the same day that Ontario Environment Minister Gerretsen announced that there will no longer be an eco fee charged on hazardous or special wastes (suggesting that companies will have to absorb the cost of recycling or safe disposal or include it in their retail prices.

Here's the article:

Eco-fee monopolies must end

Globe and Mail
Wednesday July 21st 2010 Page A15

Making recycling competitive…means manufacturers’ motivation to reduce costs and maximize profits in selling their products drives them to make those products greener and less costly to recycle.

DON DEWEES and USMAN VALIANTE

When the Ontario government backtracked this week on eco-fees, the sorry event was just the latest incident in a long saga of failures associated with an approach to paying for recycling in many Canadian jurisdictions.

Incredibly, the McGuinty government transferred financial responsibility for the program from product producers and consumers to the general taxpayer - an about face on a policy that makes those who produce waste responsible for dealing with that waste.

So where does the eco-fee problem come from in the first place?

Take the case of electronics products. When you buy a television in many Canadian jurisdictions, you pay an additional eco-fee - $26.25 in Ontario on a large television, irrespective of brand, where in the province you bought it, or who you bought it from.

That $26.25 is an amount agreed to by a combine made up of electronics product producers and retailers. The combine - Ontario Electronic Stewardship (OES) - includes the likes of Sony, Hewlett Packard, Canon, Dell and big box retailers such as Home Hardware, Best Buy Canada, Hudson's Bay and Sears. That this group gets together and sets TV and computer eco-fees is quietly ignored by many Canadian jurisdictions but is actually mandated in Ontario by the Waste Diversion Act.

Every manufacturer or importer pays OES the same “eco-fee”, irrespective of how green or how dirty their products are or how much or how little of their product is recyclable. Since every producer bears the same “fixed” eco-fee, it is natural for them to pass the fee on to consumers by adding them on to wholesale prices. Retailers in turn pass them on to consumers at the till with sales taxes levied on those eco-fees.

Even if one manufacturer finds a way to recover and recycle its products more cost effectively than its competitors there is no incentive to do so when the producer must pay the standard eco-fee anyway.

In general, Canadian law restricts producer monopolies, price-fixing and market domination because they interfere with the competition and innovation that bring us better products and lower prices. Canadians should tolerate (much less require) monopoly only in special circumstances where it will demonstrably yield better results. We do not think that this applies to recycling programs for consumer products and we are especially critical of virtually unregulated monopolies.

Consider that after a year of operation OES has only reached 40% of the annual electronics recycling target it set out for itself. How many million has OES accrued in eco-fees not expended on recycling? OES isn’t required to tell so no one knows.

Although Ontario Environment Minister John Gerretsen has told OES that he is, “…disappointed with the collection and diversion results achieved in the first year of the program”, he has no recourse under the Waste Diversion Act to compel OES to improve recycling rates.

The solution to this lack of product-producer environmental and economic accountability has already been identified by the Ontario Government. It has proposed to make individual product producers accountable for the end-of-life recovery and recycling of their wastes and to set reasonable recycling targets and environmental standards for those producers.

By making individual producers – and not collectives of producers – responsible for environmental outcomes, those producers become subject to the Competition Act Canada. The setting of common eco-fees then becomes subject to the same discipline that prevents producers from getting together and setting prices when they sell their products.

From an environmental perspective, making recycling competitive rather than monopolistic means the manufacturer’s motivation to reduce costs and maximize profits in selling their products drives them to make those same products greener and less costly to recycle.

Amendments to the WDA that would create a competitive dynamic between producers and address the eco-fee issue are long overdue.

The Canadian “eco-fee” experiment with monopoly must end. It’s time to foster an economy that is competitive, innovative, efficient and green and that ensures Canadians get the environmental bang-for-the buck that only competitive markets can deliver.

Don Dewees is an economics and law professor at the University of Toronto. Usman Valiante is a policy consultant who has worked extensively on extended producer responsibility programs in Canada.

