Design to Disassembly: A Vision for Extended Producer Responsibility for ELVs in Canada

Since November of 2009 both Ontario and Quebec have put forth new waste diversion policy proposals that would see original equipment manufacturers assume responsibility for the environmental management of their end-of-life-vehicles (ELV) within the next five years.

Assigning end-of-life (EOL) responsibilities for waste to product producers is not a new concept.

To understand the theory behind extended producer responsibility (EPR) one only needs to consider the quote about corporate social responsibility by the famous economist Milton Friedman, “…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."

By extension EPR changes “the rules of the game” by assigning the EOL responsibilities for waste to producers thus giving them a strong incentive to reduce the costs associated with managing those wastes as they compete with one another. Measures to reduce costs might include seeking out specialized third parties who can collect and recycle wastes cost effectively or redesigning products for easier and less costly recycling.

About 15 years ago provincial governments began to take a strong interest in EPR as a means to shift the cost of end-of-life management of waste materials from the tax base to producers of products. At that time they focused their efforts on common consumer waste products for which no existing recycling programs existed. Accordingly, many Canadian jurisdictions now have programs loosely based on EPR based principles for various consumer products such as used tires, paints, hazardous and special wastes, beverage containers and paper and packaging materials.

More recently, as governments have begun to consider more complicated, value-laden products such as waste electronics and electrical equipment (WEEE), white goods, and ELVs they have found that there are already a significant number of vigorous, profitable private-sector businesses engaged in the collection and resource recovery of these EOL products.

In the case where there is already market activity, building EPR programs does not mean building new market relationships from scratch. Rather, it means finding ways to harness and incentivize existing resource recovery markets to discharge producers’ EOL obligations (as discussed further on).

Ontario’s waste diversion laws require producers to discharge their EOL responsibilities collectively as “Industry Funding Organizations” or IFOs. IFOs typically ignore pre-existing waste collection and processing market activities in favor of using the IFO’s monopoly buying power to set collector and processor prices and to effect overt control on the flow of materials within the program.

In the case of Ontario’s WEEE program the WEEE IFO has used restrictive tendering practices and a quota system for allocating WEEE to processors thus undermining growth and investment in the WEEE processing sector. This has inadvertently limited the ability for producers to increase waste diversion and meet their WEEE diversion environmental targets.
Finally, Ontario’s monopoly based approach EPR to programs has proven to be very expensive for the waste diversion performance achieved.

In this regard, the Ontario Minister of Environment has noted that Ontario’s current provincial waste diversion “framework and approach is not an optimum way to drive diversion, innovation or competition.” Accordingly, Ontario is seeking to reform its Waste Diversion Act to remove the requirement for mandated collective EPR programs and thus allow competition between product producers and EOL waste processors to flourish.

With this experience in mind, we turn to the Canadian ELV processing sector as comprised of hundreds of ELV processors. These long-standing businesses compete to derive the maximum economic and material value from ELVs through recovery of reusable or remanufacturable automotive components, the recycling of non-reusable materials and the recovery of toxic materials for recycling or proper disposal. This competition between ELV processors for valuable materials drives ELV recovery rates that are estimated to be over 90 per cent in North America.

In many cases, Canadian ELV processors operate to high environmental standards as codified in the National Code of Practice for Automotive Recyclers developed by the Automotive Recyclers of Canada (ARC) for Canada’s for the Retire Your Ride vehicle scrappage program. In many other cases, ELV processors do not meet this standard but could easily attain the standard were the right incentives put in place.

Where ELV processors do not currently meet the National Code, the prospect of greater volumes of valuable reusable and recyclable components in a typical ELV might provide all of the incentive an ELV processor needs to invest in order to meet the standard and grow as processing volumes increase.

Essentially, an effective EPR program for ELVs in Canada involves OEMs ensuring their ELVs are processed only by those ELV processors verified as operating to a national environmental standard.

More specifically an EPR program for ELVs would involve:

OEMs meeting an ELV recovery target calculated as a percentage of the vehicles they sold into a given Canadian market. Recovery targets could be met using a host of potential existing collection opportunities (i.e. current ELV processor collection activities, OEM dealership networks, an expansion of the existing national Retire Your Ride program etc.).
Tracking recovered ELVs from point of collection to the point at which they have been processed by an ELV processor for reuse or recycling.

Allowing any ELV processor accredited and verified as operating to the specified environmental standard to compete for, collect and receive ELVs for processing. This standard might be an embellished version of the National Code that would include a definition of reuse or recycling for various ELV components (these definitions typically involves recovering the intrinsic material value of the products or materials in question).

OEMs undertaking efforts to assist ELV processors in increasing reuse and recycling of residual materials or proper disposal of materials of specific concern (i.e. ozone depleting substances such as refrigerants used in air conditioning systems).
Reporting on the environmental performance of the ELV EPR program.

And environmental performance auditing of ELV processors serving to discharge OEM ELV obligations.

The fundamental strength of this market-based approach EPR for ELVs is that it builds on an existing competitive ELV processing sector by basing competition between ELV processors on an environmental standard. Competition between ELV processors ensures least cost to OEM’s and their consumers. Enforced ELV recovery targets drive increased ELV processor volume thus ensuring sufficient profitability for reinvestment and growth in a “green sector” of Canada’s economy.

ARC is committed to a national vision for ELV EPR predicated on high environmental standards and market competition. We will be working with our OEM partners and Canadian provincial governments to ensure that the tried and true workings of free markets are brought to bear on the end-of-life management of vehicles in Canada.

by Usman A. Valiante, Corporate Policy Group