Renewable Matter # 3 / April

EPR as an Economic and Environmental Instrument

by Joachim Quoden

Extended Producer Responsibility (EPR) can be a strong policy principle in resource management if applied in the appropriate manner. According to the Organisation for Economic Co-operation and Development (OECD), EPR is “an environmental policy approach in which a producer’s responsibility for a product is extended to the post-consumer stage of a product’s life cycle”. This means that companies issuing products on the market are obliged to collect, sort and recycle them, as well as their packaging, once they reached the end of their life cycle. Additionally, these companies should equally consider the product and packaging end-of-life treatment during the design phase. 

Over the years, EPR has been applied within the European Union and various countries to different waste streams, including packaging waste at municipal level. This has undoubtedly led to a better environmental performance of packaging given, for instance, increased waste recycling results. Shifting responsibility for packaging waste from taxpayers to producers, and ultimately to consumers, achieves the internalisation of waste management costs into the final price of the product. 

Within an EPR scheme, the responsibility of the producer can be tangible, financial and/or informational. The OECD considers the internalisation of external environmental costs as a fundamental aspect in environmental policy design and more specifically of EPR. In the EU, these principles have formally been included into the Waste Framework Directive.

Although producers have an important responsibility under EPR, all the actors of the packaging chain from producer to recycler (namely material producers, packaging producers, fillers and importers, retailers, consumer, local authorities, waste management companies, recyclers and not to forget the legislator) have their allocated responsibility. 

EPR can be implemented in many different ways. In the European Union alone, 25 Member States have implemented their own respective EPR packaging schemes. In some of these countries, the scheme has achieved great success particularly when clear legislation has been implemented, coupled with genuine cooperation between governments, local authorities, producers and waste management organisations alike. EPR has not shown the same results where there is a lack of explicit allocation of the responsibilities and obligations of all the actors involved.

 

Relevance of a Strong Legal Framework

One of the major tasks of legislators in the waste management realm is therefore to clearly define and allocate roles and responsibilities. The various actors involved in the system have diverging interests, but work closely together to ensure a well-functioning EPR system. Notably, legislators need to verify that the roles of the different actors do not overlap nor generate conflicts of interest. 

Another key issue is the allocation of adequate resources to effectively fulfil the objectives laid down for an EPR scheme. The legal framework should thus define the public service mission of an EPR organisation, and foresee regular third-party auditing as well as reviews of the EPR organisation by the competent authorities. Data transparency with regard to the volumes reported by the EPR organisation is crucial. The national legislator should moreover set out clear and strict criteria for the accreditation/license of the EPR organisation.

A comprehensive legal framework needs to be accompanied by a strong enforcement policy. In their auditing role, public authorities should ensure a qualitative implementation of EPR, i.e. by using meaningful enforcement procedures to close loopholes and track free-riders. The legislator should also create mechanisms to enforce EPR, and enhance fair competition among the obliged companies. This could be achieved, for instance, through the nomination of an authority responsible for monitoring and enforcement.

Moreover, depending on the national frameworks, other accompanying economic instruments, such as Pay-As-You-Throw (PAYT) systems on residual household waste, can work as an incentive for the inhabitants to improve their sorting habits. On the other hand, regulations or measures, such as packaging taxes and deposit schemes, are counter-productive as these impede the execution of the EPR.

 

Operational Aspects of an EPR Scheme

Companies which have been made responsible under EPR legislation have to ensure that products and their packaging are appropriately dealt with once they become waste. Hence, they should set up EPR compliance schemes to finance, organise and coordinate the collection, sorting and recycling of packaging waste.

In order to shift their individual responsibility into a collective one, they should give a mandate to an industry-owned EPR organisation responsible for the take-back obligations of the obliged companies. This mandate should be issued by the competent authorities in the form of an accreditation/license. This is the best guarantee to ensure the lowest cost to society and the obliged companies, as well as the highest sustainable, environmental and legal compliance. Indeed, by financing the EPR compliance scheme and actively being involved in the EPR organisation itself, the obliged companies can coordinate and control the operational expenses for the recovery of packaging, thus ensuring that expenses are kept to the required minimum. 

Moreover, the obliged companies can agree to dedicate funding to necessary long term projects such as educational campaigns. EPR systems need to ensure that the consumer interests are served and that greater objectives such as education and communication are pursued. This is especially important in the case of household packaging. Furthermore, funding can be devoted to increase the long-term performance of the EPR compliance scheme. 

 

Pre-conditions for a Successful EPR Scheme

A close partnership between municipalities/local authorities and the industry-owned EPR organisation, based on mutual trust, is a condition sine qua non for the success as well as the economic and environmental sustainability of the EPR compliance scheme. 

Municipalities/local authorities have key roles to play, some of which are based on the product/waste flow itself. For example, when the flow concerns household packaging for high-volume or fast moving consumer goods, municipalities play an important role in the set-up and management of door-to-door collections and/or collection point centres. In this respect, municipalities/local authorities and the EPR organisation have to agree on the most appropriate collection system, taking into account local particularities and complying with both national and European requirements.

The municipalities/local authorities and the EPR organisation should also actively co-operate in local public communication and awareness programmes, data gathering and monitoring, the control of the waste management operators, and the tendering for collection services.