Posted by Guy Crittenden at 4:05 PM | Permalink | TrackBacks (0)

[REVISED JULY 13, 4:45 PM]

Over the past week there’s been a great deal of media coverage of problems with Ontario’s stewardship programs for various materials. Most attention has been paid to the province’s program for household hazardous and special wastes (HHSW), approved by Waste Diversion Ontario (WDO), but by extension the program for waste electronics and electronics equipment (WEEE -- also WDO approved) has come in for criticism.

Unlike some previous media coverage of these programs, the journalists are now picking up on some serious (perhaps fatal) flaws in the programs’ designs, including that the “eco fees” that pay for the programs may in fact be illegal, constituting a “tax” as defined by law. Legally, only government can tax directly, and the eco fees may be in for a legal challenge. As I said in an earlier blog, it’s time to reform Ontario’s Waste Diversion Act so that it compels true extended producer responsibility (EPR) rather than what we’ve ended up with: the formation of government-sanctioned cartels engaged in what has been called a form of price fixing.

In order to clarify all this for readers, I offer a few helpful documents below. The first is a fairly good overview of the issues from an article entitled “Eco fees’ part of province’s steward program” by Randall Denley, The Ottawa Citizen, July 10, 2010. (Some other excellent articles have appeared in other media outlets that I’ll post or link to in the days ahead.) The second (further down) are a couple of articles that appeared in our magazine Solid Waste & Recycling by waste consultant and contributing editor Usman Valiante. Valiante correctly predicted these problems years ago when the policies were being developed. Worse, much-needed reforms of Ontario’s Waste Diversion Act that were to be introduced in the legislature in June were pulled from the legislative agenda by Dalton McGuinty’s Liberal government partly because of industry lobbying but (increasingly it appears) from the fear (ironically) that the changes could be characterized by the opposition as a new tax grab, and used against the government in the run-up to the next election.

Before I direct you to the Ottawa Citizen article below, I want to offer a couple of bullet point-style comments that I think readers should keep in mind as they read these (and other) reports about product stewardship programs and how they operate and are funded. The whole subject of product stewardship is far more complex than traditional waste management, and the factors that separate a good program from a poor one are not as obvious as, say, contracting out garbage collection for the lowest price.

1. Before a policymaker is going to find the right answers, he or she needs to ask the right questions. If the goal is true extended producer responsibility in which producers not only take responsibility for the end-of-life management of their product and packaging wastes, but have an economic interest in fundamentally changing their business in order to achieve “cradle-to-cradle” reuse and recycling, and greater and greater eco-efficiency throughout the product’s lifecycle, then it’s “asking the wrong question” to approach the whole issue as merely “waste diversion” (i.e., diverting waste from landfill, incineration or other forms of disposal). Waste diversion is only one effect that flows from true EPR, and not nearly as important as changes that occur higher up in the production cycle.

2. In Ontario, the policymakers asked the wrong question and instead of designing EPR programs went for (mere) “product stewardship” which essentially only meant waste diversion. Insiders and various experts thought they could harness waste diversion (amid concern over declining landfill capacity and waste export to the USA) to set society on the track toward EPR, but they ended up creating a program mish-mash that fudges on potentially profound environmental goals and (now it may turn out) gives taxation-like powers to private interests.

3. Another problem has been that many of the same people who created the province’s original recycling program were put in charge of designing and approving the product stewardship programs. The blue box (until recently) operated on the “shared cost” model where industry and the public were supposed to split net recycling costs 50/50. It was also the “basket of goods” model where profits and efficiencies from one material subsidized losses and inefficiencies from another. This is the very opposite of EPR, which recognizes (and harnesses) the energy and dynamics of the market. With all due respect to its goals and success in making people aware of environmental issues, the blue box was always a system in which private consortia “gamed” the public and its representatives. Even its biggest fans among the municipal recycling coordinators eventually became beleaguered by the feeling that industry wasn’t really paying its fair share, and anyone who cared to look closely discovered that the blue box “topped out” at a diversion rate that remained dismal for certain materials (e.g., soft drink containers); meanwhile society’s consumption and waste generation grew and grew, with per capita and collective waste volume growing year over year.

4. Because their expertise was forged in the creation of the blue box, some of the policymakers tended to be preoccupied with waste diversion and seemed to have very little interest in the waste management hierarchy in which waste elimination is the priority. They also ignored competition and the potential for product stewardship schemes to become, in fact, very anti-competitive. It’s telling that the organization created to oversee these programs is named “Waste Diversion Ontario” and not something like “Producer Responsibility Ontario.” Instead of harnessing the maximum power of the market and the innovation and creativity of private companies operating in a competitive environment, the exercise succumbed to a managerial and central-planner’s mentality. A great illustration is Ontario’s WEEE program operated by Ontario Electronics Stewardship (OES) that has effectively hijacked the collection of WEEE materials and allocated processing among a small group of approved companies using a quota system. The quotas have killed the incentive for WEEE processors to pursue new customers (within the program) and have in fact caused much material to flow outside the program (and indeed outside the province). The problem is neatly outlined in a letter to Ontario Premiere Dalton McGuinty from the presidents Sims Recycling and GEEP (both major WEEE processors in Ontario whose businesses are suffering because of the WEEE program) that I will post here in a few days. The collectivist approach is failing to create effective markets for diverse waste materials for the very same reasons that communism failed to create effective markets in places as diverse as Cuba and North Korea. Worse, the large fees being charged on the sale of new electronic devices are not yielding value-for-money and (beyond writing scolding letters) the province’s environment minister is relatively powerless to force OES to improve its performance.

5. In revamping the individual programs and the Waste Diversion Act (which I’m told will occur in the fall) one core concept must be kept front and centre, and that is “subsidies.” Robert Kennedy once famously remarked, “Show me a polluter and I’ll show you a subsidy.” Leading-edge thinkers in the environmental movement, the kind of people associated with (for instance) the Product Policy Institute, remind us again and again that most pollution results from direct and indirect subsidies that private interests manage to acquire from the public purse. The blue box was (and is), from this perspective, a subsidy program to the soft drink industry (among others) that allowed it to get out of refillable containers. EPR is not so much an environmental concept as it is an economic one. The goal is to force industry to internalize its costs. Externalization can manifest itself in a number of ways: there’s public subsidies, pollution (that ultimately costs the public in the form of health costs or environmental cleanup costs), and waste (which shows up as a cost in the form of our society’s huge environmental footprint and the depletion of natural resources, not to mention the cost of building and maintaining landfills and other disposal facilities). The problem with designing product stewardship as merely a waste diversion program is that it doesn’t go far enough in ending the subsidy, and fails to achieve upstream eco-efficiencies.

In Ontario, what used to be a direct municipal subsidy (i.e., we’ll cart off and dispose industry’s crap at public expense) was simply hived off to collectives (i.e., we’ll form an industry funding organization that will charge consumers a visible fee to recycle or safely dispose of industry’s crap, and wash our hands of further involvement – prices will go up for consumers, but little will chance in the way that cleaning products or TVs or computers are manufactured). In place of subsidy programs, or illegal tax schemes, what’s needed is true EPR that forces industry to internalize costs. The best programs are referred to as "Individual Product Stewardship" in which individual companies are accountable for their liabilities, which is what's specified in the proposed revisions to the legislation that got put on hold.

Now, here are the articles, starting with the new one from the Ottawa Citizen, and then the old ones by Usman Valiante (where we can chirp “We told you so!”).

http://www.ottawacitizen.com/index.html

Hidden cost, obvious flaw

'Eco fees' part of province's steward program

By Randall Denley, The Ottawa CitizenJuly 10, 2010

The Ontario government has so many ways to siphon money out of our pockets that it's difficult to keep track of them all. It's safe to say that most people would have been only dimly aware of Ontario's "eco fees" until they were applied to thousands of additional consumer products July 1.