Waste management and recycling companies are the operational heart of each waste management system. They do the work and deliver the results. Their efficiency and innovation will positively impact the economic and environmental performance of the EPR system. In this respect, to enable optimal performance, it is crucial to provide them with sustainable funding and appropriate incentives.

It must however be said that, when running an EPR system within an open market approach, waste operators and investors might have the natural inclination to maximise profit and grow market share. That is, to strive for the highest price per tonne of collected, sorted and recycled material. By doing so, they might develop an interest in increasing the amount of packaging put on the market. This would be entirely contrary to the legal objectives of the waste hierarchy, and certainly conflict with the public interest.

Therefore, waste operators should not interfere in the coordination of the EPR organisation, and the latter should not act as a collector, nor sorter nor recycler itself. Each actor has a distinct role to play in order to fully respect competition and antitrust laws. 

 

Financial Responsibility of an EPR Scheme

An industry-owned EPR compliance scheme should operate on a non-profit basis. This legal status ensures compliance with competition legislation especially since several companies from both within the same business but also outside the sector work together. 

Compliance schemes collect the necessary financial contribution from their members to finance the collection, sorting and recovery of the packaging waste included in their system. This funding usually represents a substantial part of the cost calculation for a packaged product of an obliged company and therefore affects its competitive position relative to other obliged companies. Therefore, the calculation and the collection of these fees has to be fair and transparent. Moreover, in line with the objectives of EPR, the fees have to take into account the environmental effects of a particular packaging. 

The fees that members of the compliance scheme, namely obliged industries, have to pay, should be differentiated according to the costs of the specific packaging materials within the system. This fee structure reflects the “true costs” principle, which means that it is based on the costs pertaining to a specific packaging given its collection, sorting and recovery. The recognition of EPR procedures will ensure a lack of discrimination between domestic companies and importers while also guaranteeing that major companies and SMEs are on an equal footing.

One among the several objectives of EPR is to shift responsibility for disgarded packaging materials from taxpayers to producers and, finally, to the consumer of packaged goods. Therefore, obliged industry, and their compliance schemes are given the task to organise (usually in close cooperation with municipalities) the separate collection of packaging waste to achieve a set of recycling and recovery targets. Clearly, the costs that any obliged industry has to bear on one end, have to be fixed in line with the costs that municipalities and taxpayers have to pay on the other end. Within this process, the basic principle according to which “each stakeholder can only be responsible for costs which he can influence” has to be followed. 

Obliged industries should cover the packaging collection and treatment costs within the dedicated collection system which aims to fulfil objectives set by their goverment. Usually these costs should be determined based on call for tender procedures reflecting the optimum needs for the respective district to fulfil the objectives set by the government. If municipalities decide to organise in-house collection (and sorting), the cost coverage should be based on nationally agreed reference costs for an optimal system. 

Furthermore, any revenues from selling the collected and sorted packaging waste should be taken into account when and if the selling is not done by the compliance scheme.

Obliged industry can also cover communication costs borne by the inhabitants that are necessary to fulfil the objectives set by the government. This should be done while taking into account the municipalities’ responsibility to inform their inhabitants about how to treat and sort their municipal waste.

However, litter prevention initiatives and clean-up activities do not fall under the (cost coverage) responsibility of obliged industry; the (mis-) behaviour of litter is an act by certain inhabitants, and has to be avoided by educational campaigns on the one hand and enforcement acts on the other.

As for packaging wastes arising within municipalities, the compliance schemes – usually in close cooperation with municipalities – have to establish and maintain the necessary infrastructure for the collection and sorting of packaging waste. A reasonable level of household waste collection cannot be achieved when consumers/citizens do not have easy access to infrastructure enabling them to sort waste on a daily basis. All EXPRA members, who focus on separate household waste collection as a principal contributor of packaging waste recovery, experience this. Moreover, they have to ensure that the collected packaging waste will be treated in the right way, even and especially in times where the sorted packaging waste has a negative value such that recyclers have to be paid to recycle the packaging waste. This leads to the conclusion that compliance schemes have to have a solid financial basis.

Governments have to therefore establish a strict authorisation process for compliance schemes ensuring that only reliable organisations with secure finances receive the license to operate as compliance schemes. The stability of the system in the event of a scheme ceasing to operate, for whatever reason, can be ensured by fixing a minimum financial guarantee so as to enable continued operations for at least 6 months. Transparency of the compliance scheme ownership avoids unknown conflicts of interest. As such, the compliance scheme should be asked to establish a “Chinese wall” between compliance business and waste management business.

Transparency over the kind of packaging contracted by the compliance scheme, and the kind of packaging that will be collected by said scheme has to be ensured. Yearly reports by the compliance scheme need to explain how the objectives set by the respective governments have been fulfilled which should in turn be audited by an independent, competent third party. Finally, sanctions should be applied in the case of non-fulfilment of the conditions, ranging from fines to the withdrawal of the license.

Implementing EPR is a very complex process. Nevertheless, it delivers excellent results to the complex design and treatment of (used) products like packaging when used in the right way, which justify all the efforts that have to be spent when applying this principle.

 

EXPRA: Extended producer responsibility alliance

Founded in 2013, is the alliance for packaging and packaging waste recovery and recycling systems which are owned by obliged industry and work on a not-for-profit basis. EXPRA acts as the authoritative voice and common policy platform representing the interests of all its member packaging recovery and recycling organisations founded and run by or on behalf of obliged industry.

For additional information, please visit www.expra.eu.