The fees support a program to keep hazardous household wastes out of municipal landfills. That's a worthy goal, but the program is poorly designed, expensive and has no public profile at all. It was launched two years ago to collect and recycle items such as paints, batteries, oil filters, pesticides and pressurized containers. Now it will be applied to anything that might be remotely considered hazardous and some things that aren't, such as compost and sheep manure.

There is a lot of money involved. Last year, Stewardship Ontario took in $25.8 million in fees to cover the cost of recycling the hazardous stuff. The expanded program now in effect will boost the annual take to $63.6 million. These are not taxes, but fees paid by industry. Some companies pass the fees on visibly, others bury them in the price of the product, but you can be sure that consumers are paying one way or another.

You do get something for your money, but Stewardship Ontario's performance on the things it collects now is decidedly mixed. It is doing a good job of collecting old paints, pesticides and fertilizers. Collection and recycling rates are low for oil containers, antifreeze, non-refillable pressurized containers, solvents and batteries. Stewardship Ontario only got back 5.4 per cent of used batteries last year.

And what is Stewardship Ontario, you might ask? It's a non-profit company created by Waste Diversion Ontario at the request of the provincial government. Waste Diversion Ontario is a quasi-governmental organization also created by the government to be in charge of recycling. Stewardship Ontario's main job is collecting industry money to help pay the cost of the municipal blue-box program.

Waste Diversion Ontario also begat Ontario Tire Stewardship and Ontario Electronic Stewardship, which covers TVs, computers and electronic gadgets. The tire group is getting the job done, but the electronics outfit is a mystery. The stewardship group is releasing no financial information.

We do know from media reports that it will meet only about one-third of its recycling target. An Environment Ministry spokesman says the group will fall about $20 million short of its revenue target due to weak electronics sales.

Lack of accountability is the real problem with these "stewardship" organizations. The flim-flam starts with the name. The concept is that the industries producing the hard-to-dispose-of waste are "stewards." While that sounds better than "hazardous-waste producers," the industries aren't really responsible. Neither is government. That's the beauty of the system for both the parties who ought to be responsible.

If things don't work out, government and industry can point to the stewardship groups and shake their heads in disappointment. A Stewardship Ontario spokesman says the government could wind down the company if it fails to meet targets, but that seems rather unlikely. It would be admitting and highlighting failure.

That's not exactly the McGuinty government's style.

The first line of defence against scrutiny is public ignorance and the stewardship groups have a low profile. The electronics people are less open than CSIS and the Stewardship Ontario bunch have simply failed to register with the public. Only the controversy over the new wave of fees is finally making us aware. And yet, Stewardship Ontario claims that "public education" is a high priority.

Asked to justify the eco fees this week, the McGuinty government said they were not a tax. Technically, it's true. Too bad, because if it were a tax we might have some accountability for the spending.

The disposal of the mountains of useless junk generated by our consumer society could be the job of government or it could be the responsibility of industry. Either way, we'd know who to look to for results. Instead, a third-party fall guy has been created and the public has little or no idea where its money is going and if it is being effectively spent.

The program design has a critical flaw because there is no incentive for industry to recycle more. There is neither a reward nor a punishment. They merely pass through costs. There is not much incentive for the consumer, either, if consumers don't even know the program exists.

The correct role for government is to set enforceable recycling targets and make sure companies do the recycling. Instead, they have created stewardship groups that run monopolies and face no real consequences for failure.

The environment ministry spokesman says that new rules coming this fall will create enforceable targets and put more onus on industry to manage the recycling themselves. The government has been hamstrung by legislation passed by the Progressive Conservatives in 2002, apparently.

That all sounds good, although it's a little late in the Liberal mandate to be blaming the PCs.

Recycling this waste is an important job, but Ontario's approach lacks accountability, transparency and results. The Liberals are moving in the right direction, but they have a long way to go.

Contact Randall Denley at 613-596-3756 or rdenley@thecitizen.canwest.com

http://www.solidwastemag.com/issues/story.aspx?aid=1000225654

Fees or Taxes?

Understanding "eco-fees" on consumer products

By: Usman Valiante

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

Jun 2008

Competition versus Ontario WEEE recycling

By: Usman Valiante

With the Ontario Bill of Rights public comment period having ended on May 9, 2008, the waste electronics and electrical equipment (WEEE) recycling program proposed by Ontario Electronic Stewardship (OES) is now subject to ministerial approval or rejection.

OES is an industry funding organization convened under the provincial Waste Diversion Act. It's comprised of major electronics product producers as well as "first importers" of electronic products.

While a number of producer/stewards coalescing to develop a collective program for the recovery and recycling of WEEE is not in itself problematic, it does raise serious competition law and policy issues if the collective market power of the group is used in a manner to unduly lessen competition (i. e., set prices, control the flow and allocation of materials, etc.). This is especially true if the lessening of competition is unnecessary in meeting the environmental objectives.

Unfortunately, this seems to be the case with the WEEE program plan proposed by OES.

The existing WEEE processing sector in Ontario is characterized by as many as 50 businesses ranging from small five-person integrated collection and primary processing operations (that refurbish/reuse, dismantle and sell recyclable materials to "downstream" processors) to the largest four Ontario processors with anywhere from $3 million to over $15 million in capital investments in sophisticated "downstream" WEEE processing technologies. OES reports that, in concert, this sector recovers, reuses and recycles 27 per cent of the WEEE generated in Ontario annually.

Notwithstanding this economic reality, OES has proposed what is in essence a "flow control" model for the collection and processing of WEEE in Ontario.

The OES program is to be funded by a series of consumer point-of-sale levies on the sale of designated consumer electronics and information technology products.

Revenue from these levies -- estimated at $62 million in year one -- is to be used largely to pay fixed collection prices that (while insufficient to support existing integrated private sector proactive collection-processing operations) are just sufficient enough to induce municipalities to recover WEEE as an incremental service to their hazardous waste depot system.

Existing WEEE collector-processors report that the effect of the program will be to redirect WEEE from their businesses to the municipal hazardous waste depot collection system as well as to general waste haulers; the latter will collect and deliver WEEE to OES consolidation points as an additional service to their existing IC&I waste disposal services.

Under OES' tendering scheme only a small subset of the existing Ontario processors currently operating in Ontario would be selected to receive preset volumes of WEEE allocated to them by OES from its regional consolidation points.

OES' rationale for its preferred model is perfectly rational in the context of its own interests; the model allows it to contain program costs by being a collection and processor price setter and by restricting the overall number of market players it has to administer.

Not surprisingly, virtually all Ontario collector-processors are opposed to implementation of the OES plan as drafted. Where smaller collector-processors fear marginalization by the OES program (and thus elimination from the WEEE market) larger processors note that the program will position OES as the sole consumer of waste electronics recycling services, with complete market-power to set prices. With OES fixing processing prices and controlling the flow of WEEE feedstock, several larger processors have stated they will not invest further in Ontario WEEE processing capacity.

The Competition Bureau

In its May 5, 2008, comments to Ontario's environmental minister regarding the proposed WEEE program, the Competition Bureau stated that, "...we are unable address the potential impact on competition without a great deal of further analysis. We do, however, encourage you to take whatever steps you feel are necessary to ensure that competition issues are considered when evaluating the fairness of the plan." Adding, "We hope the result will be a program that promotes competition ..."

It's clear from the Bureau's statement that undertaking a rigorous competition policy analysis is not a trivial matter. Furthermore, it stands in sharp contrast to the fact that the proposed WEEE program contains no such analysis whatsoever.

In his magnum opus An Inquiry into the Nature and Causes of the Wealth of Nations, Adam Smith stated, "People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices," adding, "But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary."

In the case of Ontario's Waste Diversion Act, the law renders it necessary -- actually demands -- that "people of the same trade" work together. Where the drafters of the WDA eschewed Adam Smith it now behooves the Ontario government at the very least to undertake, "...a great deal of further analysis..."of what OES has proposed.

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

Posted by Guy Crittenden at 8:20 AM | Permalink | TrackBacks (0)

I recommend that readers with an interest in the science and regulation of greehouse gases start reading articles posted by Energy Probe on its website. The articles appear in various media. Most notable are those by Lawrence Solomon who's a leader at Energy Probe and also something called the Urban Renaissance Institute. His writings, and those of his colleagues, represent some of the best, credible critiques of the cant and nonsense in the climate change debate. The website link is below, along with a very good piece by Aldyen Donnelly about the total mess that BC's scheme to regulate carbon is becoming.

http://energy.probeinternational.org

BC's plans for cap and trade

Aldyen Donnelly

24 Jun 2010

Last week I had some rather enlightening conversations with a few very senior BC government officials. We talked about BC's evolving GHG offset system (I raised concerns about offset protocols that doubt and triple count reductions) and the developing BC cap and trade regime.

Two disturbing comments were repeated by most of the senior officials I talked to—even though the conversations were independent of each other and I did not prompt the comments:

• With respect to BC's GHG offset system: [the experts on whom we rely] assure us the entire offset market will be dead within 3 years." So the officials I talked to appear to have decided not to dedicate any energy to ensuring that BC's emerging GHG offset system is inventory-based or sustainable.

• With all of the officials, I raised the issue of the apparent conflict between the BC budget and revenue forecast—which assumes continuing and increasing revenues from carbon taxes—and the apparent plan to implement "cap and trade". The BC government has assured industry that there will be no "double taxation" of carbon and that once a facility is covered by the cap and trade regulation it will become exempt from BC's carbon tax. The problem—as I see it—is that the current BC budget forecasts carbon tax revenues in 2012/13 that will only be realized if all BC industrial and energy facility operators continue to pay carbon taxes, and INCREASE aggregate GHGs at least 5% over the next 3 years. Exempting only the largest stationary GHG emitters from BC's carbon tax blows a $500 to $600 hole in BC's annual tax revenue forecast, a hole that this government cannot afford. I asked BC officials how they thought the government would address this issue. First, all of the officials reminded me that the government has many regulatory and taxation options at their disposal and that "No final decision has been made to go ahead with cap and trade." But then all of the officials suggested that if/when the BC government does go ahead with cap and trade, "the Province could sell all BC GHG allowances to maintain government revenues."

What Does This Potentially Mean for BC Manufacturers?

For now, let's assume the Province is considering including every facility with 10,000 TCO2e/year in GHG discharges with the cap and trade regime. Assuming this population of facilities discharged, say, 18 MM TCO2e in 2007, the Province will:(1) prohibit GHG discharges from those facilities without authorization, and (2) stipulate that government authorization will take the form of a government-issued quota unit/GHG allowance.

Then, government will create and auction—with a minimum auction price—a supply of bankable, tradable GHG quota units/allowances.

Based on the discussions I had last week, I think we can anticipate that BC will propose to oversupply the market with GHG allowances in the early years of the 2012 - 2020 control period (just like the RGGI states did and most WCI states are likely to do), to dampen industrial resistance to the concept of being covered by a quota-based carbon supply management regime. But BC has legislated a legally binding physical cap for 2020, which is 33% below 2007 actual emission levels.

If/when BC GHG quota is perpetually bankable(as currently proposed), any surplus quota supply the BC government creates and sells in the early years has to be offset by an equivalent reduction in GHG quota supply in the later years of the 2012 - 2020 period to ensure physical compliance with the binding 2020 cap.

With these things in mind, the table below shows you what the BC government-set minimum prices for BC manufacturers' GHG quota will have to be to maintain the provincial government carbon revenue forecast, assuming that the Province initially creates a 22% quota supply surplus for the first year BC's cap and trade regime is in full effect, and that year is 2012.

It appears that the government of BC is hoping to finalize its cap and trade law as soon as possible after the summer of 2010.

The current plan, as I understand it, is to auction 2012 vintage quota early in 2011 to improve provincial government cash-flow sooner rather than later. If the Province executes this plan as currently proposed, in 2011 BC manufacturing facilities covered by the BC cap and trade rule will still be subject to the carbon tax for fiscal 2011/12 and will also have to dedicate capital to their acquisition of 2012/13 vintage GHG quota in the same year. So the Province's plan to use the cap and trade regime to accelerate cash flowing to the Province will directly come in the form of reduced cash-flow for BC manufacturers.

Please note that if the direct result of this minimum BC GHG quota price forecast is capital flight and unanticipated reductions in the BC industrial GHG emissions that will be covered by the cap and trade regime, the Province will have to accelerate the rate of increase in the minimum BC GHG quota price to maintain provincial government revenue forecasts.

This means that BC industry will not be in a position to realistically forecast operating cost savings in association with GHG reductions. Also note that carbon taxes and GHG quota acquisition costs are pre-tax operating expenses, so both the carbon tax and BC manufacturers' GHG quota acquisition costs will be partially offset by reduced resource royalty and income tax payments to the province and the federal government.

This whole BC carbon market thing is likely to play out exactly the same way BC's old pollution discharge fee system worked. Once government establishes a continuing revenue requirement for the system, industry can no longer realize operating cost savings from reduced pollution fees when they realize emission reductions. Emission rates are just pollution tax mill rates. Government revenue requirements increase annually, and the price the government charges per tonne has to increase to meet government's revenue requirements regardless how fast facility operators cut their emissions.

Linking This To BC Forests

What does any of this have to do with woodlands or the BC offset system?

If you look at the sample minimum BC GHG quota price trend in the table below, it should be apparent to BC mill operators that it is essential to ensure that: (1) the carbon accounting for BC woodlands offsets is credible, does not include double counting of carbon stocks and generates the highest price for offset credits (as opposed to a system that generates an exaggerated volume of credits and artificially low offset prices) and (2) the BC offset system survives—does not die within 3 years as forecast—and provincial GHG inventory-linked forest management/woodlands GHG offset credits form a continuing and integral part of BC mill managers' GHG cost containment strategy.

I should note that the same issues that are beginning to appear in the BC GHG tax/quota system design—especially the dominance of the offset market by protocols that generate offset credits when no reduction can be reported in the national GHG inventory and forecast—may also emerge as issues in the federal GHG offset system.

Fixing our emerging offset system may be an important opportunity for BC to lead the country as a whole.

Gillard replaces Kevin Rudd, a fellow Labour party member and sitting prime minister who was unceremoniously bounced by his party, in part for his global warming position. The ruling Labour Party is staring at defeat against the opposition Liberal Party under Tony Abbott, who last year led a revolt against his own pro-global warming leader. As has the Australian public, the Liberal Party has turned against the conventional wisdom on global warming.

While affirming her support for renewable energy and other emerging technologies, and her belief that man contributes to climate change, Gillard shelved any notion that Australia would be seeing carbon taxes any time soon. Instead, she implied that Australia wouldn’t even argue for carbon taxes until the global economy recovered and until Australia’s economy could afford them. At that point, she implied, her advocacy of carbon taxes would be global in scope, implying that Australia wouldn’t go it alone by adopting its own carbon scheme:

“If elected as Prime Minister, I will re-prosecute the case for a carbon price at home and abroad. I will do that as global economic conditions improve and as our economy continues to strengthen,” she explained.

How long is she prepared to wait before implementing carbon taxes? Maybe forever.

“First, we will need to establish a community consensus for action,” Gillard told reporters after her election as Labor leader. Then, she explained, she would take “as long as I need to” to win over the community.

Posted by Guy Crittenden at 9:55 AM | Permalink | TrackBacks (0)